Computer Associates 1997 Annual Report Download - page 32

Under the 1995 Key Employee Stock Ownership Plan (“1995
Plan”), 13.5 million restricted shares are available for grant to
three key executives. An initial grant of 4.5 million restricted
shares was made to the executives at inception of the 1995 Plan.
In January 1996, based on the achievement of a price target for
the Company’s common stock, .9 million shares of the initial grant
vested, subject to continued employment of the executives
through March 31, 2000. Accordingly, the Company began accru-
ing compensation expense associated with the .9 million shares
over the employment period. Annual compensation expense of $7
million has been charged against income for each of the years
ended March 31, 1997 and 1996. Additional grants of the
remaining 9 million shares available under the 1995 Plan have
been reserved pending the achievement of the certain price tar-
gets. These additional grants and the unvested portion of the ini-
tial grant are subject to risk of forfeiture through March 31, 2000,
and further subject to significant limitations on transfer during the
seven years following vesting.
If the Company had elected to recognize compensation expense
based on the fair value of stock plans as prescribed by FAS No.
123, net income (loss) and net income (loss) per share would
have been reduced to the pro forma amounts in the table below:
1997 1996
(Amounts in millions,
except per share amounts)
Net income (loss)—as reported $366 $ (56)
Net income (loss)—pro forma 301 (94)
Net income (loss) per share—as reported $ .97 $(.16)
Net income (loss) per share—pro forma .79 (.26)
The weighted-average fair value at date of grant for options
granted in 1997 and 1996 were $29.00 and $15.79, respec-
tively. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model. The follow-
ing assumptions were used for option grants in 1997 and 1996,
respectively; dividend yield of .19% and .34%; expected volatility
factors of .50; risk-free interest rates of 6.5% and an expected
life of six years. The compensation expense and pro forma net
income (loss) may not be indicative of amounts to be included in
future periods.
All references to the number of shares under option and option
prices have been adjusted to reflect three-for-two stock splits
effective August 21, 1995 and June 19, 1996.
Note 10 — Profit Sharing Plan
The Company maintains a profit sharing plan, the Computer
Associates Savings Harvest Plan (“CASH Plan”), for the benefit of
employees of the Company. The CASH Plan is intended to be a
qualified plan under Section 401(a) of the Internal Revenue Code
of 1986 (the “Code”) and contains a qualified cash or deferred
arrangement as described under Section 401(k) of the Code.
Pursuant to the CASH Plan, eligible participants may elect to con-
tribute a percentage of their annual gross salary. Matching contri-
butions to the CASH Plan for the years ended March 31, 1997,
1996, and 1995 were $5 million, $5 million, and $4 million,
respectively. In addition, the Company may make discretionary
contributions to the CASH Plan. Discretionary contributions to the
CASH Plan for the years ended March 31, 1997, 1996 and 1995
were $17 million, $17 million and $16 million, respectively.
Note 11 — Rights Plan
Each outstanding share of the Company’s Common Stock carries a
stock purchase right issued under the Company’s Rights
Agreement, dated June 18, 1991 and amended May 17, 1995
(the “Rights Agreement”). Under certain circumstances, each right
may be exercised to purchase one one-thousandth of a share of
Series One Junior Participating Preferred Stock, Class A, for $300.
Under certain circumstances, following (i) the acquisition of 20% or
more of the Company’s outstanding Common Stock by an
Acquiring Person (as defined in the Rights Agreement), (ii) the
commencement of a tender offer or exchange offer which would
result in a person or group owning 20% or more of the Company’s
outstanding common stock or (iii) the determination by the
Company’s Board of Directors and a majority of the Disinterested
Directors (as defined in the Rights Agreement) that a 15% stock-
holder is an Adverse Person (as defined in the Rights Agreement),
each right (other than rights held by an Acquiring Person or
Adverse Person) may be exercised to purchase common stock of
the Company or a successor company with a market value of
twice the $300 exercise price. The rights, which are redeemable
by the Company at one cent per right, expire in June 2001.
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