Note 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 $2,274,000, 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 $809,500, 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 March 31, 2013, 536,303 shares were available for issue in respect of future awards under the 1994 Plan. Subsequent to the Company's 2013 fiscal year end, on May 14, 2013, based on fiscal 2013 results 35,127 shares related to Performance Stock Units (PSUs) were canceled, and as a result, these shares were made available for future grants. Also in May 2013, additional PSUs and restricted stock awards were issued providing recipients with the opportunity to earn up to 109,000 and 15,000 additional shares, respectively of the Company's common Stock in aggregate. Accordingly, on May 14, 2013, an aggregate of 447,430 shares were available for issue pursuant to future 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 and 2011:

	2013					2012					2011
	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		604,844		$	9.81		696,089		$	10.15		679,627		$	6.75
Granted		156,200			19.31		260,000			10.97		274,500			16.00
Vested		(288,765	)		8.64		(201,546	)		8.20		(238,163	)		7.24
Forfeited/canceled		(16,300	)		17.69		(149,699	)		15.55		(19,875	)		9.42
Outstanding, non-vested end of period		455,979		$	12.77		604,844		$	9.81		696,089		$	10.15

As of March 31, 2013, there was approximately $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 2.7 years. Total fair value of shares vested during fiscal years 2013, 2012 and 2011 was $6,304,300, $2,191,500 and $3,639,100, 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.

Of the outstanding PSUs covering 455,979 non-vested shares as of March 31, 2013 PSUs covering 35,127 shares were cancelled in May 2013, based on fiscal year 2013 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 2013. The remaining 420,852 shares have been earned based on past performance, but not yet vested as of 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 2013, 2014, 2015 and 2016, as follows:

	Number of Shares
2013		198,130
2014		112,401
2015		83,451
2016		26,870
		420,852

Subsequent to the Company's 2013 fiscal year end, on May 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 109,000 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 2014. These PSUs have only one measurement year (fiscal year 2014), with any shares earned at the end of fiscal year 2014 to vest 25% on or about each of May 1 of 2014, 2015, 2016 and 2017, provided that the participant remains employed by or affiliated with the Company on each such date.

Stock Options: 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.

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

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

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, 22,500 shares of restricted stock were released and vested. As of March 31, 2013, there were 67,500 unvested shares and approximately $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 three 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.

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 2013, 2014, 2015 and 2016, 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 $0.3 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 2013 fiscal year end, on May 14, 2013, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 15,000 restricted stock awards to non-employee directors of the Company with the exception 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 accordance with a vesting schedule. These restricted stock awards will vest and be issued 25% on or about each of May 1 of 2014, 2015, 2016 and 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 RSU 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 related to the FASB standard were $59,400, $47,800 and $51,200, respectively. During the fiscal years ended March 31, 2013, April 1, 2012 and March 27, 2011, 11,009, 12,503 and 16,662 shares were sold to employees under this plan, having a weighted average market value of $15.80, $11.18 and $8.95, respectively.