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 months ended September 27, 2013 and September 28, 2012, 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 27, 2013		September 28, 2012
Cost of services		$	501	$	355
General and administrative expenses		654		554
	Total stock-based compensation expense	$	1,155	$	909

The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying condensed consolidated statements of cash flows. This requirement reduces reported operating cash flows and increases reported financing cash flows. As a result, net financing cash flows included $3,050 and $155 for the three months ended September 27, 2013 and September 28, 2012, respectively, from the benefits of tax deductions in excess of recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the additional paid-in capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.

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. There were no stock options granted during the three months ended September 27, 2013 and September 28, 2012.

A summary of stock option activity for the three months ended September 27, 2013 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, 2013 (695 exercisable)	707	$	9.69
Outstanding options as of September 27, 2013	707	$	9.69	1.8	$	511
Options exercisable as of September 27, 2013	696	$	9.77	1.7	$	474
Options vested and expected to vest as of September 27, 2013	706	$	9.69	1.7	$	511
Shares available for future grants	2,430

The aggregate intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or as of September 27, 2013 (for outstanding options), less the applicable exercise price. The closing price of the Company's common stock on the New York Stock Exchange was $7.71 as of September 27, 2013.

As of September 27, 2013, there was $20 of total unrecognized compensation expense related to unvested stock option grants under the Plans, and this expense is expected to be recognized over a weighted-average period of 2.0 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 three months ended September 27, 2013 is as follows:



		Weighted-
	Restricted	Average
	Stock	Grant Date
	Awards	Fair Value
Non-vested awards as of June 30, 2013	16	$	5.21
Non-vested awards as of September 27, 2013	16	$	5.21

As of September 27, 2013, there was $61 of total unrecognized compensation expense related to unvested RSA's under the Plans, and this expense is expected to be recognized over a weighted-average period of 2.7 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 three months ended September 27, 2013 is as follows:



			Weighted-
	Restricted		Average
	Stock		Grant Date
	Units		Fair Value
Non-vested units as of June 30, 2013	1,306		$	4.87
Units granted	5		$	8.04
Units vested	(382	)	$	4.72
Non-vested units as of September 27, 2013	929		$	4.95

RSU grants totaled 5 shares with a total weighted-average grant date fair value of $40 during the three months ended September 27, 2013. There were no RSU grants during the three months ended September 28, 2012. The total fair value of RSU's vested during the three months ended September 27, 2013 was $2,859. The total fair value of RSU's vested during the three months ended September 28, 2012 was $1,843.

As of September 27, 2013, there was $3,688 of total unrecognized compensation expense related to unvested RSU's under the Plans, and this expense is expected to be recognized over a weighted-average period of 2.3 years.

Performance Stock Units

Compensation expense for PSU's 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.

The number of PSU's earned is determined based on the Company's performance against predefined targets. The range of payout is zero to 150% of the number of granted PSU's. The number of PSU's earned is determined based on actual performance at the end of the performance period. There were no PSU grants during the three months ended September 27, 2013 and September 28, 2012. The total fair value of PSU's vested during the three months ended September 27, 2013 and September 28, 2012, was $2,207 and $2,693, respectively.

At September 27, 2013, there was $2,403 of total unrecognized compensation expense related to non-vested PSU's; this expense is expected to be recognized over a weighted-average period of 1.6 years.

A summary of non-vested PSU activity for the three months ended September 27, 2013 is as follows:



							Weighted-
	PSU				Total		Average
	Original		PSU		PSU		Grant Date
	Awards		Adjustments (1)		Awards		Fair Value
Non-vested units as of June 30, 2013	853		—		853		$	5.18
Units granted	—		32		32		$	7.40
Units vested	(266	)	(32	)	(298	)	$	4.16
Units forfeited	(34	)	—		(34	)	$	7.41
Non-vested units as of September 27, 2013	553		—		553		$	5.51


(1)	Represents the additional number of PSU's issued based on the final performance condition achieved at the end of the performance period.