Bank of Montreal 2010 Annual Report Download - page 158

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
156 BMO Financial Group 193rd Annual Report 2010
The difference between the tax benefit recognized in the financial
statements and the tax benefit claimed on a tax return position
is referred to as an unrecognized tax benefit (“UTB”). A reconciliation
of the change in the UTB balance (excluding any related accrual for
interest) is as follows:
Reconciliation of the Change in Unrecognized Tax Benefits
(Canadian $ in millions) 2010 2009
Unrecognized tax benefits, beginning of year 376 417
Increases related to positions taken
during prior years – 25
Increases related to positions taken
during the current year 40 40
Decreases related to positions taken
during prior years (38) (81)
Decreases due to lapse of statute of limitations (16) (23)
Settlements and reassessments (62) (2)
Unrecognized tax benefits, end of year 300 376
As at October 31, 2010 and 2009, the balance of our UTBs recorded in
Other liabilities in our Consolidated Balance Sheet, excluding any related
Note 25: Earnings Per Share
Basic Earnings per Share
Our basic earnings per 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.
Basic Earnings per Share
(Canadian $ in millions, except as noted) 2010 2009 2008
Net income 2,810 1,787 1,978
Dividends on preferred shares (136) (120) (73)
Net income available to
common shareholders 2,674 1,667 1,905
Average number of common shares
outstanding
(in thousands) 559,822 540,294 502,062
Basic earnings per share (Canadian $) 4.78 3.09 3.79
Diluted Earnings per Share
Diluted earnings per share represents what our earnings per share would
have been if instruments convertible into common shares that had the
impact of reducing our earnings per share had been converted either at
the beginning of the year for instruments that were outstanding all year
or from the date of issue for instruments issued during the year.
Convertible Shares
In determining diluted earnings per share, we increase net income
available to common shareholders by dividends paid on convertible
preferred shares as these dividends would not have been paid if the
shares had been converted at the beginning of the year. These dividends
were less than $1 million for the years ended October 31, 2010, 2009
and 2008. Similarly, we increase the average number of common shares
outstanding by the number of shares that would have been issued
had the conversion taken place at the beginning of the year.
Our Series 10 Class B Preferred shares, in certain circumstances,
are convertible into common shares. These conversions are not included
in the calculation of diluted earnings per share as we have the option
to settle the conversion in cash instead of common shares.
Employee Stock Options
In determining diluted earnings per share, we increase the average
number of common shares outstanding by the number of shares that
would have been issued if all stock options with a strike price below the
average share price for the year had been exercised. When performance
targets have not been met, affected options are excluded from the
calculation. We also decrease the average number of common shares
outstanding by the number of our common shares that we could have
repurchased if we had used the proceeds from the exercise of stock
options to repurchase them on the open market at the average share
price for the year. We do not adjust for stock options with a strike price
above the average share price for the year because including them
would increase our earnings per share, not dilute it.
Diluted Earnings per Share
(Canadian $ in millions, except as noted) 2010 2009 2008
Net income available to
common shareholders
adjusted for dilution effect 2,675 1,668 1,905
Average number of common shares
outstanding
(in thousands) 559,822 540,294 502,062
Convertible shares 252 253 263
Stock options potentially exercisable (1) 10,732 7,700 14,150
Common shares potentially repurchased (7,681) (5,934) (9,778)
Average diluted number of common
shares outstanding
(in thousands) 563,125 542,313 506,697
Diluted earnings per share (Canadian $) 4.75 3.08 3.76
(1) In computing diluted earnings per share we excluded average stock options outstanding
of 2,317,074, 8,244,478 and 2,818,599 with weighted-average exercise prices of $61.52, $46.92
and $60.68 for the years ended October 31, 2010, 2009 and 2008, respectively.
accrual for interest, was $300 million and $376 million, respectively,
all of which affects our tax rate. It is difficult to predict changes in UTBs
over the next 12 months.
We accrue applicable income tax-related penalties within income
tax expense on our UTBs. We accrue applicable income tax-related
interest as interest expense. As at October 31, 2010 and 2009, our accrual
for interest and penalties related to income taxes, net of payments on
deposit to taxing authorities, was $20 million and $17 million, respectively.
There was a net increase of $3 million in the accrual for interest and
penalties during the year ended October 31, 2010.
We and our subsidiaries are subject to Canadian federal and
provincial income tax, U.S. federal, state and local income tax, and
income tax in other foreign jurisdictions. The following are the major tax
jurisdictions in which we and our subsidiaries operate and the earliest
tax year not yet closed by tax authorities:
Jurisdiction Tax year
Canada 2003
United States 2004