Computer Associates 2007 Annual Report Download - page 131

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35,000 shares, were exercisable, with exercise prices ranging from $11.04–$23.37 per share. As of March 31, 2007, 21,000
deferred shares are outstanding in connection with annual director fees.
The 2003 Compensation Plan for Non-Employee Directors (the 2003 Director Plan) was effective as of August 27, 2003 and
amended on August 24, 2005. The 2003 Director Plan provides for each director to receive annual director fees of $175,000 in
the form of deferred shares with an option to elect to receive up to 50% of the fees in cash. In addition, certain directors receive
an additional annual fee for their work as a committee chair, and the chairman of the board receives an additional fee for his
work as the lead director. As of March 31, 2007, approximately 137,000 deferred shares are outstanding in connection with
annual director fees.
As of March 31, 2007, options related to acquired companies’ stock plans covering 1.0 million shares are outstanding, of
which options covering 0.8 million shares are exercisable with exercise prices ranging from $1.37–$72.69 per share. Options
granted under these acquired companies’ plans generally become exercisable over periods ranging from one to five years and
generally expire five to ten years from the date of grant.
Beginning with awards granted in fiscal year 2006, the Company changed its equity-based compensation strategy to provide
the general population of employees with RSUs as opposed to stock options, which had been the Company’s previous practice.
For the grants made during fiscal year 2007, the Company changed its compensation structure toward a greater use of RSAs
and a lesser use of RSUs.
Share-Based Compensation
Effective April 1, 2005, the Company adopted, under the modified retrospective basis, the provisions of SFAS No. 123(R),
which requires share-based awards exchanged for employee services to be accounted for under the fair value method.
Accordingly share-based compensation cost is measured at the grant date, based on the fair value of the award.The Company
uses the straight-line attribution method to recognize share-based compensation costs related to awards with only service
conditions.The expense is recognized over the employee’s requisite service period (generally the vesting period of the award).
Upon adoption of SFAS No. 123(R), the Company has elected to treat awards with only service conditions and with graded
vesting as one award. Consequently, the total compensation expense is recognized ratably over the entire vesting period, so
long as compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is
vested at that date.
The application of the modified retrospective method of SFAS No. 123(R) by the Company provides that the financial
statements of prior periods are adjusted to reflect the fair value method of expensing share-based compensation for all awards
granted on or after April 1, 1995, and accordingly, financial statement amounts for periods prior to April 1, 2005 presented in
this Form 10-K were previously restated to reflect the fair value method of expensing share-based compensation, which was
materially consistent with the pro-forma disclosures required for those periods by SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS No. 123).
The Company applied the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations for share-based awards granted prior to April 1, 2003 and, for fiscal years 2005 and
2004, applied the fair value recognition provisions of SFAS No. 123 under the prospective transition method, which applied the
fair value recognition provisions only to awards granted on or after April 1, 2003.
In accordance with SFAS No. 123(R), the Company is required to base initial compensation cost on the estimated number of
awards for which the requisite service is expected to be rendered. Historically, and as permitted under SFAS No. 123, the
Company chose to record reductions in compensation expense in the periods the awards were forfeited.The cumulative effect
on prior periods of the change to an estimated number of awards for which the requisite service is expected to be rendered
generated an approximate $1 million credit to the “Selling, general, and administrative” expense line item in the Consolidated
Statements of Operations during the first quarter of fiscal year 2006. In addition, as a result of the Company’s adoption of
SFAS No. 123(R), an additional deferred tax asset of $51 million was recorded at March 31, 2005.
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