EX-99.1 2 dex991.htm UNAUDITED PRO FORMA FINANCIAL INFORMATION Unaudited Pro Forma Financial Information

Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following selected unaudited pro forma financial information has been presented to give effect to and show the pro forma impact of the Exchange Offer on our financial condition and earnings as of and for the fiscal year ended December 31, 2008, and as of and for the six-month period ended June 30, 2009.

The unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily indicate the financial position or results that would have been realized had the Exchange Offer been completed as of the dates indicated or that will be realized in the future when and if the Exchange Offer is consummated. The selected unaudited pro forma financial information has been derived from, and should be read in conjunction with, our summary historical consolidated financial information included in the Prospectus and our historical consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 and our Current Report on Form 8-K (Items 2.02 and 9.01) for the six-month period ended June 30, 2009, filed with the SEC on July 22, 2009.

Our unaudited pro forma consolidated balance sheets as of June 30, 2009 have been presented as if the Exchange Offer had been completed on June 30, 2009 and our pro forma consolidated statements of income have been presented as if the Exchange Offer had been completed on January 1, 2008.

For purposes of the pro forma presentations for the year ended December 31, 2008 and period ended June 30, 2009, and as of June 30, 2009, we have assumed that the Average VWAP per share of our Common Shares is $5.21, which we determined assuming the Pricing Date for the determination of the Average VWAP ended on and included July 2, 2009.

Unaudited Pro Forma Balance Sheets

We have shown the pro forma impact of a “High Participation Scenario” and a “Low Participation Scenario” with respect to the Exchange Offer prepared using the assumptions set forth below. The actual June 30, 2009 column reflects the impact of the Institutional Exchange Offer and the Series A Exchange Offer that expired on June 30, 2009 (and settled on July 6, 2009). The “High Participation Scenario” assumes the tender of 75% of the outstanding Trust Preferred Securities and the exchange (after proration to 29% of the outstanding Trust Preferred Securities based on the maximum of $500 million in aggregate liquidation preference of Trust Preferred Securities that will be accepted in the Exchange Offer) of such securities for Common Shares. The “Low Participation Scenario” assumes the tender and exchange of 25% of the outstanding Trust Preferred Securities for Common Shares.

There can be no assurances that the foregoing assumptions will be realized in the future, including as to the amounts and percentage of Trust Preferred Securities that will be tendered in the Exchange Offer and not subsequently withdrawn.

 

Financial Information Item

    Page in
Exhibit 99.1		    Replaced Page(s) in
Prospectus dated July 7, 2009

(a)

   

Pro Forma Consolidated Balance Sheet (Unaudited)

High Participation Scenario

    2    30–31

(b)

   

Pro Forma Consolidated Balance Sheet (Unaudited)

Low Participation Scenario

    3    32–33

(c)

   

Pro Forma Earnings Implications

Consolidated Statements of Income (Unaudited)

High Participation Scenario

    4    34

(d)

   

Pro Forma Earnings Implications

Consolidated Statements of Income (Unaudited)

Low Participation Scenario

    5    35

(e)

   

Pro Forma Capitalization Table (Unaudited)

High Participation Scenario

    6    36

(f)

   

Pro Forma Capitalization Table (Unaudited)

Low Participation Scenario

    7    37

 

1

Pro Forma Consolidated Balance Sheet

(Unaudited)

High Participation Scenario

 

     Adjustments  
                Trust             
                Preferred             
                Security             
                Exchange          Pro  
     Actual          Offer for          Forma  
     June 30,          Common          June 30,  
(in millions)    2009     (1)        Shares     (2)        2009  

ASSETS

             

Cash and due from banks

    $ 723              $ 723   

Short-term investments

      3,487                3,487   

Trading account assets

      771                771   

Securities available for sale

      12,174                12,174   

Held-to-maturity securities

      25                25   

Other investments

      1,450                1,450   

Loans, net of unearned income

      70,803                70,803   

Less: Allowance for loan losses

      2,499                2,499   
                              

Net loans

      68,304                68,304   

Loans held for sale

      909                909   

Premises and equipment

      858                858   

Operating lease assets

      842                842   

Goodwill

      917                917   

Other intangible assets

      106                106   

Corporate-owned life insurance

      3,016                3,016   

Derivative assets

      1,182                1,182   

Accrued income and other assets

      3,028         $ (14 )    (3)          3,014   
                              

Total assets

    $ 97,792         $ (14 )       $ 97,778   
                              

LIABILITIES

             

