Stock-Based Compensation Programs

9 Months Ended

Oct. 02, 2011

Stock-Based Compensation Programs

Stock-Based Compensation Programs

15.Stock-Based Compensation Programs

The company has shareholder-approved stock option plans under which options to purchase shares of Ball common stock have been granted to officers and employees at the market value of the stock at the date of grant. Payment must be made at the time of exercise in cash or with shares of stock owned by the option holder, which are valued at fair market value on the date exercised. In general, options vest in four equal one-year installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of stock option activity for the nine months ended October 2, 2011, follows:

	Outstanding Options (a)				Nonvested Options (a)
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Grant Date Fair Value
Beginning of year	10,766,646		$	21.39	3,918,684		$	6.13
Granted	1,367,460		35.85		1,367,460		9.78
Vested					(1,539,558	)	6.04
Exercised	(955,906	)	17.15
Canceled/forfeited	(51,600	)	24.42		(51,600	)	6.38
End of period	11,126,600		23.52		3,694,986		7.51
Vested and exercisable, end of period	7,431,614
Reserved for future grants	6,243,107

(a)Amounts have been retrospectively adjusted for the two-for-one stock split that was effective on February 15, 2011.

The options granted in January 2011 included 679,310 stock-settled stock appreciation rights, which have the same terms as the stock options. The weighted average remaining contractual term for all options outstanding at October 2, 2011, was 6.3 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $83.5 million. The weighted average remaining contractual term for options vested and exercisable at October 2, 2011, was 5.2 years and the aggregate intrinsic value was $71.8 million.

The company received $2.5 million from options exercised during the three months ended October 2, 2011. The intrinsic value associated with these exercises was $3.5 million, and the associated tax benefit of $0.9 million was reported as other financing activities in the unaudited condensed consolidated statement of cash flows. During the nine months ended October 2, 2011, the company received $14.3 million from options exercised. The intrinsic value associated with exercises for that period was $18.2 million, and the associated tax benefit of $4.7 million was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.

Based on the Black-Scholes option pricing model, options granted in January and April 2011 have an estimated weighted average fair value at the date of grant of $9.78 per share. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:

Expected dividend yield	0.78	%
Expected stock price volatility	30.04	%
Risk-free interest rate	1.97	%
Expected life of options	5.0 years

In addition to stock options, the company may issue to officers and certain employees restricted shares and restricted stock units, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the estimated fair value of the shares at the grant date.

Following is a summary of restricted stock activity for the nine months ended October 2, 2011:

	Number of Shares/Units		Weighted Average Grant Price
Beginning of year	1,856,202		$	21.96
Granted	496,906		35.52
Vested	(525,317	)	24.95
Canceled/forfeited	(14,043	)	30.45
End of period	1,813,748		24.77

In January 2011 and 2010, the company’s board of directors granted 210,330 and 362,300 performance-contingent restricted stock units, respectively, to key employees, which will cliff-vest if the company’s return on average invested capital during a 36-month performance period is equal to or exceeds the company’s cost of capital. If the performance goals are not met, the shares will be forfeited. Current assumptions are that the performance targets will be met and, accordingly, grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate. No such adjustment was considered necessary during the first nine months of 2011 for either grant.

For the three and nine months ended October 2, 2011, the company recognized in selling, general and administrative expenses pretax expense of $5.3 million ($3.2 million after tax) and $17.6 million ($10.7 million after tax) for share-based compensation arrangements, respectively. For the three and nine months ended September 26, 2010, the company recognized pretax expense of $5.5 million ($3.4 million after tax) and $19.3 million ($11.8 million after tax), respectively, for such arrangements. At October 2, 2011, there was $46.8 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.4 years.