Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION PLANS

During the year ended December 31, 2019, we maintained 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, 1,611,332 were available for issuance as of December 31, 2019. In 2019, our shareholders approved the Flowserve Corporation 2020 Long-Term Incentive Plan (the “2020 Plan”), which became effective January 1, 2020 following the expiration of the 2010 Plan on December 31, 2019. This shareholder-approved plan authorizes the issuance of up to 12,500,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, Restricted Shares, stock appreciation rights and bonus stock, in addition to any shares available for issuance or subject to forfeiture under the 2010 Plan as of its expiration on December 31, 2019. We plan to begin using the 2020 Plan in 2020 and it is intended to replace the 2010 Plan. The long-term incentive program allows Restricted Shares granted after January 1, 2016 to employees who retire and have achieved at least 55 years of age and ten years of service to continue to vest over the original vesting period ("55/10 Provision").

Stock Options — Options granted to officers, other employees and directors allow for the purchase of common shares at the market value of our stock on the date the options are granted. Options generally become exercisable after three years. Options generally expire ten years from the date of the grant or within a short period of time following the termination of employment or cessation of services by an option holder. As of December 31, 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 vested during years ended December 31, 2019, 2018 or 2017.

Information related to stock options issued to officers, other employees and directors under all plans is presented in the following table:



	2019			2018			2017
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Number of shares under option:
Outstanding — beginning of year	114,943	$	48.63	114,943	$	48.63	—	$	—
Granted	—	—		—	—		114,943	48.63
Exercised	—	—		—	—		—	—
Canceled	—	—		—	—		—	—
Outstanding — end of year	114,943	$	48.63	114,943	$	48.63	114,943	$	48.63
Exercisable — end of year	—	$	—	—	$	—	—	$	—

The weighted average remaining contractual life of options outstanding at December 31, 2019 and 2018 was 7.3 years and 8.3 years, respectively.

Restricted Shares — Generally, the restrictions on Restricted Shares do not expire for a minimum of one year and a maximum of three years, and shares are subject to forfeiture during the restriction period. Most typically, Restricted Share grants have staggered vesting periods over one to three years from grant date. The intrinsic value of the Restricted Shares, which is typically the product of share price at the date of grant and the number of Restricted Shares granted, is amortized on a straight-line basis to compensation expense over the periods in which the restrictions lapse.

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 when granted. As of December 31, 2019 and 2018, we had $23.4 million and $24.3 million, respectively, of unearned compensation cost related to unvested Restricted Shares, which is expected to be recognized over a weighted-average period of approximately one year. The total fair value of Restricted Shares vested during the years ended December 31, 2019, 2018 and 2017 was $16.8 million, $14.3 million and $30.5 million, respectively.

We recorded stock-based compensation for Restricted Shares as follows:



	Year Ended December 31,
	2019			2018			2017
	(Amounts in millions)
Stock-based compensation expense	$	23.9		$	19.9		$	22.8
Related income tax benefit	(5.4		)	(4.5		)	(5.2		)
Net stock-based compensation expense	$	18.5		$	15.4		$	17.6

The following table summarizes information regarding Restricted Shares:



	Year Ended December 31, 2019
	Shares		Weighted Average Grant-Date Fair Value
Number of unvested Restricted Shares:
Outstanding — beginning of year	1,530,214		$	45.06
Granted	857,116		46.80
Vested	(392,152	)	42.82
Canceled	(304,578	)	43.66
Outstanding — ending of year	1,690,600		$	46.71

Unvested Restricted Shares outstanding as of December 31, 2019, includes approximately 647,000 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 1,294,000 shares based on performance targets. As of December 31, 2019, we estimate vesting of approximately 466,000 shares based on expected achievement of performance targets.