SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 26, 2016
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission File Number: 001-33938
TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
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Delaware |
52-0729657 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S Employer Identification No.) |
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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.
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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, $0.01 par value per share, outstanding as of July 29, 2016, was 8,309,241.
TESSCO Technologies Incorporated
Index to Form 10-Q
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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2
PART I. FINANCIAL INFORMATIO N
Item 1. Financial Statements .
TESSCO Technologies Incorporated
Consolidated Balance Sheets
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June 26, |
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March 27, |
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2016 |
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2016 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable, net of allowance for doubtful accounts of $817,500 and $841,400, respectively |
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Product inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill, net |
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Deferred tax assets |
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— |
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— |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
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$ |
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Payroll, benefits and taxes |
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Income and sales tax liabilities |
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Accrued expenses and other current liabilities |
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Revolving line of credit |
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— |
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— |
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Current portion of long-term debt |
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Total current liabilities |
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Deferred tax liabilities |
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Long-term debt, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, $0.01 par value, 500,000 shares authorized and no shares issued and outstanding |
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— |
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— |
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Common stock $0.01 par value, 15,000,000 shares authorized, 14,015,086 shares issued and 8,304,703 shares outstanding as of June 26, 2016, and 13,970,394 shares issued and 8,272,124 shares outstanding as of March 27, 2016 |
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Additional paid-in capital |
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Treasury stock, at cost, 5,710,383 shares outstanding as of June 26, 2016 and 5,698,270 shares outstanding as of March 27, 2016 |
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Retained earnings |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes.
3
TESSCO Technologies Incorporated
Unaudited Consolidated Statements of Income
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Fiscal Quarters Ended |
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June 26, 2016 |
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June 28, 2015 |
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Revenues |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Interest expense, net |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Basic earnings per share |
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$ |
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$ |
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Diluted earnings per share |
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$ |
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$ |
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Basic weighted-average common shares outstanding |
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Effect of dilutive options |
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Diluted weighted-average common shares outstanding |
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Cash dividends declared per common share |
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$ |
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$ |
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See accompanying notes.
4
TESSCO Technologies Incorporated
Unaudited Consolidated Statements of Cash Flows
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Three Months Ended |
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June 26, 2016 |
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June 28, 2015 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Non-cash stock-based compensation expense |
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Deferred income taxes and other |
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Change in trade accounts receivable |
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Change in product inventory |
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Change in prepaid expenses and other current assets |
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Change in trade accounts payable |
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Change in payroll, benefits and taxes |
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Change in income and sales tax liabilities |
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Change in accrued expenses and other current liabilities |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments of debt issuance costs |
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— |
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Payments on long-term debt |
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Cash dividends paid |
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Purchases of treasury stock and repurchases of common stock from employees and directors for minimum tax withholdings |
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Excess tax benefit from stock-based compensation |
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— |
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Net cash used in financing activities |
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Net decrease in cash and cash equivalents |
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CASH AND CASH EQUIVALENTS, beginning of period |
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CASH AND CASH EQUIVALENTS, end of period |
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$ |
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$ |
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See accompanying notes.
5
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 27, 2016 .
Note 2. Reclassification of Items in Statement of Income and Supplemental Results Summary
The accompanying Consolidated Statements of Income for the three months ended June 28, 2015, along with the supplemental financial information provided in Note 10, have been adjusted to correct an immaterial error in the classification of indirect inventory costs in the income statement. Prior to the third quarter of fiscal 2016, the Company classified indirect costs relieved from inventory upon a sale as selling, general and administrative expenses, as opposed to cost of goods sold. The income statements and supplemental financial information presented here correctly reflect indirect costs relieved from inventory as cost of goods sold for all periods. This resulted in an increase in cost of goods sold, and a corresponding decrease in selling, general and administrative expenses of $3.3 million for the three month period ended June 28, 2015. These corrections have no impact on previously reported revenues, operating margin, net income, earnings per share, or on previously reported Consolidated Balance Sheets or Consolidated Statements of Cash Flows.
Note 3. Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. This ASU require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
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In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new standard simplifies the presentation of deferred tax assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. This ASU affected our disclosures relating to deferred tax assets and liabilities. The Company has applied this guidance retrospectively.
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. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. We are currently in the process of assessing what impact this new standard may have on our ongoing financial reporting and determining what transition method will be used.
Note 4. Stock-Based Compensation
The Company’s selling, general and administrative expenses for the fiscal quarters ended June 26, 2016 and June 28, 2015 includes $115,800 and $131,700, 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, primarily related to the PSUs which vested during the three months ended June 28, 2015. No excess tax benefit related
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to vesting PSUs was recorded during the three months ended June 26, 2016.
On July 26, 2016, subsequent to the end of the Company’s first fiscal quarter, the Company’s shareholders approved the Third Amended and Restated 1994 Stock and Incentive Plan (the Amended and Restated 1994 Plan), which amended and restated the Company’s Second Amended and Restated 1994 Stock and Incentive Plan, as previously amended (the 1994 Plan), in its entirety. The material amendments to the 1994 Plan reflected by the Amended and Restated 1994 Plan are as follows:
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Extension of Plan Term. The date through which awards may be granted was extended to July 21, 2021. Prior to this extension, the 1994 Plan was scheduled to expire on July 21, 2016. |
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Increase in Aggregate Share Limit. The Amended and Restated 1994 Plan increases the number of shares available for awards by 650,000 shares. The 1994 Plan had previously limited the aggregate number of shares of the Company's common stock that may have been delivered pursuant to all awards granted under the 1994 Plan to 3,553,125 shares. The Amended and Restated 1994 Plan increases the number of shares available for awards to 4,203,125 shares. |
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Elimination of Liberal Share Recycling. The Amended and Restated 1994 Plan, at Section 5(a)(iii), now prohibits liberal share recycling in respect of shares tendered by participants in payment of the exercise price for awards, or for payroll tax withholding obligations, and provides that such tendered shares shall not be available for purposes of the Amended and Restated 1994 Plan. Although the 1994 Plan could have been construed to permit it, the Company has not historically included such tendered shares as shares available for awards under the 1994 Plan. |
Performance Stock Units: The following table summarizes the activity under the Company’s PSU program for the first three months of fiscal 2017:
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Three Months |
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Weighted |
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Ended |
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Average Fair |
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June 26, |
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Value at Grant |
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2016 |
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Date (per unit) |
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Unvested shares available for issue under outstanding PSUs, beginning of period |
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$ |
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PSU’s Granted |
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PSU’s Vested |
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PSU’s Forfeited/Cancelled |
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Unvested shares available for issue under outstanding PSUs, end of period |
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$ |
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Of the 200,189 unvested shares available for issue under outstanding PSUs as of June 26, 2016, 9,189 shares were previously earned in respect of the applicable measurement year, and will vest and be issued on or about May 1, 2017, assuming the respective participants remain employed by or associated with the Company on this date.
During fiscal 2017, the Compensation Committee of the Board of Directors with concurrence of the full Board of Directors, granted PSUs to select key employees, providing them with the opportunity to earn up to 194,000 shares of the Company’s common stock in the aggregate, depending upon whether and to the extent which certain earnings per share targets and other Company and individual performance metrics are met. These not-yet-earned PSUs have a one year measurement period (fiscal 2017), and assuming the performance metrics are met to a sufficient extent, any shares earned at the end of fiscal 2017 will vest and be issued ratably on or about May 1 of 2017, 2018, 2019 and 2020, provided that the respective employees remain employed by or associated
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with the Company on each date. Due to an employee departure, 3,000 of these shares were subsequently canceled, leaving 191,000 unvested shares available for issue under outstanding PSUs as of June 26, 2016.
The PSUs cancelled during fiscal 2017 related primarily to the fiscal 2016 grant of PSUs, which had a one year measurement period (fiscal 2016). The PSUs were cancelled because the applicable fiscal 2016 performance targets were not attained to any extent. 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, now under the Amended and Restated 1994 Plan.
If the entire number of PSUs granted in fiscal 2017 is assumed to be earned, on account of the applicable performance metrics being fully met, total unrecognized compensation costs, on these PSUs and all earned but unvested PSUs, net of estimated forfeitures, would be approximately $2.0 million, as of June 26, 2016, and would be expensed through fiscal 2020. To the extent the actual forfeiture rate is different from what is anticipated or the maximum number of PSUs granted in fiscal 2017 is not earned, stock-based compensation related to these awards will differ from this amount.
