UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________

 
FORM 10-K

  x
ANNUAL REPORT PURSUANT TO SECTION 13 OROR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 1, 2012MARCH 31, 2013

  oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  _________ TO _________

Commission file number 0-247460-2474
 

TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
  
DELAWARE
(State or other jurisdiction of
incorporation or organization)
52-0729657
(I.R.S. Employer
Identification No.)
11126 McCormick Road, Hunt Valley, Maryland
(Address of principal executive offices)

21031
(Zip Code)
 
Registrant’s telephone number, including area code (410) 229-1000
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code (410) 229-1000
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None 

 
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes oNo x

Indicate 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 x No o

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of Common Stock, $0.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock as quoted on the NASDAQ Global Market as of September 25, 2011,30, 2012, was $70,661,400.
$114,141,167.

The number of shares of the registrant's Common Stock, $0.01 par value, outstanding as of May 14, 2012,21, 2013 was 8,023,471.
8,211,407. 
DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the definitive Proxy Statement for the registrant’s 20122013 Annual Meeting of Shareholders, scheduled to be held July 26, 2012,2013, are incorporated by reference into Part III of this Annual Report on Form 10-K.



 
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Part I

Item 1. Business.

General

TESSCO Technologies Incorporated (TESSCO, we, or the Company) is Your Total Source® for making wireless work. The convergence of wireless and the internet is revolutionizing the way the world lives and works. New systems and applications are unlocking potential at an unprecedented rate. TESSCO is there, thinking in new ways for exceptional outcomes. TESSCO architects and delivers the product and value chain solutions to organizations responsible for building, operating and maintaining wireless broadband systems.

We classify our customers into two broad segments, the commercial segment and the retail segment.  Customers in the commercial segment include a diversified mix of carrier and public network operators, tower owners, program managers, contractors and integrators, wireless internet service providers, industrial and enterprise self-maintained users (including railroads, utilities, mining operators, oil and gas operators and technicians), governments, manufacturers, and value-added resellers. In our retail segment, our customers consist of tier 1, 2 and 3 carriers and their independent agents, dealers and consumers, as well as other local and national retailers.  Combining both segments, we currently serve an average of approximately 13,000 non-consumer customers per month.


We provide our customers with support, products and services to build and maintain these primary systems:

·Broadband Connectivity
·Base Station Infrastructure
·Critical Communications
·Indoor Network Architecture
·Maintenance Repair and Assembly
·Outdoor Network Architecture
·Remote Monitoring and Control
·Mobility and User Devices

We offer products in these categories: base station infrastructure, network systems, mobile devices and accessories, and installation, test and maintenance products.  We source and develop our product offer from leading manufacturers throughout the world.

Our operational platform, which we refer to as our Knowledge, Configuration, Delivery and Control System (KCDCTM), allows customers and manufacturers the opportunity to streamline the supply chain process and lower total inventories and costs by providing guaranteed availability and complete, on-time delivery to the point of use.

We began our “total source” operations in 1982, reincorporated as a Delaware corporation in 1987, and have been listed on the NASDAQ Market (currently, NASDAQ Global MarketSelect) (symbol: TESS), since 1994. Today, we operate 24 hours a day, seven days a week, under ISO 9001:2008 and TL 9000 registrations.

On May 26, 2010, we issued a stock dividend in order to effect a three-for-two stock split of our common stock. The share prices and number of shares included in this Annual Report on Form 10-K prior to the May 26, 2010 stock split have been retroactively restated to reflect the stock dividend for all periods presented. The references from time to time herein to “split adjusted” shares is for convenience of the reader; and the absence in some places of such reference should not be construed to mean that such numbers or values are not “split adjusted,” unless noted as such.
For information regarding our website address and material available free of charge through the website, see the information appearing under the heading "Available Information"“Available Information” included in Item 7 to this Annual Report on Form 10-K for the fiscal year ended April 1, 2012.March 31, 2013.
 
 
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Customers

Our customer base, and our sales and product organization is split into commercial and retail segments, which accounted for approximately 45%49% and 55%51%, respectively, of fiscal year 20122013 revenues. Commercial customers share the characteristic that they are organizations that design, install, operate, repair or re-sell wireless broadband systems and products. We group our commercial customers into three different categories: 1) public carriers, contractors and program managers, 2) private system operators and governments and 3) commercial dealers and resellers, which accounted for approximately 23%30%, 39%33% and 38%37%, respectively, of fiscal year 20122013 commercial revenues.

Public carriers, contractors and program managers are system operators that are generally responsible for building and maintaining the public infrastructure system and providing airtime service to individual subscribers. Private system operators and government customers include commercial entities, major utilities, transportation companies, manufacturers, installation centers, federal agencies and state and local governments. Commercial dealers and resellers include dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment for the enterprise and consumer markets. These resellers include local and national value-added resellers and retailers.

Our retail customer base includes (1) retailers, dealer agents and Tier 2 and 3 carriers, which accounted for approximately 29%44% of fiscal year 20122013 retail revenues and (2) Tier 1 carriers (including our Major third party logistics (3PL) relationship (our largest customer, AT&T Mobility (AT&T)), which accounted for approximately 71%56% of fiscal year 20122013 retail revenues. Effective in the fourth quarter of fiscal 2013, there has been a change to the market reporting within the Company’s Retail Segment. The market within the Retail Segment formerly known as “Retailer, dealer agent and Tier 2/3 carrier” market, has been changed to “Retailer, dealer agent and carrier” market.  The market within the Retail Segment formerly known as “Tier 1 Carriers” market has been changed to “Major 3PL relationship". These changes result in reclassification of certain revenue and gross profit amounts from the former "Tier 1 Carriers" market to the new "Retailer, dealer agent and carrier" market, and allow for isolation of the reporting for the Company's recently transitioned Tier 1 carrier business relationship under the new "Major 3PL relationship" heading. All prior periods have been restated to reflect the change.  The Company’s segments, known as "Commercial" and "Retail", and the total revenue and gross profit within those segments, remain unchanged.
 
Our largest customer relationship, AT&T, a Tier 1 cellular carrier purchasing cellular phone and other device accessories for resale into their corporate owned stores, accounted for approximately 36%30% of our total revenues during fiscal year 2012.2013. Our next nine largest customer relationships accounted for 9% of our total revenues during fiscal year 2012,2013, and therefore, our top ten customer relationships totaled 45%39% of our total revenues.  In April 2012, we were notified by AT&T that they intendof their intention to transition their corporatethird party logistics retail store product management, packaging and fulfillment operationssupply chain business away from TESSCO to an internal product management organization and a third party logistic provider. We currently expect this transition will beginus beginning in the second quarter of our fiscal 2013. As of the close of our fiscal 2013, and that this business will behas fully transitioned and terminate at some point during our third fiscal quarter of fiscal 2013, resultingtransitioned. This has resulted in a significant reduction in revenues but, because of the lower margins and our on-going cost reduction efforts, a lesser relative impact on overall profits. During and after the transition,profits in fiscal 2013. Going forward, we expect to continue to supply product to this customer’s other programs including ourand to supply proprietary Ventev® products.products to AT&T retail stores.

Approximately 98% of our sales have been made to customers in the United States during each of the past three fiscal years, although we currently sell to customers in over 100 countries. Due to our diverse product segmentsoffering and our wide customer base, our business is not significantly affected by seasonality in the aggregate. However, sales to our retailers generally peak in our second and third quarters in preparation for the winter holiday season. Also, our base station infrastructure sales are typically affected by weather conditions in the United States, especially in our fourth quarter.

For more detailed financial information regarding our business segments for each of the past three fiscal years, see Note 109 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for the fiscal year ended April 1, 2012.March 31, 2013.

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Products and Services

We principally offer competitively priced, manufacturer brand-name products, ranging from simple hardware items to sophisticated test equipment, with per item prices ranging from less than $1 to approximately $73,000$91,000 and gross profit margins ranging from less than 5% to over 95%. We offer products classified into our four business categories: base station infrastructure; network systems; installation, test and maintenance products, and mobile devices and accessories, which accounted for approximately 27%30%, 10%11%, 6%, and 57%53% of fiscal year 20122013 revenues, respectively. Base station infrastructure products are used to build, repair and upgrade wireless broadband systems. Products include base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, enclosures, grounding, jumpers, miscellaneous hardware, and mobile antennas. Our base station infrastructure serviceproduct offering includes connector installation, custom jumper assembly, site kitting and logistics integration. Network systems products are used to build and upgrade public and private wireless broadband networks. Products include fixed and mobile broadband radio equipment, 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, and maintain 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 devices and accessory products include cellular and smart phone and data device accessories such as replacement batteries, cases, speakers, mobile amplifiers, power supplies, bluetooth and corded 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 providing private label Internet sites, complement our mobile devices and accessory product offering.

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While we principally provide manufacturer brand-name products, a variety of products are developed, manufactured and offered under TESSCO-owned brands including, VentevÒ, Wireless SolutionsÒ, and TerraWave®. The products we offer under these brands generally consist of device accessory products that fall into the mobile device and accessory product category as well as WLAN and network systems accessory products and remote monitoring and control solutions that fall into the network systems category. Also, our WLAN certification training is offered under our training unit GigaWave® trade name and is reported in the network systems category. We have not incurred significant research and development expenditures in any of the last three fiscal years.

Our products are sold as part of our integrated product and supply chain solutions. Our supply chain services for all product areas are grouped under Knowledge, Configuration, Delivery and Control. Knowledge solutions include the entire suite of TESSCO knowledge tools that focus on educating the industry, including product highlights, showcases and/or comparisons, with comprehensive specifications on the products, solutions and applications that are offered and reinforced by engineering, sales and technical support, as well as hands-on training programs. Configuration services are comprised of customized product solution kitting and assembly, logistics management and consumer and retail merchandising and marketing, allowing the products to be delivered ready for immediate use, installation or resale. Our delivery system allows the customer to select 1-, 3- or 5-day “just-in-time” delivery, to specific delivery locations, designed to eliminate the customer’s need for staging and warehousing. Our services that increase customer control include predetermined monthly pricing levels, the ability to monitor multi-site purchasing with pre-approved, customized parameters indicating who is able to order how much of which specific products, order delivery tracking, product usage tracking, history reporting and alternative financing options.

As part of our commitment to customer service, we typically allow most customers to return most products for any reason, for credit, within 30 days of the date of purchase. Total returns and credits have been less than 3% of revenues in each of the past three fiscal years.

On a consolidated basis, revenues from sales of products purchased from our top ten vendors accounted for 43%42% of total revenues, and sales of products purchased from our largest vendor, Otter Products, LLC (Otter) generated approximately 17%9% of our total revenues. Much of this concentration, however, is attributable to our mobile device accessory sales to AT&T, which are expected to be fully transitioned from TESSCO to a third party logistics provider in the third quarter of our fiscal 2013 (see Customer section above for more information regarding this relationship): approximately 77% of revenues from this customer were derived from sales of products purchased from ten vendors, the largest of which is Otter. If sales to AT&T are excluded, vendor concentration is muchslightly lower: 35%40% of non-AT&T revenues were derived from sales of products purchased from our top ten vendors (excluding AT&T sales), and no vendor represented more than 10%11% of non-AT&T sales.

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The terms of our current business relationship with Otter arehad been set to expire in March 2013 and as such, we have been engaged in discussions with them regarding revised terms of our relationship. Between nowEffective January 2013, Otter and March 2013 we plan to continueTESSCO agreed on new terms for our aggressive marketing and selling of Otter products as a key part of our multi-brand offering and also plan to continue our dialogue with Otter related to future business terms.relationship. 

The amount of purchases we make from each of our approximately 390375 vendors may significantly increase or decrease over time.  As the level of business changes, we may request, or be requested by our vendors, to adjust the terms of our relationships.  Therefore, our ability to purchase and re-sell products from alleach of our vendors including Otter, depends on being able to reach agreementagreements with these vendors on business terms.  In addition, the agreements and arrangements on which most of our larger vendor relationships are based are typically of limited duration and terminable for any or no reason by either party upon notice of varying lengths, usually between several months and two years.  Generally, we believe that alternative sources of supply are available for many of the product types we carry.

We are dedicated to superior performance, and quality and consistency of service in an effort to maintain and expand vendor relationships but there can be no assurance that we will continue to be successful in this regard in the future, or that competitive pressures or other events beyond our control will not have a negative impact on our ability to maintain these relationships or to continue to derive revenues from these relationships.

Method of Operation

We believe that we have developed a highly integrated, technologically advanced and efficient method of operation based on the following key tenets:

 ·Understanding and anticipating customers' needs and building solutions by cultivating lasting relationships;
 ·
Allowing customers to make the best decisions by delivering product knowledge, not just information, through our knowledge tools, including The Wireless Journal®, and TESSCO.com®, our Solution and Transaction System;
 ·Responding to what we refer to as "the moments of truth" by providing customers with sales, service and technical support, 24 hours a day, 7 days a week, 365 days a year;
 ·Providing customers what they need, when and where they need it by delivering integrated product and supply chain solutions; and
 ·Helping customers enhance their operations by providing real-time order tracking and performance measurement.

We operate as a team of teams structured to enhance marketing innovation, customer focus and operational excellence.  Both our Commercial and Retail segments include a Market Development and Sales team, a Solutions Development, Product Management and Marketing team and a Customer Support and Order Entry team. Expenses for our Procurement and Inventory Management team and Fulfillment and Distribution team are allocated to each segment based on a percentage of resources used.  The Information and Technology team is not allocated to our segments.

Market Development and Sales: In order to meet the needs of a dynamic and diverse marketplace, sales and marketing activities are organized on an end-market basis. Sales teams are focused on our commercial customers: 1) public carriers, contractors, and program managers, 2) private system operators and governments, and 3) commercial dealers and resellers; our retail customers: 1) retailers, dealer agents and Tier 2 and Tier 3 carriers, and 2) Tier 1 carriers;our Major 3PL relationship (our largest customer AT&T); as well as consumers which are also included in the retail segment (e.g. affinity programs, Web store programs and fulfillment and consumer services).  This organization allows for the development of unique product and solution offerings to meet the needs of our diverse customer base.

 
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We attempt to understand and anticipate customers' needs and to build solutions by cultivating lasting relationships. Our commercial customer database contains detailed information on approximately 235,000244,000 existing customers, including the names of key personnel, past contacts, inquiries, and buying and credit histories. Additionally, we have information on approximately 400,000497,000 contacts that serve as potential new customers in our market. This extensive customer database enables us to identify and target potential customers and to market specific products to these targeted customers. Potential customers are identified through their responses to TESSCO.com®, direct-marketing materials, advertisements in trade journals and industry trade shows, as well as through referrals from other TESSCO customers and vendors. Customer relationship representatives pursue these customer inquiries through distribution of our Knowledge Tools and through phone contact, electronic communications, and field visits. The information technology system tracks potential customer identification from the initial marketing effort through the establishment and development of a purchasing relationship. Once a customer relationship is established, we carefully analyze purchasing patterns and identify opportunities to encourage customers to make more frequent purchases of a broader array of products. Scheduled contacts are made to each regularly purchasing customer for the purpose of information dissemination, order generation, database maintenance, and the overall enhancement of the business relationship. The process is aimed at attracting prospects to TESSCO, converting these prospects to buying customers, and ultimately migrating them to loyal, total-source monthly buyers.

Solutions Development, Product Management and Marketing: We actively monitor advances in technologies and industry trends, both through market research and continual customer and manufacturer interaction, and continue to enhance our product offering as new wireless communications products and technologies are developed. To complement our broad product portfolio, we provide technical expertise and consultation to assist our customers in understanding technology and choosing the right products for their specific application. Our Solutions Services Team offers applications engineering to market-specific applications such as Positive Train Control, Smart Grid and fiber networks, custom integrated solutions for power systems, and site kitting and flexible custom network design services for areas such as in-building coverage, tower design, and wireless video surveillance systems.

In addition to determining the product offering, our Product and Solutions Development Teams provide the technical foundation for both customers and our personnel. The Wireless Product Knowledge System (WPKS) is continually updated to add new products and additional technical information in response to manufacturer specification changes and customer inquiries. WPKS contains detailed information on each stock keeping unit (SKU) offered, including full product descriptions, category classifications, technical specifications, illustrations, product cost, pricing and delivery information, alternative and associated products, and purchase and sales histories. This information is available on a real-time basis to all of our personnel for product development, procurement, technical support, cataloging and marketing.

As a thought leader in the wireless industry, TESSCO’s marketing materials are used for both educating the industry and for promoting TESSCO’s value. We utilize our WPKS to develop both broad-based and customized product solution information materials. These materials are designed to encourage both existing and potential customers to realize the value we provide in their product solution and supply chain decisions. These Knowledge Tools are an integrated suite of informational print and electronic media. They include: The Wireless Guide®, our product catalogue which is readily available electronically on TESSCO.com and is periodically sent to qualified customers in hard copy form; The Wireless Journal®, a trade journal with a bimonthly circulation of approximately 80,000,78,000, which is designed to introduce the reader to our capabilities and product offerings, and contains information on significant industry trends and product reviews; The Wireless Update®, which is emailed on a regular basis to more than 200,000150,000 different individuals and is uniquely produced for various portions of our customer base; The Wireless Bulletin® family, including The Wireless Bulletin for Accessories for Handsets, Tablets & Music Devices which has a bimonthly circulation of approximately 20,000,15,000, The Wireless Bulletin for Installation, Test & Maintenance Products, The Wireless Bulletin for Security & Surveillance, The Wireless Bulletin for Site Planning, The Wireless Bulletin for Training, and The Wireless Bulletin for Wireless Networking Solutions, which are distributed on an as-need basis in a given year; Technical Application Notes, interactive Systems Supported Reference Drawings, and White Papers, which provide in-depth planning and installation instructions and diagrams; Tech Tips, which offer suggestions and ideas from TESSCO customers; and TESSCO.com®. In addition, TESSCO publishes online, Web-browser-enabled, companion versions of its many printed publications, including The Wireless Bulletin Online, The Wireless Guide Online, and The Wireless Journal Online.

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TESSCO.com® is our e-commerce site and the gateway to Your Total Source® for the knowledge, products, and solutions for building, using, and maintaining wireless broadband systems. It offers online access to a real-time system of Knowledge, Configuration, Delivery and Control of product and supply chain solutions and is intended for our commercial customers; its feature-rich capabilities include:
 
·Customer-specific home page that offers a customized presentation of relevant, market-specific content, tailored to the logged-in users’ role in wireless;
·Powerful product search capabilities enabled by Google search engine logic;
·Real-time pricing and product availability;
·Easy ordering capabilities, including a Worksheet ordering tool which is the foundation for building end-to-end solutions and requirements, and which allows for the construction and configuration of a total-source order; Worksheets can be immediately converted to an order, as well as saved, copied, shared, uploaded and emailed;
·Knowledge Center that unlocks all assets of TESSCO.com and enables the streamlined navigation of TESSCO’s knowledge content (articles, advice, white papers, Systems Supported illustrations, videos, installation guides, product selection guides, or any other content featured on TESSCO.com);
·Variety of useful customer service, financial and technical support pages, including the Your Account Page which includes all of the tools necessary to manage or modify orders, update the account, find the right support, review Worksheets, handle warranty claims, and explore TESSCO’s capabilities;
·Order confirmation – specifying the contents, order status, delivery date, tracking number and total cost of an order;
·
Order Tracking Center provides online order status, at every step of the way, of all order items, available in the real-time Your Account Portal;
·Order reservations, order status, back-order details and four-month order history;
·Ability to view invoices online and customer-specific pricing, based on our tiered pricing levels tied to a customer's aggregate purchase volume;
·Systems and Devices Supported pages feature interactive, how-to illustrations for a range of wireless applications that help with system design or device accessory support; the illustrations show the product required for a given application, allowing the user to configure an end-to-end solution and build a Worksheet;
·RSS Feeds that allow customers to see TESSCO’s newest products;
·Feedback Center that makes it easy for customers to provide input on our services, Knowledge Tools and Website; and
·
Interactive versions of various Knowledge Tools, including: several customized versions of The Wireless Bulletin®, The Wireless Update®, The Wireless Guide®, and The Wireless Journal®.

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Our Knowledge Tools empower our customers to make better decisions by delivering product knowledge, rather than just information. These tools also afford our manufacturers the opportunity to develop their brands and promote their products to a broad and diverse customer base.

Customer Support and Order Entry: Our customer support teams are responsible for responding to what we refer to as "the moments of truth" by delivering sales and customer support services through an effective and efficient transaction system. We also continually monitor our customer service performance through report cards sent for each product delivery, customer surveys and regular interaction with customers. By combining our broad product offering with a commitment to superior customer service, we seek to reduce a customer's overall procurement costs by enabling the customer to consolidate the number of suppliers from which it obtains products, while also reducing the customer's need to maintain high inventory levels.

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Our information technology system provides detailed information on every customer account, including recent inquiries, buying and credit histories, separate buying locations within a customer account and contact diaries for key personnel, as well as detailed product information, including technical, product availability and pricing information. The information technology system increases sales productivity by enabling any customer support representative to provide any customer with personalized service and also allows non-technical personnel to provide a high level of technical product information and order assistance.

We believe that our commitment to providing prompt, friendly and efficient customer service before, during and after the sale enables us to maximize sales, customer satisfaction and customer retention. The monthly average number of non-consumer customers increased from 12,700 inremained steady at approximately 13,000 for fiscal year 2011 to 13,000 in fiscal year 2012.years 2012 and 2013.

Procurement and Inventory Management: Our product management and purchasing system aims to provide customers with a total source of broad and deep product availability, while maximizing the return on our inventory investment.

We use our information technology system to monitor and manage our inventory. Historical sales results, sales projections and information regarding vendor lead times are all used to determine appropriate inventory levels. The information technology system also provides early warning reports regarding upcoming inventory requirements. As of March 31, 2013 and April 1, 2012, and March 27, 2011, we had an immaterial level of backlog orders. Most backlog orders as of April 1, 2012,March 31, 2013, are expected to be filled within 90 days of fiscal year-end. For the fiscal years ended March 31, 2013 and April 1, 2012, and March 27, 2011, inventory write-offs were 0.7%0.4% and 0.9%0.7% of total purchases, respectively. In many cases, we have beenare able to return slow-moving inventory to our vendors pursuant to stock rotation agreements. Inventory turns for fiscal years 2013 and 2012 were 10.6 and 2011 were 11.8, and 10.4, respectively. This increasedecrease is largely due to an increasea decrease in sales to our largest customer AT&T Mobility, which have a shorter inventory turnover than our typical sales.
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Fulfillment and Distribution: Orders are received at our Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas customer sales support centers. As orders are received, customer representatives have access to technical information, alternative and complementary product selections, product availability and pricing information, as well as customer purchasing and credit histories and recent inquiry summaries. An automated warehouse management system, which is integrated with the product planning and procurement system, allows us to ensure inventory control, to minimize multiple product shipments to complete an order and to limit inventory duplication. Bar-coded labels are used on every product, allowing distribution center personnel to utilize radio frequency scanners to locate products, fill orders and update inventory records in real-time, thus reducing overhead associated with the distribution functions. We contract with a variety of freight line and parcel transportation carrier partners to deliver orders to customers.

Performance and Delivery Guarantee (PDG) charges are generally calculated on the basis of the weight of the products ordered and on the delivery service requested, rather than on distance to the customer. We believe that this approach emphasizes on-time delivery instead of shipment dates, enabling customers to minimize their inventories and reduce their overall procurement costs while guarantying date specific delivery, thereby encouraging them to make us their total source supplier.

Information Technology: Our information technology system is critical to the success of our operations. We have made substantial investments in the development of this system, which integrates cataloging, marketing, sales, fulfillment, inventory control and purchasing, financial control and internal and external communications. The information technology system includes highly developed customer and product databases and is integrated with our Configuration, Fulfillment and Delivery system. The information contained in the system is available on a real-time basis to all of our employees as needed and is utilized in every area of our operations.

We develop, construct, maintain and host several web sites for certain affinity partners. These sites include control capabilities, including partner branding, independent landing pages and URLs, product filtering and purchase authorization limits that allow us to seamlessly interact with the customer, fulfill online orders and provide required information to these affinity partners.

We believe that we have been successful to date in pursuing a highly integrated, technologically advanced and efficient method of operations; however, disruption to our day-to-day operations, including failure of our information technology system, distribution system, or freight carrier interruption, could impair our ability to receive and process orders or to ship products in a timely and cost-efficient manner.

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Competition

The wireless communications distribution industry is competitive and fragmented, and is comprised of distributors, such as Brightpoint, Superior Communications, Anixter and Genco ATC Logistics in our retail segment and Hutton Communications, KPG Logistics, Westcon, Comstor, Tech Data, Ingram Micro, Site Pro 1, Winncom, Talley Communications and Alliance Corporation in our commercial segment. In addition, many manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. In addition, the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months'months or otherwise short notice. Accordingly, our ability to maintain these relationships is subject to competitive pressures and challenges. Some of our current competitors have substantially greater capital resources and sales and distribution capabilities than we do. In response to competitive pressures from any of our current or future competitors, we may be required to lower selling prices in order to maintain or increase market share, and such measures could adversely affect our operating results. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, our knowledge and expertise in wireless technologies and the wireless marketplace, and our large customer base and purchasing relationships with approximately 390375 manufacturers, provide us with a significant competitive advantage over new entrants to the market.

Continuing changes in the wireless communications industry, including risks associated with conflicting technology, changes in technology, inventory obsolescence, and consolidation among wireless carriers, could adversely affect future operating results.

We believe that the principal competitive factors in supplying products to the wireless communications industry are the quality and consistency of customer service, particularly timely delivery of complete orders, breadth and quality of products offered and total procurement costs to the customer. We believe that we compete favorably with respect to each of these factors. In particular, we believe we differentiate ourselves from our competitors based on the breadth of our product offering, our ability to quickly provide products and supply chain solutions in response to customer demand and technological advances, our knowledge and expertise in wireless technologies and the wireless marketplace, the level of our customer service and the reliability of our order fulfillment process.

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Intellectual Property

We seek to protect our intellectual property through a combination of trademarks, service marks, confidentiality agreements, trade secret protection and, if and when appropriate, patent protection. Thus far, we have generally sought to protect our intellectual property, including our product data and information, customer information and information technology systems, through trademark filings and nondisclosure, confidentiality and trade secret agreements. We typically require our employees, consultants, and others having access to our technology, to sign confidentiality and nondisclosure agreements. There can be no assurance that these confidentiality and nondisclosure agreements will be honored, or whether they can be fully enforced, or that other entities may not independently develop systems, technologies or information similar to that on which we rely.

TESSCO Communications Incorporated, a wholly-owned subsidiary of TESSCO Technologies Incorporated, maintains a number of registered trademarks and service marks in connection with our business activities, including: A Simple Way of Doing Business Better®, Delivering Everything for Wireless®, Delivering What You Need…When and Where You Need It®, GigaWave Technologies®, Going Beyond the Ordinary®, LinkUPS®, ORDERflow®, Solutions That Make Wireless Work®, TerraWave Solutions®, TESSCO®, TESSCO Making Wireless Work®, TESSCO Technologies®, TESSCO.com®, Ventev®, Ventev Innovations®, The Vital Link to a Wireless World®, The Wireless Bulletin®, The Wireless Guide®, The Wireless Journal®, Wireless Solutions®, The Wireless Update®, Your Total Source®, Your Virtual Inventory®, among many others. Our general policy is to file for trademark and service mark protection for each of our trademarks and trade names and to enforce our rights against any infringement.


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Although, weTable of Contents
We  currently hold no patents, weone patent related to our online order entry system. We intend, if and when appropriate, to seek patent protection for any additional patentable technology. The ability to obtain patent protection involves complex legal and factual questions. Others may obtain patent protection for technologies that are important to our business, and as a result, our business may be adversely affected. In response to patents of others, we may need to license the right to use technology patented by others, or in the event that a license cannot be obtained, to design our systems around the patents of others.
Environmental Regulation

Environmental Regulation

We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States. We are also subject to regulation by the Occupational Safety and Health Administration concerning employee safety and health matters. Compliance with these federal, state and local laws and regulations related to protection of the environment and employee safety and health has had no material effect on our business. There were no material capital expenditures for environmental projects in fiscal year 20122013 and there are no material expenditures planned for such purposes in fiscal year 2013.2014.

