TESSCO TECHNOLOGIES INC (Form: 10-Q, Received: 11/06/2015 16:31:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 2 7 , 2015 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission File Number: 0-24746

TESSCO Technologies Incorporated

(Exact name of registrant as specified in its charter)


Delaware	52-0729657
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)


11126 McCormick Road, Hunt Valley, Maryland	21031
(Address of principal executive offices)	(Zip Code)

(410) 229-1000

(Registrant’s telephone number, including area code)

I ndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of October 30, 2015 , was 8, 273,116 .

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TESSCO Technologies Incorporated

Index to Form 10-Q


Part I	FINANCIAL INFORMATION		Page

	Item 1.	Financial Statements.	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	24

	Item 4.	Controls and Procedures.	25

Part II	OTHER INFORMATION

	Item 1.	Legal Proceedings.	26

	Item 1A.	Risk Factors.	26

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26

	Item 3.	Defaults Upon Senior Securities.	26

	Item 4.	Mine Safety Disclosures.	26

	Item 5.	Other Information.	26

	Item 6.	Exhibits.	27

	Signature		28

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PART I. FINANCIAL INFORMATIO N

Item 1. Financial Statements .

TESSCO Technologies Incorporated

Consolidated Balance Sheets


	September 27,		March 29,
	2015		2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,966,700	$	7,524,000
Trade accounts receivable, net		66,164,700		59,572,100
Product inventory, net		75,099,700		72,363,600
Deferred tax assets		3,875,000		3,856,000
Prepaid expenses and other current assets		6,868,500		10,868,900
Total current assets		157,974,600		154,184,600

Property and equipment, net		20,527,100		21,111,800
Goodwill, net		11,684,700		11,684,700
Other long-term assets		2,619,600		2,619,600
Total assets	$	192,806,000	$	189,600,700

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	56,449,000	$	51,804,200
Payroll, benefits and taxes		6,165,200		5,531,900
Income and sales tax liabilities		2,217,100		1,832,400
Accrued expenses and other current liabilities		5,150,800		8,688,500
Revolving line of credit		—		—
Current portion of long-term debt		250,900		250,700
Total current liabilities		70,233,000		68,107,700

Deferred tax liabilities		3,360,100		3,360,100
Long-term debt, net of current portion		1,831,900		1,957,500
Other long-term liabilities		2,764,800		3,033,300
Total liabilities		78,189,800		76,458,600

Shareholders’ equity:
Preferred stock, $0.01 par value, 500,000 shares authorized and no shares issued and outstanding		—		—
Common stock $0.01 par value, 15,000,000 shares authorized, 13,934,332 shares issued and 8,242,439 shares outstanding as of September 27, 2015, and 13,817,239 shares issued and 8,159,592 shares outstanding as of March 29, 2015		97,400		96,100
Additional paid-in capital		57,679,800		56,517,600
Treasury stock, at cost, 5,691,932 shares outstanding as of September 27, 2015 and 5,657,647 shares outstanding as of March 29, 2015		(57,134,800)		(56,307,900)
Retained earnings		113,973,800		112,836,300
Total shareholders’ equity		114,616,200		113,142,100
Total liabilities and shareholders’ equity	$	192,806,000	$	189,600,700

See accompanying notes.

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TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Income


	Fiscal Quarters Ended				Six Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014

Revenues	$	142,353,300	$	148,521,800	$	277,017,300	$	301,468,100
Cost of goods sold		108,491,600		113,085,800		210,919,700		230,783,300
Gross profit		33,861,700		35,436,000		66,097,600		70,684,800
Selling, general and administrative expenses		29,215,400		29,569,400		58,591,800		58,745,800
Income from operations		4,646,300		5,866,600		7,505,800		11,939,000
Interest expense, net		47,100		49,400		93,400		77,800
Income before provision for income taxes		4,599,200		5,817,200		7,412,400		11,861,200
Provision for income taxes		1,850,900		2,303,600		2,968,800		4,676,200
Net income	$	2,748,300	$	3,513,600	$	4,443,600	$	7,185,000
Basic earnings per share	$	0.33	$	0.42	$	0.54	$	0.87
Diluted earnings per share	$	0.33	$	0.42	$	0.54	$	0.86

Cash dividends declared per common share	$	0.20	$	0.20	$	0.40	$	0.40

See accompanying notes.

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TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Cash Flows


	Six Months Ended
	September 27, 2015		September 28, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,443,600	$	7,185,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,338,500		2,352,900
Gain on sale of property and equipment		—		(3,000)
Non-cash stock-based compensation expense		399,700		677,600
Deferred income taxes and other		(287,500)		(216,300)
Change in trade accounts receivable		(6,592,600)		(13,169,800)
Change in product inventory		(2,736,100)		(19,882,700)
Change in prepaid expenses and other current assets		4,000,400		(1,141,700)
Change in trade accounts payable		4,644,800		22,769,900
Change in payroll, benefits and taxes		633,300		(2,341,900)
Change in income and sales tax liabilities		384,700		(235,300)
Change in accrued expenses and other current liabilities		(3,365,500)		347,800
Net cash provided by (used in) operating activities		3,863,300		(3,657,500)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,753,800)		(1,338,900)
Proceeds from sale of property and equipment		—		3,000
Net cash used in investing activities		(1,753,800)		(1,335,900)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(125,400)		(125,100)
Proceeds from issuance of stock		81,200		109,200
Cash dividends paid		(3,306,100)		(3,332,200)
Purchases of treasury stock and repurchases of common stock from employees and directors for minimum tax withholdings		(826,900)		(1,642,800)
Excess tax benefit from stock-based compensation		510,400		1,173,300
Net cash used in financing activities		(3,666,800)		(3,817,600)

Net decrease in cash and cash equivalents		(1,557,300)		(8,811,000)

CASH AND CASH EQUIVALENTS, beginning of period		7,524,000		11,467,900

CASH AND CASH EQUIVALENTS, end of period	$	5,966,700	$	2,656,900

See accompanying notes.

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TESSCO Technologies Incorporated

Notes to Unaudited Consolidated Financial Statements

Note 1. Description of Business and Basis of Presentation

TESSCO Technologies Incorporated, a Delaware corporation (TESSCO, we, our, or the Company), architects and delivers innovative product and value chain solutions to support wireless broadband systems. The Company provides marketing and sales services, knowledge and supply chain management, product-solution delivery and control systems, utilizing extensive Internet and information technology. Approximately 98% of the Company’s sales are made to customers in the United States. The Company takes orders in several ways, including phone, fax, online and through electronic data interchange. Almost all of the Company’s sales are made in United States Dollars.

In management’s opinion, the accompanying interim consolidated financial statements of the Company include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the Company’s financial position for the interim periods presented. These statements are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been omitted from these statements, as permitted under the applicable rules and regulations. The results of operations presented in the accompanying interim consolidated financial statements are not necessarily representative of operations for an entire year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 .

Note 2. Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The accounting standard is effective for fiscal years, and interim periods within those years, beginning after December 1 5 , 2017. Early adoption is permitted as of the original effective date, December 1 5 , 2016. The Company is currently in the process of evaluating the methods of adoption allowed by the ASU and assessing its impact on t he Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be adopted on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures.

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Note 3. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal quarter and six months ended September 27, 2015 include $268,000 and $399,700, respectively, of non-cash stock-based compensation expense. The Company’s selling, general and administrative expenses for the fiscal quarter and six months ended September 28, 2014 include $228,000 and $677,600, respectively, of non-cash stock-based compensation expense. Stock-based compensation expense is primarily related to our Performance Stock Unit (PSU) Program. In addition, the Company recorded an excess tax benefit directly to shareholders’ equity of $510,400 and $1,173,300, primarily related to the PSUs which vested during the six months ended September 27, 2015 and September 28, 2014, respectively.

Performance Stock Units: The following table summarizes the activity under the Company’s PSU program for the first six months of fiscal 2016:


	Six Months	Weighted
	Ended	Average Fair
	September 27,	Value at Grant
	2015	Date (per unit)
Unvested shares available for issue under outstanding PSUs, beginning of period	203,841	$	20.65
PSU’s Granted	103,000		22.15
PSU’s Vested	(87,107)		13.84
PSU’s Forfeited/Cancelled	(80,268)		28.57
Unvested shares available for issue under outstanding PSUs, end of period	139,466	$	21.45

Of the 139,466 unvested shares available for issue under outstanding PSUs as of September 27, 2015, 36,466 shares have been earned in respect of the applicable measurement year, and assuming the respective participants remain employed by or associated with the Company on these dates, the shares earned in respect of each measurement year will vest and be issued in installments beginning on or about May 1 of the fiscal year immediately following the applicable measurement year and continuing on or about May 1 of each of the three succeeding fiscal years.

The remaining 103,000 unvested shares available for issue under outstanding PSUs as of September 27, 2015 are issuable pursuant to PSUs granted during fiscal 2016 to select key employees. These PSUs were granted by the Compensation Committee of the Board of Directors with concurrence of the full Board of Directors and provide the employees with the opportunity to earn up to 103,000 additional shares of the Company’s common stock in the aggregate, depending upon whether certain earnings per share targets are met, and subject to individual performance. These not yet earned PSUs have a one year measurement period (fiscal 2016), and any shares earned at the end of fiscal 2016 will vest and be issued ratably on or about May 1 of 2016, 2017, 2018 and 2019, provided that the respective employees remain employed by or associated with the Company on each date.

The PSUs cancelled during fiscal 2016 related primarily to the fiscal 2015 grant of PSUs, which had a one year measurement period (fiscal 2015). The PSUs were cancelled because the applicable fiscal 2015 performance targets were not fully attained. Per the provisions of the 1994 Plan, the shares related to these forfeited and cancelled PSUs were added back to the 1994 Plan and became available for future issuance.