Restricted Stock Units: The Company has over recent years made annual restricted stock unit (RSU) awards to its non-employee directors. On May 11, 2016, the Compensation Committee, with the concurrence of the full Board of Directors, awarded an aggregate of 10,000 RSUs, ratably 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, following 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 anniversary date. As of June 26, 2016, 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, 2016 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.
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: The Company currently has a total of 80,000 stock options outstanding. As of June 26, 2016, there was approximately $0.2 million of total unrecognized compensation cost, net of estimated forfeitures, related to all outstanding stock options. As of June 26, 2016, none of the outstanding stock options have vested.
Note 5. Borrowings Under Revolving Credit Facility
On June 24, 2016, the Company and its primary operating subsidiaries entered into a Credit Agreement (the “Credit Agreement”) with SunTrust Bank, as Administrative Agent. The Credit Agreement provides for a senior asset based revolving credit facility of up to $35 million (the “Revolving Credit Facility”), and replaces the Company’s previously existing $35 million unsecured revolving credit facility with both SunTrust Bank and Wells Fargo Bank, National Association, and which had no outstanding principal balance at the time of replacement. The new Revolving Credit Facility matures in five years, on June 24, 2021, and includes a $5.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swingline loans. The Credit Agreement also includes a provision permitting the Company, subject to certain conditions and
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approval of the Lenders, to increase the aggregate amount of the commitments under the Revolving Credit Facility to up to $50 million with optional additional commitments from existing Lenders or new commitments from additional lenders, although no Lender is obligated to increase its commitment. Borrowing availability is determined in part in accordance with a borrowing base, which is generally 85% of eligible receivables minus reserves. The Credit Agreement also contains financial covenants, including a fixed charge coverage ratio that must be maintained at any time during which the borrowing availability is otherwise less than $10 million. The Credit Agreement also may limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters.
Borrowings initially accrue interest from the applicable borrowing date, generally the Eurodollar rate plus an applicable margin ranging from 1.5% to 1.75%. Under certain circumstances, the applicable interest rate is subject to change from the Eurodollar rate plus the applicable margin to the base rate plus the applicable margin. Borrowings under the Revolving Credit Facility may be used for working capital and other general corporate purposes, and as further provided in, and subject to the applicable terms of, the Credit Agreement. As of June 26, 2016, we had a zero balance on the Revolving Credit Facility.
Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under the Credit Agreement and the other subsidiaries of the Company (collectively, the “Loan Parties”), and SunTrust Bank, as Administrative Agent, the Loan Parties’ obligations, which include the obligations under the Credit Agreement, are guaranteed by the Loan Parties not otherwise borrowers, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’ (including both borrowers and guarantors) inventory, accounts receivable, and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and chattel paper, in each case to the extent relating to inventory and accounts, and to all proceeds of the foregoing. The security interests are granted in favor of the Administrative Agent, for the benefit of the Lenders party to the Credit Agreement from time to time. The obligations secured also include certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products.
Note 6. Extinguishment of Debt
Simultaneously with entering into the senior asset based Revolving Credit Facility described in Note 5, the Company terminated its $35 million unsecured revolving credit facility with SunTrust Bank and Wells Fargo Bank, National Association, which had no outstanding principal balance at the time of termination.
The Company also repaid in full its obligations under its Term Loan in the original principal amount of $4.5 million from Wells Fargo Bank, National Association and SunTrust Bank. The Term Loan was secured by a first position deed of trust encumbering Company-owned real property in Hunt Valley, Maryland and had an outstanding principal balance of $1 .9 million at the time of repayment.
Note 7. 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 |
10
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 June 26, 2016 or as of March 27, 2016.
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 June 26, 2016 and March 27, 2016 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 June 26, 2016 and March 27, 2016 is estimated as follows:
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June 26, 2016 |
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March 27, 2016 |
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||||||||
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Carrying |
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Fair |
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Carrying |
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Fair |
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||||
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Amount |
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Value |
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Amount |
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Value |
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||||
Note payable to Baltimore County |
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$ |
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$ |
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$ |
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$ |
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|
|
Note 8. Income Taxes
As of June 26, 2016, the Company had a gross amount of unrecognized tax benefits of $290,800 ($191,900 net of federal benefit). As of March 27, 2016, the Company had a gross amount of unrecognized tax benefits of $290,400 ($188,800 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 three months of fiscal 2017 was $13,400 (net of federal benefit). The cumulative amount included in the consolidated balance sheet as of June 26, 2016 was $350,600 (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 three months of fiscal 2016 was $15,900 (net of federal benefit). The cumulative amount of interest and penalties included in the consolidated balance sheet as of March 27, 2016 was $339,800 (net of federal benefit).
A reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest is as follows:
|
|
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|
|
|
|
|
|
Beginning balance at March 27, 2016 of unrecognized tax benefit |
|
$ |
|
|
Increases related to current period tax positions |
|
|
|
|
Reductions as a result of a lapse in the applicable statute of limitations |
|
|
— |
|
Ending balance at June 26, 2016 of unrecognized tax benefits |
|
$ |
|
|
11
Note 9. 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. As of June 26, 2016 the company had no participating securities outstanding and no distributed or undistributed earnings allocated to nonvested stock. As of June 28, 2015, the company had 68,900 shares that qualified as participating securities. As such, the following table presents the calculation of basic and diluted earnings per common share for the fiscal quarter ended June 28, 2015:
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Fiscal Quarter Ended |
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||
Amounts in thousands, except per share amounts |
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|
June 28, 2015 |
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Earnings per share – Basic: |
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Net earnings |
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$ |
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|
|
|
Less: Distributed and undistributed earnings allocated to nonvested stock |
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|
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|
Earnings available to common shareholders – Basic |
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$ |
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|
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|
Weighted average common shares outstanding – Basic |
|
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|
|
|
Earnings per common share – Basic |
|
|
$ |
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|
|
|
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Earnings per share – Diluted: |
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Net earnings |
|
|
$ |
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|
|
|
Less: Distributed and undistributed earnings allocated to nonvested stock |
|
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|
|
|
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|
Earnings available to common shareholders – Diluted |
|
|
$ |
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|
|
|
|
|
|
|
|
Weighted average common shares outstanding – Basic |
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|
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Effect of dilutive options |
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|
Weighted average common shares outstanding – Diluted |
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|
Earnings per common share – Diluted |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive equity awards not included above |
|
|
|
— |
|
|
|
There were no stock options with respect to shares of common stock outstanding as of June 28, 2015. At June 26, 2016, stock options with respect to 80,000 shares of common stock were outstanding, all of which were anti-dilutive. There were no anti-dilutive PSUs or RSUs outstanding as of June 26, 2016.
12
Note 10. 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.
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.
13
Market unit activity for the first quarter of fiscal years 2017 and 2016 are as follows 1 (in thousands):
|
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|
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|
|
|
|
|
Three Months Ended |
|
|
|
||||
|
|
June 26, 2016 |
|
June 28, 2015 |
|
|
|
||
Revenues |
|
|
|
|
|
|
|
|
|
Public Carriers, Contractors & Program Managers |
|
$ |
|
|
$ |
|
|
|
|
Government System Operators |
|
|
|
|
|
|
|
|
|
Private System Operators |
|
|
|
|
|
|
|
|
|
Commercial Dealers & Resellers |
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|
|
|
|
|
|
Retailer, Independent Dealer Agents & Carriers |
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
Public Carriers, Contractors & Program Managers |
|
$ |
|
|
$ |
|
|
|
|
Government System Operators |
|
|
|
|
|
|
|
|
|
Private System Operators |
|
|
|
|
|
|
|
|
|
Commercial Dealers & Resellers |
|
|
|
|
|
|
|
|
|
Retailer, Independent Dealer Agents & Carriers |
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 See Note 2 for a discussion of the reclassification of indirect inventory costs from selling, general, and administrative expenses to cost of goods sold, as it relates to the three months ended June 28, 2015. The financial information presented above in this Note 10 reflects such reclassification.