Employees

As of April 1, 2012,March 31, 2013, we had 843838 full-time equivalent employees. Of our full-time equivalent employees, 420435 were engaged in customer and vendor service, marketing, sales and product management, 339325 were engaged in fulfillment and distribution operations and 8478 were engaged in administration and technology systems services. No employees are covered by collective bargaining agreements. We consider our employee relations to be excellent.
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Executive Officers

Executive officers are appointed annually by the Board of Directors and, subject to the terms of any applicable employment agreement, serve at the discretion of the Board of Directors. Information regarding our executive officers is as follows:
 
 
Name Age Position  
       
Robert B. Barnhill, Jr. 6869 Chairman, President and Chief Executive Officer Robert B. Barnhill, Jr. has served as president and chief executive officer since founding the current business in 1982. Mr. Barnhill has been a director of the Company since 1982, and has served, and continues to serve, as Chairman of the Board since November 1993.
       
David M. Young41Senior Vice President, Chief Financial Officer and Corporate SecretaryDavid M. Young joined the Company in July 1999 and has served as senior vice president and chief financial officer since March 2006. Between April 2002 and February 2006, Mr. Young served as a vice president, and between February 2005 and March 2006, he served as acting chief financial officer. Prior to February 2005, Mr. Young served as the Company’s controller. Since March 2004, Mr. Young has served, and continues to serve, as Corporate Secretary. Prior to joining the Company, Mr. Young served as assistant vice president and assistant corporate controller at Integrated Health Services, Inc.
Gerald T. Garland 6162 Senior Vice President of  the Commercial SegmentProduct Lines of Business Gerald T. Garland rejoined the Company in April 2003 and has served as senior vice president since April 2006. Mr. Garland has served as senior vice president of the installation, test and maintenance line of business since May 2005, as senior vice president of the mobile devices and accessories line of business since April 2004 and as senior vice president of the network infrastructure line of business since April 2003. SinceIn July 2011, Mr. Garland began serving as Senior Vice President of the Commercial Segment.  Since April 2013, Mr. Garland has served as Senior Vice President of the Commercial Segment.Product Lines of Business. Between September 1999 and April 2003, Mr. Garland served as director of business development with American Express Business Services and chief financial officer of Mentor Technologies, Inc. Mr. Garland served as the Company’s chief financial officer from September 1993 to September 1999.
       
Douglas A. Rein 5253 Senior Vice President of Performance Systems and Operations Douglas A. Rein joined the Company in July 1999 as senior vice president of performance systems and operations. Previously, he was director of operations for Compaq Computer Corporation and vice president, distribution and logistics operations for Intelligent Electronics.
       
Said Tofighi 5758 Senior Vice President of the Retail Segment and Global Manufacturer Supply Chain and Ventev Innovations Said Tofighi rejoined the Company in October 2000 as vice president of customer administration. In April 2005, Mr. Tofighi began serving as vice president of the customer supply chain unit and served in that capacity until May 2006, when he was appointed senior vice president, customer supply chain. In April 2007, Mr. Tofighi began serving as senior vice president of market development and sales. SinceIn July 2011, Mr. Tofighi has servedbegan serving as Senior Vice President of the Retail Segment and Global Manufacturer Supply Chain.  Since April 2013, Mr. Tofighi has served as Senior Vice President of Global Manufacturer Supply Chain and Ventev® Innovations. Mr. Tofighi originally joined the Company in March 1993 and served in various leadership roles through July 1999. From July 1999 through October 2000, Mr. Tofighi worked outside the Company.
 
 
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Item 1A. Risk Factors.

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. The following are certain risk factors that could adversely affect our business, financial position and results of operations. These risk factors and others described in this Annual Report on Form 10-K should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. 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. If our business, financial position and results of operations are adversely affected by any of these or other adverse events, our stock price would also likely be adversely affected.

RISKS RELATING TO OUR BUSINESS

We face significant competition in the wireless communications distribution industry.

The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors, as well as numerous regional distributors. In addition, many manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. Some of our current competitors have substantially greater capital resources and sales and distribution capabilities than we do. In response to competitive pressures from any of our current or future competitors, we may be required to lower selling prices in order to maintain or increase market share, and such measures could adversely affect our operating results.

 We typically purchase and sell our products and services on the basis of individual sales or purchase orders, and even in those cases where we have standing agreements or arrangements with our customers and vendors, those agreements and arrangements typically contain no purchase or sale obligations and are otherwise terminable by either party upon several months'months or otherwise short notice.

Our sales to customers and our purchases from vendors are largely governed by individual sales or purchase orders, so there is no guarantee of future business. In some cases, we have formal agreements or arrangements with significant customers or vendors, but they are largely administrative in nature and are terminable by either party upon several months'months or otherwise short notice, and they typically contain no purchase or sale obligations. If our vendors or suppliers refuse to, or for any reason are unable to supply products to us, and if we are not able to procure those products from alternative sources, we may not be able to maintain appropriate inventory levels to meet customer demand and our financial position and results of operations would be adversely affected. Similarly, if customers decide to make purchases from other sources, experience significant changes in demand internally or from their own customer bases, become financially unstable, or are acquired by another company, our ability to generate revenues from these customers may be significantly affected, resulting in an adverse affect on our financial position and results of operations.

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The loss or any change in the business habits of key customers or vendors, including the pendingrecent loss of our AT&T Mobility corporatethird party logistics retail store supply chain relationship, may have a material adverse affect on our financial position and results of operations.

Because our standing arrangements and agreements with our customers and vendors typically contain no purchase or sale obligations and are terminable by either party upon several months'months or otherwise relatively short notice, we are subject to significant risks associated with the loss or change at any time in the business habits and financial condition of key customers or vendors. In fiscal year 2012,2013, sales to our largest customer relationship, AT&T Mobility, accounted for approximately 36%30% of total revenues. The transition of our 3PL retail store supply chain business with AT&T was completed in the fourth quarter of our fiscal 2013, and revenues from this business have therefore terminated.

In January 2011, we reported that AT&T was assessing cost reduction business model changes that could affect our supply chain relationship with them. In the July 2011, AT&T agreed to purchase a larger portion of its device accessory purchases from us in exchange for a lower per unit cost.  Accordingly, beginning in the third quarter of fiscal 2012, we experienced significant increases in shipments and revenues, with an accompanying decrease in associated gross profit percentage. In April 2012, AT&T informed us that they intendintended to begin to transition thistheir 3PL retail store supply chain business from us in the second quarter of our fiscal 2013. As of our fiscal 2013 and foryear end, this business towas fully terminate at some point during our third fiscal quarter of 2013. Transitiontransitioned. The transition and termination of this relationship and loss of the associated revenues will most likely result in a significant reduction in our revenues. Thisoverall revenues in fiscal 2014.  However, this business carriescarried a lower margin than does our continuing non-AT&T business, and as a result the impact on gross profit, while still significant, is not expected to be as significant on a percentagerelative basis.  Separately, we see the potential to increase gross profit in our non-AT&T business, and we see the opportunity to reduce expenses following transition of the AT&T business.  If we are successful in increasing gross profit in our non-AT&T business, and in reducingcontrolling expenses, we believe that we will be able to offset at least some of the loss in profits from terminationtransition of the AT&T relationship.  There can be no assurances, however, that we will be successful in these efforts or that our financial position and results of operationoperations will not suffer.

Sales of products purchased from our largest vendor, Otter Products, LLC (Otter) generated approximately 17%9% of our total revenues.revenues in fiscal 2013.  Much of this concentration, however, is attributable to our mobile device accessory sales to3PL retail store supply chain business for AT&T, which are expected to beas described above fully transitioned from TESSCO to a third party logistics provider in the third quarteras of ouryearend fiscal 2013: approximately 77% of revenues from this customer were derived from sales of products purchased from ten vendors, the largest of which is Otter. If sales to AT&T are excluded, vendor concentration is much lower: no vendor represented more than 10% of non-AT&T sales (Otter represented 9%).2013.  The terms of our current business relationship with Otter arehad been set to expire in March 2013 and as such, we have been engaged in discussions with them regarding revised terms of our relationship.  Between nowEffective January 2013, Otter and March 2013 we plan to continueTESSCO agreed on new terms for our aggressive marketing and sellingbusiness relationship, which continues for sales outside of Otter products as a key part of our multi-brand offering and also plan to continue our dialogue with Otter related to future business terms. Our ability to purchase and re-sell products from all of our vendors, including Otter, depends on being able to reach agreement with these vendors on business terms. the AT&T retail store supply chain relationship.

We have experienced the loss and changes in the business habits of significant customer and vendor relationships in the past and expect to do so in the future. It is the nature of the business. Over the past decade, however, we have generally been successful in replacing significant customer and vendor relationships when lost.  However, the loss of customer relationships like AT&T, and the corresponding reduction in the volume of product sales identified to those relationships, can affect our negotiating ability with vendors supplying those products.  This can affect our margins in sales of those products to other customers.    If we are unable to replace those products at favorable pricing and terms, or if we are unable to offer those products to our customers at all, our competitiveness may suffer and result in reduced revenues and profits.  There can be no assurance that we will be successful in replacing any of our current or future relationships if and when lost, or in the event of a substantial reduction in revenues from any such relationship.

 
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Our business depends on the continued tendency of wireless equipment manufacturers and network operators to outsource aspects of their business to us in the future.

We provide functions such as distribution, inventory management, fulfillment, customized packaging, e-commerce solutions, and other outsourced services for many wireless manufacturers and network operators. Certain wireless equipment manufacturers and network operators have elected, and others may elect, to undertake these services internally. Additionally, our customer service levels, industry consolidation, competition, deregulation, technological changes or other developments could reduce the degree to which members of the global wireless industry rely on outsourced logistic services such as the services we provide. Any significant change in the market for our outsourced services could have a material adverse effect on our business. Our outsourced services are generally provided under short-term contractual arrangements. The failure to obtain renewals or otherwise maintain these agreements on terms, including price, consistent with our current terms could have a material adverse effect on our business.

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 credit facilities and long-term debt arrangements are of specified terms and contain various financial and other covenants that may limit our ability to borrow or limit our flexibility in responding to business conditions. While we generally expect to either extend or replace our credit facilities at term expirations, there can be no assurances that we will be able to do so on favorable terms, or at all. The inability to maintain or when necessary obtain adequate sources of financing could have an adverse affect on our business. Our current revolving credit facility expires in May 2013.2014. Some of our existing financing instruments involve variable rate debt, thus exposing us to risk of fluctuations in interest rates. Such fluctuations in interest rates could have an adverse affect 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 borrow funds under our credit agreement could be constrained by the level of eligible receivables and inventory.

Our borrowing availability under our existing revolving credit facility is limited to certain amounts of eligible accounts receivable and inventory.   If the value of eligible accounts receivable and inventory were to decrease significantly, the amount available for borrowing under the facility could decrease. The fiscal year 2013 transition of our AT&T business will likely reducehas not had a significant impact on our overall inventory and accounts receivable balances, which are currently used in the calculation of ourthe borrowing base. The transition will also have a negative impact on our earnings if not replaced by increases inbase under our existing business or new business opportunities. Although there can be no assurances, forrevolving credit facility. As of the end of fiscal year 2013, we currently believe that after the AT&T business is fully transitioned, our asset balance will continuecontinues to support the full amount available under our current facility and that our remaining earnings will keephave kept us in compliance with all current debt covenants.

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The ongoing weakness in the global economic environment may have significant effects on our customers and suppliers that could result in material adverse effects on our business, operating results, and stock price.

Notwithstanding the increased potential forslow economic recovery in the U.S., the ongoing weakness in the global economic environment – which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, significant decreases in consumer confidence and consumer and business spending, high rates of unemployment and concerns that the worldwide economy may continue to experience significant challenges – may materially adversely affect our customers’ access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity with which to pay for our products. In addition, our suppliers’ access to capital and liquidity may continue to be affected, which may in turn adversely impact their ability to maintain inventories, production levels, and/or product quality, or cause them to raise prices or lower production levels, or result in their ceasing operation.

The potential effects of the weakness in the global economic environment are difficult to forecast and mitigate. As a consequence, our operating results for a particular period may be more difficult to predict. Any of the foregoing effects could have a material adverse effect on our results of operations and financial condition, and could adversely affect our stock price.

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We may be unable to successfully execute our merchandising and marketing strategic initiatives.

We are focusing our sales and marketing efforts and initiatives to maximize sales. If we fail to successfully execute these initiatives, our business, financial position and results of operations could be adversely affected.

The telecommunications products marketplace is dynamic and challenging because of the continued introduction of new products and services.

We must constantly introduce new products, services and product features to meet competitive pressures. We may be unable to timely change our existing merchandise sales mix in order to meet these competitive pressures, which may result in increased inventory costs, inventory write-offs or loss of market share.

Additionally, our inventory may also lose value due to price changes made by our significant vendors, in cases where our arrangements with these vendors do not provide for inventory price protection, or in cases that the vendor is unable or unwilling to provide these protections.

Consolidation among wireless service carriers could result in the loss of significant customers.

The wireless service carrier industry has experienced significant consolidation in recent years. If any of our significant customers or partners are acquired or consolidate with other carriers, or are otherwise involved in any significant transaction that results in them ceasing to do business with us, or significantly reducing the level of business that they do with us, our revenues from those customers could be significantly affected, possibly resulting in an adverse affect on our financial position and results of operations.

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The failure of our information systems or inability to upgrade them could have a material adverse affect on our business, financial position and results of operations.

We are highly dependent upon our internal computer and telecommunication systems to operate our business. There can be no assurance that our information systems will not fail or experience disruptions, that we will be able to attract and retain qualified personnel necessary for the operation of such systems, that we will be able to expand and improve our information systems, that we will be able to convert to new systems efficiently as necessary, or that we will be able to integrate new programs effectively with our existing programs. Any of such problems, or any significant damage or destruction of these systems, could have an adverse affect on our business, financial position and results of operations.

We depend heavily on e-commerce, and website security breaches or Internet disruptions could have a material adverse affect on our business, financial position and results of operations.

We rely on the Internet (including TESSCO.com®) for a significant percentage of our orders and information exchanges with our customers. The Internet and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition, some websites have experienced security breakdowns. There can be no assurances that our website will not experience any material breakdowns, disruptions or breaches in security. If we were to experience a security breakdown, disruption or breach that compromised sensitive information, this could harm our relationship with our customers or suppliers. Disruption of our website or the Internet in general could impair our order processing or more generally prevent our customers and suppliers from accessing information or placing orders. This could have an adverse affect on our business, financial position and results of operations.

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The inability to hire or retain certain key professionals, management and staff could adversely affect our business, financial condition and results of operations.

The nature of our business includes (but is not limited to) a high volume of transactions, business complexity, wide geographical coverage, and broad scope of products, suppliers, and customers. In order to compete, we must attract, retain and motivate executives and other key employees, including those in managerial, technical, sales, marketing and support positions. Hiring and retaining qualified executives, information technology and business generation personnel are critical to our business.  We rely heavily upon our senior management team. The loss of any of these individuals, particularly our President and the Chairman of our Board of Directors, Robert B. Barnhill, Jr., could have a material adverse affect on our business, financial position and results of operations. In the fall of 2012, our then Chief Financial Officer left the company.  He has not yet been replaced and in the meantime his duties have been assumed by other officers.  For example, Mr. Barnhill now performs the function of or similar to that of Principal Financial Officer, and Aric Spitulnik, our Controller, has assumed the role of Principal Accounting Officer.  These additional responsibilities place additional demands on these individuals and as a result, they may be less effective in their overall performance.

To attract, retain and motivate qualified employees, we rely heavily on stock-based incentive awards such as Performance Stock Units (PSUs). If performance targets associated with these PSUs are not met, or the value of such stock awards does not appreciate as measured by the performance of the price of our common stock and/or if our other stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate our employees could be adversely impacted, which could negatively affect our business, financial position and results of operations and/or require us to increase the amount we spend on cash and other forms of compensation. Our ability to issue PSUs is also limited by the provisions of and our available shares under our current and/or future stock incentive plans, which may be subject to shareholder approval. As of the end of the year, there were 696,303536,303 shares available for future awards under our incentive plans and we have no immediate planplans to get shareholder approval for an increase in such number.

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Also, in fiscal year 2012, in order to address possible concern regarding the number of equity awards that may be granted in a given year, the Board of Directors determined that it will not, absent stockholder approval indicating or permitting otherwise, make awards under the 1994 Plan over the following three fiscal year period (fiscal 2012, 2013 and 2014) for a number of shares in excess of an average annual rate over the three year period equal to 5.84% of the weighted average number of shares of our common stock projected to be outstanding at the close during each fiscal year.
 
These items may limit our ability to grant certain performance based equity instruments and therefore may have an adverse effect on our continued ability to attract and retain, and motivate, our employees.

The damage or destruction of any of our principal distribution or administrative facilities could materially adversely impact our business, financial position and results of operations.

If any of our distribution centers in Hunt Valley, Maryland or Reno, Nevada, were to be significantly damaged or destroyed, we could suffer a loss of product inventory and our ability to conduct our business in the ordinary course could be materially and adversely affected. Similarly, if our office locations in Maryland, Nevada or Texas were to be significantly damaged or destroyed, our ability to conduct marketing, sales and other corporate activities in the ordinary course could be adversely affected.

We depend on third parties to manufacture products that we distribute and, accordingly, rely on their quality control procedures.

Product manufacturers typically provide limited warranties directly to the end consumer or to us, which we generally pass through to our customers. If a product we distribute for a manufacturer has quality or performance problems, our ability to provide products to our customers could be disrupted, which could adversely affect our operations.

We are subject to potential declines in inventory value.

We are subject to the risk that the value of our inventory will decline as a result of price reductions by vendors or technological obsolescence. It is the policy of many of our vendors to protect distributors from the loss in value of inventory due to technological change or the vendors’ price reductions. Some vendors (including those who manufacture our proprietary products), however, may be unwilling or unable to pay us for price protection claims or products returned to them under purchase agreements. No assurance can be given that such practices to protect distributors will continue, that unforeseen new product developments will not adversely affect us, or that we will be able to successfully manage our existing and future inventories.

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Our future operating results depend on our ability to purchase a sufficient amount of finished goods and bulk inventory to meet the demands of our customers.

Our ability to meet customers' demands depends, in part, on our ability to obtain timely and adequate delivery of inventory from our suppliers. We have experienced shortages in the past that have negatively impacted our operations. Although we work closely with our suppliers to avoid these types of shortages, there can be no assurances that we will not encounter these problems in the future. Furthermore, certain of our components are available only from a single source or limited sources. We may not be able to diversify sources in a timely manner. A reduction or interruption in supplies or a significant increase in the price of supplies could have a negative impact on our results of operations or financial condition.

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If our business does not perform well, or if we otherwise experience a decline in the fair values of a portion or all of our business, we may be required to recognize impairments of our intangible or other long-lived assets, which could adversely affect our results of operations or financial condition.

Goodwill and indefinite lived intangible assets are initially recorded at fair value and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the recoverability of goodwill and indefinite lived intangible assets, we make estimates and assumptions about sales, operating margin, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. Goodwill and indefinite lived asset valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit. We could be required to evaluate the recoverability of goodwill and indefinite lived assets prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill and indefinite lived asset impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges. In addition, impairment charges would negatively impact our financial ratios and could limit our ability to obtain financing in the future. As of April 1, 2012,March 31, 2013, we had $12.5 million of goodwill and indefinite lived intangible assets, which represented approximately 6.2%6.5% of total assets. All goodwill and intangible assets have been allocated to the Commercial segment.

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred tax assets are assessed periodically by management to determine if they are realizable. Factors in management’s determination include the performance of the business, projections of future taxable income, and the feasibility of ongoing tax planning strategies. If based on available information, it is more likely than not that the deferred income tax asset will not be realized then a valuation allowance must be established with a corresponding charge to net income. Such charges could have a material adverse effect on our results of operations or financial condition.

Our future results of operations may be impacted by the prolonged weakness in the current economic environment which may result in an impairment of any goodwill recorded and/or other long lived assets or the recording of a valuation allowance on our deferred tax assets, which could adversely affect our results of operations or financial condition.

We primarily rely on trademark filings and confidentiality agreements to protect our intellectual property rights.

In an effort to protect our intellectual property, including our product data, customer information and information technology systems, through trademark filings and nondisclosure, confidentiality and trade secret agreements, we typically require our employees, consultants and others having access to this information or our technology to execute confidentiality and non-disclosure agreements. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could adversely affect our business. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants and others have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our proprietary information or trade secrets could impair our competitive position and could have a material adverse affect on our business, financial condition and results of operations. Others may obtain patent protection for technologies that are important to our business, and as a result, our business, financial position and results of operations may be adversely affected. In response to patents of others, we may need to license the rights to use the technology patented by others, or in the event that a license cannot be obtained, design our systems around the patents of others. There can be no assurances as to our ability to obtain any such licenses or to design around the patents of others, and our inability to do so could have an adverse affect on our business, financial position and results of operations.

 
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We offer credit to our customers and, therefore, are subject to significant credit risk.

We sell our products to a large and diverse customer base. We finance a significant portion of such sales through trade credit, typically by providing 30-day payment terms. As a result, our business could be adversely affected in the event of a deterioration of the financial condition of our customers, resulting in the customers’ inability to repay us. This risk may increase if there is a general economic downturn affecting a large number of our customers and in the event our customers do not adequately manage their business or properly disclose their financial condition.

We intend to explore additional growth through acquisitions.

As part of our growth strategy, we may continue to pursue the acquisition of companies that either complement or expand our existing business. As a result, we regularly evaluate potential acquisition opportunities, which may be material in size and scope. In addition to those risks to which our business and the acquired businesses are generally subject to, the acquisition of these businesses gives rise to transactional and transitional risks, and the risk that the anticipated benefits will not be realized.

Risks associated with the foreign suppliers from whom our products are sourced could adversely affect our financial performance.
 
The products we sell are sourced from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial performance. Since the onset of the weakness in the global economic environment in 2008, certain of our suppliers, particularly those in the far east, have experienced financial difficulties and we believe it is possible that a limited number of suppliers may either cease operations or require increased prices in order to fulfill their obligations. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers.

We rely on independent shipping companies to deliver inventory to us and to ship products to customers.

We rely on arrangements with independent shipping companies, for the delivery of our products from vendors and to customers. The failure or inability of these shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have a material adverse affect on our business. We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security. This could adversely impact our selling, general and administrative expenses or lead to price increases to our customers which could decrease customer demand for our products.

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Changes in accounting rules could have a material adverse impact on our results of operations.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the United States Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants and various other bodies formed to interpret and create appropriate accounting policies. A change in these policies or a new interpretation of an existing policy could have a significant effect on our reported results and may affect our reporting of transactions.

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Changes in income tax and other regulatory legislation.

We operate in compliance with applicable laws and regulations and make plans for our structure and operations based upon existing laws and anticipated future changes in the law. When new legislation is enacted with minimal advance notice, or when new interpretations or applications of existing laws are made, we may need to implement changes in our policies or structure. We are susceptible to unanticipated changes in legislation, especially relating to income and other taxes, import/export laws, hazardous materials and other laws related to trade, accounting and business activities. Such changes in legislation may have a significant adverse effect on our business.

We may be subject to litigation.

We may be subject to legal claims or regulatory matters involving stockholder, consumer, antitrust, intellectual property and other issues. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or other adverse affects. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our business, financial position and results of operations for the period in which the ruling occurred or future periods.
 
We may incur product liability claims which could be costly and could harm our reputation.

The sale of our products involves risk of product liability claims against us. We have also been increasing the sales of TESSCO private labeled products and providing an increased level of support services, including product and network designs. We currently maintain product liability insurance, but our product liability insurance coverage is subject to various coverage exclusions and limits and may not be obtainable in the future on terms acceptable to us, or at all. We do not know whether claims against us with respect to our products and services, if any, would be successfully defended or whether our insurance would be sufficient to cover liabilities resulting from such claims. Any claims successfully brought against us could adversely affect our financial condition, and if substantial and relating to our products or industry generally, could affect our business as a whole.

-20-

Our expanding offering of private labeled products may have a negative impact on our relationship with our manufacturer partners.

Our product offering includes a growing number of our own proprietary products, which represented approximately 9%8% of our sales in fiscal 2012.2013. Our proprietary products often compete with other manufacturers' branded items that we offer. A manufacturer may choose to not sell its products to us, or may substantially increase the price of products to us, in response to the competition created by the sales of our proprietary branded products. Either could have a material adverse effect on our business and financial performance.

Claims that our products infringe the proprietary rights of others could harm our business and cause us to incur significant costs.

Our industry has increasingly been subject to patent and other intellectual property rights litigation, particularly from special purpose entities that seek to monetize their intellectual property rights by asserting claims against others. We expect this trend to continue and accelerate and expect that we may be required to defend against this type of litigation, not only asserted against our own intellectual property rights, but also against the intellectual property of products which we have purchased for resale.

-17-

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

A significant portion of our voting stock is controlled by our executive officers, directors and beneficial owners of 5% or more of our common stock.

Our executive officers, directors and beneficial owners of 5% or more of our common stock and their affiliates, in the aggregate, beneficially owned approximately 39%47% of our outstanding common stock as of April 1, 2012.March 31, 2013. Robert B. Barnhill, Jr., our chairman, president and chief executive officer beneficially owned approximately 24%23% of our outstanding common stock as of April 1, 2012.March 31, 2013. Should these shareholders decide to act together, they would have the ability to significantly influence all matters requiring shareholder approval, including the election of directors and any significant corporate transaction requiring shareholder approval.

Without approval of our Board of Directors, it may be difficult for a third party to acquire control of the Company. This could affect the price of our common stock.

Certain provisions of our certificate of incorporation and bylaws, certain arrangements to which we are party, and applicable provisions of the Delaware General Corporation Law (DGCL) may each make it more difficult for or may prevent a third party from acquiring control of us or changing our Board of Directors and management. These provisions include advance notice bylaws and limitations on the removal of directors other than for cause, and then only upon the affirmative vote of 75% of our outstanding common stock. We are also afforded the protections of Section 203 of the DGCL, which will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless Board of Director or shareholder approval were obtained. Some believe that the provisions described above, as well as any resulting delay or prevention of a change of control transaction or changes in our Board of Directors or management, could deter potential acquirers or prevent the completion of a transaction in which our shareholders could receive a substantial premium over the then current market price for their shares. We, on the other hand, believe that these provisions serve to protect our shareholders against abusive takeover tactics, to preserve and maximize the value of the Company for all shareholders, and to better ensure that each shareholder will be treated fairly in the event of an unsolicited offer to acquire the Company.

-21-

Potential uncertainty resulting from unsolicited acquisition proposals and related matters may adversely affect our business.

In the past we have received, and in the future we may receive, unsolicited proposals to acquire our company or our assets. For example, in September 2010, the Board of Directors received an unsolicited non-binding proposal from Discovery Group for the acquisition of all of our stock not then owned by Discovery Group. At the time, Discovery owned approximately 14% of the Company’s then outstanding common stock. The review and consideration of acquisition proposals and related matters could require the expenditure of significant management time and personnel resources. Such proposals may also create uncertainty for our employees, customers and vendors. Any such uncertainty could make it more difficult for us to retain key employees and hire new talent, and could cause our customers and vendors to not enter into new arrangements with us or to terminate existing arrangements. Additionally, we and members of our board of directors could be subject to future lawsuits related to unsolicited proposals to acquire us. Any such future lawsuits could become time consuming and expensive.

Our quarterly operating results are subject to significant fluctuation.
Our quarterly operating results are subject to significant fluctuation.
 
Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Our earnings may not continue to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior fiscal period or investors’ expectations. Most of our operating expenses, such as compensation expenses, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall would have a disproportionate effect on our net income for the quarter.

