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Share-Based Compensation
12 Months Ended
Jun. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Share-based Compensation
On August 23, 2007, the Company’s Board of Directors approved the Farmer Bros. Co. 2007 Omnibus Plan (the “Omnibus Plan”), which was approved by stockholders on December 6, 2007. On December 6, 2012, the stockholders approved an amendment to increase the maximum number of shares of common stock available for issuance under the Omnibus Plan to 1,125,000 from 1,000,000, subject to adjustment as provided in the Omnibus Plan. Prior to adoption of the Omnibus Plan the Company had no share-based compensation plan. Awards issued under the Omnibus Plan may take the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance-based awards, stock payments, cash-based awards or other incentives payable in cash or shares of stock, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
The Company measures and recognizes compensation expense for all share-based payment awards made under the Omnibus Plan based on estimated fair values. 
Stock Options
The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statements of operations.
Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Compensation expense recognized for all stock option awards granted is recognized using the straight-line method over the vesting period. The options generally vest ratably over a period of 3 years, however, fiscal 2012 grants included nonqualified stock option awards to executive officers with different vesting periods, in each case, subject to certain events of acceleration as provided in the applicable employment agreement or award agreement with the executive officer.
The share-based compensation expense recognized in the Company’s consolidated statements of operations for the fiscal years ended June 30, 2013, 2012 and 2011 is based on awards ultimately expected to vest. Currently, management estimates an annual forfeiture rate of 6.5% based on actual forfeiture experience from the inception of the Omnibus Plan. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company uses the Black-Scholes option valuation model, which requires management to make certain assumptions for estimating the fair value of stock options at the date of the grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of the Company’s stock options. Although the fair value of stock options is determined using an option valuation model that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
The following are the weighted average assumptions used in the Black-Scholes valuation model: 
 
 
Year Ended June 30,
 
 
2013
 
2012
 
2011
Average fair value of options
 
$
5.69

 
$
4.42

 
$
7.05

Forfeiture rate
 
6.5
%
 
6.5
%
 
6.5
%
Risk-free interest rate
 
0.9
%
 
1.1
%
 
2.7
%
Dividend yield
 
%
 
%
 
1.3
%
Average expected life
 
6 years

 
6 years

 
6 years

Expected stock price volatility
 
49.5
%
 
52.5
%
 
54.7
%

The Company’s assumption regarding expected stock price volatility is based on the historical volatility of the Company’s stock price. The risk-free interest rate is based on U.S. Treasury zero-coupon issues at the date of grant with a remaining term equal to the expected life of the stock options. The average expected life is based on the midpoint between the vesting date and the end of the contractual term of the award.
 
The following table summarizes stock option activity for the three most recent fiscal years:
Outstanding Stock Options:
 
Number
of
Stock
Options
 
Weighted
Average
Exercise
Price ($)
 
Weighted
Average
Grant Date
Fair Value ($)
 
Weighted
Average
Remaining
Life
(Years)
 
Aggregate
Intrinsic
Value
(Dollars in thousands)
Outstanding at June 30, 2010
 
404,943

 
20.17
 
6.25
 
5.8
 

Granted
 
327,656

 
14.95
 
7.05
 
 

Cancelled/Forfeited
 
(234,789
)
 
19.21
 
6.97
 
 

Outstanding at June 30, 2011
 
497,810

 
17.19
 
6.44
 
5.7
 
61

Granted
 
356,834

 
8.90
 
4.42
 
 

Cancelled/Forfeited
 
(187,409
)
 
16.89
 
5.06
 
 

Outstanding at June 30, 2012
 
667,235

 
12.84
 
4.78
 
4.8
 
143

Granted
 
192,892

 
12.12
 
5.69
 
6.5
 
374

Exercised
 
(117,482
)
 
10.24
 
5.23
 
 
336

Cancelled/Forfeited
 
(185,218
)
 
13.83
 
5.92
 
 

Outstanding at June 30, 2013
 
557,427

 
12.81
 
5.44
 
5.1
 
1,620

Vested and exercisable, June 30, 2013
 
241,766

 
15.43
 
5.85
 
3.9
 
515

Vested and expected to vest, June 30, 2013
 
529,637

 
12.91
 
5.45
 
5.1
 
1,527


 
The aggregate intrinsic values in the table above represent the total pretax intrinsic value, based on the Company’s closing stock price of $14.06 at June 28, 2013, $7.96 at June 29, 2012 and $10.14 at June 30, 2011, representing the last trading day of the respective fiscal years, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of those dates. Total fair value of options vested during fiscal 2013, 2012 and 2011 was $1.0 million, $1.2 million and $0.7 million, respectively.
Nonvested Stock Options:
 
