KeyBank 2007 Annual Report Download - page 73

71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
MARKETING COSTS
Key expenses all marketing-related costs, including advertising costs,
as incurred.
ACCOUNTING PRONOUNCEMENTS
ADOPTED IN 2007
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
affects when earnings from leveraged lease transactions will be recognized,
and requires a lessor to recalculate its recognition of lease income when
there are changes or projected changes in the timing of cash flows,
including changes due to final or expected settlements of tax matters.
Previously, leveraged lease transactions were required to be recalculated
only when there was a change in the total projected net income from the
lease. This guidance became effective for fiscal years beginning after
December 15, 2006 (effective January 1, 2007, for Key).
Adoption of this guidance resulted in a cumulative after-tax charge of
$52 million to Key’s retained earnings. Future earnings are expected to
increase over the remaining term of the affected leases by a similar
amount. Additional information related to Staff Position No. 13-2 is
included in Note 17 (“Income Taxes”) under the heading “Tax-Related
Accounting Pronouncements Adopted in 2007” on page 96.
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 for the associated tax benefit to be recognized in a company’s
financial statements. Interpretation No. 48 also provides guidance on
measurement and derecognition of tax benefits, and requires expanded
disclosures. The interpretation became effective for fiscal years beginning
after December 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. Additional information related to this
interpretation is included in Note 17 under the heading “Tax-Related
Accounting Pronouncements Adopted in 2007.”
Accounting for servicing of financial assets. As discussed under the
heading “Servicing Assets” on page 67, effective January 1, 2007, Key
adopted SFAS No. 156, which requires that servicing assets and liabilities
be initially measured at fair value, if practicable. SFAS No. 156 also
requires the remeasurement of servicing assets and liabilities at each
subsequent reporting date using one of two methods: amortization
over the servicing period or measurement at fair value. Adoption of this
guidance did not have a material effect on Key’s financial condition or
results of operations. Additional information related to SFAS No. 156
is included in Note 8.
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 a derivative
is embedded in another financial instrument. SFAS No. 155 permits fair
value measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require the financial instrument
and derivative to be separated. Prior to SFAS No. 155, a qualifying SPE
was prohibited from holding certain derivative financial instruments.
SFAS No. 155 became 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.
ACCOUNTING PRONOUNCEMENTS PENDING
ADOPTION AT DECEMBER 31, 2007
Fair value measurements. In September 2006, the FASB issued SFAS No.
157, “Fair Value Measurements,” which defines fair value, establishes
a framework 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 January 1, 2008, for Key). In February 2008, the FASB issued
Staff Position FAS 157-1, which provides that SFAS No. 157 does not
apply under SFAS No. 13, “Accounting for Leases,” and other
accounting pronouncements that address fair value measurements for
leases. In February 2008, the FASB also issued Staff Position FAS 157-
2, which delays the effective date of SFAS No. 157 for all nonfinancial
assets and liabilities, except those recognized or disclosed at fair value
in the financial statements on a recurring basis (at least annually). For
items within the scope of Staff Position FAS 157-2, the effective date will
be for fiscal years beginning after November 15, 2008. However, early
adoption of SFAS No. 157 for nonfinancial assets and liabilities within
the scope of the new guidance is permitted. Key’s January 1, 2008,
adoption of SFAS 157 for all financial and nonfinancial assets and
liabilities did not have a material effect on Key’s financial condition or
results of operations.
Fair value option for financial assets and financial liabilities. In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities.” This guidance provides
an option to selectively report financial assets and liabilities at fair
value, and establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS
No. 159 will be effective for fiscal years beginning after November 15,
2007 (effective January 1, 2008, for Key). Key has elected to not apply
this fair value option to any of its existing assets or liabilities. However,
Key may adopt this guidance for assets or liabilities in the future as
permitted under SFAS No. 159.
Accounting for investment companies. In June 2007, the Accounting
Standards Executive Committee, under the auspices of the FASB, issued
Statement of Position (“SOP”) No. 07-1, “Clarification of the Scope of
the Audit and Accounting Guide Investment Companies and Accounting
by Parent Companies and Equity Method Investors for Investments in
Investment Companies.” The new pronouncement provides guidance for
determining whether an entity is within the scope of the Guide and
whether the specialized industry accounting principles of the Guide