KeyBank 2014 Annual Report Download - page 138

If we receive a fee for a guarantee requiring liability recognition, the amount of the fee represents the initial fair
value of the “stand ready” obligation. If there is no fee, the fair value of the stand ready obligation is determined
using expected present value measurement techniques, unless observable transactions for comparable guarantees
are available. The subsequent accounting for these stand ready obligations depends on the nature of the
underlying guarantees. We account for our release from risk under a particular guarantee when the guarantee
expires or is settled, or by a systematic and rational amortization method, depending on the risk profile of the
guarantee.
Additional information regarding guarantees is included in Note 20 (“Commitments, Contingent Liabilities and
Guarantees”) under the heading “Guarantees.”
Revenue Recognition
We recognize revenues as they are earned based on contractual terms, as transactions occur, or as services are
provided and collectability is reasonably assured. Our principal source of revenue is interest income, which is
recognized on an accrual basis primarily according to nondiscretionary formulas in written contracts, such as
loan agreements or securities contracts.
Stock-Based Compensation
Stock-based compensation is measured using the fair value method of accounting. The measured cost is
recognized over the period during which the recipient is required to provide service in exchange for the award.
We estimate expected forfeitures when stock-based awards are granted and record compensation expense only
for awards that are expected to vest.
We recognize compensation cost for stock-based, mandatory deferred incentive compensation awards using the
accelerated method of amortization over a period of approximately five years (the current year performance
period and a four-year vesting period, which generally starts in the first quarter following the performance
period) for awards granted in 2012 and after, and over a period of approximately four years (the current year
performance period and a three-year vesting period, which generally starts in the first quarter following the
performance period) for awards granted prior to 2012.
Employee stock options typically become exercisable at the rate of 25% per year, beginning one year after the
grant date. Options expire no later than 10 years after their grant date. We recognize stock-based compensation
expense for stock options with graded vesting using an accelerated method of amortization.
We use shares repurchased under our annual capital plan submitted to our regulators (treasury shares) for share
issuances under all stock-based compensation programs other than the discounted stock purchase plan. Shares
issued under the discounted stock purchase plan are purchased on the open market.
We estimate the fair value of options granted using the Black-Scholes option-pricing model, as further described
in Note 15 (“Stock-Based Compensation”).
Marketing Costs
We expense all marketing-related costs, including advertising costs, as incurred.
Accounting Guidance Adopted in 2014
Pushdown accounting. In November 2014, the FASB issued new accounting guidance that provides an
acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence
of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to
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