KeyBank 2006 Annual Report Download - page 91

91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
The compensation cost of time-lapsed restricted stock awards granted
under the Program is calculated using the average of the high and low
trading price of Key’s common shares on the grant date. Unlike the time-
lapsed and performance-based restricted stock, the performance shares
payable in stock do not pay dividends during the vesting period.
Consequently, the fair value of performance shares is calculated by
reducing the share price at the date of grant by the present value of
estimated future dividends forgone during the vesting period, discounted
at an appropriate risk-free interest rate.
The weighted-average grant-date fair value of awards granted under the
Program was $33.95 during 2006, $32.28 during 2005 and $30.65
during 2004. As of December 31, 2006, unrecognized compensation cost
related to nonvested shares expected to vest under the Program totaled
$19 million. Management expects to recognize this cost over a weighted-
average period of 1.7 years. The total fair value of shares vested was $.1
million during 2006, $2 million during 2005 and $6 million during 2004.
OTHER RESTRICTED STOCK AWARDS
Key also may grant, upon approval by the Compensation and
Organization Committee, special time-lapsed restricted stock awards to
certain executives and employees in recognition of outstanding
performance. These awards generally vest after three years of service.
The following table summarizes activity and pricing information for
the nonvested shares under these awards for the year ended December
31, 2006:
The weighted-average grant-date fair value of awards granted was
$33.22 during 2006, $32.05 during 2005 and $29.33 during 2004. As
of December 31, 2006, unrecognized compensation cost related to
nonvested restricted stock expected to vest under these special awards
totaled $1 million. Management expects to recognize this cost over a
weighted-average period of 1.7 years. The total fair value of restricted
stock vested was $4 million during 2006, $.7 million during 2005 and
$.1 million during 2004.
DEFERRED COMPENSATION PLANS
Key’s deferred compensation arrangements include voluntary and
mandatory deferral programs that award Key common shares to certain
employees and directors. Mandatory deferred incentive awards, together
with a 15% employer matching contribution, vest at the rate of 33-1/3%
per year beginning one year after the deferral date. Deferrals under the
voluntary programs, which include a nonqualified excess 401(k) savings
plan, are immediately vested, except for any employer match. Key’s excess
401(k) savings plan permits certain employees to defer up to 6% of their
eligible compensation, with the entire deferral eligible for an employer match
in the form of Key common shares. All other voluntary deferral programs
provide an employer match ranging from 6% to 15% of the deferral. The
employer match under all voluntary programs generally vests after three
years of service. Effective December 29, 2006, Key discontinued the
excess 401(k) savings plan, and balances were merged into a new deferred
savings plan that went into effect January 1, 2007.
Several of Key’s deferred compensation arrangements allow for deferrals
to be redirected by participants from Key common shares into other
investment elections that provide for distributions payable in cash.
Key accounts for these participant-directed deferred compensation
arrangements as stock-based liabilities and remeasures the related
compensation cost based on the most recent fair value of Key’s common
shares. Key paid stock-based liabilities of $1.8 million during 2006, $2.0
million during 2005 and $2.6 million during 2004. The compensation
cost of all other nonparticipant-directed deferrals are measured based on
the average of the high and low trading price of Key’s common shares
on the deferral date.
The following table summarizes activity and pricing information for the
nonvested shares in Key’s deferred compensation plans for the year ended
December 31, 2006:
The weighted-average grant-date fair value of awards granted was
$36.41 during 2006, $32.77 during 2005 and $29.85 during 2004. As
of December 31, 2006, unrecognized compensation cost related to
nonvested shares expected to vest under Key’s deferred compensation
plans totaled $11 million. Management expects to recognize this cost
over a weighted-average period of 2.2 years. The total fair value of shares
vested was $24 million during 2006, $23 million during 2005 and
$26 million during 2004.
DISCOUNTED STOCK PURCHASE PLAN
Key’s Discounted Stock Purchase Plan provides employees the opportunity
to purchase Key’s common shares at a 10% discount through payroll
deductions or cash payments. Purchases are limited to $10,000 in any
month and $50,000 in any calendar year and are immediately vested. To
accommodate employee purchases, Key acquires shares on the open
market on or around the fifteenth day of the month following the month
of payment. During 2006, Key issued 134,390 shares at a weighted-
average cost of $36.24. During 2005, Key issued 143,936 shares at a
weighted-average cost of $32.99. During 2004, Key issued 133,262
shares at a weighted-average cost of $31.09.
Information pertaining to Key’s method of accounting for stock-based
compensation is included in Note 1 (“Summary of Significant Accounting
Policies”) under the heading “Stock-Based Compensation” on page 71.
Weighted-
Number of Average
Nonvested Grant-Date
Shares Fair Value
OUTSTANDING AT DECEMBER 31, 2005 254,548 $28.77
Granted 13,379 33.22
Vested (118,801) 27.58
Forfeited (7,200) 27.77
OUTSTANDING AT DECEMBER 31, 2006 141,926 $30.24
Weighted-
Number of Average
Nonvested Grant-Date
Shares Fair Value
OUTSTANDING AT DECEMBER 31, 2005 809,824 $31.74
Granted 759,302 36.41
Dividend equivalents 126,362 36.85
Vested (646,317) 33.10
Forfeited (64,798) 33.56
OUTSTANDING AT DECEMBER 31, 2006 984,373 $34.99
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