Bank of Montreal 2013 Annual Report Download - page 155

2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options outstanding and exercisable at October 31, 2013 and 2012 by range of exercise price were as follows:
(Canadian $, except as noted) 2013
Options outstanding Options exercisable Options outstanding Options exercisable
Weighted- Weighted- Weighted- Weighted-
average Weighted- average Weighted- average Weighted- average Weighted-
Number remaining average Number remaining average Number remaining average Number remaining average
Range of exercise of stock contractual exercise of stock contractual exercise of stock contractual exercise of stock contractual exercise
prices options life (years) price options life (years) price options life (years) price options life (years) price
$30.01 to $40.00 1,044,175 5.1 34.12 1,044,175 5.1 34.12 1,660,235 6.1 34.12 1,174,327 6.1 34.12
$40.01 to $50.00 262,959 5.6 42.44 262,959 5.6 42.44 632,548 4.0 42.07 554,261 4.5 42.22
$50.01 to $60.00 6,934,041 6.0 55.78 2,845,945 6.1 55.57 7,906,485 6.6 55.67 2,247,120 5.0 55.09
$60.01 to $70.00 4,886,738 5.6 62.28 1,289,444 3.2 63.94 3,303,883 4.2 63.71 1,626,187 4.2 63.77
$70.01 and over (1) 1,840,798 3.1 234.78 1,840,798 3.1 234.78 2,298,815 3.7 230.42 2,298,815 3.7 230.42
(1) Issued as part of the acquisition of M&I.
The following table summarizes non-vested stock option activity for the
years ended October 31, 2013 and 2012:
(Canadian $, except as noted) 2013 2012
Number of
stock
options
Weighted-
average
grant date
fair value
Number of
stock
options
Weighted-
average
grant date
fair value
Non-vested at
beginning of year
Granted
Vested
Forfeited/cancelled
7,901,256
2,003,446
2,218,762
550
7.81
5.29
7.59
9.46
7,678,258
2,526,345
2,299,347
4,000
8.70
5.53
8.28
9.46
Non-vested at end of
year 7,685,390 7.18 7,901,256 7.81
The following table summarizes further information about our Stock
Option Plan:
(Canadian $ in millions, except as noted) 2013 2012 2011
Unrecognized compensation cost for non-
vested stock option awards 6 9 12
Weighted-average period over which it will be
recognized (in years) 2.1 2.3 2.5
Total intrinsic value of stock options exercised 35 31 72
Cash proceeds from stock options exercised 99 71 114
Actual tax benefits realized on stock options
exercised – 4 4
Weighted-average share price for stock
options exercised 64.8 57.8 60.9
The fair value of options granted was estimated using a binomial option
pricing model. The weighted-average fair value of options granted during
the years ended October 31, 2013, 2012 and 2011 was $5.29, $5.54 and
$3.87, respectively, of which the weighted-average fair value of options
granted as part of the M&I acquisition was $2.22 for a total of 3,676,632
stock options. To determine the fair value of the stock option tranches
(i.e. the 25% portion that vests each year) on the grant date, the
following ranges of values were used for each option pricing assumption:
2013 2012 2011
Expected dividend yield 6.0% – 6.2% 6.8% – 7.2% 5.5% – 6.4%
Expected share price
volatility 18.1% – 18.6% 21.3% – 22.3% 18.7% – 22.8%
Risk-free rate of return 1.7% – 1.9% 1.5% – 1.8% 1.8% – 3.0%
Expected period until
exercise (in years) 5.5 – 7.0 5.5 – 7.0 4.6 – 7.0
Changes to the input assumptions can result in different fair value estimates.
Expected dividend yield is based on market expectations of future
dividends on our common shares. Expected volatility is determined
based on the market consensus implied volatility for traded options on
our common shares. The risk-free rate is based on the yields of a
Canadian swap curve with maturities similar to the expected period until
exercise of the options. The weighted-average exercise price on the
grant date for the years ended October 31, 2013, 2012 and 2011 was
$60.11, $56.00 and $57.78, respectively. The weighted-average exercise
price on the grant date for the options granted as part of the M&I
acquisition was $193.12 for the year ended October 31, 2011.
Stock-Based Compensation
Share Purchase Plan
We offer our employees the option of directing a portion of their gross
salary toward the purchase of our common shares. We match 50% of
employee contributions up to 6% of their individual gross salary. The
shares held in the employee share purchase plan are purchased on the
open market and are considered outstanding for purposes of computing
earnings per share. The dividends earned on our common shares held by
the plan are used to purchase additional common shares on the
open market.
We account for our contribution as employee compensation
expense when it is contributed to the plan.
Employee compensation expense related to this plan for the years
ended October 31, 2013, 2012 and 2011 was $50 million, $48 million
and $45 million, respectively. There were 19,272,978, 19,311,585 and
18,288,382 common shares held in this plan for the years ended
October 31, 2013, 2012 and 2011, respectively.
Mid-Term Incentive Plans
We offer mid-term incentive plans for executives and certain senior
employees. Depending on the plan, the recipient receives either a single
cash payment at the end of the three-year period of the plan, or cash
payments over the three years of the plan. The amount of the payment
is adjusted to reflect reinvested dividends and changes in the market
value of our common shares.
Mid-term incentive plan units granted during the years ended
October 31, 2013, 2012 and 2011 totalled 5,823,533, 6,379,562 and
5,154,479, respectively. We entered into agreements with third parties
to assume most of our obligations related to these plans in exchange for
cash payments of $292 million, $310 million and $267 million in the
years ended October 31, 2013, 2012 and 2011, respectively. Amounts
paid under these agreements were recorded in our Consolidated Balance
Sheet in other assets and are recorded as employee compensation
expense evenly over the period prior to payment to employees.
Amounts related to units granted to employees who are eligible to
retire are expensed at the time of grant. We no longer have any liability
for the obligations transferred to third parties because any future
payments required will be the responsibility of the third parties. The
amount deferred and recorded in other assets in our Consolidated
Balance Sheet totalled $172 million and $152 million as at October 31,
2013 and 2012, respectively. The deferred amount as at October 31,
2013 is expected to be recognized over a weighted-average period of
1.8 years (1.8 years in 2012). Employee compensation expense related
to these plans for the years ended October 31, 2013, 2012 and 2011
was $279 million, $280 million and $245 million before tax, respectively
($206 million, $204 million and $176 million after tax, respectively).
Notes
166 BMO Financial Group 196th Annual Report 2013