KeyBank 2006 Annual Report Download - page 73

73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
the year in which it occurs. Most requirements of SFAS No. 158 are
effective for fiscal years ending after December 15, 2006 (effective
December 31, 2006, for Key). However, the requirement to measure
plan assets and liabilities as of the end of an employer’s fiscal year will
not be effective until fiscal years ending after December 15, 2008
(effective December 31, 2008, for Key). As a result of adopting this
guidance, Key recorded an after-tax charge of $154 million to the
accumulated other comprehensive loss component of shareholders’
equity for the year ended December 31, 2006. For more information
about Key’s defined benefit plans, see Note 16 (“Employee Benefits”),
which begins on page 92.
Stock-based compensation. As discussed under the heading “Stock-Based
Compensation” on page 71, effective January 1, 2006, Key adopted SFAS
No. 123R, which replaced SFAS No. 123. This new accounting standard
changes the way stock-based compensation is measured and recognized
in the financial statements, and the manner of accounting for forfeited
stock-based awards. SFAS No. 123R also requires additional disclosures
pertaining to stock-based compensation plans. Key’s required disclosures
are presented under the heading referred to above and in Note 15
(“Stock-Based Compensation”), which begins on page 89.
Consolidation of limited partnerships. In June 2005, the FASB ratified
Emerging Issues Task Force Issue No. 04-5, “Determining Whether a
General Partner, or the General Partners of a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain
Rights.” Issue No. 04-5 initially was effective for all limited partnerships
created or modified after June 29, 2005, and became effective for all
other limited partnerships on January1, 2006. Adoption of this guidance
did not have a material effect on Key’s financial condition or results
of operations.
Accounting changes and error corrections. In May 2005, the FASB
issued SFAS No. 154, “Accounting Changes and Error Corrections.” This
guidance requires retrospective application for the reporting of voluntary
changes in accounting principles and changes required by an accounting
pronouncement when transition provisions arenot specified. SFAS No.
154 was effective for accounting changes and corrections of errors
made after December 31, 2005. Adoption of this guidance did not have
amaterial effect on Key’s financial condition or results of operations.
ACCOUNTING PRONOUNCEMENTS
PENDING ADOPTION
Fair value measurements. In September 2006, the FASB issued SFAS No.
157, “Fair Value Measurements,” which defines fair value, establishes
aframework for measuring fair value and expands disclosures about fair
value measurements. This guidance applies only when other guidance
requires or permits assets or liabilities to be measured at fair value; it does
not expand the use of fair value in any new circumstances. SFAS No. 157
will be effective for fiscal years beginning after November 15, 2007
(effective January1, 2008, for Key). Management is evaluating the
potential effect this guidance may have on Key’s financial condition or
results of operations.
Accounting for uncertain tax positions. In July 2006, the FASB issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,”
which clarifies the application of SFAS No. 109, “Accounting for Income
Taxes,” by defining the minimum threshold that a tax position must
meet before any associated benefit may be recognized in a company’s
financial statements. This interpretation also provides guidance on
measurement and derecognition of tax benefits, and requires expanded
disclosures. The interpretation will be effective for fiscal years beginning
after December 15, 2006 (effective January 1, 2007, for Key). Management
has concluded that adoption of this guidance will not have a material
impact on Key’s financial condition or results of operations. Additional
information relating to this interpretation is included in Note 17 (“Income
Taxes”), which begins on page 96.
Accounting for leveraged leases. In July 2006, the FASB issued Staff
Position No. 13-2, “Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a
Leveraged Lease Transaction,” which provides additional guidance on the
application of SFAS No. 13, “Accounting for Leases.” This guidance will
affect when earnings from leveraged lease transactions would be
recognized when there are changes or projected changes in the timing of
cash flows, including changes due to or expected to be due to settlements
of tax matters. Previously, leveraged lease transactions were required to
be recalculated only when there was an actual change in the total cash
flows. This guidance will be effective for fiscal years beginning after
December 15, 2006 (effective January 1, 2007, for Key). Management has
concluded that adoption of this guidance will result in a cumulative after-
tax charge of approximately $52 million to Key’s retained earnings.
However,future earnings are expected to increase over the remaining term
of the affected leases by a similar amount.
Accounting for servicing of financial assets. In March 2006, the FASB
issued SFAS No. 156, “Accounting for Servicing of Financial Assets,”
which requires that servicing assets and liabilities be initially measured
at fair value, if practicable. SFAS No. 156 also requires the subsequent
remeasurement of servicing assets and liabilities at each reporting date
using one of two methods: amortization over the servicing period or
measurement at fair value. This guidance will be effective for fiscal years
beginning after September 15, 2006 (effective January 1, 2007, for
Key). Adoption of this guidance did not have a material effect on Key’s
financial condition or results of operations.
Accounting for certain hybrid financial instruments. In February 2006,
the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments.” A hybrid financial instrument is one in which
aderivative is embedded. SFAS No. 155 will permit fair value
remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require the financial
instrument and derivative to be separated. This guidance also will
eliminate the prohibition on a qualifying SPE from holding certain
derivative financial instruments. SFAS No. 155 will be effective for all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006 (effective January 1, 2007, for Key). Adoption of
this guidance did not have a material effect on Key’s financial condition
or results of operations.
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