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Share-Based Compensation
3 Months Ended
Sep. 30, 2011
Share-Based Compensation

Note 7. Share-Based Compensation

The Company measures and recognizes compensation expense for all share-based payment awards made under the Farmer Bros. Co. 2007 Omnibus Plan (the “Omnibus Plan”) based on estimated fair values. No stock options or restricted stock were granted during the three months ended September 30, 2011 and 2010.

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 statement of operations. The Company estimates forfeitures based on its historical pre-vest forfeiture rate and will revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company’s assumption regarding expected stock price volatility is based on the historical volatility of its 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 following table summarizes stock option activity for the three months ended September 30, 2011:

 

(Unaudited)

    Number of Stock
Options		     Weighted
Average
Exercise Price		      Weighted
Average
Grant  Date
Fair Value		      Weighted
Average
Remaining
Life (Years)		      Aggregate
Intrinsic Value
(In thousands)		  

Outstanding at June 30, 2011

      497,810      $ 17.19       $ 6.44         5.7       $ 61  

Granted

      —        $ —         $ —           —         $ —     

Cancelled/forfeited

      (94,381 )    $ 21.17       $ 6.33         —         $ —     
  

 

 

             

Outstanding at September 30, 2011

      403,429      $ 16.26       $ 6.46         5.7       $ —     
  

 

 

             

Vested and exercisable, September 30, 2011

      90,321      $ 20.79       $ 6.28         4.3       $ —     

Vested and expected to vest, September 30, 2011

      385,961      $ 16.29       $ 6.44         5.7       $ —     

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $5.51 at September 30, 2011, representing the last trading day of the quarter, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of that date. As of September 30, 2011, there was approximately $1.4 million of unrecognized compensation cost related to stock options and no shares vested during the three months ended September 30, 2011. Compensation expense recognized in general and administrative expenses in each of the three month periods ended September 30, 2011 and 2010 was $ 0.3 million and $0.2 million, respectively.

 

Restricted Stock

Shares of restricted stock generally vest at the end of three years from the grant date for eligible employees and officers who are employees, with the exception of 10,384 shares of restricted stock granted to Patrick G. Criteser, the Company’s Interim Co-Chief Executive Officer, which shares vest at one year from the date of grant. Shares of restricted stock generally vest ratably over a period of three years for directors and officers who are not employees. Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the restricted stock that is ultimately expected to vest. Restricted stock based compensation expense recognized in general and administrative expenses was $0.1 million for the fiscal quarters ended September 30, 2011 and 2010. As of September 30, 2011, there was approximately $1.0 million of unrecognized compensation cost related to restricted stock. No shares of restricted stock vested during the three months ended September 30, 2011. The following table summarizes restricted stock activity for the three months ended September 30, 2011:

 

(Unaudited)

    Shares
Awarded		     Weighted
Average
Grant  Date
Fair Value		      Weighted
Average
Remaining Life
(Years)		      Aggregate
Intrinsic
Value
(In thousands)		  

Outstanding at June 30, 2011

      80,687      $ 17.31         2.6       $ 818   

Granted

      —        $ —           —         $ —     

Vested

      —        $ —           —         $ —     

Cancelled/forfeited

      (480 )    $ 18.28         —         $ 4   
  

 

 

          

Outstanding at September 30, 2011

      80,207      $ 17.30         1.8       $ 442   
  

 

 

          

Expected to vest, September 30, 2011

      70,499      $ 17.24         1.8       $ 388