Bank of Montreal 2003 Annual Report Download - page 25

BMO Financial Group 186th Annual Report 2003 21
The Canadian dollar equivalents of BMO’s U.S.-dollar denomina -
ted net income, revenues, expenses, income taxes and provision
for credit losses in 2003 were lowered by the weakening of the
U.S. dollar. The adjacent table indicates average Canadian/U.S.
dollar exchange rates in 2003 and 2002 and the impact of the
lower Canadian/U.S. dollar exchange rate.
At the start of each quarter, BMO enters into hedging transac-
tions that are expected to partially offset the pre-tax effects of
exchange rate fluctuations in the quarter on our U.S.-dollar net
income for that quarter. As such, these activities provide some
relief from exchange rate fluctuations within a single quarter,
but the sum of the hedging gains/losses for the four quarters
in a year is not directly comparable to the impact of year-over-
year exchange rate fluctuations on earnings for the year.
Each one-cent decrease (increase) in the Canadian/U.S. dollar
exchange rate, expressed in terms of how many Canadian dol-
lars one U.S. dollar buys, decreases (increases) BMO’s quarterly
earnings by approximately $1 million before income taxes, in
the absence of hedging activity.
The gain or loss from hedging transactions in future periods
will be determined by both future currency fluctuations and
Foreign Exchange
the amount of the underlying future hedging transactions, since
the transactions are entered into each quarter in relation to ex-
pected U.S.-dollar denominated net income for the next three
months. The effect of currency fluctuations on our net investment
in foreign operations is discussed in the Provision for Income
Taxes section on page 26.
Effects of the Weaker U.S. Dollar
on BMO’s 2003 Results ($ millions, except as noted)
Canadian/U.S. dollar exchange rate (average)
2003 1.435
2002 1.571
Reduced revenues (264)
Reduced expenses 181
Reduced provision for credit losses 27
Reduced income taxes 11
Reduced net income before hedging gains (45)
Hedging gains 18
Income taxes thereon (6)
Reduced net income (33)
BMO Financial Group has selectively acquired a number of
businesses over the past two years in advancing our Canada - U.S.
growth strategy. These acquisitions have incremental effects on
revenue and expenses that impact the year-over-year comparison
of operating results. For acquisitions in 2003, the incremental
effects are the revenues and expenses of those businesses that
are included in results in fiscal 2003. For acquisitions that were
completed in fiscal 2002, the incremental effects are the revenues
and expenses of each of those businesses from the beginning
of fiscal 2003 until the one-year anniversary of their respective
dates of acquisition. The accompanying tableoutlines the acquisi-
tions by operating group and their incremental effects on BMO’s
revenue, expenses and net income for 2003, relative to 2002, to
assist in analyzing changes in results in 2003.
Acquired Businesses
Business Acquisitions ($ millions)
Incremental effects on results for fiscal 2003
Net Cash net
Business acquired Revenue Expense income income
Private Client Group
Sullivan, Bruyette, Speros & Blayney Inc.
Acquired January 2003 for $20 million
Select assets of myCFO, Inc.
Acquired November 2002 for $61 million
Morgan Stanley Individual Investor
Group online accounts
Acquired May 2002 for $153 million
Northwestern Trust and
Investment Advisory Company
Acquired April 2002 for $19 million
CSFB
direct
Acquired February 2002 for $854 million
Total Private Client Group
Purchases of $1,107 million 105 154 (31) (13)
Investment Banking Group
Gerard Klauer Mattison
Acquired July 2003 for $40 million 17 26 (5) (5)
BMO Financial Group
Purchases of $1,147 million 122 180 (36) (18)