Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

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, 1,526,608 were available for issuance as of September 30, 2019. Restricted Shares primarily vest over a three year period. Restricted Shares granted to employees who retire and have achieved at least 55 years of age and 10 years of service to continue to vest over the original vesting period ("55/10 Provision"). As of September 30, 2019, 114,943 stock options were outstanding, with a grant date fair value of $2.0 million, recognized over three years, with remaining unearned compensation of $0.3 million. No stock options were granted or vested during the nine months ended September 30, 2019 and 2018.

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, except for awards related to the 55/10 Provision which are expensed in the period granted. We had unearned compensation of $31.5 million and $24.3 million at September 30, 2019 and December 31, 2018, respectively, which is expected to be recognized over a remaining 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 September 30, 2019 and 2018 was $0.3 million and $0.2 million,respectively. The total fair value of Restricted Shares vested during the nine months ended September 30, 2019 and 2018 was $16.5 million and $14.0 million_, respectively.

We recorded stock-based compensation expense of $5.5 million ($7.2 million pre-tax) and $4.4 million ($5.7 million pre-tax) for the three months ended September 30, 2019 and 2018, respectively. We recorded stock-based compensation expense of $17.4 million ($22.5 million pre-tax) and $10.9 million ($14.1 million pre-tax) for the nine months ended September 30, 2019 and 2018, respectively. Performance-based shares granted in 2016 did not fully vest due to the unachievement of certain performance targets, resulting in 115,302 forfeited shares and a $4.5 million reduction of stock-based compensation expense for the nine months ended September 30, 2019. Performance-based shares granted in 2015 did not vest due to performance targets not being achieved, resulting in 100,033 forfeited shares and a $5.4 million reduction of stock-based compensation expense for the nine months ended September 30, 2018.

The following table summarizes information regarding Restricted Shares:



	Nine Months Ended September 30, 2019
	Shares		Weighted Average Grant-Date Fair Value
Number of unvested shares:
Outstanding - January 1, 2019	1,530,214		$	45.06
Granted	807,439		46.91
Vested	(386,306	)	42.78
Forfeited	(197,004	)	42.32
Outstanding as of September 30, 2019	1,754,343		$	46.72

Unvested Restricted Shares outstanding as of September 30, 2019 included approximately 687,000 units with performance-based vesting provisions. Performance-based units are issuable in common stock and vest upon the achievement of pre-defined performance targets. Performance-based units have performance targets based on our average return on invested capital and our total shareholder return ("TSR") over a three-year period. Most unvested units were granted in three annual grants since January 1,

2017 and have a vesting percentage between 0% and 200% depending on the achievement of the specific performance targets. Except for shares granted under the 55/10 Provision, compensation expense is recognized ratably over a cliff-vesting period of 36 months, based on the fair value of our common stock on the date of grant, as adjusted for actual forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets for all performance-based units granted except for the TSR-based units. Vesting provisions range from 0 to approximately 1,374,000 shares based on performance targets. As of September 30, 2019, we estimate vesting of approximately 689,000 shares based on expected achievement of performance targets.