Total deposits

    $ 67,884              $ 67,884   

Federal funds purchased and securities sold under repo agreements

      1,530                1,530   

Bank notes and other short-term borrowings

      1,710                1,710   

Derivative liabilities

      530                530   

Accrued expense and other liabilities

      1,616         $ 28      (4)          1,644   

Long-term debt

      13,462           (533 )    (5)      12,929   
                              

Total liabilities

      86,732           (505 )         86,227   

EQUITY

             

Preferred stock

      2,713                2,713   

Common stock

      865           85      (6)      950   

Common stock warrant

      87                87   

Capital surplus

      3,292           359      (7)      3,651   

Retained earnings

      5,878           47      (8)      5,925   

Treasury stock, at cost

      (1,984 )              (1,984 ) 

Accumulated other comprehensive income

      0                0   
                              

KeyCorp shareholders’ equity

      10,851           491           11,342   

Noncontrolling interests

      209                209   
                              

Total equity

      11,060           491           11,551   
                              

Total liabilities and equity

    $ 97,792         $ (14 )       $ 97,778   
                              

 

(1) Includes Common Shares issued in the Series A Exchange Offer and the Institutional Exchange Offer.
(2) Assumes (i) a 75% participation in this Exchange Offer of the outstanding Trust Preferred Securities, which, based on the amended terms of the Exchange Offer limiting the maximum liquidation preference of Trust Preferred Securities to be accepted in the Exchange Offer to $500 million, is prorated to 29% of the outstanding Trust Preferred Securities, (ii) an exchange value of 88% of the liquidation preference for each of KeyCorp Capital V, KeyCorp Capital VI, KeyCorp Capital VIII and KeyCorp Capital IX and an exchange value of 90% of the liquidation preference for KeyCorp Capital X, and (iii) an Average VWAP of $5.21, which we determined assuming the Pricing Date for the determination of the Average VWAP was July 2, 2009. The Exchange Offer remains subject to the limitation on the aggregate number of Common Shares of KeyCorp that may be issued in the Exchange Offer under applicable NYSE rules, as described in the Prospectus.
(3) Represents the amortization of the remaining unamortized debt issuance cost in relation to the Trust Preferred Securities.
(4) Amount of income taxes estimated to be payable upon exchange of the Trust Preferred Securities.
(5) The carrying amount of the Trust Preferred Securities is assumed to be unchanged, including the estimated adjustment basis related to SFAS No. 133 hedging.
(6) Par value of newly issued Common Shares.
(7) APIC in respect of newly issued Common Shares. The amount of APIC is the excess of the fair value of the Common Shares issued over their par value.
(8) Excess of the carrying amount of the Trust Preferred Securities to be retired over the fair value of the Common Shares to be issued in the Exchange Offer, net of taxes. This amount will be recorded in the income statement of the period during which the Exchange Offer is consummated.

 

2

Pro Forma Consolidated Balance Sheet

(Unaudited)

Low Participation Scenario

 

                Adjustments  
                Trust            
                Preferred            
                Security            
                Exchange         Pro  
     Actual          Offer for         Forma  
     June 30,          Common         June 30,  
(in millions)    2009     (1)        Shares     (2)       2009  

ASSETS

            

Cash and due from banks

    $ 723             $ 723   

Short-term investments

      3,487               3,487   

Trading account assets

      771               771   

Securities available for sale

      12,174               12,174   

Held-to-maturity securities

      25               25   

Other investments

      1,450               1,450   

Loans, net of unearned income

      70,803               70,803   

Less: Allowance for loan losses

      2,499               2,499   
                             

Net loans

      68,304               68,304   

Loans held for sale

      909               909   

Premises and equipment

      858               858   

Operating lease assets

      842               842   

Goodwill

      917               917   

Other intangible assets

      106               106   

Corporate-owned life insurance

      3,016               3,016   

Derivative assets

      1,182               1,182   

Accrued income and other assets

      3,028         $ (12 )    (3)     3,016   
                             

Total assets

    $ 97,792         $ (12 )      $ 97,780   
                             

LIABILITIES

            

