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Income which we earn in foreign countries, either through our branches or subsidiaries, is generally subject to tax in those coun- tries. 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 foreign sub- sidiaries,wewouldberequiredtopaytaxoncertainof theseearnings. 

## NOTE 19 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. 

(Canadian $ in millions, except per share information) 

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The earnings per share calculations for the year ended October 31, 2000 have been amended to reflect the stock dividend of one common share, with no value, for each outstanding common share declared on March 1, 2001. 

## Diluted Earnings per Share 

Diluted earnings per share represents what our earnings per share would have been if any convertible issuances had been converted into common shares during the year. 

## Convertible Shares 

We increase net income before goodwill amortization by dividends paid on con- vertible shares as these dividends would not have been paid if the shares had been converted at the beginning of the year. 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 3, 4, 6 and 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 in cash instead of common shares. 

## NOTE 20 Related Party Transactions 

We provide banking services to our joint ventures and equity- accounted investments on the same terms that we offer to our customers. 

Effective September 1, 1999, new loans and mortgages to execu- tive officers were no longer available at preferred rates, other than mortgages for Bank-initiated transfers; a select suite of customer loan and mortgage products is now offered to employees at rates normally accorded to preferred customers. Existing loans and mort- gages at preferred rates will be phased out by September 1, 2004. 

Prior to September 1, 1999, loans to executive officers for personal purposes, principally for consumer purchases, home improvement and sundry investments, were made available at an interest rate of one-half of the Bank’s prime rate to a maximum of $25,000. Loans in excess of this amount were available at prime rate. 

As repatriation of such earnings is not planned in the foreseeable future, we have not recorded the related future income tax liability. Canadian and foreign taxes that would be payable if all of our foreign subsidiaries’ earnings were repatriated as at October 31, 2002, 2001 and 2000 are estimated to be $530, $501 and $434, respectively. 

## Employee Stock Options 

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. We also decrease the average number of common shares outstanding by the number of our com- mon 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. 

(Canadian $ in millions, except per share information) 

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(a) In computing diluted earnings per share for the year ended October 31, 2002, we excluded stock options with exercise prices in excess of $36.40. Refer to Note 16 for more information on these options. 

The interest earned on these loans is recorded in interest, divi- dend and fee income in our Consolidated Statement of Income. The amounts outstanding under these loan agreements are: 

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Beginning in fiscal 2002, we introduced a stock option plan for non- officer directors and issued 105,000 options at an exercise price of $36.01 per share. The terms of the stock option plan are the same as our 2000, 2001 and 2002 plans for designated officers and employees described in Note 16. 

