ANNUAL REPORT
FY21
Nadsaq: TESS
TESSCO
OUR CUSTOMERS
OUR SUPPLIERS
OUR INVESTORS
TOGETHER TOWARDS TOMORROW
We remove complexity for customers and
suppliers by offering far more than product
and credit lines.
We do this by applying extensive product
technology and industry knowledge, creative
problem solving, unsurpassed program
management and efficient operations to help
our suppliers and customers win new business.
Wireless technology takes an entire community
to make it accessible and usable for
companies, consumers, and first responders.
Everything we do is intended to enable our
suppliers and customers to maximize their
growth and optimize profitability.
As a result, we provide our shareholders a
unique and efficient way to invest in this rapidly
growing and dynamic industry.
‘‘
We remain relentless in our drive for sustained profitable
growth and increased shareholder value.
‘‘
SANDIP MUKERJEE
PRESIDENT & CHIEF EXECUTIVE OFFICER
TO OUR SHAREHOLDERS,
In last year’s annual report, I shared a vision of Tessco’s future. At that time, we were all unsure
about the impact the pandemic could have on our people, our customers, our suppliers, and
the world around us. I am grateful to the entire Tessco team for their unwavering dedication
and commitment, which enabled Tessco to navigate unprecedented operational challenges
while serving as an essential business for the wireless infrastructure industry. As we look to a
post-pandemic future, I am confident that renewed emphasis on modern wireless infrastructure
deployments, will help propel Tessco to sustained profitable growth.
The vision I articulated a year ago was focused on a transformation for Tessco; from a distributor
of wireless infrastructure and mobile device accessories, to an industry force able to capitalize
on the technology convergence that is driving growth in the wireless infrastructure construction
and maintenance ecosystem. Today, with that goal still squarely in view, we are pleased to report
substantive progress in each area of our strategic plan.
The strategy we detailed last year included four key elements:
• Divestiture of our retail-focused mobile device accessory business to allow us to dedicate all
our assets, and focus to our infrastructure business.
• Driving growth and efficiency in our core infrastructure products distribution business.
• Developing our Ventev business into a leading innovator of products capable of helping
customers resolve infrastructure construction challenges.
•
Launching a software business to support the products our customers utilize in their networks
and to address their biggest pain points, including construction, deployment, and management.
We completed the sale of our mobile device accessory business assets in December. This
divestiture process was prolonged due to the pandemic, which meant that the “New Tessco”
did not truly begin operation until the fourth quarter of our 2021 fiscal year. Even so, we made
significant strides with our core distribution business. At the same time, Ventev moved ahead
in focusing more on the development, production, and sale of standardized, industry-leading
products. Additionally, we continued to develop our initial Tessco software product offering with
very little incremental investment.
In fiscal 2022, we see significant lessening of the impacts of the pandemic and acceleration of
investments in technology refreshes. With the progress made over the last year, we are well
positioned to drive both top line sales growth and deliver organizational efficiencies. We continue
to be relentless in driving this strategy while remaining focused on cash, profitability, and increased
shareholder value.
Together Towards Tomorrow.
SANDIP MUKERJEE
PRESIDENT & CHIEF EXECUTIVE OFFICER
June 10, 2021
Leadership
Directors
Paul J. Gaffney, Chairman
Senior Vice President, Chief Technology and
Supply Chain Officer, Kohls
Robert B. Barnhill, Jr.
Former President and Chief Executive Officer,
TESSCO Technologies Incorporated
Jay G. Baitler
Former Executive Vice President, Staples, Inc.,
Contract Division
Tim Bryan
CEO of National Rural Telecommunications
Cooperative (NRTC)
Stephanie Dismore
Senior Vice President and Managing Director,
North America, HP
Kathleen McLean
Former SVP, CIO, and Chief Customer Officer,
ADT Inc.
Sandip Mukerjee
President and Chief Executive Officer,
TESSCO Technologies Incorporated
Officers
Sandip Mukerjee
President & Chief Executive Officer
Douglas A. Rein
Senior Vice President of Performance Systems
& Operations
Shareowner Information
Annual Meeting
The Annual Meeting of Shareowners of TESSCO Technologies Incorporated is scheduled to be held at 4 p.m. ET,
July 28, 2021 and will be a virtual meeting, accessible by visiting www.proxydocs.com/tess.
Investor Relations
Analysts, investors and shareowners seeking additional information about TESSCO Technologies Incorporated
are invited to contact:
Sharon Merrill
77 Franklin Street
Boston, MA 02110
Telephone: 617.542.5300
Facsimile: 617.423.7272
Internet: www.investors.com
Aric M. Spitulnik
375 West Padonia Road
Timonium, MD 21093
Telephone: 410.229.1419
Facsimile: 410.229.1669
Email: spitulnik@tessco.com
A copy of the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange
Commission is available without charge on the SEC website, www.sec.gov, or upon request to the address above.
TESSCO on Nasdaq
Tessco’s common stock trades
on the Nasdaq Global Market
under the symbol TESS.
Transfer Agent & Registrar
EQ Shareowner Services
P.O. Box 64874
Saint Paul, MN 55164
Corporate Governance
Corporate Counsel
Ballard Spahr LLP
Baltimore, MD
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Baltimore, MD
The highest ethical standards have always been integral to Tessco’s culture and business success. Each director,
officer and team member is expected to observe the highest standards of ethical behavior in the performance of his
or her duties for the Company. The Company’s Code of Business Conduct and Ethics can be found in the Investors
section of our website, www.tessco.com. From a corporate governance perspective, our eight member Board of
Directors includes six independent directors. The standing committees of the Board of Directors are comprised
of independent directors. In addition, each of the committees is chaired by an independent director. Tessco is an
Affirmative Action-Equal Opportunity Employer M/F/D/V.
Aric M. Spitulnik
Senior Vice President & Chief Financial Officer
Forward-Looking Statements
James R. Gaarder
Vice President
Tammy S. Ridgely
Vice President
Jesse Hillman
Vice President
Cynthia L. King
Vice President
Thad Lowe
Vice President
Jeffrey L. Shockey
Vice President
Mary Beth Smith
Vice President
This Annual Report contains certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, all of which are based on current expectation. All statements other than statements of
historical facts contained herein, are forward-looking statements. These forward-looking statements may generally
be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,”
“plans,” “seeks,” “believes,” “estimates,” and similar expressions, but the absence of these words or phrases does
not necessarily mean that a statement is not forward-looking. These forward-looking statements are only predictions
and involve a number of risks, uncertainties and assumptions, many of which are outside of our control. Our actual
results may differ materially and adversely 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 (the “SEC”), under the heading “Risk
Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of
the risks to which they are subject.
We are not able to identify or control all circumstances that could occur in the future that may adversely affect our
business and operating results. Without limiting the risks that we describe in our periodic reports and elsewhere,
among the risks that could lead to a materially adverse impact on our business or operating results are the
following: the impact and results of any new or continued activism activities by activist investors; termination or non-
renewal of limited duration agreements or arrangements with our suppliers and affinity partners which are typically
terminable by either party upon several months or otherwise relatively short notice; loss of significant customers,
suppliers or relationships, including affinity relationships; loss of customers or reduction in customer business
either directly or indirectly as a result of consolidation among large wireless service carriers and others within the
wireless communications industry; any deterioration in the strength of our customers’, suppliers’ or affinity partners’
businesses; negative or adverse economic conditions, including those adversely affecting consumer confidence or
consumer or business spending or otherwise adversely affecting our suppliers or customers, including their access
to capital or liquidity, or our customers’ demand for, or ability to fund or pay for, the purchase of our products and
services; our dependence on a relatively small number of suppliers, which could hamper our ability to maintain
appropriate inventory levels and meet customer demand; changes in customer and product mix that affect gross
margin; effect of “conflict minerals” regulations on the supply and cost of certain of our products; failure of our
information technology system or distribution system; or our inability to maintain or upgrade our technology or
telecommunication systems without undue cost, incident or delay; system security and data protection breaches
and exposure to cyber-attacks, and the cost associated with ongoing efforts to maintain cyber-security measures
and to meet applicable compliance standards; damage or destruction of our distribution or other facilities; prolonged
or otherwise unusual quality or performance control problems; technology changes in the wireless communications
industry or technological failures, which could lead to significant inventory obsolescence or devaluation 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 relative bargaining power and inability to negotiate favorable terms with our suppliers and
customers; 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; claims
against us for breach of the intellectual property rights of third parties; product liability claims; our inability to protect
certain intellectual property, including systems and technologies on which we rely; our inability to hire or retain for
any reason our key professionals, management and staff; health epidemics or pandemics or other outbreaks or
events, or national or world events or disasters, beyond our control, changes in political and regulatory conditions,
including tax and trade policies; and the possibility that, for unforeseen or other 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.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED March 28, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number 001-33938
TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
11126 McCormick Road, Hunt Valley, Maryland
(Address of principal executive offices)
52-0729657
(I.R.S. Employer
Identification No.)