If the entire number of PSUs granted in fiscal 2016 is assumed to be earned, total unrecognized compensation costs, on these PSUs plus all earned but unvested PSUs would be approximately $2.3 million, net of estimated forfeitures, as of September 27, 2015, and would be expensed through fiscal 2019. To the extent the actual forfeiture rate is different from what is anticipated or the maximum number of PSUs granted in fiscal 2016 is

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not earned, stock-based compensation related to these awards will be different from this amount.

Restricted Stock/Restricted Stock Units: In fiscal 2007, the Company granted 225,000 shares of the Company’s common stock to its Chairman and Chief Executive Officer as a restricted stock award under the 1994 Plan. These shares were issued (subject to the risk of forfeiture) and vest ratably over ten fiscal years based on service, beginning on the last day of fiscal 2007 and ending on the last day of fiscal 2016, subject, however, to the terms applicable to the award, including terms providing for possible acceleration of vesting upon death, disability, change in control or certain other events. The fair value for these shares at the grant date was $10.56 per share. There was no activity related to these restricted shares during the first six months of fiscal 2016. As of September 27, 2015, 22,500 of these restricted shares remained unvested, and there was approximately $0.1 million of total unrecognized compensation costs, net of estimated forfeitures, related to these shares. Unrecognized compensation costs are expected to be recognized ratably over a remaining period of approximately one year.

In addition the Company has issued restricted stock units (RSUs) to its non-employee directors. On May 11, 2015, the Compensation Committee, with the concurrence of the full Board of Directors, awarded an aggregate of 10,000 RSUs to the non-employee directors of the Company. These awards provide for the issuance of shares of the Company’s common stock in accordance with a four year annual vesting schedule, from the date of grant, provided that the director remains associated with the Company (or meets other criteria as prescribed in the applicable award agreement) on each such date. As of September 27, 2015, there was approximately $0.5 million of total unrecognized compensation cost, net of estimated forfeitures, related to all outstanding restricted stock unit awards, including the May 11, 2015 grant. Unrecognized compensation costs are expected to be recognized ratably over a remaining period of approximately three years.

PSUs and RSUs are expensed based on the grant date fair value, calculated as the closing price of TESSCO common stock as reported by NASDAQ on the date of grant minus the present value of dividends expected to be paid on the common stock before the award vests, because dividends or dividend-equivalent amounts do not accrue and are not paid on unvested PSUs and RSUs. Dividends do, however, accrue on both the vested and unvested shares subject to the restricted stock award made to the Company’s Chairman.

To the extent the actual forfeiture rates are different from what is estimated, stock-based compensation related to the restricted awards will be different from the Company’s expectations.

Stock Options: On July 21, 2015 the Compensation Committee of the Board of Directors, with the concurrence of the full Board of Directors, granted a total of 80,000 stock options to select employees with an exercise price of $22.64. The options will vest over four years, 25.0% on July 21, 2016 and 2.1% each month thereafter for an additional 36 months, and will expire on July 21, 2020, provided that the respective employees remain employed by the C ompany on the respective vesting dates.

The fair value of the Company’s stock options has been determined using an acceptable pricing model, the Black-Scholes-Merton option pricing model, based upon facts and assumptions existing at the date of grant. Outstanding stock options have exercise prices equal to the market price of the Company’s common stock on the grant date.

The fair value of each option at the date of grant is amortized as compensation expense over the option service or vesting period. This occurs without regard to subsequent changes in stock price, volatility or interest rates over time, provided that the option remains outstanding. As of September 27, 2015, there was approximately $0.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to all outstanding stock options. As of September 27, 2015, none of the outstanding stock options have vested.

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Note 4. Borrowings Under Revolving Credit Facility

On September 24, 2015, the Company and its primary operating subsidiaries, as borrowers, entered into a Tenth Modification Agreement (the “Tenth Modification”) with SunTrust Bank and Wells Fargo Bank, National Association, amending the Credit Agreement, and related Note, for the Company's existing $35.0 million unsecured revolving credit facility.

Pursuant to the Tenth Modification, the term of the credit facility was extended from October 1, 2016 to October 1, 2018; the aggregate amount of cash dividend payments allowed under the credit facility to be made in any 12-month period by the Company, assuming continued compliance with the otherwise applicable terms of the Credit Agreement, was increased from $8 million to $9 million; and certain definitions and financial covenants were modified. In addition, the credit facility now contains an accordion feature that permits the lenders’ aggregate commitment to be increased to a maximum of $45.0 million, subject to the lenders’ discretion and other customary conditions.

Note 5 . Fair Value Disclosure

Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the inputs used in pricing the asset or liability.

The Company had no assets or liabilities required to be measured at fair value as of September 27, 2015 or as of March 29, 2015.

The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses and other current liabilities approximate their fair values as of September 27, 2015 and March 29, 2015 due to their short term nature.

Fair value of long-term debt is calculated using current market interest rates, which we consider to be a Level 2 input as described in the fair value accounting guidance on fair value measurements, and future principle payments, as of September 27, 2015 and March 29, 2015 is estimated as follows:


	September 27, 2015				March 29, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Note payable to a Bank	$	1,987,500	$	1,803,200	$	2,100,000	$	2,031,400
Note payable to Baltimore County	$	95,300	$	90,800	$	108,200	$	102,300

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Note 6 . Income Taxes

As of September 27, 2015 , the Company had a gross amount of unrecognized tax benefits of $399,600 ($25 9 , 7 00 net of federal benefit). As of March 29, 2015, the Company had a gross amount of unrecognized tax benefits of $394,400 ($256,400 net of federal benefit).

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as part of the provision for income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for the first six months of fiscal 2016 was $31,800 (net of federal benefit). The cumulative amount included in the consolidated balance sheet as of September 27, 2015 was $3 55,000 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for the first six months of fiscal 2015 was $33,100 (net of federal benefit). The cumulative amount of interest and penalties included in the consolidated balance sheet as of March 29, 2015 was $323,800 (net of federal benefit).

A reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest is as follows:



Beginning balance at March 29, 2015 of unrecognized tax benefit	$	394,400
Increases related to current period tax positions		5,200
Ending balance at September 27, 2015 of unrecognized tax benefits	$	399,600

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Note 7 . Earnings Per Share

The Company calculates earnings per share considering the Accounting Standard Codification No. 260 regarding accounting for participating securities, which requires the Company to use the two-class method to calculate earnings per share. Under the two-class method, earnings per common share is computed by dividing the sum of the distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

The following table presents the calculation of basic and diluted earnings per common share:


	Fiscal Quarter Ended				Six Months Ended
Amounts in thousands, except per share amounts	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
Earnings per share – Basic:
Net earnings	$	2,748	$	3,514	$	4,444	$	7,185
Less: Distributed and undistributed earnings allocated to nonvested stock		(7)		(19)		(12)		(39)
Earnings available to common shareholders – Basic	$	2,741	$	3,495	$	4,432	$	7,146

Weighted average common shares outstanding – Basic		8,238		8,279		8,219		8,252

Earnings per common share – Basic	$	0.33	$	0.42	$	0.54	$	0.87

Earnings per share – Diluted:
Net earnings	$	2,748	$	3,514	$	4,444	$	7,185
Less: Distributed and undistributed earnings allocated to nonvested stock		(7)		(19)		(8)		(29)
Earnings available to common shareholders – Diluted	$	2,741	$	3,495	$	4,436	$	7,156

Weighted average common shares outstanding – Basic		8,238		8,279		8,219		8,252
Effect of dilutive options		32		106		41		106
Weighted average common shares outstanding – Diluted		8,270		8,385		8,260		8,358

Earnings per common share – Diluted	$	0.33	$	0.42	$	0.54	$	0.86

Anti-dilutive equity awards not included above		80,000		—		80,000		—

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Note 8. Business Segments

The Company evaluates its business as one segment, as the chief operating decision maker assesses performance and allocates resources on a consolidated basis. However, to provide investors with increased visibility into the markets it serves, the Company also reports revenue and gross profit by the following customer market units: (1) public carriers, contractors and program managers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; (2) government system operators including federal agencies and state and local governments that run wireless networks for their own use; (3) private system operators including commercial entities such as enterprise customers, major utilities and transportation companies; (4) commercial dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment primarily for the enterprise market; and (5) retailers, independent dealer agents and carriers. Beginning in the third quarter of fiscal 2015, the Company began reporting private system operators and government system operators as two separate market units. All prior periods have been restated to reflect this change.

To provide investors with better visibility, the Company also discloses revenue and gross profit by its four product categories:

Base station infrastructure products are used to build, repair and upgrade wireless telecommunications systems . Products include base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, miscellaneous hardware, and mobile antennas. Our base station infrastructure service offering includes connector installation, custom jumper assembly, site kitting and logistics integration.

Network systems products are used to build and upgrade computing and Internet networks. Products include fixed and mobile broadband equipment, distributed antenna systems (DAS), wireless networking, filtering systems, two-way radios and security and surveillance products. This product category also includes training classes, technical support and engineering design services.

Installation, test and maintenance products are used to install, tune, maintain and repair wireless communications equipment. Products include sophisticated analysis equipment and various

frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware, GPS, safety and replacement and component parts and supplies required by service technicians.

Mobile device accessories include cellular phone and data device accessories such as replacement batteries, cases, speakers, mobile amplifiers, power supplies, headsets, mounts, car antennas, music accessories and data and memory cards. Retail merchandising displays, promotional programs, customized order fulfillment services and affinity-marketing programs, including private label Internet sites, complement our mobile devices and accessory product offering.

