Bank of Montreal 2000 Annual Report Download - page 82

Notes to Consolidated Financial Statements
58 ■Bank of Montreal Group of Companies Annual Report 2000
Note 17 Pensions and Certain Non-Pension Benefits
Note 16 Net Income per Common Share
Our basic net income per common share is calculated by dividing
our net income, after deducting total preferred share dividends, by
the daily average number of fully paid common shares outstanding
throughout the year.
In 2000, 1999 and 1998 the fully diluted amount included the poten-
tial dilution of convertible securities issued by a subsidiary and
the potential issuance of shares under stock options issued in 1995.
Additionally, options issued in 1996 were included in the fully diluted
amount in 2000 and 1999.
The average number of common shares outstanding throughout
the year used to calculate our fully diluted net income per common
share is based on the assumption that the conversion or redemption
of all securities which are convertible or redeemable at the option
of the holder occurred at the beginning of the year or at the date the
security was issued, if later.
Our Series 1, 2, 3, 4 and 6 Class B Preferred shares, in certain cir-
cumstances, are convertible into common shares. These conversions
are notincludedinthecalculationoffullydilutednetincomeper
We provide a range of benefits to our employees, the costs of which are
recognized in the period services are provided as salaries and employee
benefits expense in the Consolidated Statement of Income. Information on
pension benefits and certain non-pension benefits including stock-based
compensation plans is provided below.
Pensions
We have a number of arrangements which provide benefits to our retired
employees. These arrangements include statutory pension plans as well as
supplemental arrangements which provide pension benefits in excess of
statutory limits. Generally, we provide retirement benefits based on the
employees’ years of service and average earnings at the time of retirement
and do not require employees to make contributions. Voluntary contribu-
tions can be made by employees.
Our actuaries perform regular valuations of our accrued benefit obligation
for pension benefits based on assumptions about salary growth, retirement
age and mortality. Assets are set aside to satisfy our pension obligation
related to pension plans. Supplemental arrangements are unfunded.
common shareaswehavetheoptiontosettleincashinsteadof
common shares.
Options issued in 2000, 1999, 1998 and 1997 and options issued to
Grupo Financiero BBVA Bancomer are not included in the compu-
tation as they would not reduce net income per common share.
Change in Accounting Policy
The Canadian Institute of Chartered Accountants has approved a
new standard for computing and disclosing net income per common
share which we will adopt beginning in fiscal 2001. The most sig-
nificant change is that when calculating fully diluted net income
per common share under the new standard, we would assume that
proceeds received from the exercise of stock options are used to
repurchase outstanding shares; whereas under the current standard,
we assume they are invested to earn a return. Our disclosure prac-
tices comply with the new standard. Under the new standard our
fully diluted net income per common share would have been $6.50
for the year ended October 31, 2000, $4.67 for 1999 and $4.59 for 1998.
Pension expense is recorded in our Consolidated Statement of Income as a
component of salaries and employee benefits. It is determined as the cost
of employee pension benefits for the current year’s service, interest expense
on the pension liability, expected investment return on the market value
of plan assets and the amortization of both deferred past service costs and
deferred actuarial gains and losses.
Past service costs arise when we make pension amendments that result
in the granting of benefits that are calculated by reference to service already
provided by employees. We defer and amortize past service costs to pension
expense over the average remaining service period of active employees.
Actuarial gains and losses can arise in one of two ways: first, when the
actual return on plan assets for a period differs from the expected return on
plan assets for that period, and second, when the expected accrued benefit
obligation at the end of the year differs from the actual accrued benefit
obligation at the end of the year. We defer and amortize all experience gains
and losses to pension expense over the average remaining service period
of active employees.
Basic net income per common share (Canadian $ in millions, except per share information) 2000 1999 1998
Net income before goodwill $ 1,906 $ 1,425 $ 1,392
Dividends on preferred shares (101) (117) (112)
Net income before goodwill available to common shareholders 1,805 1,308 1,280
Amortization of goodwill (49) (43) (42)
Net income available to common shareholders $ 1,756 $ 1,265 $ 1,238
Average number of common shares outstanding (in thousands) 265,659 265,862 262,511
Basic net income per common share before goodwill amortization $ 6.79 $ 4.92 $ 4.88
Basic net income per common share $ 6.61 $ 4.76 $ 4.72
Fully diluted net income per common share (Canadian $ in millions, except per share information) 2000 1999 1998
Net income before goodwill available to common shareholders $ 1,805 $ 1,308 $ 1,280
Imputed income on stock options 22 21 15
Net income before goodwill adjusted for dilution effect 1,827 1,329 1,295
Amortization of goodwill (49) (43) (42)
Net income adjusted for dilution effect $ 1,778 $ 1,286 $ 1,253
Average number of common shares outstanding (in thousands) 265,659 265,862 262,511
Convertible shares 1,533 2,160 4,241
Stock options 3,893 4,551 2,296
Average fully diluted number of common shares outstanding (in thousands) 271,085 272,573 269,048
Fully diluted net income per common share before goodwill amortization $ 6.74 $ 4.88 $ 4.81
Fully diluted net income per common share $ 6.56 $ 4.72 $ 4.66