21031
(Zip Code)
Registrant’s telephone number, including area code (410) 229-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.01 par value
Trading Symbol
TESS
Name of each exchange on which registered:
Nasdaq
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 ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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
Nasdaq as of September 27, 2020, was $37,234,870.
The number of shares of the registrant's Common Stock, $0.01 par value, outstanding as of June 2, 2021, was 8,886,031.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy Statement for the registrant’s 2021 Annual Meeting of Shareholders, scheduled to
be held July 29, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
Signatures
2
Item 1. Business.
General
Part I
TESSCO Technologies Incorporated (which we sometimes refer to as “Tessco”, “we”, or the “Company”) is a
value-added technology distributor, manufacturer, and solutions provider serving customers in the wireless infrastructure
market. The Company was founded more than 35 years ago with a commitment to deliver industry-leading products,
knowledge, solutions, and customer service. Tessco supplies over 48,000 products from more than 300 of the industry’s
top manufacturers in mobile communications, Wi-Fi, Internet of Things, 5G, wireless backhaul, and more. Tessco is a
single source for outstanding customer experience, expert knowledge, and complete end-to-end solutions for the wireless
industry.
On December 2, 2020, we sold most of our retail inventory and certain other retail-related assets to Voice Comm,
LLC (“Voice Comm”). In connection with this sale, we assigned or licensed our Ventev®- related intellectual property,
including the Ventev® trademark to Voice Comm for their use in connection with the sale of mobile device and accessory
products. Together, this resulted in the Company’s exit from its Retail business. Accordingly, the accompanying
Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued
operation and certain prior period amounts have been reclassified on the Consolidated Balance Sheets and Consolidated
Statements of (Loss) Income to conform with current period presentation. See Note 19, “Discontinued Operations”, for
further information. Additionally, the narrative discussion presented below in this Item 1 of this Annual Report, is specific
to the continuing operations of the Company (formerly, our Commercial segment), unless otherwise noted.
Our customers include a diversified mix of carrier and public network operators, tower owners, program
managers, contractors, integrators, private system operators (including railroads, utilities, mining operators and oil and gas
operators), federal, state and local governments, manufacturers, national solutions providers (NSPs) and value-added
resellers. We currently serve an average of approximately 3,800 different customers per month.
We provide our customers with products and solutions to help them support these primary applications:
IoT (Internet of Things)
• Broadband
• DAS (Distributed Antenna Systems) for In-Building Cellular and Public Safety Coverage
• First Responder Communications and FirstNet™
•
• Microwave
• Power Systems
• Small Cell and Macro Cell Wireless Base Station Infrastructure, including 5G buildouts
•
• Wi-Fi Networks
• Test and Maintenance
• Wireless Backhaul
• CBRS (Citizens Broadband Radio Service) and PLTE (Private Long-Term Evolution)
In-Vehicle and Mobile Communications
We source and develop our product offerings from leading manufacturers throughout the world, and also offer
innovative, high quality products developed and manufactured under our proprietary brand, Ventev®, to our customers. In
connection with the recent sale to Voice Comm of Retail business assets, we licensed or assigned to Voice Comm certain
intellectual property rights, including our Ventev® brand as it relates to mobile device accessory products. We generally
retain rights to the Ventev® brand as it relates to other than mobile device and accessory products.
Our operational platform removes complexity for customers and suppliers by streamlining the management of
the supply chain and lowering total inventory and cost by providing the option of guaranteed availability and complete,
on-time delivery to the point of use.
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We began our “total source” operations in 1982, reincorporated as a Delaware corporation in 1987, and have been
listed on Nasdaq (symbol: TESS), since 1994. We operate under ISO 9001:2015 and TL 9000:2016-V R6.2/5.7
registrations.
For information regarding our website address and regarding material available free of charge through the website,
see the information appearing under the heading “Available Information” included in Item 7 to this Annual Report on
Form 10-K for the fiscal year ended March 28, 2021.
Customers
After exiting our Retail business, we operate as one business segment, formerly referred to as our Commercial
segment, which consists of the following two markets: (1) public carriers that are generally responsible for building and
maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers
and integrators, which includes value-added resellers, the government channel and private system operator markets.
Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products
typically used by business entities or governments.
Sales to the public carrier market accounted for approximately 40% of our fiscal year 2021 revenues, and sales to
the value-added resellers and integrator market accounted for 60% of fiscal year 2021 revenues.
Our top ten customer relationships were responsible for 34% of our revenue for fiscal year 2021, and revenue
from our largest customer accounted for 11% of our revenues.
Approximately 97% 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 50 countries. Due to our diverse product offering and our wide
customer base, our business is not significantly affected by seasonality in the aggregate. However, our base station
infrastructure sales could be affected by weather conditions or events in the United States, especially in our fourth fiscal
quarter. Our fourth quarter is also at times impacted by delays in our customers’ calendar year budget approval processes.
Products
We principally offer competitively priced, manufacturer branded products, ranging from simple hardware items
to sophisticated test equipment, with per item prices ranging from less than $1 to over $50,000 and gross profit margins
ranging from less than 5% to 99%. We offer products broadly classified into the following three categories: base station
infrastructure; network systems; and installation, test and maintenance products.
Base station infrastructure products are used to build, repair and upgrade wireless broadband systems. These
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. Network systems products
include fixed and mobile broadband radio equipment, wireless networking filtering systems, distributed antenna systems,
two-way radios and security and surveillance products. 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, replacement
and component parts and supplies required by service technicians.
While we principally provide manufacturer branded products, a variety of products are developed, manufactured
and offered under our own brand, Ventev. These products generally consist of network infrastructure products, such as
radio enclosures, power products, cable and antennas. Sales of Ventev® products were 8% of our revenues in fiscal year
2021.
Tessco’s Technical Services and Solutions Development teams are a key element of our offering as a value-added
distributor. This includes Sales Engineering, Solution Architects, System Designers and Customer Technical Support
(“CTS”). The broad product and supplier knowledge along with the multiple supplier certifications have also been
recognized as a great benefit by our supplier partners and customers. The Sales Engineers provide regional coverage
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supporting Tessco’s customers on the total Solution portfolio. Solution Architects are specialists in their area of expertise
providing consultation and system design. The CTS team are product level experts ensuring the correct devices are
specified based on the application. This team can also recommend additional ancillary products (antennas, cables, power,
enclosures, etc.) needed to provide a complete solution for the customer’s application. These services, other than design
services, which comprise an immaterial portion of our revenue, are provided as a complete offering and are not billed in
addition to the product.
These teams provide customer support on thousands of calls and thousands of support ticket-items per year. They
have completed designs covering solutions for DAS (Distributed Antenna Systems), IOT (Internet of Things), WiFi,
Networking, Wireless Broadband, Power Systems and Test Systems. These solutions teams support both existing and
emerging markets, including Smart Cities, Smart Buildings, Small Cell, FirstNet, Utilities, Transportation, Network
Service Providers (NSP) and Fortune 500 companies.
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.
Revenues from sales of products purchased from our largest wireless infrastructure supplier accounted for 29%
of fiscal year 2021 continuing operations revenues. Sales of products purchased from our ten largest wireless infrastructure
suppliers generated approximately 53% of our total fiscal year 2021 revenues. No other individual supplier accounted for
more than 10% of sales.
The amount of purchases we make from each of our approximately 300 suppliers may significantly increase or
decrease over time. As the level of business changes, we may request, or be requested by our suppliers, to adjust the terms
of our relationships. Therefore, our ability to purchase and re-sell products from each of our suppliers depends on being
able to reach and maintain agreements with these suppliers on acceptable business terms. In addition, the agreements and
arrangements on which most of our larger supplier 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 or otherwise short
notice. Generally, we believe that alternative sources of supply are available for many of the product types we carry,
although we may be unable, or find it more difficult, to source branded products from other than the manufacturer.
