Stock-Based Compensation

The Company has two plans under which stock-based awards have been issued: the TRC Companies, Inc. Restated Stock Option Plan (the "Restated Plan"), and the Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"), collectively, ("the Plans"). The Company issues new shares or utilizes treasury shares, when available, to satisfy awards under the Plans. Awards are made by the Compensation Committee of the Board of Directors, however, the Compensation Committee has delegated to the Chief Executive Officer ("CEO") the authority to grant awards for up to 10 shares to employees subject to a limitation of 100 shares in any 12 month period.

Stock-based awards under the Plans consist of stock options, restricted stock awards (“RSA's”), restricted stock units (“RSU's”) and performance stock units (“PSU's”).

Stock-Based Compensation

The Company measures stock-based compensation cost at the grant date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's consolidated statements of operations. Stock-based compensation expense includes the estimated effects of forfeitures, and estimates of forfeitures will be adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of expense to be recognized in future periods. During the three months ended September 30, 2011 and September 24, 2010, the Company recognized stock-based compensation expense in cost of services and general and administrative expenses within the condensed consolidated statements of operations as follows:



	Three Months Ended
	September 30, 2011		September 24, 2010
Cost of services	$	563	$	315
General and administrative expenses	936		406
Total stock-based compensation expense	$	1,499	$	721

Stock Options

The Company uses the Black-Scholes option pricing model for determining the estimated grant date fair value for stock options. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company's employee stock options. The average expected life is based on the contractual term of the option and expected employee exercise and historical post-vesting employment termination experience. The Company estimates the volatility of its stock using historical volatility in accordance with current accounting guidance. Management determined that historical volatility of TRC common stock is most reflective of market conditions and the best indicator of expected volatility. The dividend yield assumption is based on the Company's historical and expected dividend payouts. There were no stock options granted during the three months ended September 30, 2011 and September 24, 2010 therefore no assumptions were used to value stock options.

A summary of stock option activity for the three months ended September 30, 2011 under the Plans is as follows:



					Weighted
					Average
			Weighted		Remaining	Aggregate
			Average		Contractual	Intrinsic
			Exercise		Term	Value
	Options		Price		(in years)	(in thousands)
Outstanding options as of June 30, 2011 (805 exercisable)	923		$	10.94
Options expired	(29	)	$	21.19
Outstanding options as of September 30, 2011	894		$	10.61	3.3	$	19
Options exercisable as of September 30, 2011	828		$	11.12	3.2	$	10
Options vested and expected to vest as of September 30, 2011	891		$	10.63	3.2	$	19
Shares available for future grants	1,082

The aggregate intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or as of September 30, 2011 (for outstanding options), less the applicable exercise price. The closing price of the Company's common stock on the New York Stock Exchange was $3.01 as of September 30, 2011. There were no options exercised during the three month periods ended September 30, 2011 and September 24, 2010.

As of September 30, 2011, there was $89 of total unrecognized compensation expense related to non-vested stock option grants under the Plans, and this expense is expected to be recognized over a weighted-average period of 1.6 years.

Restricted Stock Awards

Compensation expense for RSA's granted to employees is recognized ratably over the vesting term, which is generally four years. The fair value of the RSA's is determined based on the closing market price of the Company's common stock on the grant date. There were no RSA grants during the three month periods ended September 30, 2011 and September 24, 2010. During the three months ended September 30, 2011, 193 shares vested with a fair value of $822.

A summary of non-vested RSA activity for the three months ended September 30, 2011 is as follows:



			Weighted
	Restricted		Average
	Stock		Grant Date
	Awards		Fair Value
Non-vested awards as of June 30, 2011	399		$	3.47
Awards vested	(193	)	$	4.07
Non-vested awards as of September 30, 2011	206		$	2.90

As of September 30, 2011, there was $541 of total unrecognized compensation expense related to non-vested RSA's under the Plans which is expected to be recognized over a weighted-average period of 1.1 years.

Restricted Stock Units

Compensation expense for RSU's granted to employees is recognized ratably over the vesting term, which is generally four years. The fair value of RSU's is determined based on the closing market price of the Company's common stock on the grant date. RSU grants totaled 557 shares at a weighted-average grant date fair value of $4.92 per share during the three months ended September 30, 2011. During the three months ended September 30, 2011, 307 shares vested with a fair value of $1,067. RSU grants totaled 551 shares at a weighted-average grant date fair value of $2.88 per share for the three months ended September 24, 2010.

A summary of non-vested RSU activity for the three months ended September 30, 2011 is as follows:



			Weighted
	Restricted		Average
	Stock		Grant Date
	Units		Fair Value
Non-vested units as of June 30, 2011	1,162		$	3.00
Units granted	557		$	4.92
Units vested	(307	)	$	3.19
Non-vested units as of September 30, 2011	1,412		$	3.71

As of September 30, 2011, there was $4,986 of total unrecognized compensation expense related to non-vested RSU's, and this expense is expected to be recognized over a weighted-average period of 3.2 years.

Performance Stock Units

Compensation expense for PSU's granted to employees is recognized if and when the Company concludes that it is probable that the performance condition will be achieved. The Company reassesses the probability of vesting at each reporting period for awards with performance conditions and adjusts compensation expense based on its probability assessment. The fair value of the PSU's is determined based on the closing market price of the Company's common stock on the grant date. During the three months ended September 30, 2011, the Company granted 713 PSU's to employees at a weighted-average grant date fair value of $5.13. The PSU's vest over four years upon meeting certain financial targets for the fiscal year ending June 30, 2012. During the three months ended September 30, 2011, 138 shares vested with a fair value of $522.

As of September 30, 2011, the Company determined that the achievement of the performance condition of the PSU's granted during the three months ended September 30, 2011 is probable, and therefore $313 of compensation expense was recorded during the three months ended September 30, 2011.

A summary of non-vested PSU activity for the three months ended September 30, 2011 is as follows:



			Weighted
	Performance		Average
	Stock		Grant Date
	Units		Fair Value
Non-vested units as of June 30, 2011	551		$	2.88
Units granted	713		$	5.13
Units vested	(138	)	$	2.88
Non-vested units as of September 30, 2011	1,126		$	4.30

As of September 30, 2011, there was $4,635 of total unrecognized compensation expense related to non-vested PSU's under the Plans, and this expense is expected to be recognized over a weighted-average period of 3.1 years.