Bank of Montreal 2010 Annual Report Download - page 139

Notes
BMO Financial Group 193rd Annual Report 2010 137
Note 12: Acquisitions
We account for acquisitions of businesses using the purchase method.
This involves allocating the purchase price paid for a business to the
assets acquired, including identifiable intangible assets, and the
liabilities assumed based on their fair values at the date of acquisition.
Any excess is then recorded as goodwill. The results of operations of
acquired businesses are included in our consolidated financial state-
ments beginning on the date of acquisition.
AMCORE Bank, N.A. (“AMCORE”)
On April 23, 2010, we completed the acquisition of certain assets and
liabilities of AMCORE from the Federal Deposit Insurance Corporation
(“FDIC”) for total consideration of $253 million (US$245 million), subject
to a post-closing adjustment based on net assets. During the year
ended October 31, 2010, we reduced the purchase price by $28 million
(US$23 million) to $225 million (US$222 million) based on a revaluation
of the net assets acquired. Under the terms of the acquisition, the
FDIC absorbs 80% of the losses on the acquired loans. The acquisition
of AMCORE accelerates our growth strategy and reinforces our already
strong position in the U.S. Midwest by expanding our presence in
Illinois and Wisconsin. As part of this acquisition, we acquired a core
deposit intangible asset that is being amortized on an accelerated
basis over 10 years. All intangibles, including goodwill, related to this
acquisition are deductible for tax purposes. The acquired assets and
liabilities are included in our Personal and Commercial Banking U.S.
reporting segment.
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:
Buildings 40 years
Computer equipment and operating system software 15 years
Other equipment 10 years
Leasehold improvements Lease term to a maximum of 10 years
(Canadian $ in millions) 2010 2009
Accumulated Carrying Carrying
Cost amortization value value
Land 169 – 169 175
Buildings 1,283 723 560 584
Computer equipment and
operating system software 1,336 1,056 280 333
Other equipment 723 545 178 164
Leasehold improvements 901 528 373 378
Total 4,412 2,852 1,560 1,634
Amortization expense for the year ended October 31, 2010 amounted
to $267 million ($269 million and $252 million in 2009 and 2008,
respectively).
Gains and losses on disposal are included in other non-interest
revenue in our Consolidated Statement of Income.
We test premises and equipment for impairment when events
or changes in circumstances indicate that their carrying value may not
be recoverable. We write them down to fair value when the related
undiscounted cash flows are less than the carrying value. There were no
significant write-downs of premises and equipment due to impairment
during the years ended October 31, 2010, 2009 and 2008.
Lease Commitments
We have entered into a number of non-cancellable leases for premises
and equipment. Our total contractual rental commitments as at Octo -
ber 31, 2010 were $1,520 million. The commitments for each of the next
five years and thereafter are $249 million for 2011, $221 million for 2012,
$189 million for 2013, $143 million for 2014, $125 million for 2015 and
$593 million thereafter. Included in these amounts are the commitments
related to 688 leased branch locations as at October 31, 2010.
Net rent expense for premises and equipment reported in our Con-
solidated Statement of Income for the years ended October 31, 2010, 2009
and 2008 was $340 million, $340 million and $326 million, respectively.
Diners Club
On December 31, 2009, we completed the acquisition of the net card-
holder receivables of the Diners Club North American franchise from
Citigroup for total cash consideration of $882 million (US$839 million),
subject to a post-closing adjustment based on net assets. During the year
ended October 31, 2010, we reduced the purchase price by $44 million
(US$41 million) to $838 million (US$798 million) based on a revaluation of
the net assets acquired. The acquisition of the net cardholder receivables
of Diners Club gives us the right to issue Diners Club cards to corporate
and professional clients in the United States and Canada and will
accelerate our initiative to expand in the travel and entertainment card
sector for commercial customers across North America. As part of this
acquisition, we acquired a customer relationship intangible asset that is
being amortized on an accelerated basis over 15 years and a computer
software intangible asset that is being amortized on a straight-line basis
over five years. Goodwill related to this acquisition is deductible for tax
purposes. Diners Club is part of our Personal and Commercial Banking
Canada reporting segment.
Paloma Securities L.L.C. (“Paloma”)
On December 13, 2009, we completed the acquisition of selected assets
used in the securities lending business of Paloma for cash consideration
of $7 million (US$6 million) and hired its global securities lending
team. The acquisition provides us with the opportunity to expand our
securities lending operation. Goodwill related to this acquisition is
deductible for tax purposes. This acquisition is part of our BMO Capital
Markets reporting segment.