The scope of products available for purchase from a given supplier may fluctuate and is generally limited only by
the scope of the supplier’s catalog and available inventory. Therefore, we may source the same product type from multiple
suppliers, although in some instances branded products are available only from the manufacturer or a particular supplier,
and in some instances, customers might favor one supplier or brand over another. The terms of the supplier contract
typically apply to all products purchased from a particular supplier, whether or not the item is specifically identified in the
contract.
When negotiating with suppliers, we seek the most favorable terms available under the circumstances. Our
preferred terms include among others, terms that provide for product warranty and return rights, as well as product liability
and intellectual property indemnification rights, in each case consistent with our preferred business methods and objectives.
We have not been able, nor do we expect in the future to be able, to negotiate the inclusion of all our preferred terms, or
our preferred language for those terms, in every supplier contract. The degree of our success in this regard is largely a
function of the parties’ relative bargaining positions.
We are dedicated to superior performance, quality and consistency of service in an effort to maintain and expand
supplier 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.
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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;
• 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.
Market Development and Sales: In order to meet the needs of a dynamic and diverse marketplace, our sales and marketing
activities are focused on our customers across these broad markets: 1) public carriers, and 2) value-added resellers and
integrators. This organization allows for the development of unique product and solution offerings to meet the needs of
our diverse customer base.
We understand and anticipate our customers’ needs, resulting in comprehensive solutions and long-lasting
relationships. Our customer base includes more than 270,000 fully opted in contacts across the full breadth of the wireless
industry, with over 250,000 additional active contacts in our database, representing potential new customers. We are able
to identify each contact’s unique need for information and the way in which they wish to receive it. This can include
targeted marketing materials, including email marketing, web marketing, advertisements, direct mailers, and trade show
marketing, to drive purchases and new business development. For instance, our email publication The Wireless Update is
sent to a targeted list of 108,000 contacts each week.
Our dedicated sales team provides customer service and maintains key information about every customer or
potential customer utilizing our Customer Relationship Management (CRM) and marketing automation tools ensuring a
positive experience at every interaction and allowing us to identify promising leads and allocate resources to convert them
to customers. We serve approximately 3,800 customers each month and our goal is to create an experience that nurtures
loyalty among our customers and delivers mutually beneficial outcomes in every transaction.
Solutions Development and Engineering and Product Management: We actively monitor advances in technologies and
industry trends, through both market research and continual customer and manufacturer interaction 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 personnel, including those we refer to as “Solution
Architects” offer applications engineering to market-specific needs such as:
DAS (Distributed Antenna Systems), Cellular and Public Safety IoT (Internet of Things)
Two-Way/LMR (Land Mobile Radio)
•
•
• Wireless Networks
• PLTE
• Broadband
• Macro and Small Cells
• Power Systems
• Test Solutions
In addition to determining the product offering, our Product and Solutions Development and Engineering Teams
provide the technical foundation for both customers and our personnel. Our product management software is continually
updated to add new products and additional technical information in response to manufacturer specification changes and
customer inquiries. This system contains detailed information on each SKU offered, including full product descriptions,
category classifications, technical specifications, illustrations, product cost, pricing and delivery information, alternative
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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.
Strategic Marketing – As a thought leader in the wireless industry, Tessco’s marketing materials educate the industry and
promote our services and unique value proposition. Our weekly commercial digital newsletter, The Wireless Update, keeps
108,000 of our customers informed on the latest news in the industry, new products and solutions from our manufacturers,
upcoming events and training opportunities, and more. In addition, strategic marketing supports the organization through
the development of compelling original content, training programs, and other customer and manufacturer programs that
solve business challenges and increase the value Tessco provides to the industry.
Tessco.com® is our e-commerce site and the digital gateway to our comprehensive industry expertise, products,
and solutions for wireless. In addition to access to our inventory of products for every solution, Tessco.com features:
• Powerful parametric product search capabilities;
• Real-time product availability;
• Real-time customer-specific pricing;
• Easy ordering capabilities that allow for the construction and configuration of complete, end-to-end solution
that can be converted to an order, or saved, copied, shared, uploaded and emailed;
• A variety of customer service, financial and technical support pages, including account controls which
include all of the tools necessary to track and manage orders, update an account, find the right support, review
saved orders, 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 reservations, order status, and order history; and
• Manufacturer portal pages designed to showcase each manufacturer partner’s offer in a custom fashion.
Key improvements made to Tessco.com this past year include:
• Freight carrier information to enable order tracking;
• A “Proxy Shop” enabling Tessco sales team to provide live order assistance;
• Chatbot feature with expanded Live Chat Support; and
• Cart Abandonment Tool with automated email follow-up.
Tessco.com empowers our customers to make better decisions by delivering product knowledge so they are fully
informed. This destination also enables our manufacturers to reach a broad and diverse customer base with their product
offer and brand features.
Customer Support and Order Entry: Our customer support teams are responsible for delivering sales and customer support
services through an effective and efficient transaction system. We also continually monitor our customer service
performance through customer surveys and process auditing. 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.
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 history for key
personnel, as well as detailed product information, including technical, product availability and pricing information. The
information technology system enables any customer support representative to provide any customer with personalized
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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, professional 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 customers decreased from approximately 4,200 for fiscal year 2020 to approximately 3,800 in fiscal year 2021. Due to
the addition of several larger new relationships, the average monthly purchase per customer increased from $5,300 in fiscal
year 2020 to $5,500 in fiscal year 2021.
Procurement and Inventory Management: Our product management and purchasing system provides customers with a
total source of broad and deep product availability, while attempting to maximize 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 supplier lead times are all used to determine appropriate inventory levels. Our
information technology system also provides early warning reports regarding upcoming inventory requirements. As of
March 28, 2021, and March 29, 2020, we had an immaterial level of backlog orders. Most backlog orders as of March 28,
2021 are expected to be filled within 90 days of fiscal year-end. For fiscal years ended March 28, 2021, and March 29,
2020, inventory write-offs and reserves were 1.0% and 0.7% of total purchases, respectively. Inventory turns for fiscal
years 2021 and 2020 were 5.9 and 6.7, respectively.
Fulfillment and Distribution: Orders are received at our Timonium, 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 guaranteeing 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
and continue to make substantial investments in the development of these systems, which integrate 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 these systems is available on a real-time
basis to all of our employees as needed and is utilized in every area of our operations. Over the past two years we have
been preparing to replace our legacy ERP system with a modern SAP ERP system. This new ERP system is expected to
go live during fiscal year 2022.
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 or distribution systems, or freight carrier interruption, could impair our ability to receive and process orders or
to ship products in a timely and cost-efficient manner.
Competition
The wireless communications distribution industry is competitive and fragmented, and is comprised of
distributors such as Alliance Corporation, Anixter, Connectronics Corporation, DoubleRadius, GetWireless, Graybar,
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KGPCo Logistics, Primus, Talley Communications, Site Pro 1, WAV Wireless, and Winncom. In addition, many
manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low, and the risk of new
competitors entering the market is high. In addition, the agreements or arrangements with our customers or suppliers
looking to us for product and supply chain solutions are typically of limited duration and are often terminable by either
party upon several 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 300 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, the level of our customer service and the
reliability of our order fulfillment process.
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 intellectual property, 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®, LinkUPS®, Solutions That Make Wireless Work®, TerraWave Solutions®,
TESSCO®, TESSCO Making Wireless Work®, TESSCO Technologies®, Tessco.com®, Ventev®, The Vital Link to a Wireless
World®, Wireless Now®, Wireless Solutions®, The Wireless Update®, Your Total Source®, and 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.
We currently hold eleven patents related to our Ventev® products. 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.
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Environmental Regulation
We are subject to various laws and governmental regulations concerning environmental matters and employee
safety and health matters in the United States. 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 2021, and there are no material expenditures
planned for such purposes in fiscal year 2022.
Human Capital
At Tessco, we aspire to build partnerships within all levels of the organization to create a culture that values and
rewards all team members. Our culture encourages and rewards exceptional performance and continuous improvement,
fosters teamwork, and supports career development and growth. We provide benefits that address the needs of our team
members, compensation that is rewarding, a learning environment that is both exciting and challenging and we provide
many different growth opportunities that benefit from the many skills of our diverse workforce. We have a professional
working environment that fosters respect and celebrates our diverse perspectives.
