Bank of Montreal 2007 Annual Report Download - page 132

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 indepen-
dently 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.
Cash Flows
Cash payments made by us 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
2007 2006 2005 2007 2006 2005
Contributions to defined benefit plans $37 $ 179 $ 177 $ – $ – $ –
Contributions to defined contribution plans 13 10 11 –––
Benefits paid directly to pensioners 21 15 15 32 18 19
Total $71 $ 204 $ 203 $32 $ 18 $ 19
Our best estimate of the amounts we expect to contribute for the year ended October 31, 2008 is $49 million to our pension plans and $34 million to our other employee future benefit plans.
Other employee
Pension future benefits
Benefit Benefit Benefit Benefit
(Canadian $ in millions, except as noted) liability expense liability expense
Discount rate (%) 5.6 5.1 5.5 5.3
Impact of: 1% increase ($) (475) (14) (126) (3)
1% decrease ($) 606 19 159 4
Rate of compensation increase (%) 3.9 3.8 3.9 3.8
Impact of: 0.25% increase ($) 34 2 1 –
0.25% decrease ($) (33) (2) (1) –
Expected rate of return on assets (%) n/a 6.6 n/a 8.0
Impact of: 1% increase ($) n/a (40) n/a (1)
1% decrease ($) n/a 40 n/a 1
Assumed overall health care cost trend (%) n/a n/a 7.0(1) 7.5(1)
Impact of: 1% increase ($) n/a n/a 136 12
1% decrease ($) n/a n/a (109) (10)
(1) Trending to 4.5% in 2013 and remaining at that level thereafter.
n/a –not applicable
128 BMO Financial Group 190th Annual Report 2007
Notes to Consolidated Financial Statements
Notes
Estimated Future Benefit Payments
Estimated future benefit payments in the next five years and thereafter
are as follows:
Pension Other employee
(Canadian $ in millions) benefit plans future benefit plans
2008 $ 212 $ 34
2009 220 36
2010 233 40
2011 244 42
2012 259 45
2013–2017 1,470 270
Note 24: Income Taxes
We report our provision for income taxes in our Consolidated Statement
of Income based upon transactions recorded in our consolidated finan-
cial 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 share-
holders’ equity as part of accumulated other comprehensive gain (loss)
on translation of net foreign operations.
The future income tax balances included in other assets of
$235 million and other liabilities of $nil as at October 31, 2007
($84 million and $17 million, respectively, in 2006) are 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 the tax rate change is substantively enacted.
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) 2007 2006
Future Income Tax Assets
Allowance for credit losses $ 374 $ 396
Employee future benefits 233 224
Deferred compensation benefits 176 197
Other Comprehensive Income 67 –
Other 33 14
Total future income tax assets $ 883 $ 831
Future Income Tax Liabilities
Premises and equipment $(168) $(255)
Pension benefits (356) (392)
Intangible assets (81) (83)
Other (43) (34)
Total future income tax liabilities $(648) $(764)
Income that we earn in foreign countries through our branches or
subsidiaries is generally subject to tax in those countries. We are also
subject to Canadian taxation on the income earned in our foreign
branches. Canada allows a credit for foreign taxes paid on this income.
Upon repatriation of earnings from certain foreign subsidiaries, we would
be required to pay tax on certain of these earnings. As repatriation of