The Company evaluates revenue, gross profit, and income before provision for income taxes at a consolidated level. Certain cost of sales and other applicable expenses have been allocated to each market unit or product type based on a percentage of revenues and/or gross profit, where appropriate.

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Market unit activity for the second quarter and first six months of fiscal years 2016 and 2015 are as follows (in thousands):


	Three Months Ended
	September 27, 2015		September 28, 2014
Revenues
Public Carriers, Contractors & Program Managers	$	25,803	$	40,853
Government System Operators		8,782		8,154
Private System Operators		23,056		21,292
Commercial Dealers & Resellers		34,055		36,780
Retailer, Independent Dealer Agents & Carriers		50,657		41,443
Total revenues	$	142,353	$	148,522

Gross Profit
Public Carriers, Contractors & Program Managers	$	5,036	$	7,347
Government System Operators		2,293		2,282
Private System Operators		6,065		5,800
Commercial Dealers & Resellers		9,566		10,289
Retailer, Independent Dealer Agents & Carriers		10,902		9,718
Total gross profit	$	33,862	$	35,436

	Six Months Ended
	September 27, 2015		September 28, 2014
Revenues
Public Carriers, Contractors & Program Managers	$	50,954	$	82,271
Government System Operators		16,665		16,167
Private System Operators		45,078		42,283
Commercial Dealers & Resellers		67,543		75,064
Retailer, Independent Dealer Agents & Carriers		96,777		85,683
Total revenues	$	277,017	$	301,468

Gross Profit
Public Carriers, Contractors & Program Managers	$	10,089	$	14,540
Government System Operators		4,422		4,440
Private System Operators		12,228		11,555
Commercial Dealers & Resellers		19,098		20,926
Retailer, Independent Dealer Agents & Carriers		20,261		19,224
Total gross profit	$	66,098	$	70,685

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Supplemental revenue and gross profit information by product category for the second quarter and first six months of fiscal years 2016 and 2015 are as follows (in thousands):


	Three months ended		Three months ended
	September 27, 2015		September 28, 2014
Revenues
Base station infrastructure	$	56,275	$	64,129
Network systems		22,425		27,496
Installation, test and maintenance		9,012		10,663
Mobile device accessories		54,641		46,234
Total revenues	$	142,353	$	148,522

Gross Profit
Base station infrastructure	$	14,938	$	16,817
Network systems		3,943		4,174
Installation, test and maintenance		2,081		2,284
Mobile device accessories		12,900		12,161
Total gross profit	$	33,862	$	35,436

	Six months ended		Six months ended
	September 27, 2015		September 28, 2014
Revenues
Base station infrastructure	$	110,098	$	127,016
Network systems		43,619		58,040
Installation, test and maintenance		17,630		21,585
Mobile device accessories		105,670		94,827
Total revenues	$	277,017	$	301,468

Gross Profit
Base station infrastructure	$	30,257	$	33,892
Network systems		7,611		8,859
Installation, test and maintenance		3,926		4,817
Mobile device accessories		24,304		23,117
Total gross profit	$	66,098	$	70,685

Note 9 . Stock Buyback

On April 23, 2014, the Board of Directors expanded the Company’s existing stock buyback program and authorized the purchase on a non-accelerated basis of up to $10.0 million of the Company’s stock over a 24-month period, ending in April 2016. Shares may be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. No shares were purchased during the first six months of fiscal year 2016. As of September 27, 2015 , $5.4 million remained available for repurchase under this program.

Our revolving credit facility and term loan with SunTrust Bank and Wells Fargo Bank, National Association,

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limits the aggregate dollar value of shares that may be repurchased to $30.0 million. As of September 27, 2015 , the Company had the ability to purchase approximately $11.7 million in additional shares of common stock without violating this covenant.

The Company also withholds shares from its employees and directors at their request, equal to the minimum federal and state tax withholdings related to vested performance stock units, stock option exercises and restricted stock awards. For the six months ended September 27, 2015 and September 28, 2014 , the allocated value of the shares withheld totaled $827,000 and $1,4 11 , 800 , respectively.

Note 10 . Concentration of Risk

The Company’s future results could be negatively impacted by the loss of certain customer and/or vendor relationships.

For the fiscal quarter and six months ended September 27, 2015 , no customer accounted for more than 5.0% of total consolidated revenues. For the fiscal quarter and six months ended September 28, 2014 , American Tower Corporation accounted for 9.5 % and 9.8% of consolidated revenue.

For the fiscal quarter ended September 27, 2015 , sales of Otter Products LLC and CommScope Incorporated products accounted for 15.4 % and 11 .9% of consolidated revenue, respectively. For the six months ended September 27, 2015, sales of Otter Products LLC and CommScope Incorporated products accounted for 14.7% and 11.4% of consolidated revenue, respectively. For the fiscal quarter and six months ended September 28, 2014 , sales of CommScope Incorporated products accounted for 15.1 % and 16.4% of consolidated revenue , respectively.

Note 11. Subsequent Events

On October 7, 2015, the Company entered into a Fourth Modification Agreement with SunTrust Bank and Wells Fargo Bank, National Association, to extend the maturity date of the Company's existing term loan , secured by the Company’s Hunt Valley, Maryland facility, in the original principal amount of $4.5 million from July 1, 2016 to October 1, 2020. The principal balance of the term loan as of October 7, 2015 was $1,968,750.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . This commentary should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations from the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 .

Business Overview and Environment

TESSCO Technologies Incorporated (TESSCO, we, or the Company) architects and delivers innovative product and value chain solutions to support wireless broadband systems. Although we sell products to customers in many countries, approximately 98% of our sales are made to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.

We evaluate our business as one segment. However, to provide investors with increased visibility into the markets we serve, we also report revenue and gross profit by the following market units: (1) public carriers, contractors and program managers; (2) government system operators; ( 3 ) private system operators ; ( 4 ) commercial dealers and resellers , and ( 5 ) retailers, independent dealer agents and carriers . Beginning in the third quarter of fiscal 2015, we began reporting private system operators and government system operators as two separate market units. Our financial statements included here for all prior periods have been restated to reflect this change.

We offer a wide range of products that are classified into four product categories: base station infrastructure; network systems; installation, test and maintenance; and mobile device accessories. Base station infrastructure products are used to build, repair and upgrade wireless telecommunication s ystems . Sales of traditional base station infrastructure products, such as base station radios, cable and transmission lines and antennas are in part dependent on capital spending in the wireless communications industry. Network systems products are used to build and upgrade computing and Internet networks. We have also been growing our offering of wireless broadband, distributed antennas systems (DAS), network equipment, security and surveillance products, which are not as dependent on the overall capital spending of the industry. Installation, test and maintenance products are used to install, tune, and maintain wireless communications equipment. This category is made up of sophisticated analysis equipment and various frequency, voltage and power-measuring devices, replacement parts and components as well as an assortment of tools, hardware and supplies required by service technicians. Mobile device accessories products include cellular phone and data device accessories .

Our second quarter fiscal year 2016 revenue de creased by 4.2 % compared to the second quarter of fiscal year 201 5 . We experienced second quarter fiscal 2016 revenue growth within ou r retailers, independent dealer agents and carriers market of 22.2 % , compared to the same quarter last year, primarily due to business driven by our expanded relationship with Otter Products LLC and the iPhone 6s phone launch. We also experienced revenue growth in our government system operators and private systems operators market s of 7.7 % and 8.3%, respectively , for the second quarter of fiscal year 2016 as compared to the same quarter last year . However, the revenue growth in these markets was more than offset by a revenue decline in our commercial dealers and resellers market and public carriers, contractors and program managers market of 7.4 % and 36.8 %, respectively. These declines are due to a slowdown is spending of Tier 1 carriers and carrier related customers. This slowdown was also reflected on the product side with revenue declines in our base station infrastructure, network systems, and installation, test and maintenance product categories of 12.2 %, 18.4 % and 15.5 %, respectively , for the second quarter of fiscal year 2016, compared to the same quarter last year . Our second quarter fiscal year 2016 revenues did grow 5.7 % over the first quarter of fiscal year 201 6 , with growth in each of our markets.

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Our second quarter fiscal year 2016 gross profit declined by 4.4 % , compared to the second quarter of fiscal year 201 5 . The decline in gross profit was primarily the result of the decreased carrier spending mentioned above. Total selling, general and administrative expenses decreased by 1.2 % compared to the prior-year quarter . As a result, net income decreased by 21.8 % and diluted earnings per share decreased by 21.1 % compared to the prior-year quarter.

Our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions depends upon a number of factors. The terms, and accordingly the factors, applicable to each relationship often differ. Among these factors are the strength of the customer’s or vendor’s business, the supply and demand for the product or service, including price stability, changing customer or vendor requirements, and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our customer and vendor relationships are based are typically of limited duration, typically do not include any obligation in respect of any specific product purchase or sale and are terminable by either party upon several months or otherwise relatively short notice. Because of the nature of our business, we have been affected from time to time in the past by the loss and changes in the business habits of significant customer and vendor relationships, and we may continue to be so affected in the future. Our customer relationships could also be affected by wireless carrier consolidation or the overall global economic environment.

The wireless communications distribution industry is competitive and fragmented and is comprised of several national distributors. In addition, many manufacturers sell direct. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessories market, and the risk of new competitors entering the market is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. In addition, the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months, or otherwise short notice. Our ability to maintain these relationships is subject to competitive pressures and challenges. Because of the nature of our business, we have been affected from time to time in the past by the loss and changes in the business habits of significant customer and vendor relationships, and expect that we will continue to be so affected in the future. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, industry experience and knowledge, and our large customer base and purchasing relationships with approximately 400 manufacturers, provide us with a significant competitive advantage over new entrants to the market.