As of March 28, 2021, we had 589 full-time equivalent employees, reduced from 678 as of March 29, 2020, in
part as a result of our Retail business exit. Of our full-time equivalent employees, 285 were engaged in customer and
supplier service, marketing, sales and product management, 191 were engaged in fulfillment and distribution operations
and 113 were engaged in administration and technology systems services. Our employees are not covered by collective
bargaining agreements. Each year, we set corporate, department and individual goals that we use to measure performance
during our annual review process.
We offer a very competitive health benefit that is the same for all of our team members and is very affordable.
We encourage our employees to participate in our health and wellness programs which include medical, dental and vision
insurance. We offer a 401(k) program with an employer match, tax saving flexible spending accounts and Tessco paid life
insurance and Employee Assistance Program.
We believe that the structure of our compensation program is aligned with the interests of our shareholders,
rewards performance and serves to attract and retain employees.
We post all of our positions internally and follow a selection process that is open to all. Team Members that want
to learn more about new opportunities are encouraged to have discussions with any of our Team Leaders as outlined in our
open-door policy. We follow all processes and procedures of Affirmative Action and set yearly goals to ensure diversity
in all of our Equal Employment Opportunity categories.
We have a commitment to sustainable environmental practices and operations, diversity and inclusion,
professional and leadership development, community involvement, and participation in and support of charitable causes.
Our employee population is approximately 40% female and 36% minorities. Additionally, women currently hold 47%
and minorities hold 21% of the key leadership positions. We continually strive to improve and created an ESG Committee
made up of individuals from around the organization to focus on our employee population as well as our environmental
and social stewardship. We strive to provide our employees with a variety of resources and tools to promote training and
development. 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 named executive
officers is as follows:
Name
Age
Position
Sandip Mukerjee
58
President and Chief
Executive Officer
Aric M. Spitulnik
49
Senior Vice President,
Secretary, and Chief
Financial Officer
Douglas A. Rein
61
Senior Vice President of
Performance Systems and
Operations
Sandip Mukerjee joined the Company in August of
2019. Mr. Mukerjee served as President, Global
Professional and Consulting Business, Nokia
Software from 2016 to 2018. Before that, Mr.
Mukerjee worked for Alcatel where he held the
positions of Sr. Vice President, Wireless and
Software Strategy from 2006 to 2010 and then
President
and General Manager, Advanced
Communications from 2010 to 2013 and President &
General Manager, IP Platforms for the Americas.
Aric Spitulnik joined the Company in 2000. Mr.
Spitulnik was appointed Controller in 2005 and Vice
President in 2006. In 2012, he was appointed
Corporate Secretary, and in 2014 he was appointed
Senior Vice President. Since October 2013, Mr.
Spitulnik has served as the Company’s Chief
Financial Officer.
Douglas 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.
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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 have incurred net losses in each of the past two fiscal years, and we may not be able to achieve profitability, or do
so in a timely manner.
We incurred consolidated net losses of $8.7 million and $21.6 million for fiscal years 2021 and 2020, respectively
(losses of $14.3 million and $15.6 million, respectively, from continuing operations). During the past three years, we have
taken steps to refresh our management team and board of directors, and we have made and expect to make significant
investments in the replacement of our information technology platform. These efforts may prove more expensive than
we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses.
While we believe we are making progress to improve our operating profitability, there can be no assurances that we will
achieve profitability or that profitability will be achieved in a timely manner.
We face risks related to adverse global or national economic conditions or events (including health epidemics and trade
wars and other outbreaks and events beyond our control) that could significantly disrupt our business and adversely
affect our business, financial position and results of operations.
Our business, financial position and results of operations could be adversely affected by weak or unstable global
or national economic conditions, including international trade protection measures and disputes, such as those between the
United States and China, and public health issues or events, such as the COVID-19 pandemic discussed below. A
significant portion of our product offerings, including a majority of our private label Ventev products and products we
acquire from our suppliers, are manufactured in foreign countries, including China and Vietnam, and many of the
component parts of our products manufactured in Vietnam are sourced from China. Our ability to meet our customers'
demands depends, in part, on our ability to obtain timely and adequate delivery of inventory from our suppliers. Weak or
unstable global or national economic conditions could harm our suppliers’ businesses, contributing to product shortages
or delays, supply chain disruptions, increased product costs and other adverse effects on their operations, which could
hamper our ability or preclude us from obtaining timely and adequate delivery of inventory from our suppliers, as needed
to support our business. In addition, many products produced for others in the industries we serve, and which our product
offerings are intended to complement, are subject to many of the same risks and uncertainties as are ours, and perhaps
others. If production or sales of those products are impacted by negative events, so will be the demand for our
complementary products. Any of these events or occurrences could have a negative impact on our business, financial
positions and results of operations.
In late December 2019, a strain of coronavirus, commonly referred to as COVID-19, surfaced in Wuhan, China.
On January 30, 2020, the World Health Organization declared this coronavirus outbreak a health emergency of
international concern. During the fourth quarter of fiscal year 2020, COVID-19 spread to the U.S. and resulted in most
states imposing restrictions on travel, business operations and gatherings. As a result, many of our customers were
temporarily closed or significantly scaled back their operations. Many non-essential projects were delayed, or project
venues have been unreachable. While vaccines have been introduced and are continuing to be rolled out across the United
States and elsewhere, our business and results of operations have been, and may continue to be, adversely affected to the
extent the coronavirus and its ongoing and lingering affects continue to harm the U.S. and world economy generally, or
otherwise interfere with our supply chain or the manufacture of products that ours are intended to complement or otherwise
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rely upon. Because we source some of our products from foreign markets, we may be susceptible to the effects of
continuing outbreaks or resurgences of coronavirus elsewhere, and any resulting disruption of our supply chain.
We may also experience negative effects from future health epidemics or outbreaks or other world events or
disasters beyond our control. These events are impossible to forecast and difficult to mitigate. As a consequence, our
operating results for a particular period may be more difficult to predict. Any of these events could have a material adverse
effect on our business, results of operations and financial condition.
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 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
are also seeing increased competition in the form of e-commerce sites as consumers and business are increasingly looking
to the internet to purchase goods.
We offer no assurance that we will not lose market share, or that we will not be forced in the future to reduce our
prices in response to the actions of our competitors, thereby reducing our gross margins. Furthermore, to remain
competitive we may be forced to offer more credit or extended payment terms to our customers. This could increase our
required capital, financing costs, and the amount of our bad debt expenses.
We typically purchase and sell our products 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 suppliers, those agreements and
arrangements typically contain no purchase or sale obligations and are otherwise terminable by either party upon
several months or otherwise short notice.
Our sales to customers and our purchases from suppliers 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 suppliers, but they are largely administrative in nature and are terminable by either party upon
several months or otherwise short notice, and they typically contain no purchase or sale obligations. Many of our customer
and supplier contracts contain “evergreen” clauses, although this too is largely a matter of administrative convenience,
because the contracts are nevertheless typically terminable on short notice, and because no purchase and sale obligation in
any event arises other than pursuant to an accepted purchase order. When negotiating with customers and suppliers, we
seek the most favorable terms available under the circumstances. Our preferred supplier terms include, among others, terms
that provide for product warranty and return rights, as well as product liability and intellectual property indemnification
rights, in each case consistent with our preferred business methods and objectives. We have not been able, nor do we
expect in the future to be able to negotiate the inclusion of all our preferred terms, or our preferred language for those
terms, in every contract. The degree of our success in this regard is largely a function of the parties’ relative bargaining
positions.
When unable to negotiate the inclusion of our preferred terms or preferred language in a particular supplier
contract, we assess any increased risk presented, as well as mitigating factors, analyze our overall business objectives, and
then proceed accordingly. In some instances, we refuse the contract and seek other sources for the product, and in other
instances business objectives and circumstances are determined to outweigh or mitigate any increased risk, or otherwise
dictate that we proceed with the contract, notwithstanding. We consistently seek to manage contractual risks resulting
from supplier contracts not including our preferred terms or language. However, these risks persist, and even when we are
successful in negotiating our preferred terms, performance of these terms is not assured.