Total deposits

    $ 67,884             $ 67,884   

Federal funds purchased and securities sold under repo agreements

      1,530               1,530   

Bank notes and other short-term borrowings

      1,710               1,710   

Derivative liabilities

      530               530   

Accrued expense and other liabilities

      1,616         $ 25      (4)     1,641   

Long-term debt

      13,462           (464 )    (5)     12,998   
                             

Total liabilities

      86,732           (439 )        86,293   

EQUITY

            

Preferred stock

      2,713               2,713   

Common stock

      865           73      (6)     938   

Common stock warrant

      87               87   

Capital surplus

      3,292           311      (7)     3,603   

Retained earnings

      5,878           43      (8)     5,921   

Treasury stock, at cost

      (1,984 )             (1,984 ) 

Accumulated other comprehensive income

      0               0   
                             

KeyCorp shareholders’ equity

      10,851           427          11,278   

Noncontrolling interests

      209               209   
                             

Total equity

      11,060           427          11,487   
                             

Total liabilities and equity

    $ 97,792         $ (12 )      $ 97,780   
                             

 

(1) Includes Common Shares issued in the Series A Exchange Offer and the Institutional Exchange Offer.
(2) Assumes (i) a 25% participation in this Exchange Offer of the outstanding Trust Preferred Securities (an aggregate liquidation preference of Trust Preferred Securities tendered in the Exchange Offer of $435 million), (ii) an exchange value of 88% of the liquidation preference for each of KeyCorp Capital V, KeyCorp Capital VI, KeyCorp Capital VIII and KeyCorp Capital IX and an exchange value of 90% of the liquidation preference for KeyCorp Capital X and (iii) an Average VWAP of $5.21, which we determined assuming the Pricing Date for the determination of the Average VWAP was July 2, 2009. The Exchange Offer remains subject to the limitation on the aggregate number of Common Shares of KeyCorp that may be issued in the Exchange Offer under applicable NYSE rules, as described in the Prospectus.
(3) Represents the amortization of the remaining unamortized debt issuance cost.
(4) Amount of income taxes estimated to be payable upon exchange of the Trust Preferred Securities.
(5) The carrying amount of the Trust Preferred Securities is assumed to be unchanged, including the estimated adjustment basis related to SFAS No. 133 hedging.
(6) Par value of newly issued Common Shares.
(7) APIC in respect of newly issued Common Shares. The amount of APIC is the excess of the fair value of the Common Shares issued over their par value.
(8) Excess of the carrying amount of the Trust Preferred Securities to be retired over the fair value of the Common Shares to be issued in the Exchange Offer, net of taxes. This amount will be recorded in the income statement of the period during which the Exchange Offer is consummated.

 

3

Pro Forma Earnings Implications

Consolidated Statements of Income

(Unaudited)

High Participation Scenario

 

     Six months ended June 30, 2009     Twelve months ended December 31, 2008  
                Trust                           Trust             
                Preferred                           Preferred             
                Security                           Security             
                Exchange                           Exchange             
                Offer for                           Offer for             
                Common          Pro                Common          Pro  
(in millions, except per share amounts)    Actual     (1)        Shares          Forma     Actual     (1)        Shares          Forma  

INTEREST INCOME

                         

Loans

    $ 1,761              $ 1,761      $ 4,048              $ 4,048   

Securities

      208                208        443                443   

Other interest income

      57                57        138                138   
                                                            

Total interest income

      2,026                2,026        4,629                4,629   

INTEREST EXPENSE

                         

Deposits

      596                596        1,468                1,468   

Short-term borrowings

      12                12        188                188   

Long-term debt

      212         $ (18 )    (2)          194        564         $ (33 )    (2)          531   
                                                            

Total interest expense

      820           (18 )         802        2,220           (33 )         2,187   
                                                            

NET INTEREST INCOME

      1,206           18           1,224        2,409           33           2,442   

Provision for loan losses

      1,725                1,725        1,835                1,835   
                                                            

Net interest (loss) income after provision for loan losses

      (519 )         18           (501 )      574           33           607   

NONINTEREST INCOME

      1,214           75      (3)      1,289        1,878           75      (3)      1,953   

NONINTEREST EXPENSE

      1,846                1,846        3,578                3,578   
                                                            

(LOSS) INCOME BEFORE INCOME TAXES

      (1,151 )         93           (1,058 )      (1,126 )         108           (1,018 ) 

Income taxes

      (430 )         35           (395 )      334           41           375   
                                                            

NET (LOSS) INCOME

      (721 )         58           (663 )      (1,460 )         67           (1,393 ) 