Supplemental revenue and gross profit information by product category for the first quarter of fiscal years 2017 and 2016 are as follows 2 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
|
||
|
|
June 26, 2016 |
|
June 28, 2015 |
|
|
||
Revenues |
|
|
|
|
|
|
|
|
Base station infrastructure |
|
$ |
|
|
$ |
|
|
|
Network systems |
|
|
|
|
|
|
|
|
Installation, test and maintenance |
|
|
|
|
|
|
|
|
Mobile device accessories |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
Base station infrastructure |
|
$ |
|
|
$ |
|
|
|
Network systems |
|
|
|
|
|
|
|
|
Installation, test and maintenance |
|
|
|
|
|
|
|
|
Mobile device accessories |
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
2 See Note 2 for a discussion of the reclassification of indirect inventory costs from selling, general, and administrative expenses to cost of goods sold, as it relates to the three months ended June 28, 2015. The financial information presented above in this Note 10 reflects such reclassification.
14
Note 11. Stock Buyback
On April 23, 2014, the Board of Directors expanded the Company’s then 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, which ended in April 2016. No shares were purchased during the first three months of fiscal year 2016 and the stock buyback program has now expired.
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 three months ended June 26, 2016 and June 28, 2015, the allocated value of the shares withheld totaled $187,600 and $827,000, respectively.
Note 12. 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 quarters ended June 26, 2016 and June 28, 2015, no customer accounted for more than 10.0% of total consolidated revenues.
For the fiscal quarter ended June 26, 2016, sales of Otter Products LLC and CommScope Incorporated products accounted for 12.3% and 10.1% of consolidated revenue, respectively. For the fiscal quarter ended June 28, 2015, sales of Otter Products LLC and CommScope Incorporated products accounted for 13.9% and 10.9% of consolidated revenue, respectively.
Note 13. Subsequent Events
Subsequent to the Company’s fiscal quarter end, on July 26, 2016, the Company’s shareholders approved the Third amendment and restatement of the 1994 Stock and Incentive Plan. Refer to Note 4 for a discussion of the material amendments to the 1994 Plan.
15
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 27, 2016.
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.
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 systems. 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 first quarter fiscal year 2017 revenue decreased by 4.3% compared to the first quarter of fiscal year 2016. We experienced first quarter fiscal 2017 revenue growth within our government system operators market of 25.0%, compared to the same quarter last year, primarily due to increased spending by state and local government customers. We also experienced revenue growth in our retailers, independent dealer agents and carriers market of 3.0%, for the first quarter of fiscal year 2017 as compared to the same quarter last year. The revenue growth in these markets was more than offset by a revenue decline of 34.1% in our public carriers, contractors and program managers market, as many of our carrier customers continue to delay network deployments. However, we have seen sequential growth in this market with revenue increasing 4.7% in the first quarter of fiscal year 2017 as compared to the fourth quarter of fiscal year 2016, and we anticipate sequential growth in the second quarter of fiscal year 2017. On the product side, revenue decreased in our base station infrastructure, network systems, and mobile device accessories categories by 2.7%, 13.0%, and 3.4%, respectively, for the first quarter of fiscal year 2017, compared to the same quarter last year. We experienced an increase in revenue of 1.6% within our installation, test and maintenance product category.
Our first quarter fiscal year 2017 gross profit decreased by 6.5%, compared to the first quarter of fiscal year 2016. The decrease in gross profit was primarily the result of the decreases in revenue discussed above. Total selling, general and administrative expenses increased by 3.2% compared to the prior-year quarter. As a result, net income decreased by 95.3% and diluted earnings per share decreased by 95.2% compared to the prior-year quarter.
16
While our fourth quarter is typically our lowest revenue quarter due to seasonality issues, we did achieve sequential revenue and gross profit growth in all markets when comparing the first quarter of fiscal year 2017 to the fourth quarter of fiscal year 2016.
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. Our ability to maintain customer and vendor relationships is subject to competitive pressures and challenges. 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.
The financial results presented herein for the three months ended June 28, 2015 have been adjusted to correct an immaterial error in the classification of indirect inventory costs in the income statement. Prior to the third quarter of fiscal year 2016, the Company classified indirect costs relieved from inventory upon a sale as selling, general and administrative expenses, as opposed to cost of goods sold. The income statements presented here correctly reflects indirect costs relieved from inventory as cost of goods sold for all periods. This resulted in an increase in cost of goods sold, and a corresponding decrease in selling, general and administrative expenses of $3.3 million for the three month period ended June 28, 2015. These corrections have no impact on previously reported revenues, operating margin, net income, earnings per share, or on previously reported Consolidated Balance Sheets or Consolidated Statements of Cash Flows.
17
Results of Operations
First Quarter of Fiscal Year 2017 Compared with First Quarter of Fiscal Year 2016
Total Revenues. Revenues for the first quarter of fiscal 2017 decreased 4.3% compared with the first quarter of fiscal 2016. Revenues in our government system operators market increased by 25.0%, compared to the same quarter last year, primarily due to increased spending by state and local government customers. Revenues in our retailers, independent dealer agents and carriers market increased by 3.0% for the first quarter of fiscal 2017, compared to the same period last year. Revenues decreased in our public carrier, contractors and program managers market by 34.1%, compared to the same quarter last year primarily due to a reduction in spending from Tier 1 carriers, and from customers working with and for these Tier 1 carriers.
Revenues in our private system operators market decreased by 2.3% for the first quarter of fiscal 2017, compared to the same period last year, primarily due to decreased spending from one large repair center customer. This revenue decline was largely offset by increases in sales to several utility customers. Revenue in our commercial dealers and resellers market remained flat from the first quarter of fiscal 2017 compared to the first quarter of fiscal 2016.
Total Gross Profit. Gross profit for the first quarter of fiscal 2017 decreased by 6.5% compared to the first quarter of fiscal 2016. Gross profits in our government system operators and commercial dealers and resellers markets increased by 9.9% and 2.4%, respectively. However, this growth was more than offset by a reduction in our public system operators, contractors and program manager market and our private system operators market of 31.6% and 12.3% respectively. Overall gross profit margin declined slightly to 21.0% for the first quarter of fiscal 2017, compared to 21.5% 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 2017 year to date.
Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased by $0.8 million for the first quarter of fiscal 2017, compared to the first quarter of fiscal 2016. Selling, general and administrative expenses as a percentage of revenues increased from 19.4% for the first quarter of fiscal 2016, to 20.9% for the first quarter of fiscal 2017.
Compensation and benefit expense as well as recruiting expenses increased by $0.5 million and $0.6 million, respectively, for the first quarter of fiscal 2017, compared to the first quarter of fiscal 2016. These increases are primarily due to continued investments related to our sales and marketing initiatives.
Pay for performance bonus expense (including both cash and equity plans) decreased by $0.2 million for the first quarter of fiscal 2017, compared to the first quarter of fiscal 2016. Our bonus programs are primarily based on achieving annual performance targets. The relationship between expected performance and actual
18
performance led to lower bonus accruals for the first quarter of fiscal 2017 than for the comparable quarter of fiscal 2016.
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. We incurred bad debt expense of $315,400 and $471,200 for the first quarter ended June 26, 2016 and June 28, 2015, respectively.
Interest, Net. Net interest expense decreased from $46,300 for the first quarter of fiscal 2016 to $11,400 for the first quarter of fiscal 2017, as we did not draw on our revolving line of credit during the first quarter.
Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate increased from 39.7% for the first quarter of fiscal 2016 to 42.0% for the first quarter of fiscal 2017. The effective tax rate for the first quarter of fiscal 2017 was higher due to a higher ratio of permanent differences related to our expected re-tax income. Our provision for income taxes decreased by 94.8% 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 95.3% and diluted earnings per share decreased 95.2% for the first quarter of fiscal 2017, compared to the corresponding prior-year quarter.
Liquidity and Capital Resources
The following table summarizes our cash flows used in operating, investing and financing activities for the three months ended June 26, 2016 and June 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
||||
|
|
June 26, 2016 |
|
June 28, 2015 |
|
|
||
Cash flow provided by operating activities |
|
$ |
|
|
$ |
|
|
|
Cash flow used in investing activities |
|
|
|
|
|
|
|
|
Cash flow used in financing activities |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
|
|
$ |
|
|
|
We generated $0.1 million of net cash from operating activities for the first three months of fiscal 2017, compared with net cash provided by operating activities of $1.8 million for the first three months of fiscal 2016. This fiscal 2017 inflow was driven by net income coupled with an increase in accounts payable, partially offset by increases in accounts receivable and product inventory. The increase in accounts payable was driven by the increase and timing of product inventory purchases. Our higher inventory levels are due to our higher quarter over quarter sales, as well as inventory procured for the outdoor building season. The increase in accounts receivable is related to an increase in sales volume, specifically within our retail and government markets.