 
-18--22-

 
Item 1B. 1B.Unresolved Staff Comments.

None.


Our corporate headquarters and primary distribution center, known as the Global Logistics Center (GLC), is located in a Company-owned 184,000 square-foot facility north of Baltimore, in Hunt Valley, Maryland. Our sales, marketing and administrative offices are located in leased office space near the GLC. On February 15, 2011, this lease was amended and now expires on December 31, 2017. Monthly rent payments range from $141,900$153,300 to $169,400$177,700 throughout the remaining lease term. In addition, we lease 66,000 square feet of office and warehouse space adjacent to the GLC in Hunt Valley, Maryland. On February 23, 2011, this lease was amended and now expires on July 31, 2014 and provides us with an ongoing annual option to terminate the lease. Monthly rent for the facility ranges from $27,500 to $33,000 throughout the lease term. Additional sales and marketing offices are located in leased office space in San Antonio, Texas. Our San Antonio office moved to a new location in January 2013. Monthly rent there is approximately $7,000payments range from $14,700 to $16,900 and on September 20, 2011, thisthe lease was amended and now expires on November 30, 2013, and includes rights for early termination.October 31, 2018. West coast sales and fulfillment are facilitated by our Company-owned 115,000 square-foot Americas Sales & Logistics Center (ALC) located in Reno, Nevada. The ALC is used to configure and fulfill product and supply chain solutions, provide disaster backup for the GLC, and allow for future growth of staffing and increased fulfillment capabilities. While we anticipate the need for additional space, we believe our existing facilities are generally adequate for our current requirements and that suitable additional space will be available as needed to accommodate future expansion of our operations. The GLC is encumbered by a deed of trust as security for a term loan. See Note 87 to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Both of our business segments use all of our properties for either sales or fulfillment purposes.


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 affect 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. No federal, state and local income tax returns are currently under examination.examination, except for a Texas income tax audit for the 2008 and 2009 tax years.


Not applicable.




Item 5.5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has been publicly traded on the NASDAQ Global Select Market, since September 28, 1994, under the symbol "TESS." The quarterly range of prices per share during fiscal years 2012 and 20112013 are as follows:

 High  Low  Dividends Declared 
Fiscal Year 2011         
First Quarter
 $20.53  $15.05  $0.10 
Second Quarter
  18.26   10.00   0.10 
Third Quarter
  16.90   13.94   0.10 
Fourth Quarter
  16.96   10.50   0.10 
             High  Low  Dividends Declared 
Fiscal Year 2012                     
First Quarter
 $13.48  $10.31  $0.10  $13.48  $10.31  $0.10 
Second Quarter
  16.35   10.79   0.15   16.35   10.79   0.15 
Third Quarter
  14.92   12.00   0.15   14.92   12.00   0.15 
Fourth Quarter
  26.53   13.55   0.15   26.53   13.55   0.15 
                        
Fiscal Year 2013            
First Quarter
 $26.46  $17.80  $0.18 
Second Quarter
  23.51   17.08   0.18 
Third Quarter
  23.25   18.53   0.93 
Fourth Quarter
  26.00   21.00   0.18 
            
            
As of May 4, 2012,21, 2013, the number of shareholders of record of the Company was 105.116. We estimate that the number of beneficial owners as of that date was approximately 3,634.3,479.

On July 28, 2009, we announced that our Board of Directors determined to commence a dividend program and we have since declared dividends on a quarterly basis. 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. Additional information with respect to the quarterly dividends declared in fiscal years 20122013 and 20112012 is contained in our Selected Financial Data. The declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and is at the discretion of our Board of Directors. Until December 30, 2011, our revolving credit facility limited the amount of cash dividends that we may pay to $5.0 million annually. As of December 30, 2011, this amount was increased to $6.25 million in any twelve month period. Additionally, on November 30, 2012 this agreement was further amended to allow for a special onetime dividend of $0.75 per share of common stock, or $6.04 million, paid on December 27, 2012.

During the first quarter of fiscal year 2004, our Board of Directors approved a stock buyback program. As of April 1, 2012,March 31, 2013, the Board of Directors has authorized the purchase of up to 3,593,350 shares of outstanding common stock under the stock buyback program. Shares may be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. No time limit has been set for completion or expiration of the program. Through the end of the fiscal year 2012,2013, we had repurchased 3,505,187 shares through the program for approximately $30.7 million, or an average price of $8.76 per share. Of the total shares repurchased, 2,300 were repurchased in fiscal year 2011 at an average price of $13.96 per share.share and no shares were repurchased in fiscal 2012 and 2013. An aggregate of 88,163 shares remain available for repurchase under this program. No repurchases were made in any month during the fiscal year 2012. We also withhold shares from our employees and directors from time to time to facilitate employees’ minimum federal and state tax withholdings related to vested performance stock units, restricted stock and exercised stock options. For fiscal years 20122013 and 20112012 the total value of shares withheld for taxes were $1,197,900$2,161,900 and $1,536,900,$1,197,900, respectively.

In addition to the shares repurchased in the stock buyback program discussed immediately above, we repurchased all 705,000 shares of our common stock held by Brightpoint, Inc. in a privately negotiated transaction on July 1, 2008 for approximately $6.4 million, or $9.09 per share. Our revolving credit facility and term loan with Wells Fargo Bank, National Association (formerly Wachovia Bank, National Association) and SunTrust Bank limit to $30.0 million the aggregate dollar value of shares that may be repurchased from May 31, 2007 forward. At April 1, 2012,March 31, 2013, we had the ability to repurchase approximately $16.3 million in additional shares of our common stock without violating this covenant.

The information required by Item 201(d) of Regulation S-K, pursuant to paragraph (a) of Item 5 of Form 10-K, is incorporated by reference to the information set forth under the caption “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 20122013 Annual Meeting of Shareholders, which is anticipated to be filed pursuant to Regulation 14A no later than one hundred twenty (120) days following the end of the fiscal year reported on.
 
 
-20--24-


Stock Performance Graph

The graph set forth below shows the value of an investment of $100 on April 1, 2007March 30, 2008 in each of the Company’s Common Stock, the Russell 2000 Index and a peer group for the period of April 1, 2007March 30, 2008 to April 1, 2012.March 31, 2013. The graph assumes that all dividends, if any, were reinvested.



 4/1/2007  3/30/2008  3/29/2009  3/28/2010  3/27/2011  4/1/2012  3/30/2008  3/29/2009  3/28/2010  3/27/2011  4/1/2012  3/31/13 
TESSCO Technologies Incorporated $100.00  $55.38  $29.13  $87.75  $67.62  $152.18  $100.00  $52.60  $158.44  $122.09  $274.79  $249.84 
Russell 2000
  100.00   86.39   55.17   88.50   108.68   111.12   100.00   63.86   102.44   125.80   128.62   149.59 
Peer Group 1
  100.00   94.57   74.48   114.08   145.13   187.64 
Old Peer Group 1
  100.00   80.02   122.08   155.02   202.54   207.54 
New Peer Group 2
  100.00   81.88   121.25   155.61   208.98   218.39 
1 – The old peer group consists of the following: Brightpoint, Inc., Ingram Micro Inc., W.W. Grainger, Inc., Anixter International Inc., ScanSource, Inc., InfoSonics Corporation andBrightpoint, Inc., Tech Data Corp and InfoSonics Corporation.
2 – The new peer group consists of the following: Ingram Micro Inc., W.W. Grainger, Inc., Anixter International Inc., ScanSource, Inc., and InfoSonics Corporation.
The peer group was selected based on a review of publicly available information about these companies and the Company’s determination that they are engaged in business similar to that of the Company. Note two companies have been removed from our peer group: Brightpoint, Inc, as they have been acquired; and Tech Data Corp, as they are currently going through a restatement.

 
-21--25-


Item 6. Selected Financial Data.
 Fiscal Years Ended  Fiscal Years Ended 
 April 1, 2012  March 27, 2011  March 28, 2010  March 29, 2009  March 30, 2008  March 31, 2013  April 1, 2012  March 27, 2011  March 28, 2010  March 29, 2009 
STATEMENT OF INCOME DATA                              
Revenues $733,389,900  $605,219,200  $522,031,500  $483,007,200  $520,968,200  $752,565,000  $733,389,900  $605,219,200  $522,031,500  $483,007,200 
Cost of goods sold  584,733,700   471,938,600   398,706,300   361,155,000   403,978,800   605,525,800   584,733,700   471,938,600   398,706,300   361,155,000 
Gross profit  148,656,200   133,280,600   123,325,200   121,852,200   116,989,400   147,039,200   148,656,200   133,280,600   123,325,200   121,852,200 
Selling, general and administrative expenses  121,652,400   117,305,100   108,269,000   110,656,400   108,875,700   117,820,600   121,652,400   117,305,100   108,269,000   110,656,400 
Income from operations  27,003,800   15,975,500   15,056,200   11,195,800   8,113,700   29,218,600   27,003,800   15,975,500   15,056,200   11,195,800 
Interest, net  292,900   420,600   318,300   664,300   574,100   224,200   292,900   420,600   318,300   664,300 
Income before provision for income taxes  26,710,900   15,554,900   14,737,900   10,531,500   7,539,600   28,994,400   26,710,900   15,554,900   14,737,900   10,531,500 
Provision for income taxes  10,274,000   5,536,700   5,599,100   4,203,500   2,720,900   11,200,500   10,274,000   5,536,700   5,599,100   4,203,500 
Net income $16,436,900  $10,018,200  $9,138,800  $6,328,000  $4,818,700  $17,793,900  $16,436,900  $10,018,200  $9,138,800  $6,328,000 
Diluted earnings per share (1)(2)
 $2.03  $1.27  $1.19  $0.82  $0.58  $2.15  $2.03  $1.27  $1.19  $0.82 
Cash dividends declared per common share (1)
 $0.55  $0.40  $0.20  $--  $--  $1.47  $0.55  $0.40  $0.20  $-- 
                                        
Percentage of Revenues                                        
Revenues  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%
Cost of goods sold  79.7   78.0   76.4   74.8   77.5   80.5   79.7   78.0   76.4   74.8 
Gross profit  20.3   22.0   23.6   25.2   22.5   19.5   20.3   22.0   23.6   25.2 
Selling, general and administrative expenses  16.6   19.4   20.7   22.9   20.9   15.7   16.6   19.4   20.7   22.9 
Income from operations   3.7   2.6   2.9   2.3   1.6   3.9   3.7   2.6   2.9   2.3 
Interest, net  0.1   0.1   0.1   0.1   0.1   0.0   0.1   0.1   0.1   0.1 
Income before provision for income taxes  3.6   2.6   2.8   2.2   1.4   3.9   3.6   2.6   2.8   2.2 
Provision for income taxes  1.4   0.9   1.1   0.9   0.5   1.5   1.4   0.9   1.1   0.9 
Net income  2.2%  1.7%  1.8%  1.3%  0.9%  2.4%  2.2%  1.7%  1.8%  1.3%
SELECTED OPERATING DATA
                                        
Average non-consumer buyers per month  13,000   12,700   12,400   12,200   12,300   13,000   13,000   12,700   12,400   12,200 
Average consumer buyers per month  500   700   800   1,500   3,200   120   500   700   800   1,500 
Return on assets (3)
  9.1%  6.4%  6.8%  4.8%  3.6%  9.0%  9.1%  6.4%  6.8%  4.8%
Return on equity (4)
  19.1%  13.5%  14.1%  10.5%  8.2%  18.1%  19.1%  13.5%  14.1%  10.5%
BALANCE SHEET DATA
                                        
Working capital $65,779,800  $49,379,000  $46,793,200  $36,625,000  $36,714,400  $76,551,700  $65,779,800  $49,379,000  $46,793,200  $36,625,000 
Total assets  202,497,700   158,701,800   151,346,700   118,652,600   143,798,600   194,300,000   202,497,700   158,701,800   151,346,700   118,652,600 
Short-term debt  249,200   359,100   380,000   361,400   3,713,900   249,700   249,200   359,100   380,000   361,400 
Long-term debt  2,708,000   2,959,100   3,328,000   3,481,700   3,842,600   2,458,300   2,708,000   2,959,100   3,328,000   3,481,700 
Shareholders' equity  93,651,900   78,880,100   69,645,200   60,166,200   60,151,600   102,802,600   93,651,900   78,880,100   69,645,200   60,166,200 

(1)All per share numbers prior to March 27, 2011 have been retroactively restated for all periods presented to reflect the May 26, 2010 stock dividend in order to effect a 3-for-2 stock split.
(2)Diluted earnings per share prior to March 28, 2010 have been adjusted to show the effects of adoption of the FASB standard addressing accounting for participating securities under the two-class method. See Note 1413 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for the fiscal year ended April 1, 2012March 31, 2013 for further discussion.
(3)Net income divided by the average total assets.
(4)Net income divided by the average total equity.

 
-22--26-


Item 7.7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Results of Operations and Financial Condition (MD&A) should be read in conjunction with the other sections of this Annual Report on Form 10-K, including Part I, “Item 1: Business,” Part II, “Item 6: Selected Financial Data,” and Part II, “Item 8: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing, including Part I, “Item 1A: Risk Factors.” Our actual results may differ materially from those described in any such forward-looking statement.

Business Overview and Environment

TESSCO Technologies Incorporated (TESSCO, we, or the Company) architects and delivers innovative product and value chain solutions to support wireless systems. Although we sell products to customers in over 100 countries, approximately 98% of our sales are to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.
 
Beginning in the second quarter of fiscal year 2012, the Company modified the structure of its internal organization. The Company now evaluates its business and customer base in two segments – commercial and retail. The commercial segment includes: (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) private system operators and governments including commercial entities such as major utilities and transportation companies, federal agencies and state and local governments that run wireless networks for their own use; and (3) 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. The retail segment includes: (1) retailers, dealer agents and Tier 2 and 3 carriers; and (2) Tier 1 carriers (including our Major 3PL Relationship (our largest customer, AT&T).

We offer a wide range of products that are classified into four business categories: base station infrastructure; network systems; installation, test and maintenance; and mobile devices and accessories. Base infrastructure products are used to build, repair and upgrade wireless telecommunications. 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, 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 devices and accessory products include cellular phone and data device accessories.  Our customers generally have the ability to purchase any of our product categories, but base station infrastructure, network systems and installation, test and maintenance products are primarily sold into our commercial segment, while mobile device and accessories products are primarily sold into our retail segment.

Our largest customer relationship, AT&T, a Tier 1 cellular carrier purchasing phone accessories, accounted for approximately 36%30% of our total revenues during fiscal year 2012.2013. In April 2012, we were notified by AT&T that they intendof their intention to transition their 3PL retail store supply chain business, which makes up the vast majority of the Company’s AT&T revenues, away from TESSCO beginning in the second quarter of our fiscal 2013 and2013. As this transition continued toward completion, revenues from this relationship for this business to be fully terminated at some point during our thirdthe fourth quarter of fiscal 2013,declined significantly, although resulting in a significant reduction in revenues and a lesser relative impact on overall profits. During and afterThis reduction in revenue for the transition, TESSCO expectssecond half of fiscal 2013 was more than fully offset by an increase in the Company’s non-AT&T revenues during the fiscal year.  While we expect no revenue in 2014 for the transitioned 3PL business, we do expect to continue to supply product to this customer’s other programs and supply proprietary Ventev® products to AT&T retail stores.
        Sales of products purchased from our largest vendor, Otter Products, LLC (Otter) generated approximately 17% of our total revenues. Much   Due to the loss of this concentration, however, is attributable to our mobile device accessory sales to AT&T,3PL relationship, which are expected to be fully transitioned from TESSCO to a third party logistics providergenerated $213.5 million in the third quarter of ourrevenues during fiscal 2013. The terms of our current business relationship with Otter are set to expire in March 2013 and as such, we have been engaged in discussions with them regarding revised terms of our relationship. Between now and March 2013, we plando expect to continue our aggressive marketing and selling of Otter products ashave a key part of our multi-brand offering and also plan to continue our dialogue with Otter related to future business terms. significant decline in overall revenues in fiscal 2014.
 
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 accessory market, and the risk of new competitors entering the market is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. In addition, the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months'months or otherwise short notice.notice. Our ability to maintain these 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, our large customer base and our purchasing relationships with approximately 390375 manufacturers provide us with a significant competitive advantage over new entrants to the market.Results of Operations

 
-23--27-

 
Results of Operations
 
The following tables summarize the results of our operations for fiscal years 2013, 2012 2011 and 2010:2011:

(Dollars in thousands, except per share data)       2011 to 2012     2010 to 2011 
  2012  2011  $ Change  % Change  2010  $ Change  % Change 
Market Revenues                     
 Commercial Market:                     
Public Carriers Operators, Contractors & Program Managers $73,824  $87,010  $(13,186)  (15.2%) $63,808  $23,202   36.4%
Private & Government System Operators  129,129   108,520   20,609   19.0%  108,429   91   0.1%
Commercial Dealers & Resellers  125,431   117,213   8,218   7.0%  94,541   22,672   24.0%
 Total Commercial Revenues                                                           328,384   312,743   15,641   5.0%  266,778   45,965   17.2%
                             
Retail Market:                            
Retailers, Independent Dealer Agents & Tier 2/3 Carriers  117,913   110,112   7,801   7.1%  78,727   31,385   39.9%
Tier 1 Carriers                                                      287,093   182,364   104,729   57.4%  176,527   5,837   3.3%
 Total Retail Revenues                                                           405,006   292,476   112,530   38.5%  255,254   37,222   14.6%
Total Revenues                                                          $733,390  $605,219  $128,171   21.2% $522,032  $83,187   15.9%
                             
 
(Dollars in thousands, except per share data)
         2011 to 2012      2010 to 2011 
   2012   2011  $ Change  % Change   2010  $ Change  % Change 
Market Gross Profit                            
 Commercial Market:                            
Public Carriers Operators, Contractors & Program Managers $17,101  $20,139  $(3,038)  (15.1%) $15,228  $4,911   32.2%
Private & Government System Operators  35,860   28,978   6,882   23.7%  28,029   949   3.4%
Commercial Dealers & Resellers  35,393   31,717   3,676   11.6%  25,922   5,795   22.4%
 Total Commercial Gross Profit                                                           88,354   80,834   7,520   9.3%  69,179   11,655   16.8%
                             
Retail Market:                            
Retailers, Independent Dealer Agents & Tier 2/3 Carriers  26,306   22,946   3,360   14.6%  19,631   3,315   16.9%
Tier 1 Carriers                                                      33,996   29,501   4,495   15.2%  34,515   (5,014)  (14.5%)
 Total Retail Gross Profit                                                           60,302   52,447   7,855   15.0%  54,146   (1,699)  (3.1%)
Total Gross Profit                                                           148,656   133,281   15,375   11.5%  123,325   9,956   8.1%
                             
Selling, general and administrative expenses  121,652   117,305   4,347   3.7%  108,269   9,036   8.3%
Income from operations                                                         27,004   15,976   11,028   69.0%  15,056   920   6.1%
Interest, net  293   421   (128)  (30.4%)  318   103   32.4%
Income before provision for income taxes  26,711   15,555   11,156   71.7%  14,738   817   5.5%
Provision for income taxes  10,274   5,537   4,737   85.6%  5,599   (62)  (1.1%)
Net income                                                        $16,437  $10,018  $6,419   64.1% $9,139  $879   9.6%
                             
Diluted earnings per share (1)
 $2.03  $1.27  $0.76   59.8% $1.19  $0.08   6.7%
(1)
 All earnings per share numbers prior to March 27, 2011 have been retroactively restated for all periods presented to reflect the May 26, 2010 stock dividend in order to effect a 3-for-2 stock split.
(Dollars in thousands, except per share data)       2012 to 2013     2011 to 2012 
  2013  2012  $ Change  % Change  2011  $ Change  % Change 
Segment Revenues                     
 Commercial Segment:                     
Public Carriers, Contractors & Program Managers $111,146  $73,824  $37,322   50.6% $87,010  $(13,186)  (15.2%)
Private & Government System Operators  121,313   129,129   (7,816)  (6.1%)  108,520   20,609   19.0%
Commercial Dealers & Resellers  138,737   125,431   13,306   10.6%  117,213   8,218   7.0%
 Total Commercial Revenues   371,196   328,384   42,812   13.0%  312,743   15,641   5.0%
                             
Retail Segment:                            
Retailers, Independent Dealer Agents & Carriers  167,895   153,803   14,092   9.2%  137,676   16,127   11.7%
Major 3PL relationship  213,474   251,203   (37,729)  (15.0%)  154,800   96,403   62.3%
 Total Retail Revenues  381,369   405,006   (23,637)  (5.8%)  292,476   112,530   38.5%
 
Total Revenues 
 $752,565  $733,390  $19,175   2.6% $605,219  $128,171   21.2%
                             
 
(Dollars in thousands, except per share data)
         2012 to 2013      2011 to 2012 
   2013   2012  $ Change  % Change   2011  $ Change  % Change 
Segment Gross Profit                            
 Commercial Segment:                            
Public Carriers, Contractors & Program Managers $24,183  $17,101  $7,082   41.4% $20,139  $(3,038)  (15.1%)
Private & Government System Operators  33,596   35,860   (2,264)  (6.3%)  28,978   6,882   23.7%
Commercial Dealers & Resellers  38,345   35,393   2,952   8.3%  31,717   3,676   11.6%
 Total Commercial Gross Profit   96,124   88,354   7,770   8.8%  80,834   7,520   9.3%
                             
Retail Segment:                            
Retailers, Independent Dealer Agents & Carriers  35,903   33,421   2,482   7.4%  29,947   3,474   11.6%
Major 3PL relationship  15,012   26,881   (11,869)  (44.2%)  22,500   4,381   19.5%
 Total Retail Gross Profit   50,915   60,302   (9,387)  (15.6%)  52,447   7,855   15.0%
 
Total Gross Profit
 $147,039  148,656  $(1,617)  (1.1%) $133,281  $15,375   11.5%
                             
Selling, general and administrative expenses  117,821   121,652   (3,831)  (3.1%)  117,305   4,347   3.7%
Income from operations   29,218   27,004   2,214   8.2%  15,976   11,028   69.0%
Interest, net  224   293   (69)  (23.5%)  421   (128)  (30.4%)
Income before provision for income taxes  28,994   26,711   2,283   8.5%  15,555   11,156   71.7%
Provision for income taxes  11,200   10,274   926   9.0%  5,537   4,737   85.6%
Net income $17,794  $16,437  $1,357   8.3% $10,018  $6,419   64.1%
                             
Diluted earnings per share $2.15  $2.03  $0.12   5.9% $1.27  $0.76   59.8%
 
 
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Fiscal Year 20122013 Compared to Fiscal Year 20112012

Revenues. Revenues for fiscal year 20122013 increased 21.2%2.6% as compared to fiscal year 2011,2012, due to a 38.5% increase in retail segment revenues and a 5.0%13.0% increase in commercial segment revenues. Therevenues partially offset by a 5.8% decrease in retail sales growth was largely a result of a 57.4% increase in sales to our Tier 1 carrier customers, primarily AT&T, which had expanded their relationship with us during the third quarter of fiscal 2012, but also due to a 7.1% increase in sales to our non-Tier 1 customers. As noted above, AT&T has subsequently informed us of their intent to transition this business beginning in our second quarter of fiscal year 2013.segment revenues. The increase in commercial segment revenues was due to a significant increase in our privatepublic carrier, contractor and government system operatorsprogram manager market, a smaller increase in our commercial dealers and resellers market, and was partially offset by a decline in sales to our public carrier, contractorprivate and program managergovernment system operators market. During fiscal year 2012,The retail reduction in sales was a result of our proprietary products increased 4.2%, as compared to the prior year. However, due to the significant increase in overall sales, and the fact that proprietary product sales represented only a small percentage of the increased AT&T sales on a dollar basis, proprietary product sales decreased to 8.6% of total sales compared to 10.0% of total sales in the prior year. Because our proprietary products generally carry higher gross margins than our other non-proprietary third party products, the increased sales of proprietary products on a dollar basis contributed to the margin growth we experienced during the year15.0% decrease in sales to other than our Tier 1 carrier customers (see detailed explanation below).Major 3PL relationship, AT&T, partially offset by 9.2% sales growth in our retailers, independent dealer agents and carriers market. As noted above, in April 2012, we were notified by AT&T of their intention to transition their 3PL retail store supply chain business, which made up the vast majority of the Company’s historical AT&T revenues, away from TESSCO beginning in the second quarter of our fiscal 2013. This transition was completed by the close of our fiscal 2013.

Gross Profit. Gross profit increased 11.5%decreased 1.1% in fiscal year 20122013 compared to fiscal year 2011,2012, due to a 15.0% increase15.6% decrease in our retail segment and 9.3%partially offset by an 8.8% increase in our commercial segment. Within the retail segment, our Tier 1 carrierMajor 3PL relationship market showed a considerable increasedecrease in sales, butwith a larger decrease of 44.2% in gross profit due to the impact on overalltransition of the AT&T third party logistics retail supply chain business. This decrease in gross profit was lessenedpartially offset by a 7.4% increase in the lower margins we experienced in sales to AT&T resulting from the business relationship expansion.retailers, independent dealer agents and carriers market. The increase in our commercial segment was driven by increases in our privatepublic carrier, contractor and governmentprogram manager market and our commercial dealers and resellers, and was partially offset by a decline from our public carrier, contractorprivate and program managergovernment system operators market. Overall gross profit margin decreased to 20.3%19.5%, compared to 22.0%20.3% in fiscal year 2011,2012, primarily driven by the expanded lower margincontinued decline in AT&T business. However, excludinggross margin. Excluding our Tier 1 carriers,Major 3PL relationship, gross profit margin increaseddecreased from 25.4% in fiscal year 2012 to 24.5% in fiscal year 2011 to 25.7% in fiscal year 2012,2013, due in part to pricing adjustments, product mixhigher dollar, lower margin public carrier, contractor and lower excess and obsolete inventory writeoffs.program manager market sales. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes.

Our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent 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'months or otherwise short notice. Our customer relationships could also be affected by wireless carrier consolidation or the global financial crisis.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased by 3.1% during fiscal year 2013 as compared to fiscal year 2012. Total selling, general and administrative expenses as a percentage of revenues decreased from 16.6% in fiscal year 2012 to 15.7% in fiscal year 2013, due to a decrease in selling, general and administrative expenses, partially offset by the slight increase of revenues as discussed above.

The largest factors contributing to the overall decrease in total selling, general and administrative expenses were decreased AT&T market development expenses and decreased pay for performance bonus expense, partially offset by increased corporate support expenses.

Marketing expenses decreased by $2.7 million, or 32.7%, in fiscal year 2013 as compared to fiscal year 2012, primarily related to a decrease in AT&T market development expenses, which are completely variable to sales units.

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Pay for performance bonus expense (including both cash and equity plans) decreased by $5.1 million in fiscal year 2013 as compared to fiscal year 2012. Our bonus programs are all based on annual performance targets. The relationship between expected performance and actual performance led to lower bonus accruals in fiscal 2013 than in fiscal 2012.

As previously reported, effective November 27, 2012, David M. Young ceased to serve as TESSCO’s Chief Financial Officer.  In connection with his departure, Mr. Young was paid 1.65 times his base salary, or $499,125, and the sum of $102,424, as the prorated amount of any Value Share incentive compensation due for the current fiscal year.  Additionally, in accordance with the terms of the applicable agreements, all of Mr. Young’s earned but not yet vested PSU shares (30,563 shares) vested and were issued. The impact of these payouts and accelerated vesting, net of previously accrued bonus and PSU amortization that was reversed, was approximately $550,000.

Corporate support expense increased approximately $1.4 million, or 21.5%, in fiscal year 2013 as compared to the fiscal year 2012. This increase was primarily related to slightly higher bad debt expense in addition to higher new product development costs related to our proprietary power product line.