If our suppliers refuse to, or for any reason are unable to, supply products to us in sufficient quantities to meet
demand, or at all, 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
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adversely affected. Similarly, if customers decide to purchase from other sources, instead of from us, or experience
significant changes in demand internally or from their own customer bases, become financially unstable (including on
account of unforeseen events or events beyond their control, such as the COVID-19 pandemic), or are acquired by another
company, our ability to generate revenues from these customers may, or in some cases would, be significantly affected,
resulting in an adverse effect on our financial position and results of operations.
The loss or any change in the business habits of key customers or suppliers may have a material adverse effect on our
financial position and results of operations.
Because our standing arrangements and agreements with our customers and suppliers typically contain no
purchase or sale obligations and are terminable by either party upon several 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 suppliers. We have experienced the loss and changes in the business habits of key customer
and supplier relationships in the past and expect to do so again in the future. This is the nature of our business.
Sales of products purchased from our largest wireless infrastructure supplier generated approximately 29% of our
revenues in fiscal year 2021, and sales of products purchased from our largest ten suppliers generated approximately 53%
of fiscal year 2021 revenues. As is the case with many of our supplier and customer relationships, our contractual
arrangements with these large suppliers are terminable by either party upon several months’ notice. If these contracts or
our relationships with these suppliers terminate for any reason, or if any of our other significant supplier relationships
terminate for any reason, and we are not able to sell or procure a sufficient supply of those products from alternative
sources, or at all, our financial position and results of operations would be adversely affected. Our suppliers are subject to
many if not all of the same (or similar) risks and uncertainties to which we are subject, as well as other risks and
uncertainties, and we compete with others for their business. Accordingly, we are at a continual risk of loss of their business
on account of a number of factors and forces, many of which are largely beyond our control.
In fiscal year 2021, our largest customer accounted for 11% of our revenues. 26% of our sales in fiscal 2021 were
made to five customers. Also, customer mix can change rapidly, and we may see changes in customer concentrations in
the future. If or when any of our significant customer relationships terminate for any reason, and we are not able to replace
those customers and associated revenues, our financial position and results of operations would be adversely affected.
The loss of customer relationships and the corresponding reduction in the volume of product sales identified to
those relationships, can also affect our negotiating ability with suppliers supplying those products. This can affect our
margins on 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 acquire those products from suppliers or offer those products to our customers on favorable
terms, our competitiveness may suffer and result in reduced revenues and profits. Like our suppliers, our customers are
subject to many if not all of the same (or similar) risks and uncertainties to which we are subject, as well as other risks and
uncertainties, and we compete with others for their business. Accordingly, we are at continual risk of loss of their business
on account of a number of factors and forces, many of which are largely beyond our control.
There can be no assurance that we will be successful in replacing any of our past, present or future supplier or
customer relationships if and when lost, or that we will not suffer a substantial reduction in revenues as a result of loss of
any such relationship. As such, supplier, customer, or revenue loss would adversely affect our financial position and results
of operations.
Changes in customer or product mix could cause our gross margin percentage to decline.
We continually experience changes in customer and product mix that affects gross margin. Changes in customer
and product mix result primarily from changes in customer demand, customer acquisitions or losses, selling and marketing
activities and competition.
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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, 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
an 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 suppliers to satisfy our capital needs and finance growth. The impact of the COVID-19
pandemic on financial markets continues to evolve, and as this occurs and new regulations come into effect, and as the
financial markets change on account of other forces and events, the cost of acquiring financing and the methods of
financing may change. Changes in our credit rating or other market factors may increase our interest expense or other costs
of capital, or capital may not be available to us on competitive terms to fund our working capital needs. Our existing
secured revolving credit facility contains various financial and other covenants that may limit our ability to borrow or limit
our flexibility in responding to business conditions. In addition, even if the terms of our revolving credit facility would
otherwise allow or require, our lenders may refuse to lend to us through no fault of ours. The inability to maintain or when
necessary obtain adequate sources of financing could have an adverse effect on our business. Our existing secured
revolving credit facility includes variable rate debt, thus exposing us to risk of fluctuations in interest rates. Such
fluctuations in interest rates could have an adverse effect on our business, financial position and results of operations. We
may in the future use interest rate swaps in an effort to achieve a desired proportion of fixed and variable rate debt. We
would utilize these derivative financial instruments to enhance our ability to manage risk, including interest rate exposures
that exist as part of our ongoing business operations. However, our use of these instruments may not effectively limit or
eliminate our exposure to a decline in operating results due to changes in interest rates.
Our ability to maintain and borrow under our revolving credit agreement could be constrained by the level of eligible
receivables and product inventory and by any failure to meet certain financial and other covenants in our revolving
credit agreement.
Our borrowing availability under our secured revolving credit facility is determined in part by a borrowing base
and is limited to certain amounts of eligible accounts receivable and inventory. If the value of these accounts receivable
and product inventory were to decrease significantly, the amount available for borrowing under the facility would decrease
and our ability to borrow under the facility could be significantly impacted. Borrowing under the facility is also conditioned
upon compliance with financial and other covenants included in the revolving credit agreement and a related guaranty and
security agreement. Among these is a covenant to maintain a fixed charge coverage ratio at any time during which the
borrowing availability is otherwise less than $12.5 million. There are no assurances that we will be able to comply with
all applicable covenants in these agreements, and in the event that we do not, our ability to borrow under our secured
revolving credit facility could be limited or suspended or could terminate.
If we fail to meet our payment or other obligations under our secured revolving credit facility, our lenders could
foreclose on, and acquire control of, a significant portion of our assets.
Indebtedness under our secured revolving credit facility is secured by continuing first priority security interests
in our inventory, accounts receivable, and deposit accounts, and on all documents, instruments, general intangibles, letter
of credit rights, and chattel paper relating to inventory and accounts, and to all proceeds of the foregoing. If we fail to
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meet our payment or other obligations under our secured revolving credit facility, our lenders could foreclose on these
assets, which would have a material adverse effect on our business, results of operations and financial condition.
We may 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 suppliers, in cases
where our arrangements with these suppliers do not provide for inventory price protection, or in cases where the supplier
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 affected, resulting in an adverse effect on our financial position and
results of operations.
The failure of our information technology or telecommunication systems, or our inability to maintain or upgrade our
information technology or telecommunication systems without incident or delay, or undue cost, could have a material
adverse effect on our business, financial position and results of operations.
We are highly dependent upon our internal information technology and telecommunication systems, many of
which are proprietary, to operate our business. These systems support all aspects of our business operations, including
means of internal and external communication, inventory and order management, shipping, receiving and accounting. Most
of our information technology systems contain a number of internally developed applications. In addition, all of these
systems require continued maintenance and also require upgrading or replacement from time to time. There can be no
assurance that these 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 systems, that we
will be able to convert to new systems efficiently as and when necessary, or that we will be able to integrate new programs
effectively with our existing programs, in each case without incident or delay, or undue cost.
Complications with the design or implementation of our new enterprise resource planning system could adversely
impact our business and operations.
We rely extensively on information systems and technology to manage our business and summarize operating
results. We are in the process of an implementation of a new global enterprise resource planning (“ERP”) system. This
ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain
the Company’s financial records, enhance operational functionality and provide timely information to the Company’s
management team related to the operation of the business. The ERP system implementation process has required, and will
continue to require, the investment of significant personnel and financial resources. We may not be able to successfully
implement the ERP system without experiencing delays, increased costs and other difficulties. If we are unable to
successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash
flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the
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ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be
adversely affected or our ability to assess those controls adequately could be delayed.
We, like most businesses, are subject to risk of cyber-attack and fraudulent and criminal activities of others and incur
significant costs in efforts to defend these attacks and activities.
We like most businesses are continually subject to risk of cyber-attack and fraudulent and criminal activities of
others, and are continually engaged in an effort to defend against and to ward off attacks from hackers and others. We have
experienced cyber-attacks and suffered as a result of the fraudulent and criminal activities of others from time to time.
Any of such problems or events, including any significant damage or destruction of our systems, including pursuant to or
as a result of system security breaches, data protection breaches or other cyber-attacks, could result in significant disruption
in our business and operations, harm our relationship with our customers or suppliers, and result in significant losses in
revenues. Corrective action and compliance with applicable privacy and data protection laws could be costly. Any of these
or similar events or occurrences could have an adverse effect on our business, financial position and results of operations.