Net cash used in investing activities of $0.6 million for the first three months of fiscal 2017 was down from expenditures of $0.9 million for the first three months of fiscal 2016. Cash used in both periods was due to capital expenditures largely comprised of investments in information technology.
Net cash used in financing activities was $3.8 million for the first three months of fiscal 2017, compared to $2.0 million for the first three months of fiscal 2016. During the first three months of both fiscal 2017 and fiscal 2016, we had cash outflows due to cash dividends paid to shareholders. Additionally, during the first three months of fiscal 2017, we had a cash outflow relating to the repayment of our term loan of $1.9 million. During the first three months of fiscal 2016 we had cash outflows due to stock repurchased from employees and directors for minimum tax withholdings related to equity compensation, partially offset by the excess tax benefit
19
from stock-based compensation.
During the first quarter of fiscal 2017 we entered into a senior asset based revolving credit facility of up to $35 million with SunTrust Bank, as Administrative Agent. The revolving credit facility is secured by our and our primary operating subsidiaries’ inventory, accounts receivable, and deposit accounts, and replaces our previously existing unsecured revolving credit facility with SunTrust Bank and Wells Fargo Bank, National Association. Interest on borrowings is payable monthly, generally at the Eurodollar rate plus an applicable margin ranging from 1.5% to 1.75%. Under certain circumstances, the applicable interest rate is subject to change from the Eurodollar rate plus the applicable margin to the base rate plus an applicable margin. Borrowing availability is determined in part in accordance with a borrowing base, which is generally 85% of eligible receivables minus reserves. The credit agreement also contains financial covenants, including a fixed charge coverage ratio that must be maintained at any time during which the borrowing availability is otherwise less than $10 million. The credit agreement also may limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. The revolving credit facility has a five year term and expires on June 24, 2021. As of June 26, 2016, we had a zero balance on the revolving credit facility.
In conjunction with entering into the new revolving credit facility noted above we repaid our term loan with an original principal amount of $4.5 million, from Wells Fargo Bank, National Association, and SunTrust Bank. At the time of repayment the loan had a balance of $1.9 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 June 26, 2016, the principal balance of this term loan was $76,000.
We have made quarterly dividend payments to holders of our common stock since the third 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 June 2016. On July 21, 2016, we declared a quarterly cash dividend in the amount of $0.20 per share, payable on August 17, 2016 to shareholders of record as of August 3, 2016. 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 June 26, 2016, 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 a downturn in the global economy, among other factors.
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Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases . This ASU require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes . Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new standard simplifies the presentation of deferred tax assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. This ASU affected our disclosures relating to deferred tax assets and liabilities. The Company has applied this guidance retrospectively.
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. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. We are currently in the process of assessing what impact this new standard may have on our ongoing financial reporting and determining what transition method will be used.
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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 27, 2016.
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, this Quarterly Report on Form 10-Q, 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 either directly or indirectly as a result of consolidation among large wireless service carriers and others within the wireless communications industry; the strength of our customers', vendors' and affinity partners' business; increasingly negative or prolonged adverse economic conditions, including those adversely affecting consumer confidence or consumer or business spending, or otherwise adversely affecting our vendors or customers, including their access to capital or liquidity or our customers’ ability to fund or pay for our products and services; our dependence on a relatively small number of suppliers and vendors, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; 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, which could lead to significant inventory obsolescence and/or our inability to offer key products that our customers demand; third-party freight carrier interruption; increased competition, including from manufacturers or national and regional distributors of the products we sell and the absence of significant barriers to entry which could result in pricing and other pressures
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on profitability and market share; our relative bargaining 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; our inability to protect certain intellectual property, including systems and technologies on which we rely; our inability to hire or retain our key professionals, management and staff; 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 had no variable rate debt obligations as of June 26, 2016. Based on June 26, 2016 borrowing levels, a 1.0% increase or decrease in current market interest rates would have no 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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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.
The following risk factors represent updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2016. The risk factors listed below and the others described in the Annual Report on Form 10-K should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. 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. Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also adversely affect our business, financial position and results of operations.
We require substantial capital to operate, and the inability to obtain financing on favorable terms will adversely impact our business, financial position and results of operations.
Our business requires substantial capital to operate and to finance accounts receivable and product inventory that are not financed by trade creditors. We have historically relied upon cash generated from operations, revolving credit facilities and trade credit from our vendors to satisfy our capital needs and finance growth. As the financial markets change and new regulations come into effect, the cost of acquiring financing and the methods of financing may change. Changes in our credit rating or other market factors may increase our interest expense or other costs of capital, or capital may not be available to us on competitive terms to fund our working capital needs. Our existing secured revolving credit facility contains various financial and other covenants that may limit our ability to borrow or limit our flexibility in responding to business conditions. The inability to maintain or when necessary obtain adequate sources of financing could have an adverse effect on our business. Our secured revolving credit facility involves variable rate debt, thus exposing us to risk of fluctuations in interest rates. Such fluctuations in interest rates could have an adverse effect on our business, financial position and results of operations. We may in the future use interest rate swaps in an effort to achieve a desired proportion of fixed and variable rate debt. We would utilize these derivative financial instruments to enhance our ability to manage risk, including interest rate exposures that exist as part of our ongoing business operations. However, our use of these instruments may not effectively limit or eliminate our exposure to a decline in operating results due to changes in interest rates.
Our ability to maintain and borrow under our revolving credit agreement could be constrained by the level of eligible receivables and by any failure to meet certain financial and other covenants in our revolving credit agreement.
Our borrowing availability under our secured revolving credit facility is determined in part by a borrowing base and is limited to certain amounts of eligible accounts receivable. If the value of these accounts receivable were to decrease significantly, the amount available for borrowing under the facility would decrease and our ability to borrow under the facility could be significantly impacted. Borrowing under the facility is also
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conditioned upon compliance with financial and other covenants included in the revolving credit agreement and a related guaranty and security agreement. Among these is a covenant to maintain a fixed charge coverage ratio at any time during which the borrowing availability is otherwise less than $10 million. There are no assurances that we will be able to comply with all applicable covenants in these agreements, and in the event that we do not, our ability to borrow under our secured revolving credit facility could be limited or suspended, or could terminate.
If we fail to meet our payment or other obligations under our secured revolving credit facility, our lenders could foreclose on, and acquire control of, a significant portion of our assets.
Indebtedness under our secured revolving credit facility is secured by continuing first priority security interests in our inventory, accounts receivable, and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and chattel paper relating to inventory and accounts, and to all proceeds of the foregoing. If we fail to meet our payment or other obligations under our secured revolving credit facility, our lenders could foreclose on these assets, which would have a material adverse effect on our business, results of operations and financial condition.
We may not be able to continue to pay dividends on our common stock in the future, which could impair the value of our common stock.
We have paid a quarterly dividend on our common stock since the second quarter of fiscal year 2010. Any future declaration of dividends remains subject to further determination from time to time by our Board of Directors. Our ability to pay dividends in the future will depend on our financial results, liquidity and financial condition. Under Delaware law, dividends to shareholders may be made only from the surplus of a company, or, in certain situations, from the net profits for the current fiscal year or the fiscal year before which the dividend is declared. Our secured revolving credit facility restricts our ability to pay cash dividends upon a default, and when our borrowing availability is below $12 million, subject to certain exceptions, and contains other financial covenants and ratios that could restrict future dividend payments. There is no assurance that we will be able to pay dividends in the future, or if we are able to, that our Board of Directors will continue to declare dividends in the future, at current rates or at all. If we discontinue or reduce the amount or frequency of dividends, the value of our common stock may be impaired.
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 Company to purchase up to $10.0 million of common stock over a 24-month period, ending April 2016. As of June 26, 2016, 157,954 shares had 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 first quarter of fiscal year 2017, and the stock repurchase program has expired.
Item 3. Defaults Upon Senior Securitie s.
None.
Item 4. Mine Safety Disclosure s.
Not applicable.
