Stock-Based Compensation

9 Months Ended

Jan. 01, 2012

Stock-Based Compensation

Stock-Based Compensation

14.Stock-Based Compensation

ATK sponsors multiple stock-based incentive plans, which include the Alliant Techsystems Inc. 1990 Equity Incentive Plan, the Non-Employee Director Restricted Stock Plan, the 2000 Stock Incentive Plan, and the 2005 Stock Incentive Plan. As of January 1, 2012, ATK has authorized up to 2,382,360 common shares under the 2005 Stock Incentive Plan, of which 488,186 common shares are yet available to be granted.  No new grants will be made out of the other three plans.

Total pre-tax stock-based compensation expense recognized during the quarters ended January 1, 2012 and January 2, 2011 was $2,737 and $2,379, respectively.  Total pre-tax stock-based compensation expense recognized during the nine months ended January 1, 2012 and January 2, 2011 was $8,339 and $7,648, respectively.

The total income tax benefit recognized in the income statement for share-based compensation during the quarters ended January 1, 2012 and January 2, 2011 was $1,142 and $909, respectively.  Total income tax benefit recognized in the income statement for share-based compensation during the nine months ended January 1, 2012 and January 2, 2011 was $3,228 and $2,957, respectively.

ATK has the following types of awards outstanding under ATK’s stock incentive plans: performance awards, total stockholder return performance awards (“TSR awards”), restricted stock, and stock options.  ATK issues treasury shares upon the payment of performance and TSR awards, grant of restricted stock, or exercise of stock options.

As of January 1, 2012, there were up to 502,268 shares reserved for performance awards for key employees.  Performance shares are valued at the fair value of ATK stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted.  Of these shares,

· up to 23,365 shares will become payable only upon achievement of certain financial performance goals, including sales and EPS, for the fiscal 2010 through fiscal 2012 period;

· up to 211,458 shares will become payable only upon achievement of certain performance goals, including sales, EPS, and return on invested capital, for the fiscal 2011 through fiscal 2013 period; and

· up to 267,445 shares will become payable only upon achievement of certain performance goals, including sales growth relative to industry peers and return on invested capital, for the fiscal 2012 through fiscal 2014 period.

In May 2011, 93,649 shares were distributed or deferred based upon achievement of certain financial performance goals, including EPS, for the fiscal 2009 through fiscal 2011 period.

As of January 1, 2012, there were up to 124,213 shares reserved for TSR awards for key employees.  ATK uses an integrated Monte Carlo simulation model to determine the fair value of the TSR awards.  The Monte Carlo model calculates the probability of satisfying the market conditions stipulated in the award.  This probability is an input into the trinomial lattice model used to determine the fair value of the awards as well as the assumptions of other variables, including the risk-free interest rate and expected volatility of ATK’s stock price in future periods. The risk-free rate is based on the U.S. dollar-denominated U.S. Treasury strip rate with a remaining term that approximates the life assumed at the date of grant.  ATK granted 4,288 TSR shares during fiscal 2012 at a weighted average fair value of $38.14.  The weighted average assumptions used in estimating the value of the TSR award during fiscal 2012 were as follows:

	Assumptions
Risk-free rate	1.22	%
Expected volatility	27.90	%
Expected dividend yield	1.17	%
Expected award life	3 years

Of the shares reserved for TSR awards for key employees,

· 33,371 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2010 through 2012 period,

· 31,422 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2011 through 2013 period, and

· 59,400 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2012 through 2014 period.

Restricted stock granted to non-employee directors and certain key employees during the first nine months of fiscal 2012 totaled 85,076 shares. Restricted shares vest over periods ranging from one to five years from the date of award and are valued at the fair value of ATK’s common stock as of the grant date.

Stock options may be granted periodically, with an exercise price equal to the fair market value of ATK’s common stock on the date of grant, and generally vest three years from the date of grant. Since fiscal 2004, options are generally issued with a seven-year term; most grants prior to that had a ten-year term.  The weighted average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and represents the difference between fair market value on the date of grant and the estimated market value on the expected exercise date. The option pricing model requires ATK to make assumptions.  The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant.  Expected volatility is based on the historical volatility of ATK’s stock over the past five years.  The expected option life is based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends.  ATK granted no options during the first nine months of fiscal 2012 or during fiscal 2011.