While we maintain insurance in an effort to manage some of these risks, insurance may not cover all losses and recovery
is subject to applicable deductibles and other terms and limitations of the policies.
We depend heavily on e-commerce, and website security breaches or internet disruptions could have a material adverse
effect 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 effect on our business, financial position and results of
operations.
System security breaches or data protection breaches could adversely disrupt our business and harm our reputation,
financial position and results of operations.
We manage and store various proprietary information and sensitive or confidential data relating to our business.
In addition, we routinely process, store and transmit large amounts of data, including sensitive and personally identifiable
information, including customer credit card data and other information. Breaches of our security measures or the accidental
loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about
us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud,
trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse
of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm
our business. In addition, the cost and operational consequences of implementing further data protection measures could
be significant. Such breaches, costs and consequences could adversely affect our business, results of operations or cash
flows.
We are also subject to payment card association operating rules, certification requirements and rules governing
electronic funds transfers, including the Payment Card Industry Data Security Standard (PCI DSS), a security standard
applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.
From time to time we may not be fully or materially compliant with PCI DSS or other payment card operating rules. Any
failure to comply fully or materially with the PCI DSS now or at any point in the future may violate payment card
association operating rules and the terms of our contracts with payment processors and merchant banks, and could subject
us to fines, penalties, damages and civil liability, and could result in the loss of our ability to accept credit and debit card
payments. Maintaining compliance with these regulations is costly and there is no guarantee that we will be successful or
avoid fines, penalties, damages or civil liability, and even if successful, there is no guarantee that PCI DSS compliance
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will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and
debit cards, credit and debit card holders and credit and debit card transactions.
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. Most of the members of our senior management team are parties to employment contracts or
arrangements with us that provide for, among other things, various severance payments or benefits upon termination of
their employment under certain circumstances, including termination by the Company without “cause” or for “good
reason”, and those contracts generally renew from year to year, except for the employment contract with Mr. Mukerjee,
our CEO, which commenced in August 2019 and expires in March 2023. The loss of any of the members of our senior
management team, could have an adverse effect on our business, financial position and results of operations.
To attract, retain and motivate qualified employees, we rely heavily on stock-based incentive awards such as
Performance Stock Units (PSUs) and stock options. If performance targets associated with PSUs are not met, or the value
of such awards does not appreciate as measured by the performance of the price of our common stock and/or if our other
stock-based compensation, such as stock options, 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, stock options and other equity instruments 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. We may currently issue awards under our incentive plan through June 4, 2029, and only insofar as shares are
available for awards thereunder. As of May 25, 2021, the most recent date when PSUs and other equity instruments were
issued, there were 303,279 shares available for future awards. Therefore, our ability to offer stock-based incentive awards
may be limited, which may have an adverse effect on our continued ability to attract and retain, and motivate, our
employees, and, subsequently, on our business, financial position and results of operations. In addition, an increase in the
number of shares for future awards, under either current or future compensation or incentive plans or arrangements could
lead to dilution of our other stockholders.
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 either 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.
Disruption to our supply chain could impair our ability to produce or deliver inventory, resulting in a negative impact
on our operating results.
Due to several factors, including a raw materials shortage, global factory backlogs, transportation delays and
customs delays caused in part due to the global economy recovering from the impact of COVID-19, our supply chain has
been adversely impacted and lead times have increased considerably, beginning in the fourth quarter of fiscal year 2021.
Future disruption to our global manufacturing operations or our supply chain could also result from, among other factors,
the following:
•Natural disaster;
•Pandemic outbreak of disease;
•Climate change and severity of extreme weather;
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•Fire or explosion;
•Terrorism or other acts of violence;
•Labor strikes or other labor activities;
•Unavailability of raw or packaging materials;
•Operational and/or financial instability of key suppliers, and other vendors or service providers; and
•Suboptimal production planning which could impact our ability to cost-effectively meet product demand.
While we believe that most competitors are experiencing similar supply chain delays, we also believe that we
are taking adequate precautions to mitigate the impact of the current disruptions to the extent possible and reasonable.
We have strategies and plans in place intended to manage disruptive events such as the current supply chain disruption
and other disruptions, if and when they occur, including our global supply chain strategies. If we are unable, or find that
it is not financially feasible, to effectively procure sufficient inventory on a timely basis to meet our customers’ demands,
due to the potential impacts of such disruptive events on our supply chain, our financial position, results of operations
and cash flows could be negatively impacted if such events were to occur.
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 suppliers
or technological obsolescence or failure. It is the policy of many of our suppliers to protect distributors like us from the
loss in value of inventory due to technological change or failure, or the suppliers’ price reductions. Some suppliers
(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 like us will continue, that unforeseen new product developments, product failure or product
obsolescence will not adversely affect us, or that we will be able to successfully manage our existing and future inventories.
Our future operating results depend on our ability to purchase a sufficient amount of inventory to meet the demands
of our customers.
Our ability to meet our 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 products or 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.
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.
Indefinite lived intangible assets that are not amortized are initially recorded at fair value, and are reviewed for
impairment at least annually or more frequently if impairment indicators are present.
In assessing the recoverability of 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
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management’s judgment in applying these factors. As of March 28, 2021, we had $795,000 of indefinite lived intangible
assets, which represented approximately 0.4% of total assets.
Deferred income tax assets and liabilities represent the tax effect of the differences between the financial reporting
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 current tax laws, historical results, 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 an adverse effect on our results
of operations or financial condition.
Our future results of operations may be impacted by prolonged weakness in the economic environment which
may result in an impairment of the 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 an adverse effect 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 effect on our business, financial position and results of operations.
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. Also, several of our
larger customers, including tier 1 public carrier customers, require greater than 30-day payment terms which could increase
our credit risk and decrease our operating cash flow.
We may 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 from time to time 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.
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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 due to the COVID-19 pandemic, 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. The adoption
or expansion of trade restrictions or the occurrence of trade wars could have a material adverse effect on our business,
financial position and results of operation.
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 suppliers
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 effect 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.
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 an 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 effects. 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 subjects us to the risk of product liability claims. We have also been increasing our focus
on sales of our proprietary Ventev® products and on providing an increased level of support services, including product
and network designs, which also subjects us to risk of product liability and performance claim risk. We seek to allocate
product liability risk to our suppliers where available but may not be successful in doing so. 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 we might be successful in allocating
that risk to others, 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 adversely affect our business as a whole.
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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 8% of our sales in fiscal year 2021. 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 an adverse effect on our business and financial performance.
A significant portion of our product offerings, including a majority of our Ventev® products and products we acquire
from our suppliers, are manufactured in foreign countries, making the price and availability of these products
susceptible to international trade risks and other international conditions.
A significant portion of our products are manufactured in foreign countries, including China. The countries,
specifically China, in which many of our products currently are manufactured or may be manufactured in the future are or
could become subject to trade restrictions imposed by the U.S., including increased tariffs or quotas, embargoes and
customs restrictions, which would increase the cost or could reduce the supply of products available to us, and could have
a material adverse effect on our business, financial condition and results of operations.
There is also a concern that the imposition of additional tariffs by the United States could result in the adoption
of tariffs by other countries as well. Such tariffs on imports from foreign countries, as well as changes in tax and trade
policies, such as a border adjustment tax or disallowance of certain tax deductions for imported product, could materially
increase our manufacturing costs, the costs of our imported products or our income tax expense, which would have a
material adverse effect on our financial condition and results of operations. Tariffs imposed by China or other foreign
countries on imports of our products could also adversely affect our international e-commerce sales. Any increase in
manufacturing costs, the cost of our products or limitation on the amount of products we are able to purchase, could have
a material adverse effect on our financial condition and results of operations. Unless we are able to sufficiently mitigate
their effects as applicable to us, the persistence or increase of tariffs, may adversely affect us or our business.
Legislative or regulatory action could be taken that could limit our ability to use certain foreign suppliers to supply us
with products.
