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As shown in the table, the pro forma effect is calculated by adjusting for stock-based compensation expense, such as that related to stock options granted in 2003, that is included in each year’s net income in accordance 

## Year ended December 31, 

with the fair value method of accounting. The information presented may not be indicative of the effect in future periods. 

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## MARKETING COSTS 

Key expenses all marketing-related costs, including advertising costs, as incurred. 

## ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2003 

Disclosures about pension and other postretirement benefit plans. In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revised standard requires the disclosure of additional information related to plan assets, obligations and net benefit cost of defined benefit pension and other postretirement benefit plans. The required disclosure for Key is presented in Note 16 (“Employee Benefits”), which begins on page 73. 

Medicare prescription law. In December 2003, the FASB issued guidance that requires disclosure that acknowledges the issuance of this new law and the fact that it may affect a company’s accumulated postretirement benefit obligation and net postretirement benefit cost. The required disclosure for Key is presented in Note 16. 

Other-than-temporary impairment. In November 2003, the EITF finalized EITF No. 03-01, “The Meaning of Other than Temporary Impairment and its Application to Certain Investments,” which requires certain disclosures for impaired securities accounted for under SFAS No. 

115, “Accounting for Certain Investments in Debt and Equity Securities” for which an other-than-temporary impairment has not been recognized. 

The required disclosure for Key is presented in Note 6. 

Accounting for certain financial instruments with characteristics of both liabilities and equity. In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which establishes standards for issuers to classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires certain financial instruments that would previously have been classified as equity to be classified as liabilities (or as assets in some circumstances). Specifically, SFAS No. 150 defines as liabilities financial instruments issued in the form 

of shares that are mandatorily redeemable; financial instruments that embody an obligation to repurchase the issuer’s equity shares or are indexed to such an obligation; and financial instruments that embody an unconditional obligation or a conditional obligation that can be settled in certain ways. This accounting guidance was effective for financial instruments entered into or modified after May 31, 2003, and otherwise became effective for Key on July 1, 2003. In November 2003, the FASB indefinitely deferred the effective date of the measurement and recognition provisions of SFAS No. 150 for mandatorily redeemable noncontrolling interests associated with finite-lived subsidiaries. 

Additional information on this deferral is included in Note 8 under the heading “Low-Income Housing Tax Credit (“LIHTC”) guaranteed funds.” The application of SFAS No. 150 to all other financial instruments did not have any material effect on Key’s financial condition or results of operations. 

Amendment of Statement 133 on derivative instruments and hedging activities. In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities addressed under SFAS No. 133. SFAS No. 149 generally became effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this accounting guidance did not have any material effect on Key’s financial condition or results of operations. 

Consolidation of variable interest entities. As disclosed under the heading “Basis of Presentation” on page 50 of this note, in January 2003, the FASB issued Interpretation No. 46, which significantly changes how Key and other companies determine whether they must consolidate an entity. 

Key’s July 1, 2003, adoption of the new guidance primarily affected Key’s balance sheet; consolidating previously unconsolidated VIEs increased, and in some cases changed the classification of, assets and liabilities. 

Interpretation No. 46 resulted in increases of approximately $847 million to Key’s assets and liabilities at the date of adoption, with no material effect on Key’s results of operations. While consolidating 

