Note 16. Stock‑Based Compensation

The Company’s selling, general and administrative expenses for the fiscal years ended April 1, 2018, March 26, 2017, and March 27, 2016 includes $1,002,100, $434,400, and $729,000, respectively, of stock compensation expense. Provision for income taxes for the fiscal years ended April 1, 2018, March 26, 2017, and March 27, 2016 includes $305,400, $181,900, and $290,100, respectively, of income tax benefits related to our stock-based compensation arrangements. Stock compensation expense is primarily related to our Performance Stock Units (PSUs), Restricted Stock Units (RSUs) and Stock Options, granted or outstanding under the Company’s Third Amended and Restated Stock and Incentive Plan (the “1994 Plan”).

As of April 1, 2018, 366,700 shares were available for issue in respect of future awards under the 1994 Plan. Subsequent to the Company’s 2018 fiscal year end, on May 10, 2018, based on fiscal year 2018 results, 16,750 shares related to Performance Stock Units (PSUs) were canceled, and as a result, these shares were made available for future grants. On May 10, 2018, additional PSUs and restricted stock awards were made providing recipients with the opportunity to earn up to an aggregate of 71,000 and 18,000 additional shares, respectively of the Company’s common stock. Also, on May 10, 2018, the Compensation Committee of the Board of Directors with concurrence of the full Board of Directors, granted stock options to select key employees to purchase an aggregate of 49,000 shares of the Company’s common stock. Accordingly, as of May 10, 2018, an aggregate of 245,450 shares were available for issue pursuant to future awards.

No additional awards can be made under the 1994 Plan after July 21, 2021, without or unless made subject to shareholder approval of an extension of the plan term. Stock Options, restricted stock and PSU awards have historically 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: The Company’s equity-based compensation philosophy has been generally focused on granting performance-based and time-vested stock grants, although over the last two fiscal years stock option grants have also been made to senior management. Under a program established by the Board of Directors, Performance Stock Units (PSUs) have been granted under the 1994 Plan to selected employees. 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 shareholder value. If actual performance does not reach the minimum annual or threshold targets, no shares are issued. In accordance with ASC No. 718, 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 period, and the resulting amount of estimated share issuances. As discussed in Note 2 above, the Company now accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock based compensation related to the restricted awards may be different from the Company’s expectations.

The following table summarizes the activity under the Company’s PSU program for fiscal years 2018, 2017 and 2016:


	2018			2017			2016
		Weighted			Weighted			Weighted
		Average Fair			Average Fair			Average Fair
	Shares	Value at Grant		Shares	Value at Grant		Shares	Value at Grant
Unvested shares available for issue under outstanding PSUs, beginning of period	170,100	$	11.17	138,925	$	21.46	203,841	$	20.65
PSU’s Granted	86,000		12.67	207,000		10.77	103,000		22.15
PSU’s Vested	(7,600)		19.58	(27,671)		19.40	(87,648)		13.88
PSU’s Forfeited/Cancelled	(181,500)		10.99	(148,154)		18.72	(80,268)		28.57
Unvested shares available for issue under outstanding PSUs, end of period	67,000	$	12.65	170,100	$	11.17	138,925	$	21.46

As of April 1, 2018, there was $0.3 million unrecognized compensation cost, related to fiscal year 2018 PSUs earned. Total fair value of shares vested during fiscal years 2018, 2017 and 2016 was $277,600, $628,200 and $2,543,000, respectively.

The PSUs canceled during fiscal year 2018 primarily related to the fiscal year 2017 grant of PSUs which had a one-year measurement period (fiscal 2017). The PSUs were canceled because the minimum applicable fiscal 2017 performance targets were not fully satisfied. Per the provisions of the 1994 Plan, the shares related to these forfeited and canceled PSUs were added back to the 1994 Plan and became available for future issuance under the 1994 Plan.

Of the PSUs outstanding at the end of fiscal year 2018 covering 67,000 non-vested shares, PSUs covering 16,750 shares were subsequently canceled in May 2018, based on fiscal year 2018 performance. These PSUs were canceled because fiscal year 2018 earnings per share did not fully reach the target performance set forth in the PSU award agreements. The remaining 50,250 shares covered by PSUs outstanding at the end of fiscal year 2018 were earned based on fiscal year 2018 performance, but were not yet vested as of April 1, 2018. Assuming the respective participants remain employed by, or affiliated with the Company, these shares will vest ratably on or about May 1 of 2018, 2019, 2020, and 2021.

Subsequent to the Company’s 2018 fiscal year end, on May 10, 2018, 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 71,000 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 2019. These PSUs have only one measurement year (fiscal year 2019), with any shares earned at the end of fiscal year 2019 to vest 25% on or about each of May 1 of 2019, 2020, 2021, and 2022. Pursuant to the typical PSU award agreement, however, performance metrics are deemed met upon the occurrence of a change in control, and shares earned are issued earlier upon the occurrence of a change in control, or death or disability of the participant, or upon termination of the participant’s employment without cause or by the participant for good reason, as those terms are defined in the agreement.

