Bank of Montreal 2013 Annual Report Download - page 144

Note 11: Premises and Equipment
We record all premises and equipment at cost less accumulated
amortization, except land, which is recorded at cost. Buildings, computer
equipment and operating system software, other equipment and
leasehold improvements are amortized on a straight-line basis over
their estimated useful lives. The maximum estimated useful lives we
use to amortize our assets are as follows:
Buildings 10 to 40 years
Computer equipment and operating system software 15 years
Other equipment 10 years
Leasehold improvements Lease term to a
maximum of 10 years
Gains and losses on disposal are included in other non-interest
expense in our Consolidated Statement of Income.
Amortization methods, useful lives and the residual values of
premises and equipment are reviewed annually for any change in
circumstances and are adjusted if appropriate. At least annually, we
review whether there are any indications that premises and equipment
need to be tested for impairment. If there is an indication that an asset
may be impaired, we test for impairment by comparing the asset’s
carrying value to its recoverable amount. The recoverable amount is
calculated as the higher of the value in use and the fair value less costs
to sell. Value in use is the present value of the future cash flows
expected to be derived from the asset. An impairment charge is
recorded when the recoverable amount is less than the carrying value.
(Canadian $ in millions)
When major components of buildings have different useful lives,
they are accounted for separately and amortized over each component’s
useful life.
Amortization expense for the years ended October 31, 2013, 2012
and 2011 amounted to $360 million, $364 million and $307 million,
respectively.
There were no significant write-downs of premises and equipment
due to impairment during the years ended October 31, 2013 and 2012.
Lease Commitments
We have entered into a number of non-cancellable leases for premises
and equipment. Our computer and software leases are typically fixed for
one term and our premises leases have various renewal options and
rights. Our total contractual rental commitments as at October 31, 2013
were $1,798 million. The commitments for each of the next five years
and thereafter are $278 million for 2014, $262 million for 2015, $234
million for 2016, $210 million for 2017, $174 million for 2018 and $640
million thereafter. Included in these amounts are the commitments
related to 794 leased branch locations as at October 31, 2013.
Net rent expense for premises and equipment reported in our
Consolidated Statement of Income for the years ended October 31,
2013, 2012 and 2011 was $434 million, $418 million and $380 million,
respectively.
2013 2012
Computer Other Leasehold Computer Other Leasehold
Land Buildings Equipment Equipment Improvements Total Land Buildings Equipment Equipment Improvements Total
Cost:
Balance at beginning of year 291 1,554 1,467 764 961 5,037 304 1,539 1,459 893 993 5,188
Additions 8 118 237 50 80 493 4 81 257 86 117 545
Disposals (1) (4) (34) (82) (63) (7) (190) (16) (69) (228) (228) (148) (689)
Additions from acquisitions (2) – – – – – – – – – 1 – 1
Foreign exchange and other 2 43 6 19 11 81 (1) 3 (21) 12 (1) (8)
Balance at end of year 297 1,681 1,628 770 1,045 5,421 291 1,554 1,467 764 961 5,037
Accumulated Depreciation and
impairment:
Balance at beginning of year – 815 1,074 470 558 2,917 – 768 1,099 634 626 3,127
Disposals (1) – (5) (57) (23) (4) (89) – (19) (187) (221) (146) (573)
Amortization – 33 147 58 122 360 – 65 164 57 78 364
Foreign exchange and other – 57 16 2 (33) 42 – 1 (2) – – (1)
Balance at end of year – 900 1,180 507 643 3,230 – 815 1,074 470 558 2,917
Net carrying value 297 781 448 263 402 2,191 291 739 393 294 403 2,120
(1) Includes fully depreciated assets written off. (2) Premises and equipment are recorded at the fair value on the date of acquisition.
Note 12: Acquisitions
The cost of an acquisition is measured at the fair value of the
consideration transferred, including contingent consideration.
Acquisition-related costs are recognized as an expense in the period in
which they are incurred. The identifiable assets acquired and liabilities
assumed and contingent consideration are measured at their fair values
at the date of acquisition. Goodwill is measured as the excess of the
aggregate of the consideration transferred over the net of the amounts
of identifiable assets acquired and liabilities assumed. The results of
operations of acquired businesses are included in our consolidated
financial statements beginning on the date of acquisition.
Aver Media LP (“Aver”)
On April 1, 2013, we completed the acquisition of the assets of Aver
Media LP, a private Canadian-based film and TV media lending company,
for cash consideration of $260 million, subject to a post-closing
adjustment based on net assets, plus contingent consideration of
approximately $10 million to be paid over eighteen months after the
acquisition date. Acquisition-related costs of $1 million were expensed
in non-interest expense, other in our Consolidated Statement of Income.
This acquisition is predominantly of the Aver loan portfolio and provides
us with additional opportunities to grow our commercial loan business
by expanding our presence in the film and television production
industry. Goodwill related to this acquisition is deductible for tax
purposes. As part of this acquisition, we acquired a customer
relationship intangible asset which is being amortized on an accelerated
basis over 10 years. Aver is part of our Canadian Personal and
Commercial Banking reporting segment. The acquisition was accounted
for as a business combination.
BMO Financial Group 196th Annual Report 2013 155
Notes