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. Accordingly, we recorded a provision for bad debts of $1,197,300 and $458,700 for fiscal year 2013 and fiscal year 2012, respectively. Bad debt expense during fiscal year 2012 was unusually low due to significant bad debt recoveries, with fiscal year 2013 being much more representative of our historical bad debt expense levels.

Interest, Net. Net interest expense decreased from $292,900 in fiscal year 2012 to $224,200 in fiscal year 2013, primarily due to decreased average borrowings on our revolving credit facility as well as the repayment in full of a loan from the Maryland Economic Development Corporation.

Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2013 and 2012 were 38.6% and 38.5%, respectively. As a result of the factors discussed above, net income and diluted earnings per share for fiscal year 2013 increased 8.3% and 5.9%, respectively, compared with fiscal year 2012.

Commercial Segment.  Revenues in our commercial segment totaled $371.2 million in fiscal year 2013, compared to $328.4 million in the prior year, a 13.0% increase.  Gross profit totaled $96.1 million, an 8.8% increase as compared to last year.  Within this segment, the public carrier, contractor and program manager market grew revenues by 50.6% and gross profits by 41.4%.  This growth was primarily driven by a need by our customers to increase bandwidth and upgrade their infrastructure to accommodate increasing wireless traffic. The need for increased bandwidth was echoed in our commercial dealers and resellers market, with revenue growth of 10.6% and gross profit growth of 8.3%.  We continue to see strong opportunities for our proprietary and customized solutions in this market, as these customers continue to build and enhance their own private wireless applications.  The private and government system operators market revenue declined 6.1% and gross profit declined by 6.3%, due to economic uncertainties as well as government spending cuts.

Our direct expenses in this segment totaled $42.8 million, a 3.2% increase compared to the fiscal year 2012.  Therefore, total segment net profit contribution (see Note 9 to the Consolidated Financial Statements) was $53.3 million, a 13.7% increase over the prior year.

Retail Segment.  Revenues in our retail segment totaled $381.4 million in fiscal year 2013, representing a 5.8% decrease from the prior year.  Gross profit totaled $50.9 million, a 15.6% decrease.  These decreases are due to the transition of our Major 3PL relationship, AT&T, which showed a 15.0% revenue decrease and a 44.2% gross profit decrease.  Revenues in our retailer, dealer agent and carrier market increased as compared to last year, up 9.2%, with a 7.4% increase in gross profit as a result of increased sales from independent agents and dealers.

Our direct expenses in this segment totaled $27.7 million in fiscal year 2013, a 7.5% decrease over the prior year period, primarily due to decreased market development expenses for AT&T, which are completely variable to sales.  Therefore, total segment net profit contribution was $23.2 million for fiscal year 2013, a 23.5% decrease over the prior year period.

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Fiscal Year 2012 Compared to Fiscal Year 2011

Revenues. Revenues for fiscal year 2012 increased 21.2% as compared to fiscal year 2011, due to a 38.5% increase in retail segment revenues and a 5.0% increase in commercial segment revenues. The retail sales growth was largely a result of a 62.3% increase in sales to our Major 3PL relationship, AT&T, which had expanded their relationship with us during the third quarter of fiscal 2012, but also due to an 11.7% increase in sales to our retailers, independent dealer agents and carriers market. As noted above, in April 2012, we were notified by AT&T of their intention to transition their third party logistics retail store supply chain business, which makes up the vast majority of the Company’s AT&T revenues, away from TESSCO beginning in the second quarter of our fiscal 2013. The increase in commercial segment revenues was due to a significant increase in our private and government system operators market, a smaller increase in our commercial dealers and resellers market, and was partially offset by a decline in sales to our public carrier, contractor and program manager market. During fiscal year 2012, sales of our proprietary products increased 4.2%, as compared to the prior year. However, due to the significant increase in overall sales, and the fact that proprietary product sales represented only a small percentage of the increased AT&T sales on a dollar basis, proprietary product sales decreased to 8.6% of total sales compared to 10.0% of total sales in the prior year. Because our proprietary products generally carry higher gross margins than our other non-proprietary third party products, the increased sales of proprietary products on a dollar basis contributed to the margin growth we experienced during the year in sales to other than our Major 3PL relationship customer (see detailed explanation below).

Gross Profit. Gross profit increased 11.5% in fiscal year 2012 compared to fiscal year 2011, due to a 15.0% increase in our retail segment and 9.3% increase in our commercial segment. Within the retail segment, our Major 3PL relationship market showed a considerable increase in sales, but the impact on overall gross profit was lessened by the lower margins we experienced in sales to AT&T resulting from the business relationship expansion. The increase in our commercial segment gross profit was driven by increases in our private and government market and our commercial dealers and resellers, and was partially offset by a decline from our public carrier, contractor and program manager market. Overall gross profit margin decreased to 20.3%, compared to 22.0% in fiscal year 2011, driven by the expanded lower margin AT&T business. However, excluding our Major 3PL relationship market, gross profit margin increased from 24.6% in fiscal year 2011 to 25.3% in fiscal year 2012, due in part to pricing adjustments, product mix and lower excess and obsolete inventory writeoffs.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased by 3.7% during fiscal year 2012 as compared to fiscal year 2011. Total selling, general and administrative expenses as a percentage of revenues decreased from 19.4% in fiscal year 2011 to 16.6% in fiscal year 2012, due to the increase of revenues as discussed above, offset by a less significant increase in selling, general and administrative expenses.

The largest factors contributing to the overall increase in total selling, general and administrative expenses were increased AT&T market development expenses and increased pay for performance bonus expense, partially offset by decreased compensation and benefits, freight out, and sales promotion expenses.

Marketing expenses increased by $1.8 million, or 27.4%, in fiscal year 2012 as compared to fiscal year 2011, primarily related to an increase in AT&T market development expenses, which are completely variable to sales.

Pay for performance bonus expense (including both cash and equity plans) increased by $8.9 million in fiscal year 2012 as compared to fiscal year 2011. Because our reward programs are performance based, our strong results during fiscal year 2012 resulted in increased bonus expense.

Compensation and benefits expense decreased approximately $3.8 million in fiscal year 2012 compared to fiscal year 2011.  This decrease was primarily related to position consolidations made during the fourth quarter of fiscal year 2011.

Freight expense decreased by approximately $1.7 million, or 11.4%, in fiscal year 2012.  This was a result of more efficient operational flow and fewer pounds shipped as compared to fiscal year 2011.

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Sales promotions declined by $1.1 million, or 35.8%. This was primarily a result of decreased travel and trade shows expense.

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. Accordingly, we recorded a provision for bad debts of $458,700 and $1,050,500 for fiscal year 2012 and fiscal year 2011, respectively. During fiscal year 2012, we experienced lower bad debt expense in part due to recoveries of amounts previously reserved or written off as well as better collection experience.

-25-

Interest, Net. Net interest expense decreased from $420,600 in fiscal year 2011 to $292,900 in fiscal year 2012, primarily due to decreased average borrowings on our revolving credit facility as well as a lower variable rate on our term loan.

Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2012 and 2011 were 38.5% and 35.6%, respectively. The lower than normal tax rate in fiscal year 2011 was primarily attributable to a one-time reduction in our uncertain tax position reserve as a result of a lapse in the applicable statute of limitations. Absent this one-time adjustment, the tax rate for fiscal year 2011 would have been 38.2%. As a result of the factors discussed above, net income and diluted earnings per share for fiscal year 2011 increased 64.1% and 59.8%, respectively, compared with fiscal year 2011.

Commercial Segment.  Revenues in our commercial segment totaled $328.4 million in fiscal year 2012, compared to $312.7 million in the prior year, a 5.0% increase.  Gross profit totaled $88.4 million, a 9.3% increase as compared to last year.  Within this segment, the commercial dealers and resellers market grew revenues by 7.0% and gross profits by 11.6%.  The private system operator and government market grew revenues by 19.0% and gross profits by 23.7%.  We continue to see strong opportunities for our proprietary and customized solutions in this market, as these customers continue to build and enhance their own private wireless applications.  The public carrier, contractor and program manager market revenuesrevenue declined 15.2% and gross profit declined by 15.1%, as carriers continued to delay significant network builds.

Our direct expenses in this segment totaled $41.5 million, an 11.9% decline compared to the fiscal year 2011, due to a decrease in compensation and marketing expenses.  Therefore, total segment net profit contribution (segment gross profit less segment direct expenses) was $46.9 million, a 38.9% increase over the prior year.

Retail Segment.  Revenues in our retail segment totaled $405.0 million in fiscal year 2012, representing a 38.5% increase from the prior year.  Gross profit totaled $60.3 million, a 15.0% increase.  These increases are primarily due to significantly higher sales to our Tier 1 carrierMajor 3PL relationship market (primarily AT(AT&T), which showed a 57.4%62.3% revenue increase and a 15.2%19.5% gross profit increase, both resulting from the previously discussed expansion of this relationship.  Revenues in our retailer, dealer agent and Tier 2/3 carrier market also increased as compared to last year, up 7.1%11.7%, with a 14.6%11.6% increase in gross profit, a result of changes in product and customer mix, pricing adjustments and lower inventory write-offs.

Our direct expenses in this segment totaled $30.0 million in fiscal year 2012, a 4.8% decrease over the prior year period, a result of lower compensation and freight costs, partially offset by increased market development expenses for AT&T, which are completely variable to sales.  Therefore, total segment net profit contribution was $30.3 million for fiscal year 2012, a 44.7% increase over the prior year period.

Fiscal Year 2011 Compared to Fiscal Year 2010

Revenues. Revenues for fiscal year 2011 increased 15.9% as compared to fiscal year 2010, due to an increase in both our commercial and retail segment revenues. Commercial segment revenues increased by 17.2% compared to fiscal year 2010, a result of a 36.4% increase in our public carrier, contractor and program manager market as well as a 24.0% increase in sales to our commercial dealer and reseller market.

Retail segment revenues increased by 14.6% compared to fiscal year 2010. The retail sales growth was largely a result of a 39.9% increase in sales to our retailer, dealer agent and Tier 2/3 carrier customers while sales to our Tier 1 carrier customers, primarily AT&T, increased 3.3%.

Gross Profit. Gross profit increased 8.1% in fiscal year 2011 compared to fiscal year 2010, due to a 16.8% increase in our commercial segment, partially offset by a 3.1% decrease in our retail segment.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased by 8.3% during fiscal year 2011 as compared to fiscal year 2010. Total selling, general and administrative expenses as a percentage of revenues decreased from 20.7% in fiscal year 2010 to 19.4% in fiscal year 2011, due to the increase of revenues as discussed above, partially offset by the increases in expenses discussed below.

The largest factors contributing to the increase in total selling, general and administrative expenses during fiscal year 2011 were increased compensation, freight out and marketing and sales promotion expenses, which partially offset declines in our pay for performance bonus accruals.

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Compensation expenses primarily related to business generation activities increased from fiscal year 2010 to fiscal year 2011. Compensation costs also included $400,000 of severance expense associated with certain job consolidations that occurred in the fourth quarter of fiscal 2011. Total compensation costs, including benefits, increased by approximately $6.7 million, or 12.3%, from fiscal year 2010 to fiscal year 2011.

Freight expenses in fiscal year 2011 increased approximately $2.6 million, or 21.3%, over the prior year, primarily due to higher sales and increased orders shipped.

Marketing and sales promotion expenses increased approximately $602,700, or 6.6%, over the prior year, primarily due to increased market development funds expensed in relation to our AT&T and other retailer arrangements, partially offset by decreased expenses related to our hard copy catalog, The Wireless Guide®.

Pay for performance bonus expense (including both cash and equity plans) decreased by $2.4 million for fiscal 2011 as compared to fiscal 2010.  Because our bonus programs are generally performance-based, the decrease in bonus accruals is due to lower results during fiscal year 2011 as compared to pre-defined targets.
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. Accordingly, we recorded a provision for bad debts of $1,050,500 and $743,500 for fiscal year 2011 and fiscal year 2010, respectively. During fiscal year 2010, we experienced lower bad debt expense in part due to recoveries of amounts previously reserved or written off.

Interest, Net. Net interest expense increased from $318,300 in fiscal year 2010 to $420,600 in fiscal year 2011, primarily due to increased average borrowings on our revolving credit facility. During both fiscal 2011 and 2010, we maintained a receive variable/pay fixed interest rate swap on our existing term loan, thus fixing the interest rate on this loan at 6.38%. Interest expense on our other debt instruments had only minor variances from year-to-year in total.

Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2011 and 2010 were 35.6% and 38.0%, respectively. The decrease in the effective tax rate for fiscal year 2011 was primarily attributable to a one-time reduction in our uncertain tax position reserve as a result of a lapse in the applicable statute of limitations. Absent this one-time adjustment, the tax rate for fiscal year 2011 would be approximately the same as fiscal year 2010. As a result of the factors discussed above, net income and diluted earnings per share for fiscal year 2011 increased 9.6% and 6.7%, respectively, compared with fiscal year 2010.

Commercial Segment. Revenues in our commercial segment totaled $312.7 million in fiscal year 2011, compared to $266.8 million in the prior year, a 17.2% increase. Gross profit totaled $80.8 million, a 16.8% increase as compared to the prior year. Within this segment, the commercial dealers and resellers market grew revenues by 24.0% and gross profits by 22.4%. The public carrier, contractor and program manager market grew revenues by 36.4% and gross profits by 32.2%. The private system operator and government market revenue was flat as compared to fiscal 2010, while gross profits increased 3.4%.

Our direct expenses in this segment totaled $47.1 million, a 22.1% increase compared to the fiscal year 2010, due to an increase in compensation and freight costs. Therefore, total segment net profit contribution was $33.7 million, a 10.2% increase over the prior year.

Retail Segment. Revenues in our retail segment totaled $292.5 million in fiscal year 2011, representing a 14.6% increase from the prior year. Gross profit totaled $52.4 million, a 3.1% decrease. The revenue increase was a result of a 39.9% increase in sales in our retailer, dealer agent and Tier 2/3 carrier market, and to a lesser extent to a 3.3% increase in sales to our Tier 1 carrier market. Gross profits increased in our retailer, dealer agent and Tier 2/3 carrier market by 16.9%, resulting in a decreased gross profit margin due to pricing pressures and increased inventory write-offs. Gross profit in our Tier 1 carrier market declined by 3.1% as our large Tier 1 carrier customer applied significant pricing pressure during fiscal year 2011.

Our direct expenses in this segment totaled $31.5 million in fiscal year 2011, a 13% increase over the prior year period, a result of higher compensation, marketing and freight costs. Therefore, total segment net profit contribution was $21.0 million for fiscal year 2011, a 20.3% decrease over the prior year period.

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Liquidity and Capital Resources

In summary, our cash flows were as follows:
 2012  2011  2010  2013  2012  2011 
Cash flow provided by operating activities $21,745,500  $12,038,100  $14,811,000  $3,352,400  $21,745,500  $12,038,100 
Cash flow used in investing activities  (6,513,700)  (7,694,200)  (5,440,100)  (5,354,000)  (6,513,700)  (7,694,200)
Cash flow used in financing activities  (5,198,400)  (3,824,400)  (2,312,000)  (11,742,000)  (5,198,400)  (3,824,400)
Net increase in cash and cash equivalents $10,033,400  $519,500  $7,058,900 
Net (decrease) increase in cash and cash equivalents $(13,743,600) $10,033,400  $519,500 

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We generated $21.7$3.4 million of net cash from operating activities in fiscal year 2012.2013. Our cash inflow from operating activities was driven by net income (net of depreciation and amortization and non-cash stock compensation expense) and a significantdecrease in accounts receivable, partially offset by an increase in product inventory and  decreases in trade accounts payable and accrued payroll, benefits and taxes. The decrease in accounts receivable is related to the AT&T transition.  The increase in inventory is intended to improve service levels to support increased customer demand and improve availability. The decrease in trade accounts payable is related to the AT&T transition, causing lower AT&T inventory purchases and lower accruals related to AT&T market development funds, partially offset by higher non-AT&T inventory purchases. The decrease in accrued payroll, benefits and taxes was driven by higher bonus accruals in fiscal 2012 (and their subsequent payouts in fiscal 2013) compared to bonus accruals in fiscal 2013.

In fiscal year 2012, our cash inflow from operating activities was driven by net income (net of depreciation and amortization and non-cash stock compensation expense), as well as an increase in trade accounts payable, partially offset by an increase in trade accounts receivables and product inventory. The increase in trade accounts payable iswas largely due to the timing and credit terms of inventory receipts, including those related to an expansion of our AT&T relationship during the third and fourth quarters of fiscal year 2012. The increase in trade accounts receivable iswas primarily due to the increase intiming of sales and the timing of collections, as well as the fact that we have granted extended payment terms to certain large customers.  The increased inventory levels arewere to support growing sales, including the significant increase in sales to AT&T during the third and fourth quarters of fiscal year 2012, and to improve our inventory availability for our other customers. We do not believe

In fiscal year 2011, our cash inflow from operating activities was driven by net income (net of depreciation and amortization and non-cash stock compensation expense), as well as an increase in trade accounts payable, partially offset by an increase in trade accounts receivables and a decrease in accrued payroll, benefits and taxes. The increase in trade accounts payable was largely due to the transitiontiming and credit terms of inventory receipts. The increase in trade accounts receivable was primarily due to the AT&T businesstiming of sales and collections, as well as the fact that we expecthave granted extended payment terms to begincertain large customers. The decrease in accrued payroll, benefits and taxes was primarily due to the second quarterdecline in bonuses accrued for fiscal year 2011 as compared to 2010.

Capital expenditures of $5.4 million in fiscal year 2013 will have a significant impact on our overall short-term cash position.  We expect to see a decrease in accounts receivable and inventory, but also a corresponding decrease in accounts payable, including the payout to AT&T of accrued market development funds and other related liabilities which amounted to $7.1 million as of April 1, 2012.
Capitalwere down from expenditures of $6.5 million in fiscal year 2012 were up from expenditures of $4.8 million in fiscal year 2011.2012. In fiscal year 2012,2013, capital expenditureexpenditures were largely comprised of $1.6 million for leasehold improvement and $1.0 million for furniture and fixtures expenditures, related to a build-out and reorganization of our administrative offices and $2.2 million for investments in information technology. Fiscal year 2012 capital expenditures primarily consisted of $2.3 million for leasehold improvement and $1.4 million for furniture and fixtures expenditures, related to a build-out and reorganization of our administrative offices, and $2.0 million for investments in information technology. Fiscal year 2011 capital expenditures of $4.8 million primarily consisted of investments in information technology. A portion of the 2012 leasehold improvement expenditures for both 2012 and 2013 were reimbursed to us by our landlord during the fourthrespective fiscal quarter,year, pursuant to the applicable terms of our lease. We recorded $2.2received payments of $0.6 million, $1.2 million, and $0.9 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively, for tenant improvements credits, which will be charged as an offset to rent expense over the remaining term of the lease.

improvement.  In addition to investments in capital expenditures, cash flows used in investing activities in fiscal yearsyear 2011 and 2010 werewas also impacted by cash earn-out payments of $2.9 million under our acquisition agreement with TerraWave Solutions, Ltd. and GigaWave Technologies, Ltd, of $2.9 million and $2.4 million, respectively.Ltd.  These earn-out payments were based on the achievementsachievement of certain earnings thresholds during the four-year earn-out period under the acquisition agreement. On April 21, 2006, we acquired substantially all the non-cash net assets of TerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWave Technologies, Ltd. for an initial cash payment of approximately $3.9 million, and potential additional cash earn-out payment obligations accruing over a four-year period, contingent on the achievement by the TerraWave/GigaWave business unit post-acquisition of certain minimum earnings thresholds. The total purchase price of the acquisition, including all earn-out payments, was approximately $13.1 million.

Cash flows used in financing activities were primarily related to cash dividends paid to shareholders and purchases of stock from employees and directors for minimum tax withholdings related to equity compensation, partially offset by the excess tax benefit from stock-based compensation and proceeds from issuance of stock. The significant increase in cash used in financing activities during fiscal 2013 was caused primarily by the payment of a special dividend of $0.75 per share of common stock on December 27, 2012.  During fiscal years 2010 andyear 2011, we purchased 36,195 and 2,300 shares respectively, of our outstanding common stock pursuant to our stock buyback program, while none were purchased during fiscal year 2012.2012 or 2013. From the beginning of our stock buyback program (the first quarter of fiscal year 2004), through the end of fiscal year 2011, a total of 3,505,187 shares have been purchased under this program for approximately $30.7 million, or an average price of $8.76 per share. The Board of Directors has authorized the purchase of up to 3,593,350 shares in the aggregate, and therefore, 88,163 shares remained available to be purchased as of the end of fiscal year 2012.2013. We expect to fund future purchases, if any, from working capital and/or our revolving credit facility. No timetable has been set for the completion or expiration of this program. In addition to the shares repurchased in the stock buyback program we repurchased all 705,000 shares of our common stock then held by Brightpoint, Inc. in a privately negotiated transaction on July 1, 2008 for approximately $6.4 million, or $9.09 per share. WeWe also withhold shares from our employees and directors, at their request, equal to the minimum federal and state tax withholdings related to vested equity grants. For fiscal years 20122013 and 20112012 this totaled $2,161,900 and $1,197,900, and $1,536,900, respectively.

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We have a term loan in the original principal amount of $4.5 million from Wells Fargo Bank, National Association (formerly Wachovia Bank, National Association) and SunTrust Bank, that is payable in monthly installments of principal and interest with the balance due at maturity, which was modified as described below. The note bore interest at a floating rate of LIBOR plus 1.75% until June 30, 2011 whereupon the modified terms as described below taketook effect. The note is secured by a first position deed of trust encumbering the Company-owned real property in Hunt Valley, Maryland. The loan is subject to generally the same financial covenants as are applicable to our revolving credit facility, and had a balance of $2.8$2.6 million as of April 1, 2012.

On October 1, 2005, we entered into a receive variable/pay fixed interest rate swap agreement on a total notional amount of $4.2 million with Wachovia Bank, National Association to avoid the risks associated with fluctuating interest rates on the Company’s existing term loan, which until July 1, 2011 bore interest at a floating rate of LIBOR plus 1.75%, and to eliminate the variability in the cash outflow for interest payments. The interest rate swap agreement locked the interest rate for the outstanding principal balance of the loan at 6.38% through June 30, 2011, and upon expiration on that date, was not extended as part of the May 20, 2011 extension of the term loan. This cash flow hedge qualified for hedge accounting using the short-cut method since the swap terms matched the critical terms of the hedged debt.March 31, 2013.

On May 20, 2011, but effective July 1, 2011, we entered into a loan modification agreement with Wells Fargo Bank, National Association, and SunTrust Bank to extend the maturity date of the term loan to July 1, 2016. The key provisions of the loan otherwise remained the same, except that commencing July 1, 2011, the interest rate changed to a floating rate of LIBOR plus 2.00%.

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We are party to an unsecured revolving credit facility with SunTrust Bank and Wells Fargo Bank, National Association (formerly Wachovia Bank, National Association), with interest payable monthly at the LIBOR rate plus an applicable margin. Borrowing availability under this facility is determined in accordance with a borrowing base, and the applicable credit agreement includes financial covenants, including a minimum tangible net worth, minimum cash flow coverage of debt service, and a maximum funded debt to EBITDA ratio. These financial covenants also apply to the separate but related term loan secured by our Hunt Valley, Maryland facility discussed below. The terms applicable to our revolving credit facility and term loan also limit our ability to engage in certain transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. As of April 1, 2012,March 31, 2013 we had a zero balance outstanding on our $35.0 million revolving credit facility; therefore, we had $35.0 million available on our revolving line of credit facility, subject to the limitations imposed by the borrowing base and our continued compliance with the other applicable terms, including the covenants discussed above. On December 30, 2011, we entered into a Sixth Modification Agreement with SunTrust Bank and Wachovia Bank, National Association which provided for certain modifications to the provisions applicable to the credit facility, including extending the term from May 30, 2012 to May 31, 2013. This term was further extended to May 31, 2014 by the Eighth Modification Agreement dated December 21, 2012. On November 30, 2012, we entered in to a Seventh Modification Agreement to allow for the special dividend discussed above.

ThisThe terms of this revolving credit facility, has beenas amended, several times since its inception and as of December 30, 2011 allowsallow us to repurchase up to $30.0 million of our common stock (measured forward to the present date from the date of inception of the Credit Agreement, May 31, 2007) and allowsallow for the payment of up to $6.25 million of dividends in any 12 month period.period, not including the special one-time dividend of $6.04 million paid in December 2012. As of April 1, 2012,March 31, 2013, we had repurchased an aggregate of $13.7 million of common stock since May 31, 2007, leaving $16.3 million available for future repurchases, without the consent of our lenders or a further amendment to the terms of the facility.

Pursuant to the relevant documents, the financial covenants included in the Credit Agreement for the unsecured revolving credit facility are also applicable to our existing Term Loan with the same lenders. Accordingly, the amendments to the Credit Agreement also have the effect of amending the financial covenants applicable to the Term Loan.

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 April 1, 2012,March 31, 2013, the principal balance of this term loan was approximately $182,200.

We were also party to a note payable outstanding to the Maryland Economic Development Corporation, which was payable in equal quarterly installments of principal and interest of $37,400, with the balance due at maturity on October 10, 2011. The note was paid in full during fiscal year 2012. The note bore interest at 3.00% per annum and was secured by a subordinate position on Company-owned real property location in Hunt Valley, Maryland.$158,000.

Working capital (current assets less current liabilities) increased to $76.6 million as of March 31, 2013, from $65.8 million as of April 1, 2012, from $49.4primarily due to a decrease in accounts payable partially offset by a decrease in accounts receivable, which is primarily due to the AT&T transition. Additionally, inventory increased to improve service levels and support increased demand. Shareholders' equity increased to $102.8 million as of March 27, 2011, primarily due to the increase in accounts receivable and inventory partially offset by increased accounts payable, all of which were primarily due to the expansion of our relationship with AT&T during the third and fourth quarters of fiscal year 2012. Shareholders' equity increased to31, 2013, from $93.7 million as of April 1, 2012, from $78.9 million as of March 27, 2011, primarily due to increased retained earnings due to fiscal year 20122013 net income, partially offset by cash dividends paid and net increases in additional paid-in-capital.

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We believe that our existing cash, payments from customers, and availability under our revolving line of 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 line of 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 its existing sources of liquidity, we would look to sources of funding from additional credit facilities, debt and/or equity issuances. There can be no assurances that such additional future sources of funding would be available on terms acceptable to us, if at all. As of April 1, 2012,March 31, 2013, we do not have any material capital expenditure commitments.