Members of the U.S. Congress and certain regulatory agencies have raised concerns about American companies
purchasing equipment and software from Chinese telecommunications companies, including concerns relating to alleged
violations of intellectual property rights by Chinese companies and potential security risks posed by U.S. companies
purchasing technical equipment and software from Chinese companies. In October 2012, the U.S. House of
Representatives Permanent Select Committee on Intelligence issued a report asserting that network equipment
manufactured by Chinese telecommunications companies poses a security threat to the United States and recommending
the use of other network suppliers. The report also recommends that Congress consider adopting legislation to address
these and other purported risks. Any such legislative or regulatory requirement that restricts us from purchasing or utilizing
equipment or software from Chinese or other foreign companies with which we do or seek to do business, any
determination by foreign companies upon which we rely to cease doing business in the United States, any determination
by any of our suppliers or customers not to do business with us on account of actual or perceived business relationships
that we may have with these suspect Chinese or other foreign companies, or any determination that we otherwise make
that it is either necessary or advantageous for us to cease doing business with such foreign companies, could limit our
product offerings, result in increased costs of goods and have a material adverse effect on our financial condition and
results of operations.
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. 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
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purchased for resale. Further, we may be obligated to indemnify and defend our customers if the products or services we
supply to them are alleged to infringe a third party’s intellectual property rights. While we may be able to seek
indemnification from our suppliers to protect our customers and us from such claims, there is no assurance that we will be
successful in negotiating contractual terms with our suppliers to provide for such indemnification, or that we will otherwise
be successful in obtaining such indemnification or that we will be protected from such claims. We may also be prohibited
from marketing products, could be forced to market products without desirable features, or could incur substantial costs to
defend legal actions, including where third parties claim that we or suppliers who may or may not have indemnified us are
infringing upon their intellectual property rights. In recent years, individuals and groups have begun purchasing intellectual
property assets for the sole purpose of making claims of infringement and attempting to extract settlements from target
companies. Even if we believe that such infringement claims are without merit, the claims can be time-consuming and
costly to defend and divert management’s attention and resources away from our business. Claims of intellectual property
infringement may require us to enter into costly settlements or pay costly damage awards, or face a temporary or permanent
injunction prohibiting us from marketing or selling certain products or services, which could affect our ability to compete
effectively. If an infringement claim is successful, we may be required to pay damages or seek royalty or license
arrangements, which may not be available on commercially reasonable terms. Even if we have an agreement that
indemnifies us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations
to us.
We may be adversely affected by laws or regulations.
We are subject to various U.S. Federal, state and local, and non-U.S. laws and regulations. We cannot predict the
substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new laws
or regulations or changes in existing laws or regulations, or the interpretations thereof, could increase the cost of doing
business for us or our customers or suppliers or restrict our actions and adversely affect our financial condition, operating
results and cash flows. For example, annual disclosure and reporting requirements relating to the SEC’s conflict minerals
rule require us to perform a reasonable country of origin inquiry and conduct further due diligence measures on our supply
chain. There are costs and uncertainties associated with complying with these disclosure requirements, including for
diligence to determine the sources of conflict minerals that we may find to be used in our products.
Risks Related to our Exit from the Retail Business
We may not receive all of the potential payments to us under the terms of the Inventory Purchase Agreement applicable
to our exit from the Retail business, or we may otherwise realize less net cash from the sale than expected.
In addition to amounts already paid to us, there are a number of payment obligations between the parties under
the terms of the Inventory Purchase Agreement with Voice Comm for the sale of certain assets related to our Retail
business. These include post-closing adjustments up to two years, potential payments to us in respect of certain future re-
sales by Voice Comm of retail inventory purchased from us, potential royalty payments to us related to Voice Comm’s
sale of Ventev-branded mobile accessory products, and warranty and indemnity obligations. Voice Comm’s business, on
which its future payments to us are dependent, is subject to many of the same risks that we are subject to, and perhaps
other risks. Accordingly, we may not receive all of the payments due to us under the terms of the Inventory Purchase
Agreement or we may be required to make payments to Voice Comm in the form of adjustments or otherwise, and we may
realize less overall net cash from the sale than we might otherwise anticipate. In addition, we have not transferred but have
instead retained our receivables related to our historical Retail business, and those receivables remain subject to risks
typically associated with receivables, including collection risks.
The Inventory Purchase Agreement with Voice Comm exposes us to contingent liabilities and other risks that could
adversely affect our business or financial condition.
Pursuant to the Inventory Purchase Agreement, we have made customary representations and warranties and the
parties have agreed to indemnify each other for breaches of representations, warranties and covenants contained in the
Inventory Purchase Agreement. The Inventory Purchase Agreement also subjects us to other risks typical in business
transactions of this type, including payment and performance risks. The terms of the Inventory Purchase Agreement are
complex and address all aspects of our former Retail business, including return of sold inventory, product warranty
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obligations, and customer and vendor relationships, among others. Should disputes arise or should we incur liability for
breach of any of these representations, warranties or obligations, or should any of these other risks materialize, our
business, financial condition or results of operations could be materially adversely affected. In addition, we have assigned
or licensed Ventev®- related intellectual property to Voice Comm, including the Ventev® trademark for their use in
connection with the sale of mobile device and accessory products, while we continue to use the brand and other Ventev®-
related intellectual property in our ongoing and continuing business. This intellectual property sharing arrangement could
result in identity confusion in the marketplace, and the actions or activities of one of Tessco or Voice Comm in respect of
the shared intellectual property, whether positive or negative, may reflect on the other.
Our long-term business prospects will depend on the success of our Commercial business.
As a result of our exit from the Retail business, our Commercial business is our sole remaining cash-generating
business, and our overall business has become less diverse. Our long-term business prospects will, therefore, be dependent
almost entirely on the success of our Commercial business and any other businesses that we pursue.
The Inventory Purchase Agreement with Voice Comm imposes non-compete obligations on us and our affiliates.
Under the terms of the Inventory Purchase Agreement, the Company has agreed, on behalf of itself and its
affiliates (including any owner of a majority of Tessco), not to compete with Voice Comm’s retail business as operated by
the Company at closing, for a period of five years after the closing date. Tessco will, however, retain the ability to continue
to supply retail products to its commercial customers; and other exceptions to the non-compete obligation allow Tessco to
divest itself of Retail inventory not acquired by Voice Comm. The overall non-compete obligation may, however, be
terminated early by us upon the occurrence of certain change in control events and the payment to Voice Comm of certain
agreed upon amounts (approximately $5,000,000, initially), which diminishes ratably over the five year non-compete
period. This could make certain changes in control involving us more costly and therefore more difficult or less likely.
Disagreements may arise between the parties as to the scope and meaning of the non-compete obligations and the various
exceptions, which could be disruptive and subject us to claims for damages or specific performance of the non-compete
obligations.
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 54% of our outstanding common stock as of March 28, 2021. Robert
B. Barnhill, Jr., our Chairman of the Board, beneficially owned approximately 18% of our outstanding common stock as
of March 28, 2021. These shareholders, and particularly if they decide to act together, have or 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.
Our business could be negatively impacted as a result of any future activism activities by Robert B. Barnhill, Jr. and
certain other participants in his consent solicitation and/or other activist investors.
As noted above, Mr. Robert B. Barnhill Jr. holds approximately 18% of our outstanding common stock. In
September 2020, Mr. Barnhill and persons acting together with Mr. Barnhill initiated a consent solicitation to seek the
consent of our stockholders holding at least a majority of our outstanding shares of common stock to, among other things,
remove five members of our Board and replace them with four director candidates identified by Mr. Barnhill (the “Consent
Solicitation”). Consents solicited during the Consent Solicitation were delivered to the Company on December 11, 2020.
The Consent Solicitation and the Company’s response to it has resulted in, significant distraction for management
and significant costs to the Company. Further, Consent Solicitations or other activities by Mr. Barnhill or by other activist
shareholders could result in yet additional distractions and costs and could lead to a materially adverse impact on our
business or operating results.
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Our quarterly financial results may fluctuate, which could lead to volatility in our stock price.
Our revenue and operating results have fluctuated from quarter to quarter in the past and may continue to do so
in the future. As a result, you should not rely on quarter-to-quarter comparisons of our operating results as an indication
of our future performance. Fluctuations in our revenue and operating results could negatively affect the trading price of
our stock. 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. Therefore, our revenue and results of operations may, in
the future, be below the expectations of analysts and investors, which could cause our stock price to decline. Factors that
are likely to cause our revenue and operating results to fluctuate include the risk factors discussed throughout this section.
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, including advance notice bylaws, 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. We are 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.