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Results of Operations

Second Quarter of Fiscal Year 201 6 Compared with Second Quarter of Fiscal Year 201 5

Total Revenues. Revenues for the second quarter of fiscal 201 6 de creased 4.2 % compared with the second quarter of fiscal 201 5 . Revenues in our retailers, independent dealer agents and carriers market increased by 22.2 % for the second quarter of fiscal 201 6, compared to the same period last year , primarily due to business driven by our expanded relationship with Otter Products LLC and the iPhone 6s phone launch. Otter recently reduced its number of distribution partners, providing us with more opportunities to distribute their products. Revenues in our private system operators market increased by 8.3 % for the second quarter of fiscal 2016, compared to the same period last year, primarily due to increased spending among our utility and railroad customers . Revenues in our government system operators market also increased by 7.7% for the second quarter of fiscal 2016, compared to the same period last year . However, the revenue growth in these markets was more than offset by a decrease in revenue within the public carrier, contractors and program managers market and the commercial dealers and resellers market o f 36.8% and 7.4 %, respectively . The se decreases in the public carrier and commercial dealer markets are driven primarily by a reduction in spending from Tier 1 carriers , and from customers working with and for these Tier 1 carriers, compared to last year. We expect the slowdown in carrier spending to continue during fiscal 2016, but to moderate as the year progresses.

Total Gross Profit. Gross profit for the second quarter of fiscal 201 6 decreased by 4.4 % compared to the second quarter of fiscal 201 5 . This decrease reflects a reduction in gross profit s in our public carriers , contractors, and program managers market and commercial dealers and resellers markets of 31.5% and 7.0 %, respectively, due to lower sales within these markets . This decrease was partially offset by an increase in gross profit in our private system operator s market and our retailers, independent dealer agents and carriers of 4.6% and 12.2%, respectively. Overall gross profit margin was relatively flat at 23. 8 % for the second quarter of fiscal 2016, compared to 23. 9 % for the same period last year .

As discussed above under the heading “Business Overview and Environment” our ongoing ability to earn revenues and gross profits from customers and vendors depends upon a number of factors which often differ for each relationship. Agreements or arrangements on which these relationships are based typically do not include any obligation in respect of any specific product purchase or sale, are of limited duration, and are terminable by either party upon relatively short notice. W e have been affected from time to time in the past by the loss and changes in the business habits of significant customer and vendor relationships, and we may continue to be so affected in the future.

We account for inventory at the lower of cost or market, and as a result, write-offs and write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes. These expenses have been less than 1% of overall purchases for the last two fiscal years and for fiscal 201 6 year to date.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses de creased by $0. 4 million for the second quarter of fiscal 201 6, compared to the second quarter of fiscal 201 5 . Selling, general and administrative expenses as a percentage of revenues increased from 19. 9 % for the second quarter of fiscal 201 5 , to 20.5 % for the second quarter of fiscal 201 6 .

Compensation and benefit expense decreased by $0.8 million for the second quarter of fiscal 2016 , compared to the second quarter of fiscal 2015 , primarily related to a decrease in headcount coupled with lower training costs.

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Pay for performance bonus expense (including both cash and equity plans) in creased by $ 0. 7 million for the second quarter of fiscal 201 6, compared to the second quarter of fiscal 201 5 . Our bonus programs are primarily based on annual performance targets. The relationship between expected performance and actual performance led to higher bonus accruals for the second quarter of fiscal 201 6 than for the comparable quarter of fiscal 201 5 .

Freight expense de creased by $ 0.4 million for the second quarter of fiscal 2016 , compared to the se c ond quarter of fiscal 2015 , primarily due to lower sales .

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. W e incurred bad debt expense of $ 186,600 and $ 338,400 for the second quarter ended September 27, 2015 and September 28, 2014 , respectively.

Interest, Net. Net interest expense de creased from $ 49,400 for the second quarter of fiscal 201 5 to $ 47,100 for the second quarter of fiscal 201 6 .

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate increased from 39. 6 % for the second quarter of fiscal 201 5 to 40.2 % for the second quarter of fiscal 201 6 primarily related to an increase in our uncertain tax positions and permanent tax differences as a percentage of expected annual pretax net income . Our provision for income taxes decreased by 19.7 % compared to the prior year quarter, primarily as a result of lower income before provision for income taxes. As a result of the factors discussed above, net income decreased 21.8 % and diluted earnings per share decreased 21.1 % for the second quarter of fiscal 201 6, compared to the corresponding prior-year quarter.

First Six Months of Fiscal Year 201 6 Compared with First Six Months Quarter of Fiscal Year 201 5

Total Revenues. Revenues for the first six months of fiscal 201 6 de creased 8.1 % , compared to the first six months of fiscal 201 5 . Revenues in our retailers, independent dealer agents and carriers market increased by 12.9 % for the first six months of fiscal 201 6, compared to the same period last year , primarily due to business driven by our expanded relationship with Otter Products LLC and new phone launch es . Otter recently reduced its number of distribution partners, providing us with more opportunities to distribute their products. Revenues in our government system operators and private system operators markets increased by 3.1% and 6.6 % , respectively, for the first six months of fiscal 2016, compared to the same period last year . However, the growth in these markets was more than offset by a decrease in revenue within the public carrier, contractors and program managers market and the commercial dealers and resellers market of 38.1 % and 10.0 %, respectively , for the first six months of fiscal 2016, compared to the same period last year. The decreases in the public carrier and commercial dealer markets are driven primarily by a reduction in spending from Tier 1 carriers , and from customers working with and for these Tier 1 carriers, as compared to last year. We expect the slowdown in carrier spending to continue during fiscal 2016, but to moderate as the year progresses.

Total Gross Profit. Gross profit for the first six months of fiscal 201 6 decreased by 6.5 % compared to the first six months of fiscal 201 5 . This decrease reflects a reduction in gross profit s in our public carriers , contractors, and program managers market and commercial dealers and resellers markets of 30.6 % and 8.7 %, respectively, due to lower sales within these markets . This decrease was partially offset by an increase in gross profit in our private system operators market and our retailers, independent dealer agents and carriers of 5.8 % and 5.4 %, respectively. Overall gross profit margin increased slightly from 23.4% in the first six months of fiscal 2015 to 23.9% in the first six months of fiscal 2016.

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Selling, General and Administrative Expenses. Total selling, general and administrative expenses de creased by $0. 2 million for the first six of fiscal 201 6, compared with the first six months of fiscal 201 5 . Selling, general and administrative expenses as a percentage of revenues increased from 19. 5 % for the first six months of fiscal 201 5 , to 21.2 % for the first six months o f fiscal 201 6 .

Compensation and b enefit expense decreased by $0.7 million for the first six months of fiscal 2016 , compared to the first six months of fiscal 2015 , primarily due to lower training costs.

Marketing expense increased by $0. 3 million for the fir st six months of fiscal 2016, compared to the first six months of fiscal 2015, primarily due to an increase in market development funds expense caused by higher retail sales for the first six months of fiscal 2016, compared to the first six months of fiscal 2015.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. W e incurred bad debt expense of $ 657,800 and $ 573,200 for the six months ended September 27, 2015 and September 28, 2014 , respectively.

Interest, Net. Net interest expense increased from $ 77,800 for the first six months of fiscal 201 5 to $ 93,400 in the first six months of fiscal 201 6 due to higher interest rates.

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate increased from 39.4 % for the first six months of fiscal 201 5 to 40. 1 % for the first six months of fiscal 201 6 , primarily related to an increase in our uncertain tax positions and permanent tax differences as a perc entage of expected annual pre-t ax net income . Our provision for income taxes decreased by 36.5 % compared to the first half of fiscal 2015 , primarily as a result of lower income before provision for income taxes. As a result of the factors discussed above, net income decreased 38.2 % and diluted earnings per share decreased 37.5 % for the first six months of fiscal 201 6, compared to the corresponding prior-year period .

Liquidity and Capital Resources

The following table summarizes our cash flows used in operating, investing and financing activities for the six months ended September 27, 2015 and September 28, 2014 :


	Six Months Ended
	September 27, 2015		September 28, 2014
Cash flow provided by (used in) operating activities	$	3,863,300	$	(3,657,500)
Cash flow used in investing activities		(1,753,800)		(1,335,900)
Cash flow used in financing activities		(3,666,800)		(3,817,600)
Net decrease in cash and cash equivalents	$	(1,557,300)	$	(8,811,000)

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We generated $ 3 . 9 million of net cash from operating activities for the first six months of fiscal 201 6, compared with net cash used in operating activities of $ 3. 7 million for the first six months of fiscal 201 5 . This inflow was driven by net income coupled with an increase in accounts payable and a decrease in prepaid expenses and other current assets. This increase was partially offset by an increase in accounts receivable and a decrease in accrued expenses and other current liabilities. The i ncrease in trade accounts payable was caused by increased inventory purchases related to the iPhone 6 s phone launch and the preparation for retail holiday sales . The in crease in accounts receivable is related to a n in crease in sales volume, specifically within our retail market. During the third quarter of fiscal 2015, we received payment from a tower owner for inventory that we continue to hold on their behalf. The cost of goods associated with any portion of this held inventory is recorded in prepaid expenses until such time as the product, or any portion thereof, is physically shipped, when we are able t o recognize the revenue and related cost of goods sold associated with the shipped portion. Shipment to the tower owner customer of a portion of this product during the first six months of fiscal 2016 is primarily responsible for the decrease in prepaid expenses and other current assets, as well as the decrease in accrued expenses and other current liabilities.