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

In fiscal year 2011, our cash inflow from operating activities was driven by net income (net of depreciation and amortization and non-cash stock compensation expense), as well as an increase in trade accounts payable, partially offset by an increase in trade accounts receivables and a decrease in accrued payroll, benefits and taxes. The increase in trade accounts payable was largely due to the timing and credit terms of inventory receipts. The increase in trade accounts receivable was primarily due to the timing of sales and collections, as well as the fact that we have granted extended payment terms to certain large customers. The decrease in accrued payroll, benefits and taxes was primarily due to the decline in bonuses accrued for fiscal year 2011 as compared to 2010.
In fiscal year 2010, our cash inflow from operating activities was driven by net income, net of depreciation and amortization and non-cash stock compensation expense, as well as a significant increase in trade accounts payable and an increase in accrued payroll, benefits and taxes, partially offset by significant increases in trade accounts receivables and product inventory. The increase in trade accounts payable was largely due to the timing and credit terms of inventory receipts. The accrual for payroll, benefits and taxes increased primarily due to an increase in accruals for our bonus programs in fiscal year 2010 as compared to fiscal year 2009. The increase in trade accounts receivable was primarily due to the timing of sales and collections largely related to our largest customer, AT&T Mobility. The increased inventory levels were to improve our inventory availability for our customers.
Capital expenditures totaled $4.8 million and $3.1 million in fiscal years 2011 and 2010, respectively.  In both fiscal years, capital expenditures primarily related to investments in information technology.
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Contractual Obligations

The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of April 1, 2012:
  Payment Due by Fiscal Year 
  Total  
Less Than
1 Year
  Years 1-3  Years 4-5  
More Than
5 Years
 
                
Long-Term Debt Obligations $2,957,200  $249,200  $499,900  $2,151,800  $56,300 
Revolving credit facility  --   --   --   --   -- 
Lease Obligations  11,580,200   2,348,900   3,860,200   3,861,300   1,509,800 
Interest payments  251,500   67,400   117,100   65,800   1,200 
Other Long-Term Liabilities (1)  1,200,000   --   75,000   150,000   975,000 
Tax contingency reserves (2)  607,200     --    --    --    -- 
Total contractual cash obligations $16,596,100  $2,665,500  $4,552,200  $6,228,900  $2,542,300 
March 31, 2013:

  Payment Due by Fiscal Year 
  Total  
Less Than
1 Year
  Years 1-3  Years 4-5  
More Than
5 Years
 
                
Long-Term Debt Obligations $2,708,000  $249,700  $500,800  $1,927,900  $29,600 
Revolving credit facility  --   --   --   --   -- 
Lease Obligations  11,502,500   2,811,900   4,529,300   4,042,800   118,500 
Interest payments (1)  179,800   60,000   102,800   16,700   300 
Other Long-Term Liabilities (2)  1,237,500   --   150,000   150,000   937,500 
Tax contingency reserves (3)  723,700   --   --   --   -- 
Total contractual cash obligations $16,351,500  $3,121,600  $5,282,900  $6,137,400  $1,085,900 
(1)  
Other Long-Term Liabilities reflected on the Consolidated Balance Sheet include amounts owed under a Supplemental Executive Retirement Plan.  Interest payments include amounts owed on notes payable at their stated contractual rate, as well as interest payments on our note with a bank at a variable rate of LIBOR plus 2.00%.
(2)  Other Long-Term Liabilities reflected on the Consolidated Balance Sheet include amounts owed under a Supplemental Executive Retirement Plan.
(2)(3)  We are unable to make a reasonably reliable estimate of the period of the cash settlement with the respective taxing authorities for the $0.6$0.7 million balance of itsour tax contingency reserves, net of federal tax benefits. See further discussion in Note 12—11—"Income Taxes" to the consolidated financial statements set forth elsewhere herein.

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Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of our operations are based on our 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.

We have identified the policies below as critical to our business operations and the understanding of our results of operations:

Revenue Recognition. We record revenues when 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) our price to the buyer is fixed and determinable, and 4) collectibility is reasonably assured. Our revenue recognition policy includes evidence of arrangements for significant revenue transactions through either receipt of a customer purchase order or a web-based order. We record revenues when risk of loss has passed to the customer. In most cases, shipments are made using FOB shipping terms. For a portion of our sales, we use FOB destination terms and record the revenue when the product is received by the customer. Our prices are always fixed at the time of sale. Historically, there have not been any material concessions provided to or by customers, future discounts, or other incentives subsequent to a sale. We sell under normal commercial terms and, therefore, we only record revenues on transactions where collectibiltycollectibility is reasonably assured.

Because a large portion of our sales transactions meetsmeet the conditions set forth in the Financial Accounting Standards Board (“FASB”) standard on revenue recognition, we recognize revenues from sales transactions containing sales returns provisions at the time of the sale. These conditions require that 1) our price be substantially fixed and determinable at the date of sale, 2) the buyer is obligated to pay us, and such obligation is not contingent on their resale of the product, 3) the buyer’s obligation to us does not change in the event of theft or physical destruction or damage of the product, 4) the buyer has economic substance apart from us, 5) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and 6) the amount of future returns can be reasonably estimated. Because our normal terms and conditions of sale are consistent with conditions 1-5 above, and we are able to perform condition 6, we make a reasonable estimate of product returns in sales transactions and accrue a sales return reserve based on this estimate.

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Our current and potential customers are continuing to look for ways to reduce their inventories and lower their total costs, including distribution, order taking and fulfillment costs, while still providing their customers excellent service. Some of these companies have turned to us to implement supply chain solutions, including purchasing inventory, assisting in demand forecasting, configuring, packaging, kitting and delivering products and managing customer and vendor relations, from order taking through cash collections. In performing these solutions, we assume varying levels of involvement in the transactions and varying levels of credit and inventory risk. As our solutions offerings continually evolve to meet the needs of our customers, we constantly evaluate our revenue accounting based on the guidance set forth in accounting standards generally accepted in the United States. When applying this guidance in accordance with the FASB standard regarding revenue recognition for principal-agent considerations, we look at the following indicators: whether we are the primary obligor in the transaction; whether we have general inventory risk; whether we have latitude in establishing price; the extent to which we change the product or perform part of the service; whether we have responsibility for supplier selection; whether we are involved in the determination of product and service specifications; whether we have physical inventory risk; whether we have credit risk; and whether the amount we earn is fixed. Each of our customer relationships is independently evaluated based on the above guidance and revenues are recorded on the appropriate basis.  Based on a review of the factors above, in the majority of our sales relationships, we have concluded that we are the principal in the transaction and we record revenues based upon the gross amounts earned and booked. However, we do have certain relationships where we are not the principal and we record revenues on a net fee basis, regardless of amounts billed (less than 3%2% of our total revenues). If applying this revenue recognition guidance resulted in recording revenues on a different basis from which we have previously concluded, or if the factors above change significantly, revenues could increase or decrease; however, our gross profit and net income would remain constant.

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Allowance for Doubtful Accounts. We use estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable and unbilled receivables to their expected net realizable value. We estimate the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends. Actual collection experience has not varied significantly from estimates, due primarily to credit policies, collection experience and our stability as it relates to our current customer base. Typical payments from commercial customers are due 30 days from the date of the invoice. We charge-off receivables deemed to be uncollectible to the allowance for doubtful accounts. Accounts receivable balances are not collateralized.

Inventory Reserves. We establish inventory reserves for excess and obsolete inventory. We regularly review inventory to evaluate continued demand and identify any obsolete or excess quantities of inventory. We record a provision for the difference between excess and obsolete inventory and its estimated realizable value. Estimated realizable value is based on anticipated future product demand, market conditions and liquidation values. Actual results differing from these projections could have a material effect on our results of operations.

Impairment of Long-Lived and Indefinite-Lived Assets. Our Consolidated Balance Sheet includes goodwill of approximately $11.7 million (all related to our commercial segment) and other indefinite lived intangible assets of $850,000. We perform annual impairment tests for goodwill and other indefinite lived assets on the first day of our fourth quarter. We also periodically evaluate our long-lived assets for potential impairment indicators. The goodwill and intangible assets impairment test involves an initial qualitative analysis to determine if it is more likely than not that an intangible asset’s fair value is less than its carrying amount. If qualitative factors suggest a possible impairment the company then performs an additional two-step approach. Our judgments regarding the existence of impairment indicators are based on estimated future cash flows, market conditions, operational performance and legal factors. The key assumptions used to determine the fair value of our goodwill reporting units include (a) a cash flow period; (b) a terminal value based on a growth rate; and (c) a discount rate, which is based on our weighted average cost of capital adjusted for risks associated with our operations. Based on the Company’s qualitative assessment for fiscal 2013, we have concluded that it is not more likely than not that the carrying value of any of our reporting units with goodwill is above the fair value of the related reporting unit.  As a result, no quantitative testing was deemed necessary for fiscal 2013. Future events, such as significant changes in cash flow assumptions, could cause us to conclude that impairment indicators exist and that the net book value of goodwill, long-lived assets or intangible assets are impaired. We will continue to monitor our market capitalization as a potential impairment indicator considering overall market conditions and specific industry events. Had the determination been made that the goodwill and other indefinite lived intangible assets were impaired, the value of these assets would have been reduced by an amount up to $12.5 million, resulting in a corresponding charge to operations.

The methods of assessing fair value for reporting units with goodwill as well as for indefinite lived assets require significant judgments to be made by management, including future revenues, expenses, cash flows and discount rates. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

Classification of Expenses. Our cost of goods sold includes cost of products and freight from vendors to our distribution centers. Product management, distribution, purchasing, receiving/inspection, warehousing, freight from our distribution centercenters to our customers'customers’ sites, and corporate overhead costs are included in selling, general and administrative expenses. Accordingly, our gross margins may not be comparable to other entities that may include these costs in cost of goods sold.

Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability. This review is based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Based on this review, we have not established a valuation allowance because our deferred tax assets are more likely than not realizable.  If we are unable to generate sufficient taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets that are not more likely than not realizable, resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.

 
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We account for income taxes under the FASB standard on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of April 1, 2012,March 31, 2013, we had total net unrecognized tax benefits of approximately $607,200,$723,700, all of which, if recognized, would favorably affect the effective income tax rate in future periods.

Stock-Based Compensation. We record stock-based compensation in accordance with the FASB standard regarding stock compensation and share-based payments, which requires us to include in our calculation of periodic stock compensation expense an estimate of future forfeitures. The standard also requires stock awards granted or modified after the adoption of the standard that include both performance conditions and graded vesting to be amortized by an accelerated method rather than the straight-line method.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Recent Accounting Pronouncements

In May 2011, the FASB issued accounting guidance, which among other requirements, prohibits the use of the block discount factor for all fair value level hierarchies; permits an entity to measure the fair value of its financial instruments on a net basis when the related market risks are managed on a net basis; states the highest and best use concept is no longer relevant in the measurement of financial assets and liabilities; clarifies that a reporting entity should disclose quantitative information about the unobservable inputs used in Level 3 measurements and that the application of premiums and discounts is related to the unit of account for the asset or liability being measured at fair value; and requires expanded disclosures to describe the valuation process used for Level 3 measurements and the sensitivity of Level 3 measurements to changes in unobservable inputs. In addition, entities are required to disclose the hierarchy level for items which are not measured at fair value in the statement of financial position, but for which fair value is required to be disclosed. The adoption of this guidance did not have an impact on the Company’s results of operations or financial condition.

In September 2011, the FASB issued an accounting standard which simplifies how entities test goodwill for impairment. Similar guidance was issued in relation to other indefinite lived intangible assets in July 2012. The accounting standard permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. The accounting standard was effective for the Company beginning April 2, 2012 for goodwill and September 15, 2012 for other indefinite lived intangible assets. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued accounting guidance related to the presentation of comprehensive income which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of equity. This guidance was amended in December 2011 to defer the requirements that companies present reclassification adjustments out of accumulated other comprehensive income on the face of the financial statements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. In February 2013, the FASB finalized the requirement that the Company must disclose information about the amounts reclassified out of accumulated and other comprehensive income by component. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2012. While the adoption of this guidance is expected to impactimpacted the Company’s disclosures, for annual and interim filings for fiscal 2013, it willdid not have an impact on the Company’s results of operations or financial condition.

In September 2011,October 2012, the FASB issued an accounting standarda Technical Corrections and Improvements update which simplifies how entities test goodwill for impairment. The accounting standard permits an entityrelates to first assess qualitative factors to determine whether it is more likely than notvarious topics throughout the FASB Codification and provides technical corrections, clarification, and limited-scope improvements. This guidance was effective upon issuance of the update, with the exception of sections that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described below. The accounting standard isinclude transition guidance, which become effective for the Companyfiscal periods beginning April 2,after December 15, 2012. The Company does not expect the adoption of this guidance willdid not have a material impact on itsthe Company’s consolidated financial position, results of operations or cash flows.

Forward-Looking Statements

This Report may contain forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “believes,” “estimates,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward looking. Forward looking statements involve a number of risks and uncertainties. Our actual results may differ materially from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those risks identified in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, 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.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 which are typically terminable by either party upon several months'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’ businesses; 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’ demand for our ability to fund or pay for the purchase of 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; failure of our information technology system or distribution system; 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 from competitors, including 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 on profitability and market share; our inability to access capital and obtain or retain financing as and when needed; transitional and other risks associated with acquisitions of companies that we may undertake in an effort to expand our business; 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; our inability to protect certain intellectual property, including systems and technologies on which we rely; and our inability to hire or retain for any reason our key professionals, management and staff.

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Available InformationTable of Contents
 
Available Information

Our Internet Web site 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. We have not incorporated herein by reference the information on our Website, and it should not be considered a part of this filing.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk:

We are exposed to an immaterial level of market risk from changes in interest rates.  We have from time to time previously used interest rate swap agreements to modify variable rate obligations to fixed rate obligations, thereby reducing our exposure to interest rate fluctuations.  We do not have a current interest rate swap relating to our bank term loan.  Our variable rate debt obligations of approximately $2.8$2.6 million at April 1, 2012,March 31, 2013, expose us to the risk of rising interest rates, but management does not believe that the potential exposure is material to our overall financial position or results of operations.  Based on April 1, 2012March 13, 2013 borrowing levels, a 1.0% increase or decrease in current market interest rates would have an immaterial effect on our statement of income.

Foreign Currency Exchange Rate Risk:

We are exposed to an immaterial level of market risk from changes in foreign currency rates.  Over 99% 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.



Item 8. Financial Statements and Supplementary Data.

TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets

 April 1, 2012  March 27, 2011  March 31, 2013  April 1, 2012 
ASSETSASSETS ASSETS 
Current assets:            
Cash and cash equivalents $18,211,600  $8,178,200  $4,468,000  $18,211,600 
Trade accounts receivable, net of allowance for doubtful accounts of $998,800 and $1,616,500, respectively  88,748,200   65,708,700 
Trade accounts receivable, net of allowance for doubtful accounts of $1,274,700 and $998,800, respectively  82,177,600   88,748,200 
Product inventory   53,360,300   45,709,800   60,913,600   53,360,300 
Deferred tax assets, net  3,135,100   2,545,700   6,227,300   3,135,100 
Prepaid expenses and other current assets  2,308,200   1,668,900   3,482,300   2,308,200 
Total current assets  165,763,400   123,811,300   157,268,800   165,763,400 
                
Property and equipment, net  22,905,700   21,148,100   23,202,000   22,905,700 
Goodwill, net  11,684,700   11,684,700   11,684,700   11,684,700 
Other long-term assets  2,143,900   2,057,700   2,144,500   2,143,900 
Total assets $202,497,700  $158,701,800  $194,300,000  $202,497,700 
LIABILITIES AND SHAREHOLDERS' EQUITY
    
Current liabilities:                
Trade accounts payable $78,344,700  $62,913,000  $65,209,300  $78,344,700 
Payroll, benefits and taxes  17,211,600   7,342,500   11,678,500   17,211,600 
Income and sales tax liabilities  3,137,000   2,539,300   2,530,700   3,137,000 
Accrued expenses and other current liabilities  1,041,100   1,278,400   1,048,900   1,041,100 
Revolving line of credit  --   --   --   -- 
Current portion of long-term debt  249,200   359,100   249,700   249,200 
Total current liabilities  99,983,600   74,432,300   80,717,100   99,983,600 
                
Deferred tax liabilities, net  2,243,500   949,100   3,951,800   2,243,500 
Long-term debt, net of current portion  2,708,000   2,959,100   2,458,300   2,708,000 
Other long-term liabilities  3,910,700   1,481,200   4,370,200   3,910,700 
Total liabilities  108,845,800   79,821,700   91,497,400   108,845,800 
                
Commitment and Contingencies                
                
Shareholders' equity:                
Preferred stock, $0.01 par value, 500,000 shares authorized and no shares issued and outstanding  --   --   --   -- 
Common stock, $0.01 par value, 15,000,000 shares authorized, 13,017,172 shares issued and 7,744,528 shares outstanding as of April 1, 2012, and 12,623,144 shares issued and 7,464,945 shares outstanding as of March 27, 2011
  88,000   84,100 
Common stock, $0.01 par value, 15,000,000 shares authorized, 13,362,398 shares issued and 7,987,900 shares outstanding as of March 31, 2013, and 13,017,172 shares issued and 7,744,528 shares outstanding as of April 1, 2012
  91,500   88,000 
Additional paid-in capital  45,135,900   40,668,100   50,481,600   45,135,900 
Treasury stock, at cost, 5,272,644 shares outstanding as of April 1, 2012 and 5,158,199 shares outstanding as of March 27, 2011, respectively  (46,276,400)  (44,388,400)
Treasury stock, at cost, 5,374,498 shares outstanding as of March 31, 2013 and 5,272,644 shares outstanding as of April 1, 2012  (48,438,300)  (46,276,400)
Retained earnings   94,704,400   82,540,900   100,667,800   94,704,400 
Accumulated other comprehensive loss, net of tax   --   (24,600)
Total shareholders’ equity  93,651,900  ��78,880,100   102,802,600   93,651,900 
Total liabilities and shareholders' equity $202,497,700  $158,701,800  $194,300,000  $202,497,700 


The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
  Fiscal Years Ended 
  April 1, 2012  March 27, 2011  March 28, 2010 
          
Revenues $733,389,900  $605,219,200  $522,031,500 
Cost of goods sold  584,733,700   471,938,600   398,706,300 
Gross profit                                                                           148,656,200   133,280,600   123,325,200 
Selling, general and administrative expenses  121,652,400   117,305,100   108,269,000 
Income from operations                                                                           27,003,800   15,975,500   15,056,200 
Interest, net  292,900   420,600   318,300 
Income before provision for income taxes                                                                           26,710,900   15,554,900   14,737,900 
Provision for income taxes  10,274,000   5,536,700   5,599,100 
Net income                                                                          $16,436,900  $10,018,200  $9,138,800 
             
Basic earnings per share $2.12  $1.33  $1.24 
Diluted earnings per share $2.03  $1.27  $1.19 
Cash dividends declared per common share $0.55  $0.40  $0.20 

The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
              
 Accumulated
Other 
Comprehensive
Loss
       
               
 Total  
Shareholders’
Equity
   
   Common Stock  
 Additional
Paid-in
Capital
        Comprehensive
Income (Loss)
    
 
 
 Shares  
 
Amount
  
Treasury
Stock
  
Retained
Earnings
       
Balance at March 29, 2009  7,085,418   80,100   34,503,700   (42,155,700)  67,880,900   (142,800)  --   60,166,200  
Proceeds from issuance of stock  39,794   300   434,900   --   --   --   --   435,200  
Treasury stock purchases  (57,627)  --   --   (663,700)  --   --   --   (663,700) 
Non-cash stock compensation expense  164,293   1,100   2,161,500   --   --   --   --  2,162,600  
Excess tax loss from stock-based compensation  --   --   (162,400)  --   --   --   --  (162,400 
Cash dividends paid  --   --   --   --   (1,476,700)  --   --  (1,476,700 
Comprehensive Income:                                
Net income  --   --   --   --   9,138,800   --   9,138,800     
Other comprehensive loss, net of tax  --   --   --   --   --   45,200   45,200     
Total comprehensive income                          9,184,000  9,184,000   
Balance at March 28, 2010  7,231,878   81,500   36,937,700   (42,819,400)  75,543,000   (97,600)      69,645,200  
Proceeds from issuance of stock  80,436   800   706,600   --   --   --   --   707,400  
Treasury stock purchases  (108,032)  --   --   (1,569,000)  --   --   --  (1,569,000) 
Non-cash stock compensation expense  260,663   1,800   2,272,200   --   --   --   --  2,274,000  
Excess tax benefit from stock-based compensation  --   --   751,600   --   --   --   --   751,600  
Cash dividends paid
  --   --   --   --   (3,020,300)  --   --   (3,020,300) 
Comprehensive Income:                                
Net income  --   --   --   --   10,018,200   --   10,018,200     
Other comprehensive income, net of tax  --   --   --   --   --   73,000   73,000     
Total comprehensive income                          10,091,200  10,091,200   
Balance at March 27, 2011  7,464,945   84,100   40,668,100   (44,388,400)  82,540,900   (24,600)      78,880,100  
Proceeds from issuance of stock  169,978   1,700   1,114,100   --   --   --   --   1,115,800  
Treasury stock purchases  (114,445)  --   --   (1,888,000)  --   --   --   (1,888,000 
Non-cash stock compensation expense  224,050   2,200   2,926,000   --   --   --   --   2,928,200  
Excess tax benefit from stock-based compensation  --   --   427,700   --   --   --   --   427,700  
Cash dividends paid
  --   --   --   --   (4,273,400)  --   --  (4,273,400) 
Comprehensive Income:                                
Net income  --   --   --   --   16,436,900   --   16,436,900     
Other comprehensive income, net of tax  --   --   --   --   --   24,600   24,600     
Total comprehensive income                          16,461,500  16,461,500   
Balance at April 1, 2012  7,744,528  $88,000  $45,135,900  $(46,276,400) $94,704,400  $--     93,651,900   
                                 
  Fiscal Years Ended 
  March 31, 2013  April 1, 2012  March 27, 2011 
          
Revenues $752,565,000  $733,389,900  $605,219,200 
Cost of goods sold  605,525,800   584,733,700   471,938,600 
Gross profit    147,039,200   148,656,200   133,280,600 
Selling, general and administrative expenses  117,820,600   121,652,400   117,305,100 
Income from operations  29,218,600   27,003,800   15,975,500 
Interest, net  224,200   292,900   420,600 
Income before provision for income taxes    28,994,400   26,710,900   15,554,900 
Provision for income taxes  11,200,500   10,274,000   5,536,700 
Net income $17,793,900  $16,436,900  $10,018,200 
             
Basic earnings per share $2.22  $2.12  $1.33 
Diluted earnings per share $2.15  $2.03  $1.27 
Cash dividends declared per common share $1.47  $0.55  $0.40 
             
Comprehensive income:            
Net income  $17,793,900  $16,436,900  $10,018,200 
Change in value of interest rate swap, net of tax  --   24,600   73,000 
Total comprehensive income $17,793,900  $16,461,500  $10,091,200 

The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
  Common Stock  
Additional
Paid-in Capital
        Accumulated Other Comprehensive  Loss      Total   Shareholders’ Equity 
  Shares  Amount    
Treasury
Stock
  
Retained
Earnings
    
Comprehensive
Income
  
Balance at March 28, 2010  7,231,878   81,500   36,937,700   (42,819,400)  75,543,000   (97,600)     69,645,200 
Proceeds from issuance of stock  80,436   800   706,600   --   --   --   --   707,400 
Treasury stock purchases  (108,032)  --   --   (1,569,000)  --   --   --   (1,569,000)
Non-cash stock compensation expense  260,663   1,800   2,272,200   --   --   --   --   2,274,000 
Excess tax loss from stock-based compensation  --   --   751,600   --   --   --   --   751,600 
Cash dividends paid  --   --   --   --   (3,020,300)  --   --   (3,020,300)
Comprehensive Income:                               
Net income  --   --   --   --   10,018,200   --   10,018,200    
Other comprehensive loss, net of tax  --   --   --   --   --   73,000   73,000    
Total comprehensive income                          10,091,200  10,091,200  
Balance at March 27, 2011  7,464,945   84,100   40,668,100   (44,388,400)  82,540,900   (24,600)      78,880,100 
Proceeds from issuance of stock  169,978   1,700   1,114,100   --   --   --   --   1,115,800 
Treasury stock purchases  (114,445)  --   --   (1,888,000)  --   --   --   (1,888,000)
Non-cash stock compensation expense  224,050   2,200   2,926,000   --   --   --   --   2,928,200 
Excess tax benefit from stock-based compensation  --   --   427,700   --   --   --   --   427,700 
Cash dividends paid
  --   --   --   --   (4,273,400)  --   --   (4,273,400)
Comprehensive Income:                               
Net income  --   --   --   --   16,436,900   --   16,436,900    
Other comprehensive income, net of tax  --   --   --   --   --   24,600   24,600    
Total comprehensive income                          16,461,500  16,461,500  
Balance at April 1, 2012  7,744,528   88,000   45,135,900   (46,276,400)  94,704,400   --       93,651,900 
Proceeds from issuance of stock  24,908   300   486,500   --   --   --   --   486,800 
Treasury stock purchases  (101,854)  --   --   (2,161,900)  --   --   --   (2,161,900)
Non-cash stock compensation expense  320,318   3,200   2,533,600   --   --   --   --   2,536,800 
Excess tax benefit from stock-based compensation  --   --   2,325,600   --   --   --   --   2,325,600 
Cash dividends paid
  --   --   --   --   (11,830,500)  --   --   (11,830,500)
Comprehensive Income:                               
Net income  --   --   --   --   17,793,900   --   17,793,900    
Other comprehensive income, net of tax  --   --   --   --   --   --   --    
Total comprehensive income                          17,793,900  17,793,900  
Balance at March 31, 2013  7,987,900  $91,500  $50,481,600  $(48,438,300) $100,667,800  $--      $102,802,600  
                                

The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows

 Fiscal Years Ended  Fiscal Years Ended 
 April 1, 2012  March 27, 2011  March 28, 2010  March 31, 2013  April 1, 2012  March 27, 2011 
                  
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income $16,436,900  $10,018,200  $9,138,800  $17,793,900  $16,436,900  $10,018,200 
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation and amortization  4,844,900   4,445,200   4,116,300   4,979,400   4,844,900   4,445,200 
Gain on sale of property and equipment  (3,000)  --   -- 
Non-cash stock compensation expense  2,928,200   2,274,000   2,162,600   2,536,800   2,928,200   2,274,000 
Deferred income taxes and other  2,984,100   (1,073,900)  2,165,300   (843,700)  2,984,100   (1,073,900)
Change in trade accounts receivable  (23,039,500)  (5,033,700)  (16,073,700)  6,570,600   (23,039,500)  (5,033,700)
Change in product inventory  (7,650,500)  (718,300)  (8,451,100)  (7,553,300)  (7,650,500)  (718,300)
Change in prepaid expenses and other current assets   (639,300)  (71,900)  629,800   (1,174,100)  (639,300)  (71,900)
Change in trade accounts payable  15,431,700   3,549,100   18,982,300   (13,135,400)  15,431,700   3,549,100 
Change in payroll, benefits and taxes   9,869,100   (1,631,700)  2,479,800   (5,533,100)  9,869,100   (1,631,700)
Change in income and sales tax liabilities   531,300   11,300   (380,400)  (606,300)  531,300   11,300 
Change in accrued expenses and other current liabilities   48,600   269,800   41,300   320,600   48,600   269,800 
Net cash provided by operating activities  21,745,500   12,038,100   14,811,000   3,352,400   21,745,500   12,038,100 
                        
CASH FLOWS FROM INVESTING ACTIVITIES:                        
Acquisition of property and equipment  (6,513,700)  (4,842,200)  (3,058,100)  (5,357,000)  (6,513,700)  (4,842,200)
Proceeds from sale of property and equipment  3,000   --   -- 
Additional earn-out payments on acquired businesses  --   (2,852,000)  (2,382,000)  --   --   (2,852,000)
Net cash used in investing activities  (6,513,700)  (7,694,200)  (5,440,100)  (5,354,000)  (6,513,700)  (7,694,200)
                        
CASH FLOWS FROM FINANCING ACTIVITIES:                        
Payments on long-term debt  (361,000)  (389,800)  (385,200)  (249,200)  (361,000)  (389,800)
Proceeds from debt issuance  --   --   250,000 
Proceeds from issuance of stock  829,900   403,100   122,200   174,000   829,900   403,100 
Cash dividends paid  (4,273,400)  (3,020,300)  (1,476,700)  (11,830,500)  (4,273,400)  (3,020,300)
Purchases of treasury stock and repurchases of stock from employees and directors for minimum tax withholdings  (1,888,000)  (1,569,000)  (484,900)  (2,161,900)  (1,888,000)  (1,569,000)
Payments of debt issue costs  --   --   (175,000)
Excess tax benefit (loss) from stock-based compensation  494,100   751,600   (162,400)
            
Excess tax benefit from stock-based compensation  2,325,600   494,100   751,600 
Net cash used in financing activities  (5,198,400)  (3,824,400)  (2,312,000)  (11,742,000)  (5,198,400)  (3,824,400)
Net increase in cash and cash equivalents
  10,033,400   519,500   7,058,900 
Net (decrease) increase in cash and cash equivalents
  (13,743,600)  10,033,400   519,500 
CASH AND CASH EQUIVALENTS, beginning of period
  8,178,200   7,658,700   599,800   18,211,600   8,178,200   7,658,700 
            
CASH AND CASH EQUIVALENTS, end of period
 $18,211,600  $8,178,200  $7,658,700  $4,468,000  $18,211,600  $8,178,200 
                        
The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

 
-37--44-


Note 1.1. Organization

TESSCO Technologies Incorporated, a Delaware corporation (TESSCO, we, or the Company), architects and delivers innovative product and value chain solutions to support wireless 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. Over 99% of the Company’s sales are made in United States Dollars, with the remainder in Canadian Dollars.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year

The Company's fiscal year is the 52 or 53 weeks ending on the Sunday falling on or between March 26 and April 1 to allow the financial year to better reflect the Company's natural weekly accounting and business cycle.  The fiscal year ended April 1, 2012 contains 53 weeks while the fiscal years ended March 27, 201131, 2013 and March 28, 201027, 2011 contain 52 weeks.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with an original maturity of 90 days or less.