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Exhibits: |
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10.1.1 |
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Credit Agreement dated as of June 24, 2016, among TESSCO Technologies Incorporated, the additional borrowers party thereto, the Lenders party thereto, and SunTrust Bank, as administrative agent, swingline lender and an issuing bank (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 June 29, 2016). |
10.2.1 |
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Guaranty and Security Agreement dated as of June 24, 2016 among TESSCO Technologies Incorporated and its subsidiaries, the Lenders party thereto, and SunTrust Bank as administrative agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 29, 2016). |
10.3.1 |
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TESSCO Technologies Incorporated Third Amended and Restated 1994 Stock and Incentive Plan (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 June 27, 2016). |
10.4.1* |
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Form of Severance and Restrictive Covenant Agreement entered into between the Company and each of Craig A. Oldham and Steven K. Tom. |
10.5.1* |
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Form of Performance Stock Unit Agreement – Officers and Employees. |
31.1.1* |
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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* |
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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* |
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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* |
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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* |
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The following financial information from TESSCO Technologies, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2016 formatted in XBRL: (i) Consolidated Statement of Income for the three and nine months ended June 26, 2016 and June 28, 2015; (ii) Consolidated Balance Sheet at June 26, 2016 and March 27, 2016; (iii) Consolidated Statement of Cash Flows for the nine months ended June 26, 2016 and June 28, 2015; and (iv) Notes to Consolidated Financial Statements. |
* Filed herewith
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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.
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TESSCO Technologies Incorporated |
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Date: August 4, 2016 |
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By: |
/s/ Aric Spitulnik |
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Aric Spitulnik |
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Chief Financial Officer |
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(principal financial and accounting officer) |
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Exhibit 10.4.1
SEVERANCE AND RESTRICTIVE COVENANT AGREEMENT
THIS SEVERANCE AND RESTRICTIVE COVENANT AGREEMENT (this “ Agreement ”) is dated as of ___ ___ , 20__ (the “ Effective Date ”), between TESSCO TECHNOLOGIES INCORPORATED, a Delaware corporation (the “ Company ”), and _____ (“ Executive ”).
The term of this Agreement shall commence on and as of the Effective Date and continue until Executive’s employment has terminated and the obligations of the parties hereunder have terminated or expired or have been satisfied in accordance with their terms .
For purposes of this Agreement, the following terms have the meanings set forth in this Section:
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(c) Executive’s conviction of (including a plea of nolo contendere to) a crime constituting a felony; |
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notice of such failure or (y) if such failure cannot be cured in such period and the continuation of such failure will not be materially and demonstrably injurious to the Company, Executive does not commence and diligently seek to cure such failure within such period and thereafter continue to seek to cure such failure until cured; or |
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(a) 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 |
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(b) there is a change in the composition of a majority of the Board of Directors of the Company 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 |
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(c) 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 |
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(d) 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 |
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(e) the stockholders of the Company approve a plan or proposal for the complete or partial liquidation, dissolution, or divisive reorganization of the Company. |
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unable to perform Executive’s duties hereunder for any period of one hundred eighty (180) consecutive days or two hundred seventy (270) days, whether or not consecutive, in any period of three hundred sixty five (365) days, despite provision by the Company of reasonable accommodations as required by law. The determination of whether a Disability exists shall be made by a licensed physician who is board certified in the specialty mutually determined by the Company and Executive to be applicable and who is mutually selected by the Company and Executive. If the parties cannot agree on such a physician or specialty, each party shall select a physician and the two physicians so selected shall select a third physician board certified in the specialty determined appropriate by the two physicians, and such board-certified physician shall make the determination of whether a Disability exists. Absent certification by the physician so selected that the circumstances of Executive’s condition have changed materially since the time of the then most recent determination, neither party shall be able to initiate a determination as to Disability for a period of nine months after the completion of the then most recent determination. |
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2.7. “ Good Reason ” means the occurrence, without Executive’s express prior written consent, of any of the following: |
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(c) Any relocation by the Company of Executive’s primary office work location to a point that is more than fifty (50) miles from 11126 McCormick Road, Hunt Valley, MD 21031 resulting from or in connection with a Change in Control; |
but only if (i) Executive delivers a written notice to the Company specifically identifying the occurrence and demanding that it be remedied within ninety (90) days of the initial existence of such occurrence and (ii) if the same is capable of being rectified, the Company fails to rectify the same within thirty (30) days after receiving such written notice or, if the same is not capable of being rectified within such period of time, the Company fails to commence diligently to seek to rectify the same within such period and thereafter to continue to seek to rectify such failure until rectified.
For the avoidance of doubt: (x) neither the relocation of Executive’s place of employment to another location nor the occurrence of a Change in Control shall, of itself, constitute “Good Reason” and (y) any prospective action that would, if actually taken or implemented, constitute Good Reason through the application of (a) or (b) above (after the expiration without cure of the applicable notice and cure period provided for above) shall not in any event be deemed to have occurred unless and until such action is actually taken or implemented.
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2.8. “ Separation from Service ” means a termination of Executive’s employment that constitutes a separation from service under Section 409A(a)(2)(A)(i) of the Code. |
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(d) Effective Date of Termination . Unless otherwise agreed upon in writing by the Company and Executive: |
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(i) The effective date of termination of Executive’s employment in the case of a termination of Executive’s employment by the Company for any or no reason shall not be more than ninety (90) days after the date the notice of termination is given by the Company; and |
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(ii) The effective date of termination in the case of a termination of Executive’s employment by Executive for any reason shall not be less than thirty (30) nor more than thirty-five (35) days after the date the notice of termination is given by Executive. |
The foregoing, however, shall not preclude the Company from requiring that Executive take a leave of absence with pay until the expiration of the period between the date the notice of termination is given and the effective date of termination.
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(e) Section 409A . |
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3.3. Termination Without Cause or With Good Reason . If Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, the Company shall pay to Executive : |
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the Date of Termination and (y) the tenth (10th) day after Executive has executed and delivered to the Company the general release agreement required by Section 3.7 (and provided that Executive has not thereafter revoked or rescinded such release) and (B) continuing thereafter monthly until paid in full. |
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Company from any obligation it would otherwise have to make further payments or provide further benefits under this Agreement. Executive expressly acknowledges that the Company is prepared to vigorously enforce these promises and that violation of Executive’s obligations could result in an award of damages or other legal remedies against Executive and Executive’s subsequent employers. |
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(b) Executive’s obligations under this Section 3.9 and Section 4 shall survive termination of Executive’s employment and the expiration of this Agreement. |
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(c) Upon termination of Executive’s employment, Executive will be deemed to have resigned from all offices and directorships then held with the Company or any of its affiliates. |
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3.11. No Duty to Mitigate . No amount due to Executive under this Agreement by virtue of the termination of Executive’s employment (other than payments to be provided in respect of health benefits to the extent that Executive is entitled to similar benefits by virtue of new employment) shall be reduced by or on account of any compensation received by Executive as the result of employment by another employer. |
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For the avoidance of doubt and without limitation, subsection (i) above is intended, among other things, to prohibit, during the Employment Period and Restriction Period, the solicitation by Executive of any customer, client, or vendor of the Company for the benefit of or in furtherance of a Competitive Business and the engagement or participation of Executive by or with any business that solicits or engages in business with any customer, client, or vendor of the Company in furtherance of a Competitive Business.
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(c) Notwithstanding the foregoing, Executive may own up to a five percent (5%) interest in a publicly traded corporation or other person engaged in a Competitive Business. |
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(d) For purposes hereof, “ Restriction Period ” means the period beginning upon the Date of Termination and ending on the first anniversary thereof . |
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(a) Certain Rules of Construction . Number . The definitions contained in Section 2 and elsewhere in this Agreement shall be equally applicable to both the singular and plural forms. |
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(b) “ Including”; “Or .” The word “including” means and shall be read as “including but not limited to” and the word “or” means “or” in the nonexclusive sense, i.e., either “and” or “or.” |
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(c) Section and Subsection References . Except as otherwise specified herein, references in this Agreement to Sections, subsections, and paragraphs are references to the Sections, subsections, and paragraphs of this Agreement. |
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(d) Headings . The headings of the Sections, subsections, and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or affect the construction hereof. |
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(e) “ Herein .” Words such as “ herein ,” “ hereinafter ,” “ hereof ,” and “ hereunder ” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. |
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(f) “ Person .” Except as may be expressly provided otherwise herein, the word “person” includes an individual, corporation, general or limited partnership, joint venture, limited liability company, business trust, firm, association, or other form of business entity. |
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(g) Joint Drafting . The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring either party by virtue of the authorship of any of the provisions of this Agreement. |
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5.2. Successors; Binding Agreement . |
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transmission, in each case with receipt confirmed, (iii) one business day after delivery to an overnight courier for next day delivery, or (iv) upon receipt if sent by certified or registered mail. In each case, notice shall be addressed as follows: |
If to Executive:
As set forth below Executive’s signature
to this Agreement
If to the Company:
TESSCO Technologies Incorporated
11126 McCormick Road
Hunt Valley, MD 21031
Attention: President and CEO
Fax: (410) 229-1669
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon actual receipt.
