Stock-Based Compensation Plans

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Plans

Stock-Based Compensation Plans

We maintain the Flowserve Corporation Equity and Incentive Compensation Plan (the "2010 Plan"), which is a shareholder-approved plan authorizing the issuance of up to 8,700,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as "Restricted Shares"), incentive stock options, non-statutory stock options, stock appreciation rights and bonus stock. Of the 8,700,000 shares of common stock authorized under the 2010 Plan, 5,059,754 were available for issuance as of June 30, 2014. The Flowserve Corporation 2004 Stock Compensation Plan expired on June 22, 2014, with 827,835 shares unissued. No stock options have been granted since 2006.

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 $45.2 million and $31.5 million at June 30, 2014 and December 31, 2013, 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 the three months ended June 30, 2014 and 2013 was $1.5 million and $1.6 million, respectively. The total fair value of Restricted Shares vested during the six months ended June 30, 2014 and 2013 was $34.4 million and $34.8 million, respectively.

We recorded stock-based compensation expense of $5.5 million ($8.4 million pre-tax) and $5.4 million ($8.2 million pre-tax) for the three months ended June 30, 2014 and 2013, respectively. We recorded stock-based compensation expense of $12.0 million ($18.3 million pre-tax) and $10.7 million ($16.3 million pre-tax) for the six months ended June 30, 2014 and 2013, respectively.

The following table summarizes information regarding Restricted Shares:

	Six Months Ended June 30, 2014
	Shares		Weighted Average Grant-Date Fair Value
Number of unvested shares:
Outstanding - January 1, 2014	2,020,678		$	44.68
Granted	486,484		72.30
Vested	(778,643	)	44.24
Canceled	(71,977	)	50.93
Outstanding - June 30, 2014	1,656,542		$	52.72

Unvested Restricted Shares outstanding as of June 30, 2014, includes approximately 829,000 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, 2012 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 approximately 1,610,000 shares based on performance targets. As of June 30, 2014, we estimate vesting of approximately 1,018,000 shares based on expected achievement of performance targets.