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 condensed 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 and nine months ended March 30, 2012 and March 25, 2011, 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				Nine Months Ended
	March 30, 2012		March 25, 2011		March 30, 2012		March 25, 2011
Cost of services	$	364	$	240	$	1,219	$	819
General and administrative expenses	1,720		316		3,270		1,116
Total stock-based compensation expense	$	2,084	$	556	$	4,489	$	1,935

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 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. The assumptions used to value stock options granted for the three and nine months ended March 30, 2012 and March 25, 2011 are as follows:



	Three Months Ended		Nine Months Ended
	March 30, 2012	March 25, 2011	March 30, 2012	March 25, 2011
Risk-free interest rate	0.66%	1.57% - 1.81%	0.66%	1.57% - 1.81%
Expected life	4.0 years	4.0 years	4.0 years	4.0 years
Expected volatility	80.8%	76.6% - 77.0%	80.8%	76.6% - 77.0%
Expected dividend yield	None	None	None	None
Weighted-average fair value of options granted	$2.56	$2.09	$2.56	$2.09

A summary of stock option activity for the nine months ended March 30, 2012 under the Plans is as follows:



					Weighted
					Average
			Weighted		Remaining
			Average		Contractual	Aggregate
			Exercise		Term	Intrinsic
	Options		Price		(in years)	Value
Outstanding options as of June 30, 2011 (805 exercisable)	923		$	10.94
Options granted	3		$	4.35
Options expired	(141	)	$	19.37
Outstanding options as of March 30, 2012	785		$	9.41	3.2	$	334
Options exercisable as of March 30, 2012	740		$	9.75	3.1	$	232
Options vested and expected to vest as of March 30, 2012	783		$	9.42	3.2	$	330
Shares available for future grants	1,070

The aggregate intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or as of March 30, 2012 (for outstanding options), less the applicable exercise price. The closing price of the Company's common stock on the New York Stock Exchange was $6.11 as of March 30, 2012. There were no options exercised during the three and nine months ended March 30, 2012 and March 25, 2011.

As of March 30, 2012, there was $53 of total unrecognized compensation expense related to non-vested stock option grants under the Plans; this expense is expected to be recognized over a weighted-average period of 1.9 years.

Restricted Stock Awards

Compensation expense for RSA's 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.

A summary of non-vested RSA activity for the nine months ended March 30, 2012 is as follows:



			Weighted
	Restricted		Average
	Stock		Grant Date
	Awards		Fair Value
Non-vested awards as of June 30, 2011	399		$	3.47
Awards granted	11		$	3.60
Awards vested	(213	)	$	3.96
Awards forfeited	(3	)	$	3.67
Non-vested awards as of March 30, 2012	194		$	2.94

RSA grants totaled 11 shares with a weighted-average grant date fair value of $38 during the nine months ended March 30, 2012. RSA grants totaled 5 shares at a weighted average grant date fair value of $18 during the three and nine months ended March 25, 2011. The total fair value of RSA's vested during the three and nine months ended March 30, 2012 was $136 and $958, respectively. The total fair value of RSA's vested during the three and nine months ended March 25, 2011 was $70 and $617, respectively.

As of March 30, 2012, there was $318 of total unrecognized compensation expense related to non-vested RSA's under the Plans; this expense is expected to be recognized over a weighted-average period of 0.8 years.

Restricted Stock Units

Compensation expense for RSU's 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.

A summary of non-vested RSU activity for the nine months ended March 30, 2012 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	662		$	4.88
Units vested	(393	)	$	3.11
Non-vested units as of March 30, 2012	1,431		$	3.84

RSU grants totaled 22 and 662 shares with a weighted-average grant date fair value of $128 and $3,229 during the three and nine months ended March 30, 2012, respectively. RSU grants totaled 791 shares with a weighted-average grant date fair value of $2,116 during the nine months ended March 25, 2011. The total fair value of RSU's vested during the three and nine months ended March 30, 2012 was $146 and $1,448, respectively. The total fair value of RSU's vested during the three and nine months ended March 25, 2011 was $112 and $628, respectively.

At March 30, 2012, there was $4,533 of total unrecognized compensation expense related to non-vested RSU's; this expense is expected to be recognized over a weighted-average period of 2.7 years.

Performance Stock Units

Compensation expense for PSU's is recognized if and when the Company concludes that it is probable that the performance conditions 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.

A summary of non-vested PSU activity for the nine months ended March 30, 2012 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	734		$	5.15
Units vested	(139	)	$	2.88
Non-vested units as of March 30, 2012	1,146		$	4.34

PSU grants totaled 22 and 734 shares with a weighted-average grant date fair value of $128 and $3,785 during the three and nine months ended March 30, 2012, respectively. Certain of the PSU's vest over four years, with others vesting immediately, upon meeting certain financial targets for the fiscal year ending June 30, 2012. PSU grants totaled 551 shares with a weighted-average grant date fair value of $1,587 during the nine months ended March 25, 2011. The total fair value of PSU's vested during the three and nine months ended March 30, 2012 was $7 and $529, respectively. No PSU's vested during the three and nine months ended March 25, 2011.

As of March 30, 2012, the Company determined that the achievement of the performance conditions of the PSU's granted during the nine months ended March 30, 2012 is probable, and therefore $1,461 and $2,069 of compensation expense was recorded during the three and nine months ended March 30, 2012.

At March 30, 2012, there was $3,661 of total unrecognized compensation expense related to non-vested PSU's; this expense is expected to be recognized over a weighted-average period of 1.3 years.