Allowance for Doubtful Accounts

The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to their expected net realizable value. The Company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends and current economic conditions. Actual collection experience has not varied significantly from estimates, due primarily to consistent credit policies, collection experience, as well as the Company’s stability as it relates to its current customer base. Typical payments from a large majority of commercial customers are due 30 days from the date of the invoice. The Company charges-off receivables deemed to be uncollectible to the allowance for doubtful accounts. Accounts receivable balances are not collateralized.

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Product Inventory

Product inventory, consisting primarily of finished goods, is stated at the lower of cost or market, cost being determined on the first-in, first-out (“FIFO”) method and includes certain charges directly and indirectly incurred in bringing product inventories to the point of sale. Inventory is written down for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value, based upon specifically known inventory-related risks (such as technological obsolescence and the nature of vendor terms surrounding price protection and product returns), and assumptions about future demand. At fiscal year-end 20122013 and 2011,2012, the Company has a reserve for excess and/or obsolete inventory of $3,268,900$3,336,700 and $4,183,200,$3,268,900, respectively.

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Property and Equipment

Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:

 Useful lives
Information technology equipment and software 1-5 years
Configuration, Fulfillment and Delivery technology system 7 years
Furniture, telephone system, equipment and tooling 3-10 years
Building, building improvements and leasehold improvements 2-40 years

The Configuration, Fulfillment and Delivery (CFD) technology system, which is still in use, was initially implemented during fiscal year 2005 and is a major automated materials-handling system that is integrated with the Company’s product planning and procurement system. This original CFD system has an estimated useful life that is longer than the Company'sCompany’s other software assets, and thus, the Company depreciated the system over a seven-year life.  As of March 31, 2013 the original CFD system was fully depreciated.

The Company capitalizes computer software costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and when management authorizes and commits to funding the project and it is probable that the project will be completed.  Development and acquisition costs are capitalized when the software project is either for the development of new software, to increase the life of existing software or to add significantly to the functionality of existing software. Capitalization ceases when the software project is substantially complete and ready for its intended use.

Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease term.

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Impairment of Long-Lived Assets

Long-lived assets, including amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk.

Assets to be disposed of are reported at the lower of carrying value or fair values, less estimated costs of disposal.

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Goodwill and Other Intangible Assets

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill amounts and indefinite lived intangible assets are not amortized, but rather are tested for impairment at least annually or whenever an impairment indicator is identified. The Company performs its annual impairment test on the first day of its fourth quarter.  Intangible assets that are not considered to have an indefinite useful life are amortized over their useful life of 4 to 6 years using the straight-line method. Intangible assets other than goodwill are recorded within other long-term assets in the Company’s Consolidated Balance Sheets. The goodwill impairment test involves an initial qualitative analysis to determine if it is more likely than not that an intangible asset’s fair value is less than its carrying amount. If qualitative factors suggest a possible impairment the company then performs an additional two-step approach. Under the first step, the Company determines the fair value of each reporting unit to which goodwill has been assigned. The Company then compares the fair value of each reporting unit to its carrying value, including goodwill. The Company estimates the fair value of each reporting unit using various valuation techniques, with the primary technique being a discounted cash flow or income approach, under which the Company estimates the present value of the reporting unit’s future cash flows. Key assumptions used to determine the present value of a reporting unit’s future cash flows in fiscal year 20122013 include (a) a cash flow period; (b) a terminal value based on a growth rate; and (c) a discount rate, which is based on the Company’s weighted average cost of capital adjusted for risks associated with our operations. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is considered potentially impaired and the second step is completed in order to measure the impairment loss. Under the second step, the Company calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets, including any unrecognized intangible assets, of the reporting unit from the fair value of the reporting unit as determined in the first step. The Company then compares the implied fair value of goodwill to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company recognizes an impairment loss equal to the difference.

The indefinite lived intangible asset impairment test requires the determination of the fair value of the intangible asset. If the fair value of the intangible asset is less than its carrying value, an impairment loss is recognized for an amount equal to the difference. The intangible asset is then carried at its new fair value. Fair value is determined using estimates of discounted cash flows. These estimates of discounted cash flows will likely change over time as impairment tests are performed. Estimates of fair value are also adversely affected by increases in interest rates and the applicable discount rate.

Based on the Company’s qualitative and/or impairment testing performed, the Company did not recognize an impairment loss on goodwill or other indefinite lived intangible assets in fiscal years 2013, 2012 2011 or 2010.2011.

The methods of assessing fair value for reporting units with goodwill as well as for indefinite lived assets require significant judgments to be made by management, including future revenues, expenses, cash flows and discount rates. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

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Revenue Recognition

The Company records revenues when 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) price to the buyer is fixed and determinable, and 4) collectibility is reasonably assured. The Company’s revenue recognition policy includes evidence of arrangements for significant revenue transactions through either receipt of a customer purchase order or a web-based order. The Company records revenues when risk of loss has passed to the customer. In most cases, shipments are made using FOB shipping terms. FOB destination terms are used for a portion of sales, and revenue for these sales is recorded when the product is received by the customer. Prices are always fixed at the time of sale. Historically, there have not been any material concessions provided to or by customers, future discounts, or other incentives subsequent to a sale. The Company sells under normal commercial terms and, therefore, only records sales on transactions where collectibiltycollectibility is reasonably assured. The Company recognizes revenues net of sales tax.

Because the Company’s sales transactions meet the conditions set forth in the FASB standard on revenue recognition, it recognizes revenues from sales transactions containing sales returns provisions at the time of the sale. These conditions require that 1) the price be substantially fixed and determinable at the date of sale, 2) the buyer is obligated to pay, and is not contingent on their resale of the product, 3) the buyer’s obligation to the Company does not change in the event of theft or physical destruction or damage of the product, 4) the buyer has economic substance apart from the Company, 5) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and 6) the amount of future returns can be reasonably estimated. Because the Company’s normal terms and conditions of sale are consistent with conditions 1-5 above, and the Company is able to perform condition 6, it makes a reasonable estimate of product returns in sales transactions and accrues a sales return reserve based on this estimate.

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Certain companies have turned to TESSCO to implement supply chain solutions, including purchasing inventory, assisting in demand forecasting, configuring, packaging, kitting and delivering products and managing customer and vendor relations, from order taking through cash collections. In performing these solutions, the Company assumes varying levels of involvement in the transactions and varying levels of credit and inventory risk. As the Company’s solutions offerings continually evolve to meet the needs of its customers, the Company constantly evaluates its revenue accounting based on the guidance set forth in accounting standards generally accepted in the United States. When applying this guidance in accordance with the FASB standard regarding revenue recognition for principal-agent considerations, the Company looks at the following indicators: whether it is the primary obligor in the transaction; whether it has general inventory risk; whether it has latitude in establishing price; the extent to which it changes the product or performs part of the service; whether it has discretion in supplier selection; whether it is involved in the determination of product and service specifications; whether it has physical inventory risk; whether it has credit risk; and whether the amount it earns is fixed. Each of the Company’s customer relationships is independently evaluated based on the above guidance and revenues are recorded on the appropriate basis. Based on a review of the factors above, in the majority of the Company’s sales relationships, the Company has concluded that it is the principal in the transaction and records revenues based upon the gross amounts earned and booked. However, the Company has several relationships where it is not the principal and records revenues on a net fee basis, regardless of amounts billed (less than 3%2% of total revenues). If applying this revenue recognition guidance resulted in recording revenues on a different basis from which the Company has previously concluded, or if the factors above change significantly, revenues could increase or decrease; however, gross profit and net income would remain constant.
 
Service revenuesrevenue associated with training and other services is recognized when the training or work is complete and the four criteria discussed above have been met. Service revenues have represented less than 10%1% of total revenues for fiscal years 2013, 2012 2011 and 2010.2011.

Other than sales relating to the Company’s private brands, we offer no product warranties in excess of original equipment manufacturers’ warranties. The Company’s warranty expense is estimated and accrued at the time of sale. Warranty expense was immaterial for fiscal years 2013, 2012 2011 and 2010.2011.

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Vendor Programs

Funds received from vendors for price protection, product rebates and marketing/promotion are recorded to revenues,revenue, cost of goods sold or selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income depending on the nature of the program. The Company accrues rebates or vendor incentives as earned based on the contractual terms with the vendor.

Classification of Expenses

Cost of goods sold includes cost of products and freight from vendors to our distribution centers. Product management, distribution, purchasing, receiving/inspection, warehousing, freight from our distribution centers to our customers'customers’ sites, and corporate overhead costs are included in selling, general and administrative expenses. Certain selling, general and administrative expenses related to direct and indirect labor and certain freight-in expenses are included in inventory. As of March 31, 2013 and April 1, 2012, and March 27, 2011, the amount of selling, general and administrative expenses and freight in expenses included in inventory was $1,736,000$1,839,000 and $1,861,600, respectively.

Finance Charges

Finance charges are included in Revenues in the Consolidated Statements of Income and totaled $481,400, $735,600, and $634,500 for fiscal years ended April 1, 2012, March 27, 2011 and March 28, 2010,$1,736,000, respectively.

Shipping and Handling Costs

Shipping costs incurred to ship products from our distribution centercenters to our customers'customers’ sites are included in selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income and totaled $13,674,300, $13,325,100, $15,044,100, and $12,398,500$15,044,100 for fiscal years ended April 1, 2012, March 27, 2011 and March 28, 2010, respectively.

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Advertising Costs

The Company expenses the production costs of advertising the first time the advertising takes place, except for the cost of direct-response advertising, primarily catalog production costs, which are capitalized and amortized over their expected period of future benefits (i.e., the life of the catalog, generally one year or less). Direct catalog production costs included in prepaid and other assets totaled $122,700 at31, 2013, April 1, 2012 and had a zero balance at March 27, 2011, as the Company did not produce a catalog in fiscal year 2011. Total advertising and marketing expense was $823,400, $807,400 and $1,932,200 for fiscal years 2012, 2011 and 2010, respectively.

Stock Compensation Awards Granted to Team Members

The Company records stock compensation awards in accordance with the FASB standard regarding stock compensation and share-based payments, which requires the Company to include in its calculation of periodic stock compensation expense an estimate of future forfeitures. The standard also requires stock awards granted or modified after the adoption of the standard that include both performance conditions and graded vesting based on service to the Company to be amortized by an accelerated method rather than the straight-line method.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred income tax assets and liabilities arise from differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. Deferred tax balances are determined by using the enacted tax rate expected to be in effect when the taxes are paid or refunds received. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In accordance with the FASB standard on accounting for uncertainty in income tax, the Company recognizes a provision for tax uncertainties in its financial statements. See Note 1211 for further discussion of the standard and its impact on the Company’s consolidated financial statements.

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Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company reviews and evaluates its estimates and assumptions, including but not limited to, those that relate to tax reserves, stock-based compensation, health insurance accruals, accounts receivable reserves, inventory reserves and future cash flows associated with impairment testing for goodwill and other long-lived assets. Actual results could significantly differ from those estimates.

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Impact of Recently Issued Accounting Standards

In May 2011, the FASB issued accounting guidance, which among other requirements, prohibits the use of the block discount factor for all fair value level hierarchies; permits an entity to measure the fair value of its financial instruments on a net basis when the related market risks are managed on a net basis; states the highest and best use concept is no longer relevant in the measurement of financial assets and liabilities; clarifies that a reporting entity should disclose quantitative information about the unobservable inputs used in Level 3 measurements and that the application of premiums and discounts is related to the unit of account for the asset or liability being measured at fair value; and requires expanded disclosures to describe the valuation process used for Level 3 measurements and the sensitivity of Level 3 measurements to changes in unobservable inputs. In addition, entities are required to disclose the hierarchy level for items which are not measured at fair value in the statement of financial position, but for which fair value is required to be disclosed. This guidance is effective for interim and annual periods beginning after December 15, 2011. The Company adopted this guidance December 26, 2011. The adoption of this guidance did not have an impact on the Company’s results of operations or financial condition.

In September 2011, the FASB issued an accounting standard which simplifies how entities test goodwill for impairment. Similar guidance was issued in relation to other indefinite lived intangible assets in July 2012. The accounting standard permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. The accounting standard was effective for the Company beginning April 2, 2012 for goodwill and September 15, 2012 for other indefinite lived intangible assets. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued accounting guidance related to the presentation of comprehensive income which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of equity. This guidance was amended in December 2011 to defer the requirements that companies present reclassification adjustments out of accumulated other comprehensive income on the face of the financial statements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011, with early adoption permitted.2011. In February 2013, the FASB finalized the requirement that the Company must disclose information about the amounts reclassified out of accumulated and other comprehensive income by component. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2012. While the adoption of this guidance is expected to impactimpacted the Company’s disclosures, for annual and interim filings for fiscal 2013, it willdid not have an impact on the Company’s results of operations or financial condition.

In September 2011,October 2012, the FASB issued an accounting standarda Technical Corrections and Improvements update which simplifies how entities test goodwill for impairment. The accounting standard permits an entityrelates to first assess qualitative factors to determine whether it is more likely than notvarious topics throughout the FASB Codification and provides technical corrections, clarification, and limited-scope improvements. This guidance was effective upon issuance of the update, with the exception of sections that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described above. The accounting standard isinclude transition guidance, which become effective for the Companyfiscal periods beginning April 2,after December 15, 2012. The Company does not expect the adoption of this guidance willdid not have a material impact on itsthe Company’s consolidated financial position, results of operations or cash flows.




On April 21, 2006, the Company acquired substantially all the non-cash net assets of TerraWave Solutions, Ltd. (TerraWave) and its commonly owned affiliate, GigaWave Technologies, Ltd. (GigaWave) for an initial cash payment of approximately $3.9 million, and potential additional cash earn-out payment obligations accruing over a four-year period, contingent on the achievement by the TerraWave/GigaWave business unit post-acquisition of certain minimum earnings thresholds. Contingent payments made under the terms of the acquisition agreement are treated as an additional cost of the acquired businesses and additional goodwill is recorded. TerraWave and GigaWave provide products and training related to Wireless Local Area Network (WLAN) applications. This acquisition was a part of our growth strategy to increase our product and service offering.

In fiscal year 2013 and 2012, the Company did not record any additional amounts of goodwill. In fiscal year 2011, the Company increased the amount of goodwill by $2,667,000, corresponding to the fourth and final earn-out for the period of May 2009 through April 2010, based on achievement of certain earnings thresholds in accordance with the terms of the acquisition agreement. In accordance with the acquisition agreement, this payment was net of $375,000, representing one quarter of the $1.5 million non-refundable prepayment made against future earn-out payments. As of April 1, 2012,March 31, 2013, $9,232,400 has been recorded as goodwill relating to this acquisition.

Note 5.4. Property and Equipment

All of the Company’s property and equipment is located in the United States. Property and equipment, excluding land, is depreciated using the straight-line method, and is summarized as follows:

 2012  2011  2013  2012 
            
Land
 $4,740,800  $4,740,800  $4,740,800  $4,740,800 
Building, building improvements and leasehold improvements  19,342,700   16,483,500   21,147,600   19,342,700 
Information technology equipment and computer software  21,288,700   19,446,900   21,226,200   21,288,700 
Furniture, telephone system, equipment and tooling
  7,971,700   6,559,100   7,716,200   7,971,700 
  53,343,900   47,230,300   54,830,800   53,343,900 
Less accumulated depreciation and amortization
  (30,438,200)  (26,082,200)  (31,628,800)  (30,438,200)
Property and equipment, net
 $22,905,700  $21,148,100  $23,202,000  $22,905,700 

Depreciation and amortization of property and equipment was $4,926,400, $4,747,600 $4,337,700 and $3,896,500$4,337,700 for fiscal years 2013, 2012 2011 and 2010,2011, respectively.

Capitalized internally developed computer software, net of accumulated amortization, as of March 31, 2013 and April 1, 2012 was $1,156,800 and March 27, 2011 was $2,029,300, and $2,912,400, respectively. Amortization expense of capitalized computer software was $1,322,400, $1,667,800 $1,460,300 and $1,041,900$1,460,300 for fiscal years 2013, 2012 2011 and 2010,2011, respectively.

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Note 6. 5. Goodwill and Other Intangible Assets

Other intangible assets, which are included in other long-term assets on the accompanying Consolidated Balance Sheets as of March 31, 2013 and April 1, 2012 and March 27, 2011 are summarized as follows:

 2012  2011  2013  2012 
 Gross Carrying Amount  Accumulated Amortization  Gross Carrying Amount  Accumulated Amortization  Gross Carrying Amount  Accumulated Amortization  Gross Carrying Amount  Accumulated Amortization 
Amortized intangible assets:                        
Customer contracts
 $696,100  $653,200  $696,100  $618,800  $696,100  $687,500  $696,100  $653,200 
Covenants not to compete
  377,600   355,300   377,600   292,400   377,600   373,900   377,600   355,300 
Other
  878,500   878,500   878,500   878,500   878,500   878,500   878,500   878,500 
  1,952,200   1,887,000   1,952,200   1,789,700   1,952,200   1,939,900   1,952,200   1,887,000 
Unamortized intangible assets:                                
Trademarks
  850,000   --   850,000   --   850,000   --   850,000   -- 
                                
Total other intangible assets
 $2,802,200  $1,887,000  $2,802,200  $1,789,700  $2,802,200  $1,939,900  $2,802,200  $1,887,000 

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Amortization expense relating to other intangible assets was $53,000 for fiscal year 2013, $97,300 for fiscal year 2012 and $107,500 for fiscal year 2011 and $219,800 for fiscal year 2010.2011. At April 1, 2012,March 31, 2013, amortizable intangible assets have an average remaining life of 1.20.2 years. Estimated amortization expense for current intangible assets for the next five years is as follows:

Fiscal year:      
2013 $53,000 
2014  12,200  $12,300 
 $65,200 

All of the Company’s goodwill is recorded in its Commercial segment. TheThere were no changes in the carrying amount of goodwill for the fiscal years ended March 31, 2013 and April 1, 2012 and March 27, 2011 are as follows:2012.
 
  Net Carrying Amount 
Balance at March 28, 2010 $9,017,700 
Current year acquisitions  -- 
Earn-outs on acquisitions  2,667,000 
Balance at March 27, 2011  11,684,700 
Current year acquisitions  -- 
Earn-outs on acquisitions  -- 
Balance at April 1, 2012 $11,684,700 

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Note 7. 6. Borrowings Under Revolving Credit Facility

On May 31, 2007, pursuant to a Credit Agreement, the Company established a revolving credit facility with both Wells Fargo Bank, National Association (formerly Wachovia Bank, National Association) and SunTrust Bank. The facility is unsecured and provides for monthly payments of interest accruing at a rate of LIBOR plus an applicable margin. The terms of the revolving credit facility require the Company to meet certain financial covenants and ratios and contain other limitations, including certain restrictions on dividend payments. Borrowing availability under the facility is also subject to a borrowing base, based on levels of trade accounts receivable and inventory. Initially, the maximum borrowing amount under the facility was $50.0 million and it had a term expiring in May 2010.  This credit facility has been amended several times, most recently on December 30, 201121, 2012 (the SixthEighth Modification Amendment).  Currently the credit facility has a maximum borrowing limit of $35.0 million and has a term expiring in May 2013.2014.  The amount of dividend payments allowed to be made by the Company under the Credit Facility is $6.25 million in any 12 month period, andnot including the onetime special dividend of $0.75 per share of common stock on December 27, 2012, to shareholders of record on December 13, 2012.  The dollar amount of stock repurchases permitted under the term of the credit facility is $30.0 million. Numerous financial covenants have been amended from the original credit facility.  The financial covenants included in the Credit Agreement for the unsecured revolving credit facility are also applicable to the Company's existing Term Loan with the same lenders. Accordingly, the each amendment also has the effect of amending the financial covenants applicable to the Term Loan.

The facility provides for monthly payments of interest accruing at a rate of LIBOR plus an applicable margin ranging from 1.75% to 2.75%. The weighted average interest rate on borrowings under the Company’s revolving credit facilities was 2.48%2.68%, 2.57%2.48% and 2.46%2.57% for fiscal years 2013, 2012 2011 and 2010,2011, respectively. Interest expense on this revolving credit facility for fiscal years 2013, 2012 and 2011 totaled $77,400, $112,600 and 2010 totaled $112,600, $136,300, and $22,200, respectively. Average borrowings under this revolving credit facility totaled $2,858,500, $4,411,592 $5,312,700 and $899,200$5,312,700 and maximum borrowings totaled $18,989,600, $20,118,300 $18,954,800 and $9,695,600,$18,954,800, for fiscal years 2013, 2012 2011 and 2010,2011, respectively.

AtAs of March 31, 2013 and April 1, 2012, and March 27, 2011, the Company had a zero balance on its revolving credit facility.

The Company was in compliance with the terms and financial covenants applicable to each of the revolving credit facility and term loan facility at the end of fiscal years 2013, 2012 2011 and 2010.2011.

 
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Note 8.7. Long-Term Debt

On June 30, 2004, the Company refinanced its previously existing term loan with a bank. The original principal amount of the loan was $4.5 million, payable in monthly installments of principal and interest with the balance due at the initial maturity date, June 30, 2011. On May 20, 2011, the Company entered into an agreement with Wells Fargo Bank, National Association, and SunTrust Bank, effective July 1, 2011, to extend the maturity date to July 1, 2016. The other key provisions of the loan remain the same, except that the interest rate adjusted to LIBOR plus 2.00%, from LIBOR plus 1.75%. The note is secured by a first position deed of trust encumbering Company-owned real property in Hunt Valley, Maryland. The loan is generally subject to the same financial covenants as the Company’s revolving credit facility (see Note 7)6), which requires the Company to meet certain financial covenants and ratios and contains other limitations, including certain restrictions on dividend payments. The balance of this note at March 31, 2013 and April 1, 2012 was $2,550,000 and March 27, 2011 was $2,775,000, and $3,000,000, respectively. The weighted average interest rate on borrowings under this note was 2.48%2.21%, 2.53%2.48% and 2.06%2.53% for fiscal years 2013, 2012 2011 and 2010,2011, respectively. Interest expense under this note was $55,600, $63,500 $64,200 and $60,000$64,200 for fiscal years 2013, 2012 and 2011, and 2010, respectively.

On October 1, 2005, the Company entered into a receive variable/pay fixed interest rate swap on a total original notional amount of $4.2 million with Wells Fargo Bank, National Association (formerly Wachovia Bank, National Association) to avoid the risks associated with fluctuating interest rates on the term loan, which until July 1, 2011 bore interest at a floating rate of LIBOR plus 1.75%, and to eliminate the variability in the cash outflow for interest payments. The interest rate swap agreement locked the interest rate for the outstanding principal balance of the loan at 6.38% through June 30, 2011, and upon expiration on that date, was not extended as part of the May 20, 2011 extension of the term loan. There was no payment due or received at inception of the swap. No hedge ineffectiveness was recognized because the interest rate swap provisions matched the applicable provisions of the term bank loan. This cash flow hedge qualified for hedge accounting using the short-cut method since the swap terms matched the critical terms of the hedged debt. The fair value of this interest rate swap, net of tax, at March 27, 2011 was an unrealized loss of $24,600, and is included in current liabilities and accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets.

On March 31, 2009, the Company entered into a term loan with the Baltimore County Economic Development Revolving Loan Fund for an aggregate principal amount of $250,000. At March 13, 2013 and April 1, 2012, and March 27, 2011, the principal balance of this term loan was $182,200$158,000 and $207,800,$182,200, respectively. 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. Interest expense under this note was $3,400, $3,900 and $4,000 for fiscal years 2013, 2012 and 2011 respectively. The term loan is secured by a subordinate position on Company-owned real property located in Hunt Valley, Maryland.

At March 27, 2011, the Company had a note payable outstanding to the Maryland Economic Development Corporation of $110,400. The note was payable in equal quarterly installments of principal and interest of $37,400, with the balance due at maturity, October 10, 2011. The note was paid in full during fiscal year 2012. The note bore interest at 3.00% per annum. Interest expense under this note was $1,700 $6,000 and $10,200$6,000 for fiscal years 2012 2011 and 2010,2011, respectively.

As of April 1, 2012,March 31, 2013, scheduled annual maturities of long-term debt are as follows:

Fiscal year:      
2013 $249,200 
2014  249,700  $249,700 
2015  250,200   250,200 
2016  250,600   250,600 
2017  1,901,200   1,901,200 
2018  26,700 
Thereafter  56,300   29,600 
 $2,957,200  $2,708,000 

 
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Note 9.8. Commitments and Contingencies

The Company is committed to making rental payments under non-cancelable operating leases covering various facilities and equipment. Rent expense for fiscal years 2013, 2012 and 2011 totaled $2,907,900, $2,661,400 and 2010 totaled $2,661,400, $2,789,100, and $2,762,800, respectively.

The Company entered into an Agreement of Lease, dated November 3, 2003, under which the Company leases office space where the Company’s sales, marketing and administrative offices are located. The Agreement of Lease provided for a term beginning June 1, 2004 and expiring May 31, 2007. On January 23, 2007, the Company entered into a First Amendment to Agreement of Lease, which among other things, provided for a six month extension, until November 30, 2007, of the lease term provided for under the Agreement of Lease. The Company entered into a Second Amendment of Agreement of Lease, dated May 1, 2007, which among other things, provided for an extension, from November 30, 2007 to December 31, 2012, of the lease term provided for under the Agreement of Lease. On February 15, 2011, the Company entered into a Third Amendment to Agreement of Lease, which among other things, provided for a five year extension, until December 31, 2017, of the lease term provided for under the Agreement of Lease. Under the terms of the Third Amendment, the Company also increased its leased space by approximately 3,800 square feet. On June 4, 2012, the Company entered into a Fourth Amendment to Agreement of Lease and further increased its lease space by approximately 4,800 square feet for a total of approximately 97,000102,200 square feet of rentable area. The new base rental rate ranges from $141,900$153,300 to $169,400$177,700 per month at the close of the extended term.

On June 1, 2007, the Company entered into a Lease under which the Company leases approximately 66,000 square feet of office and warehouse space in Hunt Valley, Maryland, adjacent to the Company’s Global Logistics Center, for a term beginning July 1, 2007 and expiring July 31, 2011. On February 28, 2011, the Company entered into an extension of a Lease, which among other things, provided for a three year extension, from August 1, 2011 to July 31, 2014 of the lease term provided for under the Lease. Under the terms of the extension of the Lease, the Company has the ongoing annual option to terminate the Lease. The monthly rental fee ranges from $27,500 to $33,000 throughout the lease term.Additional sales and marketing offices are located in leased office space in San Antonio, Texas.  On September 27, 2012, the Company entered into a Lease under which the Company leases approximately 13,100 square feet of office space in San Antonio, Texas which provided for a lease term from January 1, 2013 to October 31, 2018.  Monthly rent payments range from $14,700 to $16,900.