Less: Net (loss) income attributable to noncontrolling interests

      (7 )              (7 )      8                8   
                                                            

NET (LOSS) INCOME ATTIBUTABLE TO KEYCORP

    $ (714 )       $ 58         $ (656 )    $ (1,468 )       $ 67         $ (1,401 ) 
                                                            

Net (loss) income attributable to KeyCorp common shareholders

    $ (926 )       $ 58         $ (868 )    $ (1,510 )       $ 67         $ (1,443 ) 

Per common share:

                         

Net (loss) income attributable to KeyCorp

    $ (1.73 )            $ (1.40 )    $ (3.36 )            $ (2.70 ) 

Net (loss) income attributable to KeyCorp - assuming dilution

    $ (1.73 )            $ (1.40 )    $ (3.36 )            $ (2.70 ) 

Weighted-average common shares outstanding (000)

      535,080           85,291      (4)      620,371        450,039           85,291      (4)      535,330   

Weighted-average common shares and potential common shares outstanding (000)

      535,080           85,291      (4)      620,371        450,039           85,291      (4)      535,330   

 

(1) Includes Common Shares issued in the Series A Exchange Offer and the Institutional Exchange Offer.
(2) Represents the reduction of interest expense recognized during the respective period related to the Trust Preferred Securities.
(3) Represents the gain on the exchange of Trust Preferred Securities based on the participation in the Exchange Offer of 75% of the outstanding Trust Preferred Securities, which, based on the amended terms of the Exchange Offer limiting the maximum liquidation preference of Trust Preferred Securities to be accepted in the Exchange Offer to $500 million, is prorated to 29% of the outstanding Trust Preferred Securities (which have an overall aggregate liquidation preference of $1.74 billion).
(4) Represents (i) the increase in Common Shares outstanding due to the participation in the Exchange Offer of 75% of the outstanding Trust Preferred Securities, which, based on the amended terms of the Exchange Offer limiting the maximum liquidation preference of Trust Preferred Securities to be accepted in the Exchange Offer to $500 million, is prorated to 29% of the outstanding Trust Preferred Securities, (ii) with an exchange value of 88% of the liquidation preference for each of KeyCorp Capital V, KeyCorp Capital VI, KeyCorp Capital VIII and KeyCorp Capital IX and an exchange value of 90% of the liquidation preference for KeyCorp Capital X, and (iii) an assumed Average VWAP of $5.21, which we determined assuming the Pricing Date for the determination of the Average VWAP was July 2, 2009. The Exchange Offer remains subject to the limitation on the aggregate number of Common Shares of KeyCorp that may be issued in the Exchange Offer under applicable NYSE rules, as disclosed in the Prospectus.

 

4

Pro Forma Earnings Implications

Consolidated Statements of Income

(Unaudited)

Low Participation Scenario

 

     Six months ended June 30, 2009     Twelve months ended December 31, 2008  
(in millions, except per share amounts)    Actual     (1)        Trust
Preferred
Security
Exchange
Offer for
Common
Shares		          Pro
Forma		     Actual     (1)    Trust
Preferred
Security
Exchange
Offer for
Common
Shares		          Pro
Forma		  

INTEREST INCOME

                         

Loans

    $ 1,761              $ 1,761      $ 4,048              $ 4,048   

Securities

      208                208        443                443   

Other interest income

      57                57        138                138   
                                                            

Total interest income

      2,026                2,026        4,629                4,629   

INTEREST EXPENSE

                         

Deposits

      596                596        1,468                1,468   

Short-term borrowings

      12                12        188                188   

Long-term debt

      212         $ (16 )    (2)          196        564         $ (29 )    (2)          535   
                                                            

Total interest expense

      820           (16 )         804        2,220           (29 )         2,191   
                                                            

NET INTEREST INCOME

      1,206           16           1,222        2,409           29           2,438   

Provision for loan losses

      1,725                1,725        1,835                1,835   
                                                            

Net interest (loss) income after provision for loan losses

      (519 )         16           (503 )      574           29           603   

NONINTEREST INCOME

      1,214           69      (3)      1,283        1,878           69      (3)      1,947   

NONINTEREST EXPENSE

      1,846                1,846        3,578                3,578   
                                                            

(LOSS) INCOME BEFORE INCOME TAXES

      (1,151 )         85           (1,066 )      (1,126 )         98           (1,028 ) 