Restricted Stock/Restricted Stock Units: During the second quarter of fiscal year 2007, the Company granted 225,000 shares of the Company’s common stock to its then Chairman and Chief Executive Officer as a restricted stock award under the 1994 Plan. These shares vested 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. The weighted average fair value for these shares at the grant date was $10.56. On March 27, 2016, 22,500 shares of restricted stock were released and vested. As of April 1, 2018, there were no remaining unvested shares related to restricted stock.

On May 11, 2015, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 10,000 RSU awards to 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 awards have vested or will vest, and shares have been or will be issued 25% on or about each of May 1 of 2016, 2017, 2018 and 2019, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. As of April 1, 2018, there was approximately $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately one year.

On May 11, 2016, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 10,000 RSU awards to non-employee directors of the Company. These awards provide for the issuance of the shares of the Company’s common stock in accordance with a vesting schedule. These awards have vested or will vest, and shares have been or will be issued 25% on or about each of May 1 of 2017, 2018, 2019 and 2020, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. As of April 1, 2018, there was approximately $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately two years.

On May 10, 2017, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 18,000 RSU awards to non-employee directors of the Company and to the Executive Chairman. These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule. These awards have vested or will vest, and shares have been or will be issued, 25% on or about each of May 1 of 2018, 2019, 2020 and 2021, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date.

On August 8, 2017, the Compensation Committee, with the concurrence of the full Board of Directors, awarded an aggregate of up to 56,000 RSUs to several senior executives. The number of shares earned by a recipient will be determined by multiplying the number of RSUs covered by the award by a fraction, the numerator of which is the cumulative amount of dividends (regular, ordinary and special) declared and paid, per share, on the common stock, over an earnings period of up to four years, and the denominator of which is $3.20. Subject to earlier issuance upon the occurrence of certain events (as described in the applicable award agreement), any earned shares are issued and distributed to the recipient upon the fourth anniversary of the award date. As of April 1, 2018, 8,000 of these 56,000 RSUs have been canceled due to employee departures, leaving 48,000 of these RSUs outstanding.

As of April 1, 2018, there was approximately $0.6 million of total unrecognized compensation cost related to all outstanding RSUs issued in fiscal year 2018, assuming all shares are earned. Unrecognized compensation costs are expected to be recognized ratably over a weighted average period of approximately three years.

Subsequent to the Company’s 2018 fiscal year end, on May 10, 2018, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 18,000 RSU awards to non-employee directors and the Executive Chairman of the Company. These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule. These awards will vest and shares will be issued 25% on or about each of May 1 of 2019, 2020, 2021 and 2022, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date.

PSUs and RSUs are expensed based on the grant date fair value, calculated as the closing price of TESSCO common stock as reported by NASDAQ on the date of grant minus the present value of dividends expected to be paid on the common stock before the award vests, because dividends or dividend-equivalent amounts do not accrue and are not paid on unvested PSUs and RSUs.

The Company now accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock based compensation related to the restricted awards may be different from the Company’s expectations.

Stock Options: The grant date value of the Company’s stock options has been determined using the Black-Scholes-Merton 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 stock on the grant date. The stock options vest 25% after one year and then 1/36 per month for the following three years. During fiscal 2018, stock options for 110,000 shares were forfeited due to employee departure.

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


	2018			2017
		Weighted			Weighted
		Average Fair			Average Fair
	Shares	Value at Grant		Shares	Value at Grant
Unvested options, beginning of period	395,000	$	1.96	100,000		3.43
Options Granted	230,000		2.57	410,000		1.85
Options Vested	(122,500)		1.87	(25,000)		3.55
Options Forfeited/Cancelled	(110,000)		2.42	(90,000)		2.64
Unvested options, end of period	392,500	$	2.21	395,000	$	1.96


				April 1, 2018
Grant Fiscal Year	Options Granted		Option Exercise Price	Options Outstanding	Options Exercisable
2018	230,000	$	15.12	170,000	-
2017	410,000	$	12.57	330,000	120,833
2016	100,000	$	22.42	40,000	26,667
Total				540,000	147,500


Grant Fiscal Year	Expected Stock Price Volatility			Risk-Free Interest rate		Expected Dividend Yield		Average Expected Term	Resulting Black Scholes Value
2018	32.63	%	1.96		%	5.34	%	4.0	$	2.57
2017	32.85	%	1.32		%	6.30	%	4.0	$	1.85
2016	26.40	%	1.67		%	3.50	%	4.0	$	3.43

As of April 1, 2018, there was approximately $0.8 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately three years. No options were exercised during fiscal 2018, 2017, or 2016.

Team Member Stock Purchase Plan: The Company has a Team Member Stock Purchase Plan that 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. Expenses incurred for the Team Member Stock Purchase Plan during the fiscal years ended April 1, 2018, March 26, 2017, and March 27, 2016 were $148,700, $137,800, and $48,900, respectively. During the fiscal years ended April 1, 2018, March 26, 2017, and March 27, 2016, 13,423, 12,901, and 9,113 shares were sold to employees under this plan, having a weighted average market value of $11.08, $10.68, and $16.86, respectively.