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5.8. Nondisparagement . The Company and Executive agree that neither will knowingly make any false statement intended or reasonably likely to disparage or defame the other to any person not a party to this Agreement relating to the employment relationship between the Company and Executive, the Company's business, or Executive’s performance. |
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(c) Without implying any limitation on the requirement of subsection (a) that disputes be submitted to and resolved by arbitration, each party hereby irrevocably waives any right to a trial by jury in any action or proceeding arising under or relating to this Agreement or to the terms or conditions of Executive’s employment with the Company. |
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IN WITNESS WHEREOF, the parties have executed this Severance and Restrictive Covenant Agreement as of the date and year first above written.
TESSCO TECHNOLOGIES INCORPORATED
By:___________________________________
Robert B. Barnhill, Jr.
President and CEO
EXECUTIVE:
______________________________________
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Exhibit 10.5.1
TESSCO TECHNOLOGIES INCORPORATED
PERFORMANCE STOCK UNIT AGREEMENT
THIS PERFORMANCE STOCK UNIT AGREEMENT between TESSCO TECHNOLOGIES INCORPORATED (the “ Company ”) and ________ (“ you ”) is effective as of May 27, 2016 .
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Section 1. Grant of Performance Shares . |
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1.1. The Compensation Committee of the Company’s Board of Directors has awarded to you the conditional right to receive up to ___ shares of the Company’s common stock (“ Performance Stock ”) under the TESSCO Technologies Incorporated 1994 Stock and Incentive Plan (as amended, the “ Plan ”). Shares of Performance Stock are sometimes referred to in this Agreement as “ Performance Shares ,” and your right to receive one (1) Performance Share is sometimes referred to as a “ Performance Stock Unit ” or “ PSU . ” Your Performance Stock and PSUs are in all respects subject to the terms and conditions contained in this Agreement. |
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1.2. In general, whether your PSUs ripen into the right to receive Performance Shares depends on two factors: (1) the Corporate Performance Factor for this Fiscal Year ( i.e. , the Fiscal Year ending March 26, 2017), which is described in greater detail below and is based partly on the Company’s earnings per share for the Fiscal Year (as defined below) and partly on the achievement of five specified Strategic Transformation Imperatives, and (2) your individual performance rating for this Fiscal Year under the Company’s appraisal process. In addition, as described below, you must remain employed by the Company until Performance Shares are issued, which (if earned) will occur in four annual installments after the end of the Fiscal Year. |
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Section 2. Defined Terms . This Agreement uses a number of terms that are defined either in the body of the Agreement or in the Glossary (Section 11), which appears at the end of this Agreement. These defined terms are capitalized wherever they are used. |
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Section 3. Earning of Performance Shares . |
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3.1. In General . Performance Shares may be earned as of the end of this Fiscal Year, i.e. , FY2017. |
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3.2. Number of Performance Shares Earned . The number of Performance Shares earned depends on the Corporate Performance Factor for this Fiscal Year (which is based partly on EPS and partly on the achievement of five specified Strategic Transformation Imperatives, as described below) and your Individual Performance Factor for the Fiscal Year. Specifically, the number of Performance Shares earned for the Fiscal Year is determined as follows: |
Base Number of Shares x Corporate Performance Factor x Individual Performance Factor
where:
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“ Base Number of Shares ” is _____ ; |
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“ Corporate Performance Factor ” is the percentage determined based partly on EPS and partly on the achievement of the five specified Strategic Transformation Imperatives, as described in the next Section; and |
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“ Individual Performance Factor ” is the percentage based on your “Collaboration Rating” and your “Bottom Line Contribution to Results Rating” for the Fiscal Year as determined by the Company as part of the Company’s annual appraisal of your performance. This percentage will be __% if you have not achieved your personal goals and between __% and __% if you meet or exceed your personal goals. You have previously been provided with a written description of how this percentage is determined as a function of your achievement of some, many, nearly all, or none of your personal goals and whether your performance meets, exceeds, or falls short of expectations. |
The total number of Performance Shares that may be earned for the Fiscal Year, however, may not exceed 100% of the Base Number of Shares.
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3.3. Determination of “Corporate Performance Factor .” The “ Corporate Performance Factor ,” which is a percentage between __% and __% (inclusive), is the sum of two separate components: (i) the “ EPS Component ,” which is based on EPS and can range from a minimum of __% to a maximum of __%, and (ii) the “ STI Component ,” which is based on the Company’s achievement of its Strategic Transformation Imperatives and can range from a minimum of __% to a maximum of __%. Each of these two components – the EPS Component and the STI Component – of the Corporate Performance Factor is defined below. |
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3.4. EPS Component . The EPS Component of the Corporate Performance Factor for the Fiscal Year is a percentage based on EPS relative to the applicable Threshold EPS, Midpoint EPS, and Target EPS and the specified intermediate EPS amounts, i.e. , the EPS amounts between Threshold EPS and Target EPS specified in the following table. |
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If EPS is: |
Then the EPS Component is: |
Less than Threshold EPS |
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Exactly equal to Threshold EPS |
__% |
Greater than Threshold EPS but less than Midpoint EPS |
Determined by multiplying __% by the number of cents by which EPS exceeds Threshold EPS, rounding up or down to the nearest whole percentage, and adding the result to __% |
Exactly equal to Midpoint EPS |
__% |
Greater than Midpoint EPS but less than Target EPS |
Determined by multiplying __% by the number of cents by which EPS exceeds Midpoint EPS, rounding up or down to the nearest whole percentage, and adding the result to __% |
Exactly equal to or greater than Target EPS |
__% |
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3.5. Applicable Parameters for EPS Component . The Threshold EPS, Midpoint EPS, and Target EPS for this Fiscal Year are as follows: |
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Threshold EPS |
$__ |
Midpoint EPS |
$__ |
Target EPS |
$__ |
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3.6. STI Component . The STI Component of the Corporate Performance Factor for the Fiscal Year is a percentage determined by reference to the Company’s achievement of five Strategic Transformation Imperatives relating to the following: |
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The Offer – Our Value Proposition |
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Supply Chain |
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Consultative-Relationship Team Selling |
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Digital and Internet Marketing & Commerce and Intelligence |
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Customer Journey Touchpoints |
Associated with each of these five Strategic Transformation Imperatives are one or two Key Performance Indicators (“ KPIs ”). In order for a particular Strategic Transformation Imperative to be considered achieved, all KPIs associated with that Strategic Transformation Imperative (if there is more than one) must be satisfied.
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If the number of Strategic Transformation Imperatives achieved is: |
Then the STI Component is |
Fewer than 3 |
__% |
3 |
__% |
4 |
__% |
5 |
__% |
You have been provided with the details of the KPIs associated with the five Strategic Transformation Imperatives.