The Company’s minimum future obligations as of April 1, 2012March 31, 2013 under existing operating leases are as follows:

Fiscal year:      
2013
 $2,348,900 
2014
  2,002,400  $2,811,900 
2015
  1,857,800   2,338,200 
2016
  1,902,100   2,191,100 
2017
  1,959,200   2,255,700 
2018
  1,787,100 
Thereafter
  1,509,800   118,500 
 $11,580,200  $11,502,500 

Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. The Company does not believe that any lawsuits or claims pending against the Company, individually or in the aggregate, are material, or will have a material adverse affect on the Company’s financial condition or results of operations. In addition, from time to time, the Company is 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. No federal, state and local income tax returns are currently under examination.examination, except for a Texas income tax audit for the 2008 and 2009 tax years.

 
-47--55-

 
Note 10. 9. Business Segments

Beginning in the second quarter of fiscal year 2012, the Company modified the structure of its internal organization.  As a result of this modification, the Company concluded that changes to its reportable segments were warranted.  The Company now evaluates its business in two segments – commercial and retail.  The commercial segment includes: (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) private system operators and governments including commercial entities such as major utilities and transportation companies, federal agencies and state and local governments that run wireless networks for their own use; and (3) 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.  The retail segment includes: (1) retailers, dealer agents and Tier 2 and 3 carriers; and (2) our Major 3PL relationship. The market within the Retail Segment formerly known as “Retailer, dealer agent and Tier 2/3 carrier” market, is changed to “Retailer, dealer agent and carrier” market.  The market within the Retail Segment formerly known as “Tier 1 Carriers” market is changed to “Major 3PL relationship". These changes result in the reclassification of certain revenue and gross profit amounts from the former "Tier 1 Carriers" market to the new "Retailer, dealer agent and carrier" market, and allow for isolation of the reporting for the Company's transitioning Tier 1 carriers (includingcarrier business relationship under the new "Major 3PL relationship" heading.  All prior periods have been restated to reflect this change.  The Company’s largest customer, AT&T Mobility, Inc.).segments, known as "Commercial" and "Retail", and the total revenue and gross profit within those segments, remain unchanged.

The Company evaluates revenue, gross profit and net profit contribution for each of its segments.  Net profit contribution is defined as gross profit less any expenses that can be directly attributed or allocated to each segment.  This includes sales, product management, purchasing, credit and collections and distribution team expenses, plus freight out and internal and external marketing costs.  Corporate support expenses, which are not allocated to each segment, includes administrative costs – finance, human resources, information technology, operating facility occupancy expenses, depreciation, amortization and interest, plus the company-wide pay on performance bonus expense.

The Company does not segregate assets by segments, for internal reporting, for evaluating performance or for allocating capital. The Company has, however, allocated all goodwill and indefinite lived intangible assets to the applicable segments (and reporting units within segments, where applicable) for purposes of its annual impairment tests. The Company’s goodwill at December 25, 2011 relates to acquisitions within its commercial segment.  Certain cost of sales and other applicable expenses have been allocated to each segment based on a percentage of revenues and/or gross profit, where appropriate.

The segment information for the periods ended March 27, 2011 and March 28, 2010 below have been restated to reflect the current year segment presentation.
 
-48--56-

Segment activity for the fiscal years ended 2013, 2012 2011 and 20102011 is as follows (in thousands):
  Year ended April 1, 2012 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public carrier, contractor & program manager market $73,824  $--  $73,824 
Private system operator & government market
  129,129   --   129,129 
Commercial dealer & reseller market
  125,431   --   125,431 
Retailer, dealer agent & Tier 2/3 carrier market
  --   117,913   117,913 
Revenues, excluding Tier 1 carrier market
  328,384   117,913   446,297 
Tier 1 carrier market
  --   287,093   287,093 
Total revenues
  328,384   405,006   733,390 
             
Gross Profit            
Public carrier, contractor & program manager market  17,101   --   17,101 
Private system operator & government market
  35,860   --   35,860 
Commercial dealer & reseller market
  35,393   --   35,393 
Retailer, dealer agent & Tier 2/3 carrier market
  --   26,306   26,306 
Gross profit, excluding Tier 1 carrier market
  88,354   26,306   114,660 
Tier 1 carrier market
  --   33,996   33,996 
Total gross profit
  88,354   60,302   148,656 
             
Directly allocatable expenses
  41,490   29,963   71,453 
Segment net profit contribution
 $46,864  $30,339   77,203 
Corporate support expenses
          50,492 
Income before provision for income taxes
         $26,711 

  Year ended March 27, 2011 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public carrier, contractor & program manager market $87,010  $--  $87,010 
Private system operator & government market
  108,520   --   108,520 
Commercial dealer & reseller market
  117,213   --   117,213 
Retailer, dealer agent & Tier 2/3 carrier market
  --   110,112   110,112 
Revenues, excluding Tier 1 carrier market
  312,743   110,112   422,855 
Tier 1 carrier market
  --   182,364   182,364 
Total revenues
  312,743   292,476   605,219 
             
Gross Profit            
Public carrier, contractor & program manager market  20,139   --   20,139 
Private system operator & government market
  28,978   --   28,978 
Commercial dealer & reseller market
  31,717   --   31,717 
Retailer, dealer agent & Tier 2/3 carrier market
  --   22,946   22,946 
Gross profit, excluding Tier 1 carrier market
  80,834   22,946   103,780 
Tier 1 carrier market
  --   29,501   29,501 
Total gross profit
  80,834   52,447   133,281 
             
Directly allocatable expenses
  47,096   31,480   78,576 
Segment net profit contribution
 $33,738  $20,967   54,705 
Corporate support expenses
          39,150 
Income before provision for income taxes
         $15,555 
  Year ended March 31, 2013 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public Carriers, Contractors & Program Managers
 $111,146  $--  $111,146 
Private & Government System Operators
  121,313   --   121,313 
Commercial Dealers & Resellers
  138,737   --   138,737 
Retailer, Independent Dealer Agents & Carriers
  --   167,895   167,895 
Revenue, excluding Major 3PL relationship
  371,196   167,895   539,091 
Major 3PL relationship
  --   213,474   213,474 
Total revenues
  371,196   381,369   752,565 
             
Gross Profit            
Public Carriers, Contractors & Program Managers
  24,183   --   24,183 
Private & Government System Operators
  33,596   --   33,596 
Commercial Dealers & Resellers
  38,345   --   38,345 
Retailer, Independent Dealer Agents & Carriers
  --   35,903   35,903 
Gross profit, excluding Major 3PL relationship
  96,124   35,903   132,027 
Major 3PL relationship
  --   15,012   15,012 
Total gross profit
  96,124   50,915   147,039 
             
Directly allocatable expenses
  42,821   27,701   70,522 
Segment net profit contribution
 $53,303  $23,214   76,517 
Corporate support expenses
          47,523 
Income before provision for income taxes
         $28,994 

 
-49--57-


  Year ended March 28, 2010 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public carrier, contractor & program manager market $63,808  $--  $63,808 
Private system operator & government market
  108,429   --   108,429 
Commercial dealer & reseller market
  94,541   --   94,541 
Retailer, dealer agent & Tier 2/3 carrier market
  --   78,727   78,727 
Revenues, excluding Tier 1 carrier market
  266,778   78,727   345,505 
Tier 1 carrier market
  --   176,527   176,527 
Total revenues
  266,778   255,254   522,032 
             
Gross Profit            
Public carrier, contractor & program manager market  15,228   --   15,228 
Private system operator & government market
  28,029   --   28,029 
Commercial dealer & reseller market
  25,922   --   25,922 
Retailer, dealer agent & Tier 2/3 carrier market
  --   19,631   19,631 
Gross profit, excluding Tier 1 carrier market
  69,179   19,631   88,810 
Tier 1 carrier market
  --   34,515   34,515 
Total gross profit
  69,179   54,146   123,325 
             
Directly allocatable expenses
  38,563   27,855   66,418 
Segment net profit contribution
 $30,616  $26,291   56,907 
Corporate support expenses
          42,169 
Income before provision for income taxes
         $14,738 
  Year ended April 1, 2012 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public Carriers, Contractors & Program Managers
 $73,824  $--  $73,824 
Private & Government System Operators
  129,129   --   129,129 
Commercial Dealers & Resellers
  125,431   --   125,431 
Retailer, Independent Dealer Agents & Carriers
  --   153,803   153,803 
Revenue, excluding Major 3PL relationship
  328,384   153,803   482,187 
Major 3PL relationship
  --   251,203   251,203 
Total revenues
  328,384   405,006   733,390 
             
Gross Profit            
Public Carriers, Contractors & Program Managers
  17,101   --   17,101 
Private & Government System Operators
  35,860   --   35,860 
Commercial Dealers & Resellers
  35,393   --   35,393 
Retailer, Independent Dealer Agents & Carriers
  --   33,421   33,421 
Gross profit, excluding Major 3PL relationship
  88,354   33,421   121,775 
Major 3PL relationship
  --   26,881   26,881 
Total gross profit
  88,354   60,302   148,656 
             
Directly allocatable expenses
  41,490   29,963   71,453 
Segment net profit contribution
 $46,864  $30,339   77,203 
Corporate support expenses
          50,492 
Income before provision for income taxes
         $26,711 
 
-58-

  Year ended March 27, 2011 
  Commercial Segment  
Retail
Segment
  Total 
Revenues         
Public Carriers, Contractors & Program Managers
 $87,010  $--  $87,010 
Private & Government System Operators
  108,520   --   108,520 
Commercial Dealers & Resellers
  117,213   --   117,213 
Retailer, Independent Dealer Agents & Carriers
  --   137,676   137,676 
Revenue, excluding Major 3PL relationship
  312,743   137,676   450,419 
Major 3PL relationship
  --   154,800   154,800 
Total revenues
  312,743   292,476   605,219 
             
Gross Profit            
Public Carriers, Contractors & Program Managers
  20,139   --   20,139 
Private & Government System Operators
  28,978   --   28,978 
Commercial Dealers & Resellers
  31,717   --   31,717 
Retailer, Independent Dealer Agents & Carriers
  --   29,947   29,947 
Gross profit, excluding Major 3PL relationship
  80,834   29,947   110,781 
Major 3PL relationship
  --   22,500   22,500 
Total gross profit
  80,834   52,447   133,281 
             
Directly allocatable expenses
  47,096   31,480   78,576 
Segment net profit contribution
 $33,738  $20,967   54,705 
Corporate support expenses
          39,150 
Income before provision for income taxes
         $15,555 

The Company also reviews revenue and gross profit by its four product categories:

·  Base station infrastructure products are used to build, repair and upgrade wireless telecommunications. 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, 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, and maintain 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 devices and accessory products 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.

-59-

Base station infrastructure, network systems and installation, test and maintenance products are primarily sold into the commercial segment, while mobile device and accessories products are primarily sold into the retail segment.

-50-

Supplemental revenue and gross profit information by product category for the fiscal years 2013, 2012 2011 and 20102011 are as follows (in thousands):

 April 1, 2012  March 27, 2011  March 28, 2010  March 31, 2013  April 1, 2012  March 27, 2011 
Revenues                  
Base station infrastructure
 $196,611  $192,587  $171,434  $227,510  $196,611  $192,587 
Network systems
  75,150   65,180   33,410   78,989   75,150   65,180 
Installation, test and maintenance
  44,507   46,242   53,594   47,766   44,507   46,242 
Mobile device accessories
  417,122   301,210   263,594   398,300   417,122   301,210 
Total revenues
  733,390   605,219   522,032   752,565   733,390   605,219 
                        
Gross Profit                        
Base station infrastructure
  61,767   54,513   47,677   65,472   61,767   54,513 
Network systems
  15,817   12,108   4,982   14,887   15,817   12,108 
Installation, test and maintenance
  10,365   10,744   13,406   11,151   10,365   10,744 
Mobile device accessories
  60,707   55,916   57,260   55,529   60,707   55,916 
Total gross profit
 $148,656  $133,281  $123,325  $147,039  $148,656  $133,281 
                        

 
-51--60-

 
Note 11.10. Stock Buyback

On April 28, 2003, the Company’s Board of Directors approved a stock buyback program. As of April 1, 2012,March 31, 2013, the Board of Directors has authorized the purchase of up to 3,593,350 shares of outstanding common stock under the buyback program. Shares may be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. No time limit has been set for completion or expiration of the program. As of April 1, 2012,March 31, 2013, the Company had purchased 3,505,187 shares for approximately $30.7 million, or an average of $8.76 per share. Of the total shares repurchased, none were purchased in fiscal yearyears 2013 or 2012, and 2,300 shares were repurchased in fiscal year 2011 at an average price of $13.96 per share, and 36,195 shares were repurchased in fiscal year 2010 at an average price of $9.91 per share. As of April 1, 2012,March 31, 2013, 88,163 shares remained available for repurchase under this program.

In addition to the shares repurchased in the stock buyback program discussed immediately above, the Company repurchased all 705,000 shares of its common stock then held by Brightpoint, Inc. in a privately negotiated transaction on July 1, 2008 for approximately $6.4 million, or $9.09 per share.

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 fiscal years 2013, 2012, 2011, and 20102011 the total value of shares withheld for taxes was $2,161,900, $1,888,000, $1,569,000, and $126,500,$1,569,000, respectively.

-52-

Note 12.11. Income Taxes

A reconciliation of the difference between the provision for income taxes computed at statutory rates and the provision for income taxes provided in the Consolidated Statementsconsolidated statements of Incomecomprehensive income is as follows:

 2012  2011  2010  2013  2012  2011 
                  
Statutory federal rate  35.0%  34.4%  34.2%  35.0%  35.0%  34.4%
State taxes, net of federal benefit  2.6   2.1   1.4   2.9   2.6   2.1 
Non-deductible expenses  0.5   1.0   1.1   0.5   0.5   1.0 
Other  0.4   (1.9)  1.3   0.2   0.4   (1.9)
Effective rate   38.5%  35.6   38.0  38.6%  38.5%  35.6%
                        

-61-

The provision for income taxes was comprised of the following:

  2012  2011  2010   2013  2012  2011 
                    
Federal: Current $8,598,000  $5,493,000  $4,216,700 
Current
 $10,593,200  $8,598,000  $5,493,000 
 Deferred  612,500   (581,400)  914,000 
Deferred
  (929,600)  612,500   (581,400)
State: Current   1,007,700   676,100   395,900 
Current
  1,640,400   1,007,700   676,100 
 Deferred  55,800   (51,000)  72,500 
Deferred
  (103,500)  55,800   (51,000)
Provision for income taxes
Provision for income taxes
 $10,274,000  $5,536,700  $5,599,100 
Provision for income taxes
 $11,200,500  $10,274,000  $5,536,700 
                          
 
Total deferred tax assets and deferred tax liabilities as of March 31, 2013 and April 1, 2012, and March 27, 2011, and the sources of the differences between financial accounting and tax basis of the Company's assets and liabilities which give rise to the deferred tax assets and liabilities are as follows:

 2012  2011  2013  2012 
Deferred tax assets:            
Deferred compensation  $1,571,700  $1,205,800  $1,448,900  $1,571,700 
Accrued vacation   416,600   488,500   435,400   416,600 
Deferred rent  941,700   67,500   1,070,000   941,700 
Allowance for doubtful accounts  312,800   512,200   448,800   312,800 
Inventory reserves  1,126,200   1,556,200   1,254,000   1,126,200 
Sales tax reserves  646,400   602,700   618,300   646,400 
Other assets  546,100   571,500   951,900   546,100 
Total deferred tax assets  $5,561,500   5,004,400  $6,227,300  $5,561,500 
                
Deferred tax liabilities:                
Depreciation and amortization  $3,773,000  $2,220,500  $3,373,100  $3,773,000 
Accrued compensation   320,400   643,700   --   320,400 
Prepaid expenses   422,500   341,400   429,100   422,500 
Other liabilities   154,000   202,200   149,600   154,000 
Total deferred tax liabilities $4,669,900  $3,407,800  $3,951,800  $4,669,900 

 
-53--62-

 
The Company has reviewed its deferred tax assets realization and has determined that no valuation allowance is required as of March 31, 2013 or April 1, 2012 or March 27, 2011.2012.
 
As of April 1, 2012,March 31, 2013, the gross amount of unrecognized tax benefits was $895,300$631,100 ($607,200416,500 net of indirect tax benefits and including $236,600 associated with interest and penalties)federal benefit). As of March 27, 2011,April 1, 2012, the Company had gross unrecognized tax benefits of $723,300$561,600 ($502,600370,600 net of indirect tax benefits including $269,600 associated with interest and penalties)federal benefit).  As of April 1, 2012, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $607,000. The Company does not expect any material changes in unrecognized tax benefits over the next 12 months.

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of comprehensive income for fiscal year 20122013 was $33,500$71,280 (net of federal benefit) and the totalcumulative amount included in the unrecognized tax benefits liabilityconsolidated balance sheet as of March 31, 2013 was $236,600.$309,000 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of comprehensive income for fiscal year 20112012 was $59,000$33,500 (net of federal benefit) and the totalcumulative amount included in the unrecognized tax benefits liabilityconsolidated balance sheet as of April 1, 2012 was $203,100.$236,600 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of comprehensive income for fiscal year 20102011 was $81,100$59,000 (net of federal benefit) and the total amount included in the consolidated balance sheet as of March 27, 2011 was $203,100 (net of federal benefit).

As of March 31, 2013, the total amount of unrecognized tax benefits liability was $220,100.that, if recognized, would affect the effective tax rate is $725,500. The company does not expect any material changes in unrecognized tax benefits over the next 12 months.
 
A reconciliation of the changes in the gross balance of unrecognized tax benefitsbenefit amounts, net of interest, is as follows:

 2012  2011  2010  2013  2012  2011 
Beginning balance of unrecognized tax benefit $723,300  $1,001,600  $792,000  $561,600  $453,800  $696,000 
Increases related to prior period tax positions  172,000   176,700   65,800   --   --   92,200 
Increases related to current period tax positions  --   --   219,600   69,500   107,800   -- 
Reductions as a result of a lapse in the applicable statute of limitations  --   (455,000)  --   --   --   (334,400)
Reductions as a result of settlements  --   --   (75,800)
            
Ending balance of unrecognized tax benefits $895,300  $723,300  $1,001,600  $631,100  $561,600  $453,800 

The Company files income tax returns in U.S. federal, state and local jurisdictions. Income tax returns filed for fiscal years 2008 and earlier are no longer subject to examination by U.S. federal, state and local tax authorities. No federal, state and local income tax returns are currently under examination.examination, except for a Texas income tax audit for the 2008 and 2009 tax years. Certain income tax returns for fiscal years 2009 through 2011 remain open to examination by U.S. federal, state and local tax authorities.

-63-

Note 13.12. Retirement Plans

The Company has a 401(k) plan that covers all eligible employees. Contributions to the plan can be made by employees and the Company may make matching contributions at its discretion. Expense related to this matching contribution was $610,700, $505,900 $610,000 and $333,700$610,000 during fiscal years 2013, 2012 2011 and 2010,2011, respectively. As of April 1, 2012March 31, 2013 plan assets included 135,461137,555 shares of common stock of the Company.

The Company maintains a Supplemental Executive Retirement Plan for Robert B. Barnhill, Jr., Chairman, President and CEO of the Company. This plan is funded through a life insurance policypolicies for which the Company is the sole beneficiary. The cash surrender value of the life insurance policypolicies and the net present value of the benefit obligation of approximately $1,282,200 and $983,300, respectively, as of March 31, 2013 and $1,021,600 and $912,000, respectively, as of April 1, 2012 and $956,300 and $765,200, respectively, as of March 27, 20112013 are included in other long-term assets and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets.

-54-

Note 14.13. Earnings Per Share

The Company calculates earnings per share considering the FASB standard 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 are 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.

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

 Amounts in thousands, except per share amounts  Amounts in thousands, except per share amounts 
 2012  2011  2010  2013  2012  2011 
Earnings per share – Basic:                  
Net earnings  $16,437  $10,018  $9,139  $17,794  $16,437  $10,018 
Less: Distributed and undistributed earnings allocated to nonvested stock   (239)  (180)  (196)  (200)  (239)  (180)
Earnings available to common shareholders – Basic $16,198  $9,838  $8,943  $17,594  $16,198  $9,838 
                        
Weighted average common shares outstanding – Basic  7,639   7,394   7,199   7,929   7,639   7,394 
                        
Earnings per common share – Basic $2.12  $1.33  $1.24  $2.22  $2.12  $1.33 
                        
Earnings per share – Diluted:                        
Net earnings $16,437  $10,018  $9,139  $17,794  $16,437  $10,018 
Less: Distributed and undistributed earnings allocated to nonvested stock  (231)  (174)  (189)  (197)  (231)  (174)
Earnings available to common shareholders – Diluted $16,206  $9,844  $8,950  $17,597  $16,206  $9,844 
                        
Weighted average common shares outstanding – Basic  7,639   7,394   7,199   7,929   7,639   7,394 
Effect of dilutive options  356   362   341   271   356   362 
Weighted average common shares outstanding – Diluted  7,995   7,756   7,540   8,200   7,995   7,756 
                        
Earnings per common share – Diluted $2.03  $1.27  $1.19  $2.15  $2.03  $1.27 

As of March 31, 2013 and April 1, 2012, there were no stock options with respect to shares of common stock outstanding and there, were no anti-dilutive stock options, Performance Stock Units or Restricted Stock then outstanding.
As of March 27, 2011, stock options with respect to 135,000 shares of common stock were outstanding. There were no anti-dilutive stock options, Performance Stock Units or Restricted Stock then outstanding. As of March 28, 2010, stock options with respect to 180,000 shares of common stock were outstanding. There were no anti-dilutive stock options, Performance Stock Units or Restricted Stock then outstanding. The remaining stock options, Performance Stock Units and Restricted Stock then outstanding were dilutive and therefore included in the computation of dilutive earnings per share.

 
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Note 15.14. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal years ended March 31, 2013, April 1, 2012 and March 27, 2011 includes $2,536,800, $2,928,200 and March 28, 2010 includes $2,928,200, $2,274,000, and $2,162,600, respectively, of stock compensation expense. Provision for income taxes for the fiscal years ended March 31, 2013, April 1, 2012 and March 27, 2011 includes $979,800, $1,127,400 and March 28, 2010 includes $1,127,400, $809,500, and $821,800, respectively, of income tax benefits related to our stock-based compensation arrangements. Stock compensation expense is primarily related to our Performance Stock Unit Program as described below.

The Company’s stock incentive plan is the Second Amended and Restated 1994 Stock and Incentive Plan (the 1994 Plan). On July 21, 2011, the Company’s shareholders approved an amendment to the 1994 Plan increasing the number of shares of common stock available for the grant of awards by 690,000 shares, from 2,638,125 to an aggregate of 3,553,125 shares of the Company's common stock. As of April 1, 2012, 696,303March 31, 2013, 536,303 shares were available for issue in respect of future awards under the 1994 Plan. Subsequent to the Company’s 20122013 fiscal year end, on May 3, 2012,14, 2013, based on fiscal year 20122013 results, 2,80035,127 shares related to Performance Stock Units (PSUs) were cancelled,canceled, and as a result, thosethese shares were made available for future grants. Also in May 2012,2013, additional PSUs and restricted stock awards were issued providing recipients with the opportunity to earn up to 151,200109,000 and 20,10015,000 additional shares, respectively of the Company’s common stockStock in the aggregate. Accordingly, on May 3, 2012,14, 2013, an aggregate of 527,803447,430 shares were available for issue pursuant to future awards under the 1994 Plan. The 1994 Plan allows for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock awards and other performance awards. On July 21, 2011, the Company’s shareholders also approved an amendment to extend the date through which awards may be granted under the 1994 Plan from July 22, 2014 to July 21, 2016. No additional awards can be made under the 1994 Plan after July 21, 2016, without shareholder approval of an extension of the plan term. Options, restricted stock and PSU awards have been granted as awards under the 1994 Plan. Shares which are subject to outstanding PSU or other awards under the 1994 Plan, and which are not earned, are returned to the 1994 Plan and become available for future issuance in accordance with and otherwise subject to the terms of the 1994 Plan.

Performance Stock Units:Beginning in fiscal year 2005, the Company’s equity-based compensation philosophy and practice shifted away from awarding stock options to granting performance-based and time-vested stock grants. Accordingly, in April 2004, the Company’s Board of Directors established a Performance Stock Unit (PSU) Award Program under the 1994 Plan. Under the program, PSUs have been granted to selected individuals. Each PSU entitles the participant to earn TESSCO common stock, but only after earnings per share and, for non-director employee participants, individual performance targets are met over a defined performance cycle. Performance cycles, which are fixed for each grant at the date of grant, are one year. Once earned, shares vest and are issued over a specified period of time determined at the time of the grant, provided that the participant remains employed by or associated with the Company at the time of share issuance. Earnings per share targets, which take into account the earnings impact of this program, are set by the Board of Directors in advance for the complete performance cycle at levels designed to grow shareowner value. If actual performance does not reach the minimum annual or threshold targets, no shares are issued. In accordance with the FASB standard on stock compensation, the Company records compensation expense on its PSUs over the service period, based on the number of shares management estimates will ultimately be issued. Accordingly, the Company determines the periodic financial statement compensation expense based upon the stock price at the PSU grant date, net of the present value of dividends expected to be paid on TESSCO common stock before the PSU vests, management’s projections of future EPS performance over the performance cycle, and the resulting amount of estimated share issuances, net of estimated forfeitures. The Company estimated the forfeiture rate primarily based on historical experience and expectations of future forfeitures. The Company’s calculated estimated forfeiture rate is less than 1%.

The following table summarizes the activity under the Company’s PSU program for fiscal years 2013, 2012 2011 and 2010:2011:

 2012  2011  2010  2013  2012  2011 
 Shares  Weighted- Average Fair Value at Grant  Shares  Weighted- Average Fair Value at Grant  Shares  Weighted-Average Fair Value at Grant  Shares  Weighted- Average Fair Value at Grant  Shares  Weighted- Average Fair Value at Grant  Shares  Weighted-Average Fair Value at Grant 
Outstanding, non-vested beginning of period  696,089  $10.15   679,627  $6.75   539,241  $8.07   604,844  $9.81   696,089  $10.15   679,627  $6.75 
Granted
  260,000   10.97   274,500   16.00   396,000   5.85   156,200   19.31   260,000   10.97   274,500   16.00 
Vested
  (201,546)  8.20   (238,163)  7.24   (141,794)  8.19   (288,765)  8.64   (201,546)  8.20   (238,163)  7.24 
Forfeited/canceled
  (149,699)  15.55   (19,875)  9.42   (113,820)  7.81   (16,300)  17.69   (149,699)  15.55   (19,875)  9.42 
Outstanding, non-vested end of period  604,844  $9.81   696,089  $10.15   679,627  $6.75   455,979  $12.77   604,844  $9.81   696,089  $10.15 

As of April 1, 2012,March 31, 2013, there was approximately $1.9$2.5 million of total unrecognized compensation cost, net of forfeitures, related to PSUs. These costs are expected to be recognized over a weighted average period of 1.42.7 years.  Total fair value of shares vested during fiscal years 2013, 2012 and 2011 was $6,304,300, $2,191,500 and 2010 was $2,191,500, $3,639,100, and $833,700, respectively.