Income taxes

      (430 )         32           (398 )      334           37           371   
                                                            

NET (LOSS) INCOME

      (721 )         53           (668 )      (1,460 )         61           (1,399 ) 

Less: Net (loss) income attributable to noncontrolling interests

      (7 )              (7 )      8                8   
                                                            

NET (LOSS) INCOME ATTIBUTABLE TO KEYCORP

    $ (714 )       $ 53         $ (661 )    $ (1,468 )       $ 61         $ (1,407 ) 
                                                            

Net (loss) income attributable to KeyCorp common shareholders

    $ (926 )       $ 53         $ (873 )    $ (1,510 )       $ 61         $ (1,449 ) 

Per common share:

                         

Net (loss) income attributable to KeyCorp

    $ (1.73 )            $ (1.43 )    $ (3.36 )            $ (2.77 ) 

Net (loss) income attributable to KeyCorp - assuming dilution

    $ (1.73 )            $ (1.43 )    $ (3.36 )            $ (2.77 ) 

Weighted-average common shares outstanding (000)

      535,080           73,492      (4)      608,572        450,039           73,492      (4)      523,531   

Weighted-average common shares and potential common shares outstanding (000)

      535,080           73,492      (4)      608,572        450,039           73,492      (4)      523,531   

 

(1) Includes Common Shares issued in the Series A Exchange Offer and the Institutional Exchange Offer.
(2) Represents the reduction of interest expense recognized during the respective period related to the Trust Preferred Securities.
(3) Represents the gain on the exchange of 25% of the outstanding Trust Preferred Securities.
(4) Represents (i) the increase in Common Shares outstanding due to the participation in the Exchange Offer of 25% of the outstanding Trust Preferred Securities, (ii) with an exchange value of 88% of the liquidation preference for each of KeyCorp Capital V, KeyCorp Capital VI, KeyCorp Capital VIII and KeyCorp Capital IX and an exchange value of 90% of the liquidation preference for KeyCorp Capital X, and (iii) an assumed Average VWAP of $5.21, which we determined assuming the Pricing Date for the determination of the Average VWAP was July 2, 2009. The Exchange Offer remains subject to the limitation on the aggregate number of Common Shares of KeyCorp that may be issued in the Exchange Offer under applicable NYSE rules, as disclosed in the Prospectus.

 

5

Pro Forma Capitalization Table

(Unaudited)

High Participation Scenario

 

     Adjustments  
(in millions)    Actual
June 30,
2009		     Trust
Preferred
Security
Exchange
Offer for
Common
Shares		     Pro
Forma
June 30,
2009		  

Senior notes

    $ 6,426        $ 6,426   

Subordinated notes

      6,584      $ (533 )      6,051   

Federal Home Loan Bank advances

      138          138   

Other long-term debt

      314          314   
                        

Total long-term debt

    $ 13,462      $ (533 )    $ 12,929   
                        

Preferred stock

    $ 2,713        $ 2,713   

Common shares

      865      $ 85        950   

Common stock warrant

      87          87   

Capital surplus

      3,292        359        3,651   

Retained earnings

      5,878        47        5,925   

Treasury stock

      (1,984 )        (1,984 ) 

Accumulated other comprehensive income

      0          0   
                        

KeyCorp shareholders’ equity

    $ 10,851      $ 491      $ 11,342   
                        

 

6

Pro Forma Capitalization Table

(Unaudited)

Low Participation Scenario

 

     Adjustments  
(in millions)    Actual
June 30,
2009		     Trust
Preferred
Security
Exchange
Offer for
Common
Shares		     Pro
Forma
June 30,
2009		  

Senior notes

    $ 6,426        $ 6,426   

Subordinated notes

      6,584      $ (464 )      6,120   

Federal Home Loan Bank advances

      138          138   

Other long-term debt

      314          314   
                        

Total long-term debt

    $ 13,462      $ (464 )    $ 12,998   
                        

Preferred stock

    $ 2,713        $ 2,713   

Common shares

      865      $ 73        938   

Common stock warrant

      87          87   

Capital surplus

      3,292        311        3,603   

Retained earnings

      5,878        43        5,921   

Treasury stock

      (1,984 )        (1,984 ) 

Accumulated other comprehensive income

      0          0   
                        

KeyCorp shareholders’ equity

    $ 10,851      $ 427      $ 11,278   
                        

 

7