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Section 4. Issuance and Distribution of Performance Shares . Performance Shares earned as described in Section 3 will be issued and distributed to you in four (4) approximately equal installments on or about May 1, 2017, 2018, 2019, and 2020, subject to Section 5. |
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Section 5. Continued Employment . |
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5.1. Unless there is a Change in Control before the end of the Fiscal Year (in which case Section 7.1 will apply), in order to earn Performance Shares for the Fiscal Year, you must be employed by the Company on the last day of the Fiscal Year. If your employment terminates (for whatever reason) before the end of the Fiscal Year, you will not earn any Performance Shares for the Fiscal Year (except to the extent that Section 7.1 applies). |
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5.2. In order to receive Performance Shares that you have earned, you must be employed by the Company on the date that the Performance Shares are to be issued and distributed (as provided in 3.6 or, if there is a Change in Control, in Section 7.2). You will forfeit your right to receive Performance Shares that have been earned but have not been issued and distributed as of the date your employment terminates. This condition will not apply (and the shares will be immediately granted to you upon termination), however, if: |
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Your employment was terminated by the Company other than for Cause; |
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You terminated your employment for Good Reason; |
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Your employment was terminated either by you or by the Company on account of Disability; or |
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Your employment was terminated by reason of your death. |
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5.3. “ Employment ” by the Company for purposes of this Agreement includes employment by any of the Company’s subsidiaries. |
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Section 6. Illustrations . The application of the above provisions is illustrated by the following examples: |
Example 1 If EPS for FY2017 is at least $__, then the EPS Component of the Corporate Performance Factor for the Fiscal Year is __%. If four out of five of the Strategic Transformation Imperatives are achieved, then the STI Component of the Corporate Performance Factor is __%. The Corporate Performance Factor for the Fiscal Year then is the sum of these two percentages, i.e. , __% + __% = __%. If your Individual Performance Factor for the Fiscal Year is __%, then you will earn __% x __% = __% of your Base Number of Shares. Assuming that you remain employed as required by Section 5 (and there is no intervening Change in Control as described in Section 7), the Performance Shares earned will be distributed to you in four approximately equal installments on May 1, 2017, 2018, 2019, and 2020.
Example 2 If, as in Example 1 above, the EPS Component of the Corporate Performance Factor for the Fiscal Year is __%. (because EPS for FY2017 is at least $__) and the STI Component of the Corporate Performance Factor is __% (because four out of five of the Strategic Transformation Imperatives are achieved), but your Individual Performance Factor is __%, then you will earn __% of your Base Number of Shares. Even though __% x __% = __%, you cannot earn more than __% of your Base Number of Shares. (Indeed, if your Individual Performance Factor is at least __%, you will earn __% of your Base Number of Shares, since __% x __% = __%, which exceeds __%.)
Example 3
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If EPS for FY2017 is $__ ( i.e. , equals Threshold EPS), then the EPS Component of the Corporate Performance Factor for the Fiscal Year is __%. |
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If EPS for FY2017 is $__, then the EPS Component of the Corporate Performance Factor for the Fiscal Year is __% [__% + (($__ – $__) x __%) rounded to nearest whole percentage]. |
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If EPS for FY2017 is $__ ( i.e. , equals Midpoint EPS), then the EPS Component of the Corporate Performance Factor for the Fiscal Year is __%. |
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If EPS for FY2017 is $__, then the EPS Component of the Corporate Performance Factor for the Fiscal Year is __% [__% + (($__ – __) x __%) rounded to nearest whole percentage]. |
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If EPS for FY2017 is $__ or greater ( i.e. , equals or exceeds Target EPS), then the Corporate Performance Factor for the Fiscal Year is __%. |
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Section 7. Change in Control . If there is a Change in Control of the Company, then (notwithstanding Section 5): |
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7.1. If the Change in Control occurs during this Fiscal Year, i.e. , FY2017 ( provided you are employed by the Company on the date of the Change in Control), you will earn the entire Base Number of Performance Shares, i.e. , as though (i) the Corporate Performance Factor is __% and (ii) your Individual Performance Factor is __%. Any Performance Shares so earned will be issued and distributed to you effective as of the Change in Control; |
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7.2. If the Change in Control occurs after the end of this Fiscal Year, ( provided you are employed by the Company on the date of the Change in Control), any Performance Shares that you have earned for this Fiscal Year but that have not yet been issued and distributed to you will be issued and distributed to you effective as of the Change in Control; and |
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7.3. Except as provided in this Section, this Agreement and your right to earn Performance Shares will terminate. |
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Section 8. Adjustment of Number of Performance Shares, etc . |
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8.1. Stock Dividends, Splits, Etc . In the event of a stock split, a stock dividend or a similar change in the shares of the Company’s common stock, the number of Performance Shares that may be earned and the number of Performance Shares that have been earned but not yet issued and distributed under this Agreement, as well as Threshold EPS, Target EPS, Base Number of Shares, and the Maximum Number of Performance Shares, shall be adjusted pursuant to the Plan or otherwise as the Compensation Committee deems reasonable so as to preserve the same relative rights and obligations as are provided for in this Agreement. |
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8.2. Reorganization Events . After any capital reorganization, reclassification of shares of the Company’s common stock, or consolidation of the Company with, or merger of the Company into, any other corporation or entity that does not constitute a Change in Control (each a “ Reorganization Event ”), the number of Performance Shares that may be earned and the number of Performance Shares that have been earned but not yet issued and distributed under this Agreement, as well as Threshold EPS, Target EPS, Base Number of Shares, and the Maximum Number of Performance Shares, may be adjusted pursuant to the Plan or otherwise as the Compensation Committee deems reasonable so as to preserve the same relative rights and obligations as are provided for in this Agreement. |
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8.3. Reservation of Sufficient Shares . The Company will reserve and keep available out of its authorized but unissued shares of common stock a number of such shares as will be sufficient to enable the Company to issue and distribute any Performance Shares that become issuable and distributable under this Agreement. |
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8.4. Registration and Approval . If any shares reserved for issuance under this Agreement require registration with or approval of any governmental authority under any federal or state law before those shares may be validly issued, then the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval. This provision, however, will not require the Company to secure any registration or approval in order (i) to issue shares under this Agreement if those shares can lawfully be issued pursuant to one or more exemptions from registration under applicable federal and state securities laws (even though the shares may constitute “restricted securities” or the holder of such shares may be unable to transfer the shares without registration or the availability of a suitable exemption from registration under such laws) or (ii) to enable any person to sell or distribute |
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shares received under this Agreement in a transaction involving a public offering within the meaning of the Securities Act as then in effect. |
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8.5. Shares Fully Paid and Nonassessable . All Shares issued under this Agreement will upon issuance be fully paid and nonassessable. |
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Section 9. Restrictions on Transfer; Legends . |
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9.1. Transfer Restrictions; Opinion of Counsel . Neither this Agreement nor all or any part of your rights under this Agreement may be transferred, i.e., 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) except as may be expressly provided in the Plan. No shares issued under this Agreement may be transferred, other than by will or by operation of the laws of descent and distribution, unless (i) such transfer is made pursuant to an effective registration statement or is exempt from or otherwise permitted under applicable federal and state securities laws and (ii) if the Company so requests or if a legend appearing on the certificate evidencing such shares (or the transfer ledger reflecting such shares, if such shares are in uncertificated form) so requires, the owner delivers 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 will be ineffective. |
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9.2. Stock Certificate Legends, etc . Each certificate evidencing Performance Shares issued under this Agreement (and each certificate evidencing shares issued to any subsequent transferee of any Performance Shares) may be imprinted with a legend in substantially the following form (or, if such shares are issued in uncertificated form, the transfer ledger of the Company may so or similarly reflect): |
No sale, offer to sell, or other transfer of the securities represented by this certificate may be made unless a registration statement under the Securities Act of 1933, as amended (the “ Act ”), and applicable state securities laws is in effect with respect to the securities or an exemption from the registration provisions of the Act is then in fact applicable.
In addition, if the Company determines that the owner of any such shares is an “affiliate” of the Company within the meaning of that term under the Securities Act of 1933, as amended, and the regulations promulgated thereunder, the following additional legend may be required:
The securities represented by this certificate are beneficially owned by an “affiliate” of the issuer and may not be sold, offered for sale, pledged, hypothecated, or otherwise transferred except: (i) in conjunction with an effective registration statement with respect to such securities under the Act and applicable state securities laws; (ii) pursuant to the terms of Rule 144 under the Act; or (iii) pursuant to an opinion of counsel satisfactory to the issuer that such registration or compliance is not required.
