Income Taxes

9 Months Ended

Jan. 01, 2012

Income Taxes

Income Taxes

13.Income Taxes

ATK’s provision for income taxes includes both federal and state income taxes.  Income tax provisions for interim periods are based on estimated effective annual income tax rates.

The income tax provisions for the quarters ended January 1, 2012 and January 2, 2011 represent effective tax rates of 42.0% and 30.7%, respectively.  The increase in the current quarter rate is primarily due to the estimated nondeductible portion of an accrual related to the LUU flare tentative litigation agreement, the absence of the benefit that was realized in fiscal 2011 from the retroactive extension of the Federal Research and Development (“R&D”) credit for calendar 2010 and 2011, decreased benefits from the domestic manufacturing deduction (“DMD”), and the unfavorable true-up of prior-year taxes.

The income tax provisions for the nine months ended January 1, 2012 and January 2, 2011 represent effective tax rates of 35.8% and 26.7%, respectively.  The increase in the current period rate is primarily due to the absence of the benefit that was realized in fiscal 2011 from the settlement of the examination of the fiscal 2007 and 2008 tax returns, the estimated nondeductible portion of an accrual related to the LUU flare tentative litigation agreement, and the retroactive extension of the R&D credit discussed above, partially offset by a discrete revaluation of the deferred tax assets caused by a change in state tax law.

ATK or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state, and foreign jurisdictions.  With few exceptions, ATK is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2005.  As of January 1, 2012 the IRS had completed the audits of ATK through fiscal 2008.  The IRS is currently auditing ATK’s tax returns for fiscal years 2009 and 2010.  We believe appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.

Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $15,128 reduction of the unrecognized tax benefits will occur in the next 12 months.  The settlement of these unrecognized tax benefits could result in earnings from $0 to $12,715.