Net cash used in investing activities of $ 1.8 million for the first six months of fiscal 201 6 w as up from expenditures of $ 1.3 million for the first six months of fiscal 201 5 . Cash used in both periods w as due to capital expenditures largely comprised of investments in information technology.

Net cash used in financing activities was $ 3.7 million for the first six months of fiscal 2016 , compared to $3.8 million for the first six months of fiscal 2015. During the first six months of both fiscal 201 6 and fiscal 2015 , we had cash outflows due to cash dividends paid to shareholders and stock repurchased from employees and directors for minimum tax withholdings related to equity compensation . These cash outflows were partially offset by the excess tax benefit from stock-based compensation.

We are party to an unsecured revolving credit facility with SunTrust Bank and Wells Fargo Bank, National Association, with interest payable monthly at the LIBOR rate plus an applicable margin. Borrowing availability under this facility is determined in accordance with a borrowing base, and the applicable credit agreement includes financial covenants, including a minimum tangible net worth, minimum cash flow coverage of debt service, and a maximum funded debt to EBITDA ratio. These financial covenants also apply to the separate but related term loan secured by our Hunt Valley, Maryland facility discussed below. The terms applicable to our revolving credit facility and term loan also limit our ability to engage in certain transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. As of September 27, 2015 , we had a zero balance on our $ 3 5.0 million revolving credit facility; therefore, we had $ 3 5.0 million available on our revolving line of credit facility, subject to the borrowing base limitation and our continued compliance with the other applicable terms, including the covenants referenced above. We have entered into several modification agreements providing for term extensions and certain modifications to the provisions applicable to the credit facility , the most recent on September 24, 2015 . Currently the term for the credit facility expires October 1, 201 8 , and the amount of allowable dividend payments under the credit facility is $ 9 .0 million in any 12 month period, assuming continued compliance with the otherwise applicable terms. In addition, the credit facility now contains an accordion feature that permits the lenders’ aggregate commitment to be increased to a maximum of $45.0 million, subject to the lenders’ discretion and other customary conditions.

This revolving credit facility states that we may repurchase up to $30.0 million of our common stock (measured forward to the present date from the date of inception of the Credit Agreement, May 31, 2007). As of September 27, 2015 , we had repurchased an aggregate of $ 18.3 million of common stock since May 31, 2007, leaving $ 11.7 million available for future repurchases without the consent of our lenders or a further amendment to the terms of the facility , assuming continued compliance with the otherwise applicable terms.

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We have a term loan in the original principal amount of $4.5 million from Wells Fargo Bank, National Association , and SunTrust Bank, payable in monthly installments of principal and interest with the balance due at maturity. The note bears interest at a per annum floating rate of LIBOR plus 2.00% and is secured by a first position deed of trust encumbering the Company-owned real property in Hunt Valley, Maryland. On October 7, 2015 , pursuant to a Fourth Modification Agreement, the maturity date of the term loan was extended to October 1, 2020 . The loan is subject to generally the same financial covenants as are applicable from time to time to our revolving credit facility . As of September 27, 2015, we were in compliance with all loan covenants and the loan had a balance of $ 2.0 million .

On March 31, 2009, we entered into a term loan with the Baltimore County Economic Development Revolving Loan Fund for an aggregate principal amount of $250,000. The term loan is payable in equal monthly installments of principal and interest of $2,300, with the balance due at maturity on April 1, 2019. The term loan bears interest at 2.00% per annum and is secured by a subordinate position on our Hunt Valley, Maryland facility. At September 27, 2015 , the principal balance of this term loan was $ 95,300 .

We have made quarterly dividend payments to holders of our common stock since the second quarter of fiscal 2010 at amounts which have increased from time to time. Our most recent quarterly cash dividend of $0.20 per share was paid in August 2015 . On October 26 , 2015 , we declared a quarterly cash dividend in the amount of $0.20 per share, payable on November 25 , 2015 to shareholders of record as of November 11 , 2015 . Any future declaration of dividends and the establishment of any corresponding record and payment dates remains subject to further determination from time to time by the Board of Directors.

We believe that our existing cash, payments from customers, and availability under our revolving credit facility will be sufficient to support our operations for at least the next twelve months. To minimize interest expense, our policy is to use excess available cash to pay down any balance on our revolving credit facility. We expect to meet short-term and long-term liquidity needs through operating cash flow, supplemented by our revolving credit facility. In doing so, the balance on our revolving credit facility could increase depending on our working capital and other cash needs. If we were to undertake an acquisition or other major capital purchases that require funds in excess of existing sources of liquidity, we would look to sources of funding from additional credit facilities, debt and/or equity issuances. As of September 27, 2015 , we do not have any material capital expenditure commitments.

In addition, our liquidity could be negatively impacted by decreasing revenues and profits resulting from a decrease in demand for our products or a reduction in capital expenditures by our customers, or by the weakened financial conditions of our customers or suppliers, in each case as a result of the downturn in the global economy, among other factors.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that depict s the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The accounting standard is effective for fiscal years, and interim periods within those years, beginning after December 1 5 , 2017. Early adoption is permitted as of the original effective date, December 1 5 , 2016. The Company is in the process of evaluating the methods of adoption allowed by the ASU and assessing its impact on the Company’s consolidated financial statements and related disclosures .

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In April 2015, the FASB issued ASU 2015-03 , Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be adopted on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

For a detailed discussion on our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended March 29, 2015 .

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Forward-Looking Statements

This Report may contain forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “believes,” “estimates,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward looking. Forward looking statements involve a number of risks and uncertainties. Our actual results may differ materially from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those risks identified in our most recent Annual Report on Form 10-K and other periodic reports filed with the SEC, under the heading “Risk Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject.

We are not able to identify or control all circumstances that could occur in the future that may adversely affect our business and operating results. Without limiting the risks that we describe in our periodic reports and elsewhere, among the risks that could lead to a materially adverse impact on our business or operating results are the following: termination or non-renewal of limited duration agreements or arrangements with our vendors and affinity partners that are typically terminable by either party upon several months or otherwise relatively short notice; loss of significant customers or relationships, including affinity relationships; loss of customers as a result of consolidation among the wireless communications industry; the strength of our customers', vendors' and affinity partners' business; economic conditions that may impact customers' ability to fund or pay for our products and services; changes in customer and product mix that affects gross margin; effect of “conflict minerals” regulations on the supply and cost of certain of our products; failure of our information technology system or distribution system; system security or data protection breaches; technology changes in the wireless communications industry; third-party freight carrier interruption; increased competition; our relative bargaining

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power and inability to negotiate favorable terms with our vendors and customers; our inability to access capital and obtain financing as and when needed; claims against us for breach of the intellectual property rights of third parties; product liability claims; and the possibility that, for unforeseen reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings.

Available Information

Our Internet Website address is: www.tessco.com. We make available free of charge through our Website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our Website is our Code of Business Conduct and Ethics.

Item 3. Quantitative and Qualitative Disclosures About Market Risk .

Interest Rate Risk:

We are exposed to an immaterial level of market risk from changes in interest rates. We have from time to time previously used interest rate swap agreements to modify variable rate obligations to fixed rate obligations, thereby reducing our exposure to interest rate fluctuations. We do not have a current interest rate swap relating to our bank term loan. Our variable rate debt obligations of approximately $ 2.0 million at September 27, 2015 , expose us to the risk of rising interest rates, but management does not believe that the potential exposure is material to our overall financial position or results of operations. Based on September 27, 2015 borrowing levels, a 1.0% increase or decrease in current market interest rates would have an immaterial effect on our statement of income.

Foreign Currency Exchange Rate Risk:

We are exposed to an immaterial level of market risk from changes in foreign currency rates. Almost all of our sales are made in U.S. Dollars so we have an immaterial amount of foreign currency risk. Those sales not made in U.S. Dollars are made in Canadian Dollars.

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Item 4. Controls and Procedures .

The Company’s management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this quarterly report. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Based on the evaluation of these controls and procedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, the Company’s management, including the CEO and CFO, have concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. During the period covered by this quarterly report, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATIO N

Item 1. Legal Proceedings .

Lawsuits and claims are filed against us from time to time in the ordinary course of business. We do not believe that any lawsuits or claims currently pending against the Company, individually or in the aggregate, are material, or will have a material adverse effect on our financial condition or results of operations. In addition, from time to time, we are also subject to review from federal and state taxing authorities in order to validate the amounts of income, sales and/or use taxes which have been claimed and remitted.

Item 1A. Risk Factors .

There have been no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 . Nevertheless, information that we have disclosed or will disclose from time to time in our public filings (including this Quarterly Report on Form 10-Q and other periodic reports filed under the Exchange Act) may provide additional data or information relative to our previously disclosed risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .

On April 23, 2014, the Board of Directors expanded the Company’s existing stock buyback program, authorizing the C ompany to purchase up to $10.0 million of common stock over a 24-month period, ending April 2016. As of September 27, 2015 , 157,954 shares have been repurchased under the expanded stock buyback program for a total of approximately $ 4.6 million or an average of $29.17 per share . No shares were repurchased during the second quarter of fiscal year 2016. Shares may be purchased from time to time under this program in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. Our revolving credit facility and term loan with SunTrust Bank and Wells Fargo Bank, National Association, limit s the aggregate dollar value of shares that may be repurchased to $30.0 million. As of September 27, 2015 , we had the ability to purchase approximately $ 11.7 million in additional shares of common stock without violating this covenant.

Item 3. Defaults Upon Senior Securitie s.

None.