Number
of
Stock
Options
 
Weighted
Average
Exercise
Price ($)
 
Weighted
Average
Grant Date
Fair Value ($)
 
Weighted
Average
Remaining
Life (Years)
Outstanding at June 30, 2010
 
300,794

 
19.42
 
6.22
 
2.1
Granted
 
327,656

 
14.95
 
7.05
 
Vested
 
(105,458
)
 
20.29
 
6.30
 
Forfeited
 
(200,123
)
 
18.74
 
7.09
 
Outstanding at June 30, 2011
 
322,869

 
15.02
 
6.50
 
1.7
Granted
 
356,834

 
8.90
 
4.42
 
6.6
Vested
 
(243,518
)
 
13.00
 
5.85
 
Forfeited
 
(92,946
)
 
12.54
 
5.80
 
Outstanding at June 30, 2012
 
343,239

 
10.76
 
4.20
 
6.3
Granted
 
192,892

 
12.12
 
5.69
 
6.5
Vested
 
(188,909
)
 
11.56
 
5.33
 
Forfeited
 
(31,561
)
 
13.82
 
5.92
 
Outstanding at June 30, 2013
 
315,661

 
10.80
 
5.12
 
6.1


As of June 30, 2013, 2012 and 2011, there was approximately $1.3 million, $1.3 million and $1.5 million, respectively, of unrecognized compensation cost related to stock options. Compensation expense recognized in general and administrative expenses was $0.9 million, $1.2 million and $0.7 million for fiscal 2013, 2012 and 2011, respectively.
Restricted Stock
During each of fiscal 2013, 2012 and 2011 the Company granted a total of 51,177 shares, 142,070 shares and 63,979 shares of restricted stock, respectively, with a weighted average grant date fair value of $11.67, $7.70 and $16.67 per share, respectively, to eligible employees, officers and directors under the Omnibus Plan. Shares of restricted stock generally vest at the end of three years for eligible employees and officers who are employees. The fiscal 2012 grants included awards to executive officers with different vesting periods, in each case, subject to accelerated vesting as provided in the applicable employment agreement or award agreement with the executive officer. Shares of restricted stock generally vest ratably over a period of three years for directors.
Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the restricted stock. Compensation expense recognized in general and administrative expenses was $0.6 million, $0.6 million and $0.5 million, for the fiscal years ended June 30, 2013, 2012 and 2011, respectively. As of June 30, 2013, 2012 and 2011, there was approximately $1.0 million, $1.3 million and $0.9 million, respectively, of unrecognized compensation cost related to restricted stock.
The following table summarizes restricted stock activity:
Outstanding and Nonvested Restricted Stock Awards:
 
Shares
Awarded
 
Weighted
Average
Grant Date
Fair Value
($)
 
Weighted
Average
Remaining
Life
(Years)
 
Aggregate
Intrinsic
Value
($ in thousands)
Outstanding at June 30, 2010
 
80,208

 
19.91

 
2.0
 
1,210

Granted
 
63,979

 
16.67

 
 
1,066

Exercised/Released
 
(20,674
)
 
21.52

 
 
332

Cancelled/Forfeited
 
(42,826
)
 
19.19

 
 
497

Outstanding at June 30, 2011
 
80,687

 
17.31

 
2.6
 
818

Granted
 
142,070

 
7.70

 
2.1
 
1,094

Exercised/Released
 
(27,227
)
 
15.80

 
 
202

Cancelled/Forfeited
 
(19,583
)
 
13.92

 
 

Outstanding June 30, 2012
 
175,947

 
10.16

 
1.9
 
1,401

Granted
 
51,177

 
11.67

 
 
597

Exercised/Released
 
(64,668
)
 
11.27

 
 
832

Cancelled/Forfeited
 
(23,096
)
 
12.21

 
 

Outstanding at June 30, 2013
 
139,360

 
9.87

 
1.9
 
1,959

Expected to vest, June 30, 2013
 
117,099

 
9.84

 
1.9
 
1,646