Stock-Based Compensation Plans

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation Plans [Abstract]

Stock-Based Compensation Plans

3. Stock-Based Compensation Plans

     We established the Flowserve Corporation Equity and Incentive Compensation Plan (the “2010 Plan”) effective January 1, 2010. This shareholder-approved plan authorizes the issuance of up to 2,900,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, restricted shares, restricted share units and performance-based units (collectively referred to as “Restricted Shares”), stock appreciation rights and bonus stock. Of the 2,900,000 shares of common stock authorized under the 2010 Plan, 2,420,536 remain available for issuance as of June 30, 2011. In addition to the 2010 Plan, we also maintain the Flowserve Corporation 2004 Stock Compensation Plan (the “2004 Plan”), which was established on April 21, 2004. The 2004 Plan authorized the issuance of up to 3,500,000 shares of common stock through grants of Restricted Shares, stock options and other equity-based awards. Of the 3,500,000 shares of common stock authorized under the 2004 Plan, 474,622 remain available for issuance as of June 30, 2011.

     We recorded stock-based compensation expense of $5.2 million ($7.7 million pre-tax) and $4.7 million ($6.9 million pre-tax) for the three months ended June 30, 2011 and 2010, respectively. We recorded stock-based compensation expense of $11.0 million ($16.3 million pre-tax) and $10.3 million ($15.2 million pre-tax) for the six months ended June 30, 2011 and 2010, respectively.

     Stock Options  –  Information related to stock options issued to officers, other employees and directors under all plans described in Note 5 to our consolidated financial statements included in our 2010 Annual Report is presented in the following table:

	Six Months Ended June 30, 2011
				Weighted Average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in millions)
Number of shares under option:
Outstanding  –  January 1, 2011		68,071		$	40.48
Exercised		(11,900	)		34.57
Outstanding  –  June 30, 2011		56,171		$	41.73		4.0	$	3.8
Exercisable  –  June 30, 2011		56,171		$	41.73		4.0	$	3.8

     No options were granted during the six months ended June 30, 2011 or 2010. No stock options vested during the three or six months ended June 30, 2011 or 2010. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model.

     As of June 30, 2011, we had no unrecognized compensation cost related to outstanding unvested stock option awards. The total intrinsic value of stock options exercised during the three months ended June 30, 2011 and 2010, was less than $1 million and $1.9 million, respectively. The total intrinsic value of stock options exercised during the six months ended June 30, 2011 and 2010 was $3.8 million and $7.9 million, respectively.

     Restricted Shares  –  Awards of Restricted Shares are valued at the closing market price of our common stock on the date of grant. The unearned compensation is amortized to compensation expense over the vesting period of the restricted shares. We had unearned compensation of $42.3 million and $31.6 million at June 30, 2011 and December 31, 2010, respectively, which is expected to be recognized over a weighted-average period of 1.4 years. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during the three months ended June 30, 2011 and 2010 was $1.2 million and $1.7 million, respectively. The total fair value of Restricted Shares vested during the six months ended June 30, 2011 and 2010 was $34.8 million and $31.6 million, respectively.

     The following table summarizes information regarding Restricted Shares:

	Six Months Ended June 30, 2011
				Weighted Average
				Grant-Date Fair
	Shares			Value
Number of unvested shares:
Outstanding - January 1, 2011		1,259,377		$	77.05
Granted		216,644			130.51
Vested		(392,869	)		88.68
Cancelled		(25,186	)		77.58
Outstanding - June 30, 2011		1,057,966		$	83.67

     Unvested Restricted Shares outstanding as of June 30, 2011, includes 434,000 units with performance-based vesting provisions. Performance-based units are issuable in common stock and vest upon the achievement of pre-defined performance targets, primarily based on our average annual return on net assets over a three-year period as compared with the same measure for a defined peer group for the same period. Most units were granted in three annual grants since January 1, 2009 and have a vesting percentage between 0% and 200% depending on the achievement of the specific performance targets. Compensation expense is recognized ratably over a cliff vesting period of 36 months, based on the fair market value of our common stock on the date of grant, as adjusted for anticipated forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets. Vesting provisions range from 0 to 844,000 shares based on performance targets. As of June 30, 2011, we estimate vesting of approximately 745,000 shares based on expected achievement of performance targets.