Item 4. Mine Safety Disclosure s.

Not applicable.

Item 5. Other Informatio n.

None.

Table of Contents

Item 6. Exhibits .

(a)

Exhibits:


10. 1 .1*		Form of Stock Option.
10. 2 .1		Fourth Modification Agreement, dated as of October 7, 2015, to Credit Agreement dated as of June 30, 2004, by and among the Company and certain subsidiaries, as borrowers and guarantor, as applicable, Wells Fargo Bank, National Association, as lender and Administrative Agent, and SunTrust Bank, as lender and Arrangement Agent (Term Loan) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 13, 2015).
10. 2 .2		Tenth Modification Agreement, dated as of September 24, 2015, to Credit Agreement dated as of May 31, 2007, by and among the Company and certain subsidiaries, as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association, as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 28, 2015).
31.1.1*		Certification of Chief Executive Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2.1*		Certification of Chief Financial Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1.1*		Certification of periodic report by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2.1*		Certification of periodic report by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1*		The following financial information from TESSCO Technologies, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2015 formatted in XBRL: (i) Consolidate d Statement of Income for the three months ended September 27, 2015 and September 28, 2014 ; (ii) Consolidated Balance Sheet at September 27, 2015 and March 29, 2015 ; (iii) Consolidated Statement of Cash Flows for the three months ended September 27, 2015 and September 28, 2014 ; and (iv) Notes to Consolidated Financial Statements.

* Filed herewith

Table of Contents

Signatur e

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TESSCO Technologies Incorporated


Date: November 6, 2015
	By:	/s/ Aric Spitulnik
		Aric Spitulnik
		Chief Financial Officer
		(principal financial and accounting officer)

Exhibit 10.1.1

THE SECURITIES REPRESENTED BY THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR THE SECURITIES LAWS OF ANY STATE; THEREFORE, THE TRANSFER OF THIS OPTION IS SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED HEREIN, AND NO SUCH TRANSFER OF THIS OPTION SHALL BE VALID UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.

TESSCO TECHNOLOGIES INCORPORATED

STOCK OPTION

THIS STOCK OPTION (this “ Option ”) is granted by TESSCO Technologies Incorporated, a Delaware corporation (the “ Company ”), to _______ (the “ Optionee ”) effective as of ________ (the “ Grant Date ”).

RECITALS

A. The Optionee is a key employee of the Company. In order to retain the Optionee and give the Optionee an additional incentive to further the Company’s growth, development, and financial success, the Compensation Committee of the Board of Directors of the Company (the “ Committee ”), pursuant to authority delegated by the Board of Directors of the Company (the “ Board ”), has determined to grant to the Optionee, pursuant to the TESSCO Technologies Incorporated Second Amended and Restated Stock and Incentive Plan (as heretofore or from time to time hereafter amended, the “ Plan ”), an option to purchase _____ shares (the “ Option Shares ”) of the Company's Common Stock, par value $.01 per share (the “ Common Stock ”), at an exercise price of $ ______ per share (the “ Exercise Price ”), which price the Board has determined to be the fair market value of the Common Stock as of the Grant Date.

B. This Option is not intended to, and shall not, constitute or be treated as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code.

NOW, THEREFORE, to evidence the grant of the option and to set forth the terms and conditions governing the exercise thereof and the parties' other agreements relative thereto, the parties, intending to be legally bound, agree as follows:

SECTION 1. GRANT, TERM, AND VESTING OF OPTION

1.1. In General . The Company hereby grants to the Optionee the right, and the Optionee shall be entitled, to purchase from the Company at any time and from time to time after the date hereof but not later than 5:00 p.m. Baltimore time on ______ (the “Expiration Date”), up to _____ shares of Common Stock at the Exercise Price on the terms and subject to the conditions hereinafter set forth.

1.2. Right to Exercise . Except as otherwise set forth (and subject to all of the other conditions and limitations contained) in this SECTION 1 , this Option shall become exercisable with respect to the percentage of the total number of Option Shares (the “Vested Percentage”) on each of the dates set forth below (each a “Vesting Date”), provided that the Optionee continues to be employed by the Company on such Vesting Date :

(a) On the [first] anniversary of the Grant Date: [25 % ] and

(b) On the corresponding day ( i.e. , on the __ day) of each calendar month following the [first] anniversary of the Grant Date and continuing for a total of [36] additional months, an additional [2.0833 % ] , until the [fourth] anniversary of the Grant Date, when the total Vested Percentage shall equal 100%.

1.3. Change in Contro l .

(a) Accelerated Vesting . Notwithstanding Section 1.2 , if there is a Change in Control of the Company and either (i) the Optionee continues to be employed by the Company on the date of the Change in Control or (ii) the Optionee’s employment was terminated either(x) by the Company other than for Cause (as defined below) or (y) by the Optionee for Good Reason (as defined below) and the effective date of such termination was not more than three (3) months before the date of the Change in Control, then this Option shall (if not already so exercisable) become exercisable with respect to 100% of the total number of Option Shares.

(b) Notice of Change in Control .

(i) If at any time before the Expiration Date the Company becomes aware of the occurrence (or impending occurrence) of any event described in subsection (d)(i) or subsection (d)(ii) of this Section 1.3 (a “ Change in Control Event ”), then the Company shall endeavor to give the Optionee written notice thereof as promptly as practicable, setting forth (if known) the date on or about which the Change in Control Event occurred or is anticipated to occur, but neither the giving of such notice nor any failure to give such notice shall extend or shorten the time for exercise of this Option, which shall remain exercisable as otherwise provided herein.

(ii) Not later than twenty (20) days before (x) the consummation of a transaction described in subsection (d)(iii) or subsection (d)(iv) of this Section 1.3 (a “ Change in Control Transaction ”) or (y) the record date or other date for establishing the holders of Common Stock entitled to the liquidating dividend or other distribution (or, if more than one distribution is contemplated, the initial distribution) (the “ Liquidating Distribution Record Date ”) in respect of any complete or partial liquidation, dissolution, or divisive reorganization of the Company approved (or to be approved) by the Company’s stockholders (a “ Company Liquidation ”), the Company shall give the Optionee written notice thereof, which written notice shall specify a date (the “ Accelerated Exercise Deadline ”) that is not earlier than the fifteenth (15 th ) day after the date such notice was given as the date by which notice of exercise of this Option must be received by the Company. If the Optionee thereafter gives timely notice of exercise of this Option, such exercise shall be effective as provided in subsection (c)(i) .

(i) If the Company has given notice of a Change in Control Transaction or a Liquidating Distribution Record Date pursuant to subsection (b)(ii) and has received from the Optionee a notice of exercise not later than the Accelerated Exercise Deadline, then (unless the notice of exercise expressly states that it is not so conditioned and should be deemed an exercise of this Option to whatever extent this Option is then otherwise exercisable or to some lesser extent) the exercise of this Option effected by such notice of exercise (whether or not explicitly so stated therein) shall (x) in the case of a Change in Control Transaction, be conditioned upon, and shall be deemed to occur immediately before, the consummation of the Change in Control Transaction and (y) in the case of a Company Liquidation, be conditioned upon stockholder approval of the plan or proposal for the Company Liquidation (unless such stockholder approval has theretofore been obtained) and shall be conditioned upon (as shall be the accelerated vesting pursuant to Section 1.3(a) above) and be deemed to occur immediately before the Liquidating Distribution Record Date.

(ii) If the Company has given notice of a Change in Control Transaction or a Liquidating Distribution Record Date pursuant to subsection (b)(ii) and has not received from the Optionee a notice of exercise on or before the Accelerated Exercise Deadline, then this Option shall (to the extent not previously exercised) expire as of, and shall no longer be exercisable from and after, the Accelerated Exercise Deadline, unless the Board or the Committee (or any successor to either) in its sole and absolute discretion determines, in connection with or in anticipation of the Change in Control Transaction or Company Liquidation or otherwise, that this Option (or an option issued to replace, or in substitution, for this Option, including as permitted pursuant to Section 4.2 below) should be or remain exercisable for some longer period (ending in no event later than the Expiration Date).

(d) For purposes of this Option, a “ Change in Control ” means the occurrence of any of the following:

(i) any “person” (as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (other than Robert B. Barnhill, Jr., his affiliates, and members of his family) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company; or

(ii) there is a change in the composition of a majority of the Board within twelve (12) months after any “person” (as defined above) (other than Robert B. Barnhill, Jr., his affiliates, and members of his family) becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the then-outstanding securities of the Company; or

(iii) there is consummated any consolidation or merger or share exchange involving the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s common stock would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of the Company’s common stock immediately before the merger have substantially the same proportionate ownership of common stock of the surviving entity immediately after the merger; or

(iv) there is consummated any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or a substantial portion of the assets of the Company other than to one or more of its wholly-owned subsidiaries; or

(v) the stockholders of the Company approve a plan or proposal for a Company Liquidation.

(e) No Extension of Expiration Date . Notwithstanding any other provision of this Option, in no event may this Option be exercised in whole or in part after the Expiration Date.