Of the 16,300 PSUs cancelled during fiscal 2013, 2,800 related to the fiscal 2012 grant of PSUs and were canceled in April 2012. The PSUs were cancelled because the applicable fiscal 2012 performance targets were not fully satisfied. The remaining 13,500 shares related to the fiscal 2013 grant of PSUs and were forfeited due to employee departures during fiscal year 2013. 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.
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Of the outstanding PSUs covering 604,844455,979 non-vested shares as of April 1, 2012,March 31, 2013 PSUs covering 2,80035,127 shares were cancelled in May 2012,2013, based on fiscal year 20122013 activity. These PSUs were cancelled primarily because individual performance targets for certain non-director employee participants did not fully reach the target performance set forth in the PSU grants for fiscal year 2012.2013. The remaining 602,044420,852 shares have been earned based on past performance, but not yet vested as of April 1, 2012.March 31, 2013. Assuming the respective participants remain employed by or affiliated with the Company on these dates, these shares will vest and be paid on or about May 1 of 2012, 2013, 2014, 2015 and 2015,2016, as follows:

  Number of Shares 
2012
  258,189 
2013
  187,262 
2014
  94,043 
2015
  62,550 
   602,044 
  Number of Shares 
 
2013
198,130 
 
2014
112,401 
 
2015
83,451 
 
2016
26,870 
  420,852 

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Subsequent to the Company’s 20122013 fiscal year end, on May 3, 2012,14, 2013, the Compensation Committee, with the concurrence of the full Board of Directors, granted additional PSUs to selected key employees, providing them with the opportunity to earn up to 151,200109,000 additional shares of the Company’s common stock in the aggregate, depending upon whether certain threshold or goal earnings per share targets are met and individual performance metrics are satisfied in fiscal year 2013.2014. These PSUs have only one measurement year (fiscal year 2013)2014), with any shares earned at the end of fiscal year 20132014 to vest 25% on or about each of May 1 of 2013, 2014, 2015, 2016 and 2016,2017, provided that the participant remains employed by or affiliated with the Company on each such date.

Stock OptionsOptions::  In accordance with the FASB standard on stock compensation, the fair value of the Company’s stock options have been determined using the Black-Scholes-Merton option pricing model, based upon facts and assumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price of the Company’s common stock on the grant date.

The value of each option at the date of grant is amortized as compensation expense over the option service period. This occurs without regard to subsequent changes in stock price, volatility or interest rates over time, provided that the option remains outstanding.  The following table summarizes the pertinent option information for outstanding options:

Options Shares  Weighted Average Exercise Price  Weighted Average Remaining Contractual Life  Aggregate Intrinsic Value 
Outstanding, beginning of year  135,000  $5.11       
Granted  --   --       
Exercised  (135,000)  5.11       
Cancelled  --   --       
Outstanding, end of year  --  $--   --  $-- 
Exercisable, end of year  --  $--   --  $-- 

There were no options granted during fiscal years 2013, 2012 2011 and 2010.2011. There were no options exercised during fiscal 2013. The total intrinsic value of options exercised during fiscal years 2012 2011 and 20102011 was $2,087,800 $299,300 and $72,300,$299,300, respectively.

As of April 1, 2012,March 31, 2013, there was no unrecognized compensation costs related to stock options.

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Restricted Stock: During the second quarter of fiscal year 2007, the Company granted 225,000 shares of the Company’s common stock to its Chairman and Chief Executive Officer as a restricted stock award under the 1994 Plan. These shares vest ratably over ten fiscal years based on service, beginning on the last day of fiscal year 2007 and ending on the last day of fiscal year 2016, subject, however, to the terms applicable to the award, including terms providing for possible acceleration of vesting upon death, disability, change in control or certain other events. The weighted average fair value for these shares at the grant date was $10.56. On both March 31, 2013 and April 1, 2012, and March 27, 2011, 22,500 shares of restricted stock were released and vested. As of April 1, 2012,March 31, 2013, there were 90,00067,500 unvested shares and approximately $1.0$0.5 million of total unrecognized compensation costs related to restricted stock. Unrecognized compensation costs related to this award are expected to be recognized ratably over a period of approximately fourthree years.

On April 25, 2011, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 36,000 restricted stock awards 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 vesting schedule. These restricted stock awards  will vest and be issued 25% on or about each of May 1 of 2012, 2013, 2014 and 2015, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date.  As of March 31, 2013, there was approximately $0.2 million of total unrecognized compensation costs related to restricted stock. Unrecognized compensation costs related to this award are expected to be recognized ratably over a period of approximately two years.

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On May 3, 2012, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 20,100 restricted stock awards 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 vesting schedule. These restricted stock awards  will vest and be issued 25% on or about each of May 1 of 2012, 2013, 2014, 2015 and 2015,2016, provided that the participant remains associated with the Company (or meets ortherother criteria as prescribed in the agreement) on each such date.  As of April 1, 2012,March 31, 2013, there was approximately $0.3 million of total unrecognized compensation costs related to restricted stock. Unrecognized compensation costs related to this award are expected to be recognized ratably over a period of approximately three years.

Subsequent to the Company's 2012Company’s 2013 fiscal year end, on May 3, 2012,14, 2013, the Compensation Committee, with the concurrence of the full Board of Directors, also granted an aggregate of 15,000 restricted stock awards to the non-employee directors of the Company providing them with the opportunity to have issued to them at a later date, upon vesting, up to 3,350 shares each, or up to 20,100 additionalexception of Daniel Okrent who is retiring from the Board of Directors after his current term ends in July 2013.  These awards provide for the issuance of shares of the Company’s common stock in the aggregate. Restricted stock awards are subject to timeaccordance with a vesting but not performance vesting.schedule.  These restricted stock awards will vest and be issued 25% on or about each of May 1 of 2013, 2014, 2015, 2016 and 2016,2017, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date.

Compensation expense on restricted stock is measured using the grant date price, net of the present value of dividends expected to be paid on TESSCO common stock before the PSURSU vests.

Team Member Stock Purchase Plan: During fiscal year 2000, the Company adopted the Team Member Stock Purchase Plan. This plan permits eligible employees to purchase up to an aggregate of 450,000 shares of the Company's common stock at 85% of the lower of the market price on the first day of a six-month period or the market price on the last day of that same six-month period. The Company's expenses relating to this plan are for its administration and expense associated with the fair value of this benefit in accordance with the FASB standard on employee share purchase plans. Expenses incurred for the Team Member Stock Purchase Plan during the fiscal years ended March 31, 2013, April 1, 2012 and March 27, 2011 and March 28, 2010 related to the FASB standard were $59,400, $47,800 $51,200 and $42,100,$51,200, respectively. During the fiscal years ended March 31, 2013, April 1, 2012 and March 27, 2011, 11,009, 12,503 and March 28, 2010, 12,503, 16,662 and 21,319 shares were sold to employees under this plan, having a weighted average market value of $15.80, $11.18 $8.95 and $5.73,$8.95, respectively.

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Note 16.15. Fair Value of Financial Instruments

The Company complies with the FASB standard regarding fair value measurement and disclosure requirements for assets and liabilities carried at fair value.  Accordingly, assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
 ·Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
 ·Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, and quoted prices for identical or similar assets or liabilities in markets that are not active.
 ·Level 3: Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the inputs used in pricing the asset or liability.

As of March 31, 2013 and April 1, 2012, the Company has no assets or liabilities recorded at fair value.  The following table presents information about assets and liabilities recorded at fair value on the Company’s Consolidated Balance Sheet as of March 27, 2011:
  Balance at March 27, 2011  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant Unobservable Inputs
(Level 3)
 
Liabilities:            
 Interest rate swap agreement, net of tax
 $(24,600) $--  $(24,600) $-- 
  Total liabilities at fair value
 $(24,600) $--  $(24,600) $-- 
 
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The Company’s fair value of its interest rate swap was derived from valuation models commonly used for derivatives. Valuation models require a variety of inputs, including contractual terms, market fixed prices, inputs from forward price yield curves, notional quantities, measures of volatility and correlations of such inputs. The Company's derivatives traded in liquid markets, and as such, model inputs could generally be verified and did not involve significant management judgment.

The carrying amounts of cash and cash equivalents, trade accounts receivable, product inventory, trade accounts payable, accrued expenses and other current liabilities approximate their fair values as of March 31, 2013 and April 1, 2012 and March 27, 2011 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 principalprinciple payments, as of March 31, 2013 and April 1, 2012 and March 27, 2011 is estimated as follows:

        
  2012   2011  2013 2012 
 
Carrying
Amount
  
Fair
Value
  
Carrying
Amount
  
Fair
Value
  
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Note payable to a Bank
 $2,775,000  $2,517,000  $3,000,000  $2,979,600  $2,550,000 $2,361,500 $2,775,000 $2,517,000 
Note payable to Baltimore County $182,200  $165,000  $207,800  $185,400  $158,000 $145,300 $182,200 $165,000 
Note payable to the Maryland Economic Development Corporation
 $--  $--  $110,400  $109,400 
                         
 
Note 17.16. Supplemental Cash Flow Information

Cash paid for income taxes, net of refunds, for fiscal years 2013, 2012 and 2011 totaled $11,847,300, $8,191,500 and 2010 totaled $8,191,500, $5,183,700 and $3,940,000 respectively. Cash paid for interest during fiscal years 2013, 2012 and 2011 totaled $208,300, $311,500 and 2010 totaled $311,500, $427,700, and $375,100, respectively. No interest was capitalized during fiscal years 2013, 2012 2011 and 2010.2011.

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Note 18.17. Concentration of Risk

Sales to customers and purchases from vendors are largely governed by individual sales or purchase orders, so there is no guarantee of future business. In some cases, the Company has more formal agreements with significant customers or vendors, but they are largely administrative in nature and are terminable by either party upon several months'months or otherwise short notice and they typically contain no obligation to make purchases from TESSCO. In the event a significant customer decides to make its purchases from another source, experiences a significant change in demand internally or from its own customer base, becomes financially unstable, or is acquired by another company, the Company’s ability to generate revenues from these customers may be significantly affected, resulting in an adverse affect on its financial position and results of operations.

The Company is dependent on third-party equipment manufacturers, distributors and dealers for all of its supply of wireless communications equipment. For fiscal years 2013, 2012 2011 and 2010,2011, sales of products purchased from the Company's top ten vendors accounted for 43%42%, 40%43% and 40% of total revenues, respectively. In fiscal year 2013, 2012 and fiscal year 2011, sales of product purchased from the Company’s largest vendor, Otter Products LLC, a significant portion of which are sold to the Company’s largest customer AT&T Mobility, accounted for approximately 9%, 17% and 13% of total revenues, respectively. In fiscal year 2010, the Company did not have any vendors that accounted for 10% of more of its total revenues. The Company is dependent on the ability of its vendors to provide products on a timely basis and on favorable pricing terms. Although the Company believes that alternative sources of supply are available for many of the product types it carries, the loss of certain principal suppliers, or the loss of one or more of certain ongoing affinity relationships, could have a material adverse effect on the Company.

As noted, the Company's future results could also be negatively impacted by the loss of certain customers, and/or vendor relationships. For fiscal years 2013, 2012 2011 and 2010,2011, sales of products to the Company's top ten customer relationships accounted for 45%39%, 37%45% and 40%37% of total revenues, respectively. In fiscal years 2013, 2012 2011 and 2010,2011, sales to the Company’s top customer relationship, AT&T Mobility, a top tier cellular carrier purchasing phone accessories classified in the Retail segment, accounted for approximately 36%30%, 28%36% and 32%28% of total revenues, respectively (also see Note 19).respectively.

Note 19. Subsequent Events

In April 2012, the Company waswe were notified by AT&T that they intendof their intention to transition their third party logistics retail store supply chain business away from TESSCOus beginning in the second quarter of our fiscal 2013. As of the Company’sclose of our fiscal 2013 and to bethis business has fully terminated at some point during the Company’s third fiscal quarter of fiscal 2013, resulting in a significant reduction in revenues and a lesser relative impact on overall profits. During and after the transition, TESSCO expects to continue to supply product to this customer’s other programs and supply proprietary Ventev® products to AT&T retail stores.transitioned.
 
 
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Note 20.18. Quarterly Results of Operations (Unaudited)

Summarized quarterly financial data for the fiscal years ended March 31, 2013 and April 1, 2012 and March 27, 2011 is presented in the table below:
 
 Fiscal Year 2012 Quarters Ended   Fiscal Year 2012 Quarters Ended  Fiscal Year 2013 Quarters Ended  Fiscal Year 2012 Quarters Ended 
                                 
Mar. 31,
2013
  
Dec. 30,
 2012
  
Sept. 20,
 2012
  
Jul. 1,
2012
  
Apr. 1,
2012
  
Dec. 25,
2011
  
Sept. 25,
2011
  
Jun. 26,
2011
 
 Apr. 1, 2012  Dec. 25, 2011    Sept. 25, 2011    Jun. 26, 2011    Mar. 27, 2011  Dec. 26, 2011  Sept. 26, 2011  Jun. 27, 2010                         
Revenues $194,787,400  $226,250,100  $148,837,400  $163,515,000  $130,300,200  $167,940,000  $165,026,400  $141,952,600  $158,449,800  $204,458,700  $197,238,300  $192,418,200  $194,787,400  $226,250,100  $148,837,400  $163,515,000 
Cost of goods sold  156,798,300   186,773,300   114,847,500   126,314,600   99,942,400   134,137,000   128,256,400   109,602,800   124,498,600   165,488,900   158,613,300   156,925,000   156,798,300   186,773,300   114,847,500   126,314,600 
Gross profit  37,989,100   39,476,800   33,989,900   37,200,400   30,357,800   33,803,000   36,770,000   32,349,800   33,951,200   38,969,800   38,625,000   35,493,200   37,989,100   39,476,800   33,989,900   37,200,400 
Selling, general and administrative expenses  32,221,100   31,596,300   28,159,900   29,675,100   27,724,000   29,465,800   31,203,600   28,911,700   29,144,900   30,226,300   29,887,000   28,562,400   32,221,100   31,596,300   28,159,900   29,675,100 
Income from operations  5,768,000   7,880,500   5,830,000   7,525,300   2,633,800   4,337,200   5,566,400   3,438,100   4,806,300   8,743,500   8,738,000   6,930,800   5,768,000   7,880,500   5,830,000   7,525,300 
Interest, net  41,000   73,500   72,900   105,500   94,100   118,900   129,800   77,800   141,100   13,700   12,000   57,400   41,000   73,500   72,900   105,500 
Income before provision for income taxes  5,727,000   7,807,000   5,757,100   7,419,800   2,539,700   4,218,300   5,436,600   3,360,300   4,665,200   8,729,800   8,726,000   6,873,400   5,727,000   7,807,000   5,757,100   7,419,800 
Provision income taxes  2,178,100   3,033,400   2,216,900   2,845,600   897,900   1,257,100   2,090,900   1,290,800   1,745,400   3,331,100   3,457,100   2,666,900   2,178,100   3,033,400   2,216,900   2,845,600 
Net income $3,548,900  $4,773,600  $3,540,200  $4,574,200  $1,641,800  $2,961,200  $3,345,700  $2,069,500  $2,919,800  $5,398,700  $5,268,900  $4,206,500  $3,548,900  $4,773,600  $3,540,200  $4,574,200 
Diluted earnings per share $0.43  $0.59  $0.44  $0.57  $0.21  $0.38  $0.43  $0.26  $0.35  $0.65  $0.64  $0.51  $0.43  $0.59  $0.44  $0.57 
Cash dividends declared per common share $0.15  $0.15  $0.15  $0.10  $0.10  $0.10  $0.10  $0.10  $0.18  $0.93  $0.18  $0.18  $0.15  $0.15  $0.15  $0.10 
Comprehensive income $2,919,800  $5,398,700  $5,268,900  $4,206,500  $3,548,900  $4,773,600  $3,543,300  $4,595,700 
 

 
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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
TESSCO Technologies Incorporated

We have audited the accompanying consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of April 1, 2012 and March 27, 2011, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended April 1, 2012.  Our audits also included the financial statement schedule listed in the Index at Item 15 (a).  These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
TESSCO Technologies Incorporated
We have audited the accompanying consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of March 31, 2013 and April 1, 2012, and the related consolidated statements of comprehensive income, changes in shareholders' equity and cash flows for each of the three fiscal years in the period ended March 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TESSCO Technologies Incorporated and subsidiaries at March 31, 2013 and April 1, 2012, and March 27, 2011, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended April 1, 2012,March 31, 2013, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TESCCOTESSCO Technologies Incorporated'sIncorporated and subsidiariessubsidiaries’ internal control over financial reporting as of April 1, 2012,March 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 31, 201229, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young, LLP


Baltimore, Maryland
May 31, 2012
29, 2013
 
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.9A. Controls and Procedures.
 
Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our chief executive officer, who is our principal executive officer, and chiefwho also performs the function of or similar to that of principal financial officer, havehas evaluated this system of disclosure controls and procedures as of the end of the period covered by this annual report, and havehas concluded that the system is effective.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our system of internal control is designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Any system of internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, internal control systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer, and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls, and the conclusion of this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of April 1, 2012.March 31, 2013.

The effectiveness of our internal control over financial reporting as of April 1, 2012March 31, 2013 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included within this Item 9A of Part III of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting during the fourth quarter of fiscal year 20122013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


 
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Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders of
TESSCO Technologies Incorporated


We have audited TESSCO Technologies Incorporated and subsidiaries’ internal control over financial reporting as of April 1, 2012,March 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). TESSCO Technologies Incorporated and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, TESSCO Technologies Incorporated and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of April 1, 2012,March 31, 2013, based on the COSO criteria.criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of March 31, 2013 and April 1, 2012, and March 27, 2011, and the related consolidated statements of comprehensive income, changes in shareholders' equity, and cash flows for each of the three fiscal years in the period ended April 1, 2012March 31, 2013 of TESSCO Technologies Incorporated and subsidiaries and our report dated May 31, 201229, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Baltimore, Maryland
May 31, 201229, 2013

 
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Item 9B.9B. Other Information.

None.

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Part III

Items 10, 11, 12, 13 and 14.

The information with respect to the identity and business experience of executive officers of the Company as required to be included in Item 10 to this Form 10-K is set forth in Part I of this Form 10-K. The information otherwise required by Items 10 through 14 will be contained in a definitive proxy statement for our Annual Meeting of Shareholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A and accordingly these items have been omitted in accordance with General Instruction G(3)G (3) to Form 10-K.

Part IV

Item 15. Exhibits and Financial Statement Schedules.

(a)The following documents are filed as part of this report:

 1.The following consolidated financial statements are included in Item 8 of this report:

Consolidated Balance Sheets as of March 31, 2013 and April 1, 2012 and March 27, 2011
 Consolidated Statements of Comprehensive Income for the fiscal years ended March 31, 2013; April 1, 2012 and March 27, 2011 and March 28, 2010
 
Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended March 31, 2013; April 1, 2012, and March 27, 2011 and March 28, 2010
 
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2013; April 1, 2012, and March 27, 2011 and March 28, 2010
 Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm

 2.The following financial statement schedules are required to be filed by Item 8 and paragraph (b) of this Item 15 included herewith:

Schedule II                                Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable.

 
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 3.Exhibits
  
3.1.1Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on September 29, 1993 (incorporated by reference to Exhibit 3.1.1 to the Company's Registration Statement on Form S-1 (No. 33-81834)).
3.1.2Certificate of Retirement of the Registrant filed with the Secretary of State of Delaware on January 13, 1994 (incorporated by reference to Exhibit 3.1.2 to the Company's Registration Statement on Form S-1 (No. 33-81834)).
3.1.3Certificate of Amendment to Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on July 20, 1994 (incorporated by reference to Exhibit 3.1.3 to the Company's Registration Statement on Form S-1 (No. 33-81834)).
3.1.4Certificate of Amendment to Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on September 6, 1996 (incorporated by reference to Exhibit 3.1.4 to the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1997).
3.1.5Certificate of Correction filed with the Secretary of State of Delaware on February 7, 2007 to Certificate of Amendment to Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on September 6, 1996 (incorporated by reference to Exhibit 3.1.5 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 7, 2007).
3.1.6Certificate of Designation of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on February 1, 2008 (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 1, 2008).
3.1.7Certificate of Elimination of Series A Junior Participating Preferred Stock of the Company, dated as of April 26, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 26, 2010).
3.2.2Sixth Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 28, 2011).
3.2.3First Amendment to Sixth Amended and Restated By-laws of the Registrant (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 22, 2011).
10.1.1Employment Agreement, dated August 31, 2006 with Robert B. Barnhill, Jr. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 1, 2006).
10.1.2Amendment No. 1 to Employment Agreement, dated December 31, 2008 with Robert B. Barnhill, Jr. (incorporated by reference to Exhibit 10.1.2 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2009).
10.1.3Amendment No. 2 to Employment Agreement, dated May 7, 2010 with Robert B. Barnhill, Jr. (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 May 11, 2010).
10.2.1Employee Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (No. 33-81834)).
10.3.1Team Member Stock Purchase Plan (incorporated by reference to Appendix No. 2 to the Company's Definitive Proxy Statement filed with the Securities and Exchange Commission on July 15, 1999).
10.3.2Form of Restricted Stock Unit (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 2011).
10.4.1TESSCO Technologies Incorporated Second Amended and Restated 1994 Stock and Incentive Plan, dated as of July 24, 2008 (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2008).
10.4.2First Amendment to Second Amended and Restated 1994 Stock and Incentive Plan of TESSCO Technologies Incorporated (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 July 22, 2011).
10.4.3TESSCO Technologies Incorporated Performance Share Unit Agreement – Officer and Employees (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2004).
10.4.4TESSCO Technologies Incorporated Performance Share Unit Agreement – Non-employee Director (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2004).
10.5.1Stock Repurchase Agreement, dated as of July 1, 2008, between the Registrant and Brightpoint, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2008).
10.6.1Agreement of Lease By and Between Atrium Building, LLC and TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2003).
10.6.2Third Amendment to Agreement of Lease By and Between Atrium Building, LLC and TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2011).
10.7.1Credit Agreement dated June 30, 2004, by and among the Registrant and affiliates, and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), SunTrust Bank and the lenders party thereto from time to time (Term Loan) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2004).
10.7.2Joinder, Assumption, Ratification and Modification Agreement, dated as of August 29, 2006 by and among the Registrant, various affiliates of the Registrant and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 24, 2006).
10.7.3Second Amendment, dated as of May 31, 2007, by and among the Registrant, various affiliates of the Registrant and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 6, 2007).
10.7.4Third Amendment, dated as of May 20, 2011, by and among the Registrant, various affiliates of the Registrant and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (filed herewith).
10.7.5Term Note of Registrant and affiliates dated June 30, 2004, payable to Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank (Term Loan) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2004).



10.7.6Guaranty Agreement dated June 30, 2004, of TESSCO Incorporated, to and for the benefit of Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as agent (Term Loan) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 2004).
10.7.7Credit Agreement, dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 6, 2007).
10.7.8First Modification Agreement, made effective as of June 30, 2008, to Credit Agreement dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2008).
10.7.9Second Modification Agreement, made effective as of November 26, 2008, to Credit Agreement dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 2008).
10.7.10Third Modification Agreement, made effective July 22, 2009, to Credit Agreement dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 12, 2009).
10.7.11Fourth Modification Agreement, made effective April 28, 2010, to Credit Agreement dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.7.7 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 28, 2010).
10.7.12Fifth Modification Agreement, made effective May 20, 2011, to Credit Agreement dated as of May 31, 2007, by and among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.7.12 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 27, 2011).
10.7.13Sixth Modification Agreement, made effective December 30, 2011, to Credit Agreement dated as of May 31, 2007, by an among the Registrant and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 5, 2012).
10.7.14Seventh Modification Agreement dated as of November 30, 2012, by and among the Registrant and certain subsidiaries, as borrowers, and SunTrust and Wells Fargo Bank, National Association, as lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 3, 2012).
10.7.15Eighth Modification Agreement dated as of December 21, 2012, by and among the Registrant and certain subsidiaries, as borrowers, and SunTrust Bank and Wells Fargo Bank, national Association, as lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8- K filed on December 26, 2012).
10.7.16Revolving Credit Note of Registrant and its primary operating subsidiaries, dated as of May 31, 2007, payable to SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (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 6, 2007).
10.7.17Mutual General Release, effective December 25, 2012, by and between the Registrant and David M. Young (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-k filed on December 27, 2012).
10.8.1Asset Purchase Agreement, dated as of April 5, 2006, by and among TerraWave Solutions, Ltd., Gigawave Solutions, Ltd. and TESSCO Incorporated and GW Services Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 24, 2006).
10.9.1Supplemental Executive Retirement Plan, between the Company and Robert B. Barnhill, Jr., (originally filed as Exhibit C to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (No. 33-81834)) (incorporated by reference to Exhibit 10.9.1 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 28, 2010).
10.9.2Amendment No. 1 to Supplemental Executive Retirement Plan, dated as of December 31, 2008 (incorporated by reference to Exhibit 10.9.2 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 28, 2010).
10.10.1Form of Severance and Restrictive Covenant Agreement, dated February 9, 2009, and entered into between the Company and each of Gerald T. Garland, Douglas A. Rein, and Said Tofighi and David M. Young (incorporated by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 28, 2010).
11.1.1Statement re: Computation of Per Share Earnings (filed herewith).
21.1.1Subsidiaries of the Registrant (filed herewith).
23.1.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
31.1.1Rule 15d-14(a) Certification of Robert B. Barnhill, Jr., Chief Executive Officer (filed herewith).
31.2.1Rule 15d-14(a) Certification of David M. Young, Chief Financial Officer (filed herewith).
32.1.1Section 1350 Certification of Robert B. Barnhill, Jr., Chief Executive Officer (filed herewith).
32.2.1Section 1350 Certification of David M. Young, Chief Financial Officer (filed herewith).
 101.1*The following financial information from TESSCO Technologies, Incorporated’s Annual Report on Form 10-K for the year ended April 1, 2012March 31, 2013 formatted in XBRL: (i) Consolidated Statement of Income for the years ended April 1, 2012, March 27, 2011 and March 28, 2010; (ii) Consolidated Balance Sheet at31, 2013, April 1, 2012 and March 27, 2011; (ii) Consolidated Balance Sheet at March 31, 2013 and April 1, 2012; (iii)  Consolidated Statement of Cash Flows for the years March 31, 2013 and April 1, 2012 and March 27, 2011;2012; and (iv) Notes to Consolidated Financial Statements.
  
*Filed herewith


Schedule II: Valuation and Qualifying Accounts


For the fiscal years ended:

 2012  2011  2010  2013  2012  2011 
Allowance for doubtful accounts:                  
Balance, beginning of period $1,616,500  $1,516,600  $1,874,700  $998,800  $1,616,500  $1,516,600 
Provision for bad debts  458,700   1,050,500   743,500   1,197,300   458,700   1,050,500 
Write-offs and other adjustments  (1,076,400)  (950,600)  (1,101,600)  (921,400)  (1,076,400)  (950,600)
Balance, end of period $998,800  $1,616,500  $1,516,600  $1,274,700  $998,800  $1,616,500 

 2012  2011  2010  2013  2012  2011 
Inventory Reserve:                  
Balance, beginning of period $4,183,200  $3,461,700  $2,681,100  $3,268,900  $4,183,200  $3,461,700 
Inventory reserve expense  3,494,800   4,759,000   2,634,900   2,581,200   3,494,800   4,759,000 
Write-offs and other adjustments  (4,409,100)  (4,037,500)  (1,854,300)  (2,513,400)  (4,409,100)  (4,037,500)
Balance, end of period $3,268,900  $4,183,200  $3,461,700  $3,336,700  $3,268,900  $4,183,200 

 
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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 TESSCO Technologies Incorporated
 By:/s/ Robert B. Barnhill, Jr.
  
Robert B. Barnhill, Jr., President
May 31, 201229, 2013


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Robert B. Barnhill, Jr.Chairman of the Board, President and Chief Executive Officer (principal executive officer and performing the function of or similar to that of principal financial officer)May 31, 201229, 2013
Robert B. Barnhill, Jr.  
/s/ David M. YoungAric Spitulnik
Senior Vice President Chief Financial Officer, and Corporate SecretaryController (principal financial and accounting officer)May 31, 201229, 2013
David M. YoungAric Spitulnik  
/s/ Jay G. Baitler
 
Director
May 31, 201229, 2013
Jay G. Baitler  
/s/ John D. Beletic
DirectorMay 31, 201229, 2013
John D. Beletic  
/s/ Benn R. Konsynski
DirectorMay 31, 201229, 2013
Benn R. Konsynski  
/s/ Daniel Okrent
DirectorMay 31, 201229, 2013
Daniel Okrent  
/s/ Dennis J. Shaughnessy
DirectorMay 31, 201229, 2013
Dennis J. Shaughnessy  
/s/ Morton F. Zifferer
DirectorMay 31, 201229, 2013
Morton F. Zifferer  
 
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