Stock-Based Compensation Plans

9 Months Ended

Sep. 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, 2,432,259 remain available for issuance as of September 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. No stock options have been granted in recent years. Of the 3,500,000 shares of common stock authorized under the 2004 Plan, 482,265 remain available for issuance as of September 30, 2011.

     We recorded stock-based compensation expense of $4.9 million ($7.4 million pre-tax) and $6.2 million ($9.2 million pre-tax) for the three months ended September 30, 2011 and 2010, respectively. We recorded stock-based compensation expense of $15.9 million ($23.7 million pre-tax) and $16.4 million ($24.3 million pre-tax) for the nine months ended September 30, 2011 and 2010, 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 $33.1 million and $31.6 million at September 30, 2011 and December 31, 2010, respectively, which is expected to be recognized over a weighted-average period of approximately one year. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during both the three months ended September 30, 2011 and 2010 was $0.2 million. The total fair value of Restricted Shares vested during the nine months ended September 30, 2011 and 2010 was $35.0 million and $31.8 million, respectively.

     The following table summarizes information regarding Restricted Shares:

	Nine Months Ended September 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		(394,849	)		88.73
Cancelled		(49,742	)		84.52
Outstanding - September 30, 2011		1,031,430		$	83.45

     Unvested Restricted Shares outstanding as of September 30, 2011, includes 427,000 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 829,000 shares based on performance targets. As of September 30, 2011, we estimate vesting of approximately 734,000 shares based on expected achievement of performance targets.