KeyBank 2009 Annual Report Download - page 121

119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
Each quarter, we review the amount of unrecognized tax benefits recorded
on our leveraged lease transactions in accordance with the applicable
accounting guidance for income taxes. Any adjustment to unrecognized
tax benefits for the interest associated with the leveraged lease tax
settlement is recorded in income tax expense. As shown in the above table,
during 2009, we decreased the amount of unrecognized tax benefits
associated with our leveraged lease transactions by $1.6 billion to reflect
the payment of all federal and state income tax liabilities due as a result
of the settlement of the leveraged lease issues. Our quarterly review of
unrecognized tax benefits also requires us to recalculate our lease income
under the applicable accounting guidance for a change or projected
change in the timing of cash flows relating to income taxes generated by
aleveraged lease transaction. As a result, we recognized a $10 million ($5
million after tax) increase to earnings during 2009.
The amount of unrecognized tax benefits that, if recognized, would
impact our effective tax rate was $21 million and $23 million at December
31, 2009 and 2008, respectively. We do not currently anticipate that the
amount of unrecognized tax benefits will significantly change over the next
twelve months.
As permitted under the applicable accounting guidance for income taxes,
it is our policy to record interest and penalties related to unrecognized tax
benefits in income tax expense. We recorded a net interest credit of $99
million in 2009, interest expense of $602 million in 2008 and interest
expense of $5 million in 2007. The portion of the respective interest credit
or expense attributable to our leveraged lease transactions was $62
million in 2009, $598 million in 2008 and $2 million in 2007. We
recovered penalties of $1 million in 2009 and recognized penalties of $31
million in 2008. At December 31, 2009, we have an accrued interest
receivable of $62 million, compared to a payable of $622 million at
December 31, 2008. Our liability for accrued state tax penalties was $30
million and $31 million at December 31, 2009 and 2008, respectively.
We file federal income tax returns, as well as returns in various state and
foreign jurisdictions. Currently, the IRS is auditing our income tax
returns for the 2007 and 2008 tax years. We are not subject to income
tax examinations by other tax authorities for years prior to 2001,
except in California and New York. Income tax returns filed in those
jurisdictions are subject to examination as far back as 1995 (California)
and 2000 (New York).
19. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES
OBLIGATIONS UNDER NONCANCELABLE LEASES
We are obligated under various noncancelable operating leases for
land, buildings and other property,consisting principally of data
processing equipment. Rental expense under all operating leases totaled
$119 million in 2009, $121 million in 2008 and $122 million in 2007.
Minimum future rental payments under noncancelable operating leases
at December 31, 2009, are as follows: 2010 — $119 million; 2011 —
$110 million; 2012 — $100 million; 2013 — $95 million; 2014 — $87
million; all subsequent years — $350 million.
COMMITMENTS TO EXTEND
CREDIT OR FUNDING
Loan commitments provide for financing on predetermined terms as long
as the client continues to meet specified criteria. These agreements
generally carry variable rates of interest and have fixed expiration
dates or termination clauses. We typically charge a fee for our loan
commitments. Since a commitment may expirewithout resulting in a
loan, the total amount of outstanding commitments may significantly
exceed our eventual cash outlay.
Loan commitments involve credit risk not reflected on our balance
sheet. Wemitigate exposureto credit risk with internal controls that guide
how applications for credit are reviewed and approved, how credit
limits areestablished and, when necessary, how demands for collateral
aremade. In particular,we evaluate the creditworthiness of each
prospective borrower on a case-by-case basis and, when appropriate,
adjust the allowance for credit losses on lending-related commitments.
Additional information pertaining to this allowance is included in Note
1(“Summary of Significant Accounting Policies”) under the heading
“Liability for Credit Losses on Lending-Related Commitments” and
Note 7 (“Loans and Loans Held for Sale”).
The following table shows the remaining contractual amount of each
class of commitments related to extending credit or funding principal
investments as of December 31, 2009 and 2008. For loan commitments
and commercial letters of credit, this amount represents our maximum
possible accounting loss if the borrower were to draw upon the full
amount of the commitment and subsequently default on payment for the
total amount of the outstanding loan.
LEGAL PROCEEDINGS
Tax disputes. The information pertaining to lease financing transactions
presented in Note 18 (“Income Taxes”) is incorporated herein by reference.
Taylor litigation. On August 11, 2008, a purported class action case was
filed against KeyCorp, its directors and certain employees, captioned
Taylor v. KeyCorp et al., in the United States District Courtfor the
Northern District of Ohio. On September 16, 2008, a second and
December 31,
in millions 2009 2008
Loan commitments:
Commercial and other $19,179 $22,578
Home equity 7,966 8,428
Commercial real estate
and construction 1,712 3,928
Total loan commitments 28,857 34,934
When-issued and to be announced
securities commitments 190 219
Commercial letters of credit 124 173
Principal investing commitments 248 276
Liabilities of certain limited partnerships
and other commitments 189 70
Total loan and other commitments $29,608 $35,672