1.4. Termination for Cause; Resignation . If (i) the Optionee’s employment with the Company is terminated by the Company for Cause (as defined below) or (ii) the Optionee resigns or otherwise voluntarily terminates his or her employment with the Company other than for Good Reason (as defined below), then all rights under this Option shall terminate effective as of the date of such termination. For purposes of this Option:

(a) “ Cause ” means any of the following, each of which shall also constitute “gross misconduct” as that term is used in the Plan:

(i) The Optionee’s conviction of, or a plea of guilty or nolo contendere to, a felony or a crime involving moral turpitude;

(ii) The Optionee’s embezzlement or criminal diversion of funds or property of the Company or any of the Company’s subsidiaries; or

(ii) Any willful failure by the Optionee to perform the substantial duties of the Optionee’s position or any other act or failure to act that is reasonably determined by the Committee to constitute gross misconduct by the Optionee; and

(b) “ Good Reason ” means any of the following:

(i) Any material adverse change in the Optionee’s duties or reporting responsibilities or any material reduction in the Optionee’s authority, provided the Optionee specifically objects in writing to the change or reduction within thirty (30) days after the change or reduction occurs and the Company does not rescind the change or reduction within a further period of thirty (30) days; or

(ii) Any material failure by the Company or its subsidiaries to make a payment due to the Optionee or to provide the Optionee with a benefit due to the Optionee, but only if the failure is not cured in all material respects within fifteen (15) days after the Company receives written notice of such failure.

1.5. Termination Without Cause or for Good Reaso n .

(a) If the Optionee’s employment with the Company is terminated (x) by the Company other than for Cause or (y) by the Optionee for Good Reason, then, subject to Section 1.3 , the Optionee shall be entitled to exercise this Option to the same extent that it would have been exercisable on the effective date of termination of the Optionee’s employment for a period of three (3) months thereafter (but in no event later than the Expiration Date), unless the Board or the Committee in its sole and absolute discretion determines that this Option should be exercisable to some greater extent or remain exercisable for some longer period (ending in no event later than the Expiration Date).

(b) In the event of any conflict between the provisions of subsection (a) of this Section and Section 1.3 , the provisions of Section 1.3 shall prevail over and supersede the provisions of subsection (a) of this Section.

1.6. Disability . If the Optionee’s employment with the Company is terminated as a result of Disability (as defined in the Plan), this Option shall not terminate or be forfeited and the Optionee shall remain entitled to exercise this Option to the same extent that it would have been exercisable on the date of termination of the Optionee’s employment for a period of twelve (12) months thereafter (but in no event later than the Expiration Date), unless the Board or the Committee in its sole and absolute discretion determines that this Option should be exercisable to some greater extent or remain exercisable for some longer period (ending in no event later than the Expiration Date).

1.7. Death . In the event that the Optionee remains employed by the Company at the time of the Optionee’s death, the Optionee’s personal representative or other successor in interest shall be entitled to exercise this Option to the same extent that it would have been exercisable on the date of the Optionee’s death for a period of twelve (12) months thereafter (but in no event later than the Expiration Date), unless the Board or the Committee in its sole and absolute discretion determines that this Option

should be exercisable to some greater extent or remain exercisable for some longer period (ending in no event later than the Expiration Date).

1.8. “ Employment ” As used in this Option, “employment” by or with the Company includes employment by or with any of the Company’s subsidiaries.

SECTION 2. EXERCISE OF OPTION

2.1. In General . In the event the Optionee desires to exercise this Option with respect to all or any portion of the Option Shares, the Optionee shall give notice to the Company in substantially the form of Exhibit A (together with any other representations, warranties, and undertakings that may otherwise be required by the Company of the Optionee pursuant to the terms of this Option or the Plan). Such notice shall state the number of Option Shares with respect to which this Option is being exercised and shall be accompanied by payment of the Exercise Price multiplied by the number of Option Shares with respect to which this Option is being exercised (the “ Aggregate Exercise Price ”).

2.2. Payment Options . Unless otherwise permitted by the Board or the Committee, payment of the Aggregate Exercise Price shall be made in cash or by check payable to the order of the Company. Notwithstanding the foregoing, if authorized by the Board or the Committee in its sole discretion (either generally in respect of all or a particular class or group of option awards under the Plan or specifically in respect of this Option), payment of the Aggregate Exercise Price may also be made in whole or in part: (i) through the retention by the Company of Option Shares that would otherwise be issued pursuant to the exercise of this Option, (ii) by the delivery of shares of Common Stock already owned by the Optionee with an aggregate Fair Market Value (as defined below) equal to the Aggregate Exercise Price, or (iii) by any other form of payment that is acceptable to the Board or the Committee, as the case may be. If the Aggregate Exercise Price is paid in the manner described in clause (i) above, the number of shares to be issued to the Optionee shall be reduced by the product of (x) the total number of shares to be acquired (determined without regard to clause (i)) times (y) the quotient of (a) the Exercise Price divided by (b) the Fair Market Value, which reduction shall constitute payment of the Exercise Price for the shares acquired pursuant to clause (i).

2.3. Withholding Taxes . The Company shall be entitled to require as a condition of delivery of the shares to be acquired upon exercise of this Option that the Optionee remit to the Company an amount sufficient to satisfy all federal, state, and other taxes or withholding requirements that may be imposed upon the Company (“ Tax Obligations ”). Notwithstanding the foregoing, the Board or the Committee may in its sole discretion authorize payment or other satisfaction of all or any portion of such Tax Obligations to be made in a manner similar to one or more of the methods referenced in Section 2.2 with respect to payment of the Aggregate Exercise Price. Whether or not the Company requires the Optionee to remit any such amounts, the Company shall have the right to withhold such amounts from any compensation or other payments otherwise due to the Optionee.

2.4. Fractional Shares . The Company shall not be required to issue fractions of shares upon exercise of this Option. If any fractional interest in a share is otherwise deliverable upon the exercise of this Option, the Company shall purchase the fractional interest for an amount in cash equal to the Fair Market Value of the fractional interest.

2.5. Limitation on Exercise . Notwithstanding any other provision of this Option, this Option shall not be exercisable in whole or in part, and no shares of Common Stock shall be issuable by the Company in respect of any attempted exercise, at any time when such exercise or issuance is prohibited by the Company’s policies then in effect concerning transactions by officers, directors, or employees in securities of the Company.

2.6. “ Fair Market Value ” .

(a) For purposes of this SECTION 2 , except as provided in subsection (b) , “ Fair Market Value ” means the last reported sales price of the Common Stock on any national securities exchange or quotation system as of the day before the date of exercise, or the average of the closing bid and asked prices of the Common Stock as reported by the Nasdaq Stock Market as of the day before the date of exercise, or, if not reported by Nasdaq, the fair market value of a share of Common Stock as of the day before the date of exercise as determined in good faith by the Board or the Committee.

(b) Notwithstanding subsection (a) , in the case of any exercise of this Option in connection with or conditioned upon the consummation of a Change in Control Transaction in which, or in connection with which, the Common Stock of the Company generally is valued for purposes of its acquisition, conversion, or exchange in such Change in Control Transaction, “Fair Market Value” for purposes hereof shall be equal to the value established for the Common Stock in such Change in Control Transaction, but in any event such valuation shall not be effective unless and until the conditions to such Change in Control Transaction and the implementation of such value for the Common Stock are satisfied.

2.7. Issuance Taxes . The issuance of any stock certificates upon exercise of this Option shall be made without charge to the exercising holder for any stamp or similar tax imposed with respect thereto. The Company shall not, however, be required to pay any such tax that may be payable on account of the issuance and delivery of stock certificates in any name other than that of the registered holder of this Option, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof have paid to the Company the amount of such tax or have established to the satisfaction of the Company that such tax has been paid.

SECTION 3. RESTRICTIONS ON TRANSFER; LEGENDS

3.1. Transfer Restrictions; Opinion of Counsel . Neither this Option nor all or any part of the Optionee's rights hereunder may be pledged, hypothecated, sold, assigned, transferred, or otherwise encumbered or disposed of, either voluntarily or by operation of law (whether by virtue of execution, attachment, or similar process) (each of the foregoing a “ Transfer ”). No shares issued upon the exercise of this Option may be Transferred, other than by will or by operation of the laws of descent and distribution, unless the transferor first delivers to the Company (if the Company so requests or if a legend appearing on the certificate evidencing, or a similar restriction contained in the books of account reflecting, shares of Common Stock to be so issued requires) an opinion of counsel reasonably satisfactory to counsel for the Company to the effect that such Transfer is permitted under applicable federal and state securities laws. Any purported Transfer in violation of the foregoing restrictions shall be null and void and without effect.

3.2. Option Legends . This Option and each option issued in exchange for or upon transfer of this Option shall (unless otherwise permitted by the provisions of this SECTION 3 ) be stamped or otherwise imprinted with a legend in substantially the following form:

The securities represented by this Option have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state; therefore, the transfer of this Option is subject to compliance with the conditions specified herein, and no transfer of this Option shall be valid or effective until such conditions have been fulfilled.

SECTION 4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES ISSUABLE UPON EXERCISE

4.1. Stock Dividends, Splits, Etc . In the event that (i) the authorized shares of Common Stock are subdivided into a greater, or combined into a lesser, number of shares of Common Stock (whether with or without par value) or (ii) the Company issues additional Common Stock as a dividend:

(a) The Exercise Price shall be decreased or increased, as the case may be, to an amount which bears the same relation to the Exercise Price in effect immediately before such subdivision, combination, or dividend as the total number of shares of Common Stock outstanding immediately before such subdivision, combination, or dividend bears to the total number of shares of Common Stock outstanding immediately after such subdivision, combination, or dividend; and

(b) The number of shares issuable upon the exercise of this Option shall be adjusted by multiplying the number of shares so issuable immediately before the adjustment of the Exercise Price described in subsection (a) by the Exercise Price immediately before such adjustment and dividing the product so obtained by the Exercise Price after such adjustment.