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Section 10. Miscellaneous . |
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10.1. Entire Agreement . This Agreement constitutes the entire agreement and understanding between us, and supersedes any prior agreement or understanding, relating to the subject matter of this Agreement. |
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10.2. Conflicts with Plan; Amendments . This Agreement has been granted as a “Performance Award” under the Plan and will be construed consistently with the Plan. In the event of any conflict between the provisions of the Plan and this Agreement, the provisions of the Plan shall control. The Committee has the right, in its sole discretion, to amend this Agreement from time to time in any manner for the purpose of promoting the objectives of the Plan but only if all other Performance Share Award Agreements 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 Agreement 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 you written notice of any such amendment of this Agreement as promptly as practicable after it is adopted. |
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10.3. No Rights of Stockholder . You will not have the rights of a stockholder of the Company with respect to the Performance Shares that may become issuable under this Agreement until the Performance Shares have actually been issued and distributed to you. This Agreement will not affect in any way the right or power of the Board of Directors or the 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 of holders of common stock, or any dissolution or liquidation of the Company, or any sale or transfer of all or any part of the Company’s assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. |
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10.4. Notices . Any notice or communication required or permitted by this Agreement will be sufficiently given if delivered in person or by commercial courier service or sent by first class mail, postage prepaid: |
(i) if to the Company, addressed to it at 11126 McCormick Road, Hunt Valley, Maryland 21031, marked for the attention of the President, and
(ii) if to you, to the address set forth below your signature,
or in either case to such other address as either of us notifies the other in accordance with this Section.
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10.5. Governing Law . This Agreement shall be governed by and construed in accordance with 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). |
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10.6. Headings . The descriptive headings in this Agreement are inserted for convenience of reference only and do not constitute a part of this Agreement. |
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10.7. Limitations on Issuance . Notwithstanding any other provisions of this Agreement or of the Plan, no Performance Shares will be issuable under this Agreement at any time when such issuance is prohibited by the Company’s policies then in effect concerning transactions by officers, directors, and employees in securities of the Company. |
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10.8. Fractional Shares . The Company will not be required to issue fractions of Performance Shares under this Agreement. If any fractional interest in a Performance Share is otherwise deliverable, the Company will instead pay cash equal to the fair market value of the fractional interest as reasonably determined by the Company. |
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10.9. Withholding Taxes . The Company will be entitled to require as a condition of delivery to you of any Performance Shares (whether evidenced by a physical certificate or made by electronic transfer) that you 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 you to remit any such amounts, the Company will at all times have the right to withhold such amounts from any compensation or other payments otherwise due to you (under this Agreement or otherwise). |
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10.10. Issuance Taxes . The issuance of stock certificates under this Agreement will be made without charge to you for any stamp or similar tax imposed with respect to such certificate. The Company will 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 yours, and the Company will not be required to issue or deliver any such stock certificate unless and until the person or persons requesting its issuance 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. |
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10.11. Section 409A . The payments to you pursuant to this Agreement are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, as short-term deferrals pursuant to Treasury Regulation §1.409A-1(b)(4), and for this purpose each payment shall constitute a “separately identified” amount within the meaning of Treasury Regulation §1.409A-2(b)(2). |
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Section 11. Glossary . The following capitalized terms have the meanings set forth in this Section: |
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11.1. “ Base Number of Shares ” is defined in Section 3.2. |
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11.2. “ Cause ” means: |
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(i) your conviction of, or a plea of guilty or nolo contendere to, a felony or a crime involving moral turpitude; |
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(ii) your embezzlement or criminal diversion of funds or property of the Company or any of the Company’s subsidiaries; or |
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(iii) any other gross misconduct by you in connection with your employment with the Company or any willful failure by you to perform the substantial duties of your position. |
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11.3. “ Change in Control ” means the occurrence of any of the following: |
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(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 |
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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 |
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(ii) there is a change in the composition of a majority of the Board of Directors of the Company 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 |
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(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 |
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(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 |
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(v) the stockholders of the Company approve a plan or proposal for the complete or partial liquidation, dissolution, or divisive reorganization of the Company. |
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11.4. “ Compensation Committee ” means the Compensation Committee of the Company’s Board of Directors as constituted from time to time. |
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11.5. “ Corporate Performance Factor ” is defined in Section 3.3. |
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11.6. “ Disability ” means a physical or mental disease, injury, or infirmity that prevents you (despite the provision of reasonable accommodations as required by law) from performing the substantial duties of your position for a period of one hundred eighty (180) consecutive days as certified by a physician designated by or acceptable to the Company. |
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11.7. “ EPS ” means the Company’s consolidated diluted earnings per share net of the costs for the Fiscal Year associated with all components of the Company’s Value Share Program (or successor incentive compensation arrangements), including the costs associated with the grant of Performance Shares under this and similar Agreements, all as determined in good faith by the Compensation Committee. In this connection: |
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(i) The Compensation Committee may make such adjustments to EPS, and to Threshold EPS, Midpoint EPS, and Target EPS, for any Fiscal Year as the Compensation Committee reasonably determines in its sole discretion are necessary (i) to maintain consistency with the accounting principles and practices applied by the Company on the effective date of this Agreement or (ii) as a result of transactions or events described in Sections 8.1 or 8.2, or other extraordinary or nonrecurring events not contemplated in developing the Threshold EPS, Midpoint EPS, and Target EPS |
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targets, in order to preserve the Compensation Committee’s intent in issuing this and similar Agreements; and |
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(ii) In addition, and without limiting the generality of the foregoing, if the Company’s consolidated diluted earnings per share before taking into account the costs associated with the grant of Performance Shares under this and similar Agreements would exceed Threshold EPS but such consolidated diluted earnings per share after taking into account such costs would be less than Threshold EPS, then the number of Performance Shares earned under this and similar Agreements will be determined based on the maximum EPS Component (even though such EPS Component is less than __%) such that the Company’s consolidated diluted earnings per share after giving effect to the grant of Performance Shares based on such EPS Component (and taking into account all other costs for the Fiscal Year associated with all elements of the Company’s Value Share Program or successor incentive compensation arrangements) will not be less than Threshold EPS. |
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11.8. “ Fiscal Year ” means a fiscal year of the Company. |
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11.9. “ FY2017 ” means the Fiscal Year ending March 26, 2017. |
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11.10. “ Good Reason ” means: |
(i) any material adverse change in your duties or reporting responsibilities or any material reduction in your authority, provided you specifically object in writing to the change or reduction within thirty (30) days and the Company does not rescind the change or reduction within a further period of thirty (30) days; or
(ii) any failure by the Company or its subsidiaries to make a payment due to you or to provide you with a benefit due to you, but only if the failure is not cured within fifteen (15) days after the Company receives written notice of the failure.
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11.11. “ Individual Performance Factor ” is defined in Section 3.2. |
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11.12. “ Performance Share ” means a share of Performance Stock. |
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11.13. “ Performance Stock ” means common stock of the Company that may become issuable to you under this Agreement. |
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11.14. “ Performance Stock Unit ” or “ PSU ” means your right to receive, subject to the terms and conditions contained in this Agreement, one (1) Performance Share. |
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To confirm the above, the Company and you hereby sign this Agreement, which is effective as of the date set forth on the first page.
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ATTEST/WITNESS: |
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TESSCO TECHNOLOGIES INCORPORATED |
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By: |
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(Seal) |
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Robert B. Barnhill, Jr. |
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Chairman and Chief Executive Officer |
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(Seal) |
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<<Participant>> |
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Address: |
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CERTIFICATION
I, Robert B. Barnhill, Jr., certify that:
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1. I have reviewed this quarterly report on Form 10-Q for the period ended June 26, 2016 of TESSCO Technologies Incorporated; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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Date: |
August 4, 2016 |
By: |
/s/ Robert B. Barnhill, Jr. |
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Robert B. Barnhill, Jr. |
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Chairman, President and Chief Executive Officer |
CERTIFICATION
I, Aric Spitulnik, certify that:
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1. I have reviewed this quarterly report on Form 10-Q for the period ended June 26, 2016 of TESSCO Technologies Incorporated; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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Date: |
August 4, 2016 |
By: |
/s/ Aric Spitulnik |
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Aric Spitulnik |
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Senior Vice President, Corporate Secretary and |
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Chief Financial Officer |
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:
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1. The Quarterly Report on Form 10-Q of the Company for the quarter ended June 26, 2016 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
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2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: |
August 4, 2016 |
By: |
/s/ Robert B. Barnhill, Jr. |
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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.
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:
1. The Quarterly Report on Form 10-Q of the Company for the quarter ended June 26, 2016 (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.
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Date: |
August 4, 2016 |
By: |
/s/ Aric Spitulnik |
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Aric Spitulnik |
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.