KeyBank 2005 Annual Report Download - page 79

78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
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Key’s Long-Term Incentive Compensation Program (“Program”) rewards
senior executives who are critical to Key’s long-term financial success.
The Program covers three-year performance cycles with a new cycle
beginning each year. Awards under the Program are primarily in the form
of time-lapsed restricted stock, performance-based restricted stock,
and performance shares generally payable in stock. The time-lapsed
restricted stock generally vests after the end of the three-year cycle. The
vesting of the performance-based restricted stock and performance
shares is contingent upon the attainment of defined performance levels.
During 2005, 2004, and 2003, Key granted 961,599, 819,456, and
223,980 awards, respectively, under the Program. The weighted-average
grant-date fair value of these awards in each of those years was $33.77,
$32.09, and $25.54, respectively.
Information pertaining to Key’s method of accounting for employee stock
options and the pro forma effect on net income and earnings per share of
applying the “fair value method” of accounting to all forms of stock-based
compensation are included in Note 1 (“Summary of Significant Accounting
Policies”) under the heading “Stock-Based Compensation” on page 61.
The following table summarizes the range of exercise prices and other related information pertaining to Key’s stock options at December 31, 2005.
Options Outstanding Options Exercisable
Range of Weighted- Weighted-Average Weighted-
Exercise Number of Average Remaining Number of Average
Prices Options Price Life (Years) Options Price
$16.90-$19.99 1,634,933 $17.89 4.0 1,160,433 $17.63
20.00-24.99 5,773,115 23.58 5.4 5,710,215 23.58
25.00-29.99 17,204,702 27.44 6.9 11,325,324 27.19
30.00-34.99 12,363,609 32.88 6.3 5,856,286 31.41
35.00-50.00 289,500 43.81 2.9 289,500 43.81
Total 37,265,859 $28.35 6.3 24,341,758 $27.10
Year ended December 31, 2005 2004 2003
Weighted- Weighted- Weighted-
Average Average Average
Price Price Price
Options Per Option Options Per Option Options Per Option
Outstanding at beginning of year 37,594,724 $26.93 39,974,394 $25.87 37,675,931 $25.14
Granted 6,344,870 34.33 6,469,326 29.46 7,697,048 25.65
Exercised 5,180,584 25.56 7,085,371 23.26 3,687,143 17.51
Lapsed or canceled 1,493,151 27.60 1,763,625 26.70 1,711,442 26.70
Outstanding at end of year 37,265,859 $28.35 37,594,724 $26.93 39,974,394 $25.87
Exercisable at end of year 24,341,758 $27.10 22,734,573 $26.96 24,271,664 $26.20
Weighted-average fair value of options
granted during the year $6.92 $5.67 $4.26
16. EMPLOYEE BENEFITS
Under Key’s stock option plans, exercise prices cannot be less than the
fair value of Key’s common stock on the grant date. Generally, options
become exercisable at the rate of 33% per year beginning one year from
their grant date and expire no later than ten years from their grant date.
The following table summarizes activity, pricing and other information
about Key’s stock options.
PENSION PLANS
Net pension cost for all funded and unfunded plans includes the
following components:
The information related to Key’s pension plans presented in the following
tables as of or for the years ended December 31, is based on current
actuarial reports using a September 30 measurement date.
Changes in the projected benefit obligation (“PBO”) related to Key’s
pension plans are summarized as follows:
Year ended December 31,
in millions 2005 2004 2003
Service cost of benefits earned $ 49 $ 46 $ 39
Interest cost on projected
benefit obligation 57 56 54
Expected return on plan assets (93) (92) (76)
Amortization of prior service benefit (1) ——
Amortization of losses 21 22 20
Net pension cost $ 33 $ 32 $ 37
Year ended December 31,
in millions 2005 2004
PBO at beginning of year $1,037 $ 974
Service cost 49 46
Interest cost 57 56
Actuarial losses 35 41
Plan amendments —(1)
Benefit payments (84) (79)
PBO at end of year $1,094 $1,037