4.2. Reorganization Events . In case of any capital reorganization, reclassification of the Common Stock, consolidation of the Company with, or the merger of the Company into, any other corporation or entity as may be permitted by law, or the sale of all or substantially all of the property and assets of the Company to any other corporation or entity (each a “ Reorganization Event ”) that affects the Common Stock in such a manner that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of the benefits intended by this Option, the Committee (or any successor thereto) shall, in such manner as it may deem equitable but subject otherwise to the terms of this Option effective upon a Change in Control, adjust any or all of: (A) the number and type of securities or other property that thereafter shall be the subject of this Option and (B) the exercise price with respect to this Option, and after such Reorganization Event this Option (or any replacement or substitution therefor that is issued as a consequence of the Reorganization Event), as so adjusted, shall remain outstanding and continue to vest and be and become exercisable (but in no event beyond the Expiration Date) for shares of stock or other securities or property of the Company, or of the corporation or entity resulting from or surviving, or acquiring the assets of the Company pursuant to, such Reorganization Event .The subdivision or combination of the authorized shares of Common Stock into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed a reclassification of the Common Stock for the purposes of this Section 4.2 .

4.3. Notice of Certain Actions . In addition to such other notices as may be required of the Company under Section 1.3(b) in respect of a Change in Control, if any date before the Expiration Date is fixed by the Company as the date as of which holders of Common Stock (i) shall be entitled to receive any dividend or any distribution upon the Common Stock of the Company other than a dividend payable in cash or in Common Stock, (ii) shall be offered any subscription or other rights, or (iii) shall be entitled to participate in any Reorganization Event, the Company shall cause notice thereof (specifying such date) to be mailed to the registered holder of this Option at such holder’s address appearing on the books of the Company at least fifteen (15) days before the date as of which such holders of Common Stock are to be determined.

4.4. Notice of Adjustment . Whenever the Exercise Price or the number or shares issuable upon exercise of this Option is adjusted as required by the provisions of this SECTION 4 and such adjustment is not otherwise publicly announced, the Company shall endeavor to promptly mail a notice setting forth the adjusted Exercise Price and the adjusted number of shares for which this Option is

exercisable to the registered holder of this Option at such holder’s last address as it appears on the books of the Company, but failure to give or receive such notice, or any defects therein or in the mailing thereof, shall not affect such adjustments.

4.5. Reservation of Sufficient Shares . The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock and for the purpose of effecting the issuance of shares upon the exercise of this Option such number of its duly authorized shares of Common Stock as shall from time to time be sufficient for such purpose. If at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the issuance of shares upon the exercise of this Option at the Exercise Price then in effect, the Company shall take such corporate action as may, in the opinion of its counsel, be reasonably necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for this purpose.

4.6. Exercise Price Not Less Than Par Value . As a condition precedent to the taking of any action that would cause an adjustment reducing the then-prevailing Exercise Price below the then-par value, if any, per share of the Common Stock issuable upon exercise of this Option, the Company shall take such corporate action as may, in the opinion of its counsel, be reasonably necessary in order that the Company may validly and legally issue its Common Stock at the adjusted Exercise Price upon any subsequent exercise of this Option.

4.7. Registration and Approva l.

(a) If any shares of the Common Stock reserved or to be reserved for the purpose of issuance upon the exercise of this Option require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon exercise of this Option, then the Company covenants that it will in good faith and as expeditiously as reasonably possible endeavor to secure such registration or approval, as the case may be; provided , however, that this provision shall not require the Company (i) to actually secure such registration or approval (but merely to endeavor in good faith and as expeditiously as reasonably possible to do so) or (ii) to endeavor to secure such registration or approval in order (x) to issue shares upon exercise of this Option if such shares can lawfully be issued pursuant to one or more exemptions from registration under applicable federal and state securities laws (whether or not as a consequence thereof such shares constitute “restricted securities” or the holder of such shares is unable to transfer such shares absent registration or the availability of a suitable exemption from registration under such laws) or (y) to enable any person to sell or distribute shares received upon exercise of this Option in a transaction involving a public offering within the meaning of the Securities Act as then in effect.

(b) In the event that shares of Common Stock issued upon exercise of this Option are not to be issued pursuant to an effective Registration Statement under the Securities Act, or if such shares otherwise are or would be restricted securities in the hands of the Optionee upon issuance, then the Company may require, as a condition to exercise by the Optionee of this Option, such representations and undertakings on the part of the Optionee as may be reasonably required by the Company to allow for such issuance without violation of, and to assure continued compliance by the Optionee following such issuance with, applicable law, and the certificate(s) evidencing such shares, or the books of account reflecting such shares, may bear or be marked with an appropriate legend as to any applicable restrictions on transfer, or similar restrictions, as may be so required.

4.8. Shares Fully Paid and Nonassessable . The Company covenants that all shares issued upon exercise of this Option will upon issuance be fully paid and nonassessable.

SECTION 5. MISCELLANEOUS

5.1. Entire Agreement . This Option (together with the Plan, to which it is and shall remain subject) constitutes the entire agreement and understanding between the parties hereto, and supersedes any prior agreement or understanding, relating to the subject matter of this Option.

5.2. Conflicts with Plan; Amendments . This Agreement has been granted as an “Option” (and, in particular, a “Non-Qualified Option”) under the Plan and shall be construed consistently with the Plan. In the event of any clear conflict between the provisions of the Plan and this Option, the provisions of the Plan shall control. The Committee has the right, in its sole discretion, to amend this Option from time to time in any manner for the purpose of promoting the objectives of the Plan but only if all other Non-Qualified Options under the Plan that are then in effect at the time of such amendment are also similarly amended with substantially the same effect. Any such amendment of this Option will, upon adoption by the Committee, become and be binding and conclusive on all persons affected by it without requirement for consent or other action by any such person. The Company will give the Optionee or other registered holder of this Option written notice of any such amendment of this Option as promptly as practicable after it is adopted.

5.3. No Rights of Stockholder . The Optionee shall not be deemed a stockholder of the Company for any purpose until the shares issuable upon exercise of this Option have been issued to the Optionee upon exercise of this Option. The existence of this Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, or shares of capital stock with a preference ahead of, or convertible into, or otherwise affecting the Common Stock or rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

5.4. Notices . Any notice or communication required or permitted hereunder shall be sufficiently given if delivered in person or by commercial courier service or sent by first class mail, postage prepaid:

(a) If to the Company, addressed to it at 11126 McCormick Road, Hunt Valley, MD 21031, marked for the attention of the President, and

(b) If to the Optionee, to the address set forth below Optionee’s signature, or in either case to such other address as any party shall notify the other in accordance with this section.

5.5. Governing Law . This Option shall be governed by and construed in accordance with the federal laws of the United States and the laws of the State of Delaware (without regard to any provision that would result in the application of the laws of any other state or jurisdiction).

5.6. Headings . The descriptive headings in this Option are inserted for convenience of reference only and do not constitute a part of this Agreement.

5.7. Incorporation of Recitals and Exhibits . The recitals to this Option and any exhibits and schedules hereto are a material part of and by this reference are hereby incorporated into this Option.

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IN WITNESS WHEREOF, the parties have caused this Stock Option to be signed under seal as of the date first above written.


ATTEST/WITNESS:	TESSCO TECHNOLOGIES INCORPORATED

______________________________	By:	____________________________(SEAL)
		Robert B. Barnhill, Jr.
		President and Chief Executive Officer

_______________________________		_____________________________________
		Optionee

		Address:
		_______________________________
		_______________________________

EXHIBIT A

TESSCO TECHNOLOGIES INCORPORATED

STOCK OPTION

NOTICE OF EXERCISE

______________________________
(Date)

TO:TESSCO Technologies Incorporated
11126 McCormick Road
Hunt Valley, MD 21031
Attn: President

I am the holder of a Stock Option dated _______ to purchase shares of the Common Stock of TESSCO Technologies Incorporated, a Delaware corporation (the “ Company ”) at a price of $ _____ per share. I hereby exercise that Stock Option with respect to _________ shares, for an aggregate exercise price of $_______________. Payment of the aggregate exercise price accompanies this Notice of Exercise.

I acknowledge that the Company is entitled to require as a condition of delivering the certificate representing these shares that I remit to the Company an amount sufficient to satisfy all federal, state, and other taxes or withholding requirements that may be imposed upon the Company. Whether or not the Company requires me to remit any such amounts, the Company shall have the right to withhold such amounts from any compensation or other payments otherwise due to me.

Very truly yours,

________________________________
Optionee

Address:

________________________________

Exhibit 31.1 .1

CERTIFICATION

I, Robert B. Barnhill, Jr. , certify that:

1. I have reviewed this quarterly report on Form 10- Q for the period ended September 27, 2015 of TESSCO Te chnologies Incorporated ;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer (s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer (s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions) :

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	November 6, 2015	By:	/s/ Robert B . Barnhill, J r.
			Robert B . Barnhill, J r.
			Chairman, President and Chief Executive Officer

Exhibit 31.2 .1

CERTIFICATION

I, Aric Spitulnik , certify that:

1. I have reviewed this quarterly report on Form 10- Q for the period ended September 27, 2015 of TESSCO Te chnologies Incorporated ;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	November 6, 2015	By:	/ s/ Aric Spitulnik
			Aric Spitulnik
			Senior Vice President, Corporate Secretary and
			Chief Financial Officer

Exhibit 32.1.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Robert B. Barnhill, Jr., Chief Executive Officer of TESSCO Technologies Incorporated (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Quarterly Report on Form 10-Q of the Company for the quarter ended September 27, 2015 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:	November 6, 2015	By:	/s/ Robert B. Barnhill, Jr.
			Robert B. Barnhill, Jr.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Aric Spitulnik, Chief Financial Officer of TESSCO Technologies Incorporated (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:	November 6, 2015	By:	/s/ Aric Spitulnik
			Aric Spitulnik