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 for the
acquisition of all of our 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 suppliers. Any such uncertainty could make it more difficult for us to retain key employees and
hire new talent, and could cause our customers and suppliers 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.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
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 City, in Hunt Valley, Maryland.
Our sales, marketing and administrative offices are located in 102,200 square feet of leased office space near the
GLC, in Timonium, Maryland. The monthly rent payments range from $183,000 to $203,800 throughout the remaining
lease term, which expires on December 31, 2025.
Back to Table of Contents | 25
In addition, we lease 66,000 square feet of office and warehouse space adjacent to the GLC in Hunt Valley,
Maryland. The monthly rent for this facility ranges from $40,500 to $43,000 throughout the remaining lease term, which
expires on July 31, 2023, subject to our annual option to terminate.
Additional sales and marketing offices are located in 13,100 square feet of leased office space in San Antonio,
Texas. Monthly rent payments are $19,100 and the lease expires October 31, 2021.
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.
Item 3. Legal Proceedings.
Lawsuits and claims are filed against us from time to time in the ordinary course of business. We do not believe
that any lawsuits or claims currently pending against the Company, individually or in the aggregate, are material, or will
have a material adverse effect on our financial condition or results of operations. In addition, from time to time, we are
also subject to review from federal and state taxing authorities in order to validate the amounts of income, sales and/or use
taxes which have been claimed and remitted.
As we are routinely audited by state taxing authorities, we have estimated exposure and established reserves for
our estimated sales tax audit liability.
Item 4. Mine Safety Disclosures
Not applicable.
Back to Table of Contents | 26
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock has been publicly traded since September 28, 1994, on Nasdaq, under the symbol "TESS."
As of June 2, 2021, the number of shareholders of record of the Company was 160. We estimate that the number
of beneficial owners as of that date was approximately 3,049.
On July 28, 2009, we announced that our Board of Directors had decided to commence a cash dividend program
and thereafter our Board of Directors declared dividends on a quarterly basis, through the fourth quarter of fiscal 2020. On
April 28, 2020, the Board of Directors suspended Tessco’s dividend in an effort to further strengthen its cash position. 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 2021 and 2020 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. Our revolving credit
facility may limit the amount of cash dividends that we may pay through the application of financial covenants and ratios
that restrict dividend payments.
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 2021 and 2020 the total value of shares withheld for taxes were $121,500 and $201,000, respectively.
The secured Revolving Credit Facility also restricts our ability to pay dividends and to repurchase our shares.
Assuming that no default exists, we may redeem or repurchase up to $2,000,000 of our shares in any 12 consecutive month
period in connection with the payment or satisfaction of tax withholding obligations of participants under our equity
compensation plans. We may pay dividends or effect redemptions provided that no default exists or will exist after giving
effect to the dividend or repurchase, and the average Excess Availability is not less than $18,750,000 during the
immediately preceding thirty-day period and after giving effect to the dividend or repurchase on a pro forma basis, and for
each day of the thirty-day period not less than $12,500,000. Excess Availability is generally defined as Availability minus
the aggregate amount of trade payables aged in excess of historical levels and all book overdrafts in excess of historical
practices. In addition to these conditions, dividends and repurchases of our shares, other than repurchases in connection
with tax withholding as noted above are in any event limited to $625,000 per quarter and not more than $2,500,000 in the
aggregate during the period October 29, 2020 through October 28, 2021, at which time these quarterly and aggregate limits
expire. At March 28, 2021 we had the ability to withhold or repurchase $2 million in additional shares of our common
stock during fiscal 2021, 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 2021 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.
Back to Table of Contents | 27
Stock Performance Graph
The graph set forth below shows the value of an investment of $100 on March 27, 2016 in each of the Company’s
common stock, the Russell 2000 Index and a peer group for the period of March 27, 2016 to March 28, 2021. The graph
assumes that all dividends, if any, were reinvested.
3/27/2016 3/26/2017 4/1/2018 3/31/2019 3/29/2020 3/28/2021
TESSCO Technologies
Incorporated
Russell 2000
Peer Group (1)
$ 100.00 $ 92.99 $ 151.08 $ 106.46 $ 40.29 $ 53.68
220.28
184.69
148.72
136.59
145.74
126.37
100.00
100.00
127.34
106.32
110.91
112.65
(1) – The Peer Group consists of the following: ScanSource Inc., and W.W. Grainger Inc.
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. This group has been updated
since prior years to remove two previously included peer group companies whose shares are no longer traded.
Back to Table of Contents | 28
Item 6. Selected Financial Data.
In accordance with the SEC staff Financial Reporting Manual and in conjunction with the filing of the fiscal 2021
Form 10-K, we elected not to recast the selected financial data for fiscal year 2017 and 2018 for the exit of the Retail
business that occurred in fiscal 2021 as discontinued operations. As such, the below selected financial data for fiscal years
2017 and 2018 includes the results of the divested Retail segment.
March 28, 2021 March 29, 2020 March 31, 2019 April 1, 2018
March 26, 2017
Fiscal Years Ended
STATEMENT OF
INCOME DATA
Revenues
Cost of goods sold
Gross profit
Selling, general and
administrative expenses
Goodwill impairment
Restructuring charge
Operating (loss) income
Interest expense, net
(Loss) income from
continuing operations before
(benefit from) provision for
income taxes
(Benefit from) provision for
income taxes
Net (loss) income from
continuing operations
EBITDA(1)
Diluted (loss) earnings per
share from continuing
operations
Adjusted EBITDA(1)
Cash dividends declared per
common share
Percentage of Revenues
Revenues
Cost of goods sold
Gross profit
Selling, general and
administrative expenses
Goodwill impairment
Restructuring charge
Operating expenses
Operating (loss) income
Interest, net
(Loss) income from
continuing operations before
(benefit from) provision for
income taxes
(Benefit from) provision for
income taxes
Net (loss) income from
continuing operations
$ 373,340,700 $ 409,014,400 $ 419,044,800
334,640,100
84,404,700
329,372,500
79,641,900
305,625,100
67,715,600
$ 580,274,700
460,046,300
120,228,400
$ 533,295,100
421,527,300
111,767,800
85,507,100
—
—
(17,791,500)
426,300
92,005,200
9,108,600
488,000
(21,959,900)
1,116,300
95,347,000
—
—
(10,942,300)
853,800
112,326,700
—
—
7,901,700
429,100
108,416,300
—
806,600
2,544,900
58,600
(18,217,800)
(23,076,200)
(11,796,100)
7,472,600
2,486,300
(3,844,500)
(7,474,800)
(2,913,800)
2,277,200
1,041,200
(14,373,300)
(14,047,000)
(15,601,400)
(17,933,800)
(8,882,300)
(7,323,400)
5,195,400
11,894,300
1,445,100
6,783,800
$
(1.65) $
(1.83) $
(12,836,000)
(7,650,600)
(1.05)
(6,079,400)
$
0.61
12,896,400
$
0.17
7,218,200
$
— $
0.62 $
0.80
$
0.80
$
0.80
100.0 %
81.9
18.1
100.0 %
80.5
19.5
100.0 %
79.9
20.1
100.0 %
79.3
20.7
100.0 %
79.0
21.0
22.9
—
—
22.9
(4.8)
0.1
(4.9)
(1.0)
22.5
2.2
0.1
24.8
(5.4)
0.3
(5.6)
(1.8)
22.8
—
—
22.8
(2.6)
0.2
(2.8)
(0.7)
19.4
—
—
19.4
1.4
0.1
1.3
0.4
20.3
—
0.2
20.5
0.5
0.0
0.5
0.2
(3.8) %
(3.8) %
(2.1) %
0.9 %
0.3 %
Back to Table of Contents | 29
SELECTED OPERATING DATA
Average commercial buyers per
month
Return on assets (2)
Return on equity (3)
BALANCE SHEET DATA
Working capital
Total assets
Short-term debt
Long-term debt
Shareholders' equity
Fiscal Years Ended
March 28, 2021 March 29, 2020 March 31, 2019 April 1, 2018 March 26, 2017
3,800
(7.6) %
(17.9) %
4,200
(8.4) %
(16.2) %
4,800
11,600
12,500
(5.0) %
(8.2) %
2.8 %
4.8 %
0.8 %
1.3 %
March 28, 2021 March 29, 2020 March 31, 2019 April 1, 2018
March 26, 2017
As of Fiscal Years Ended
$ 67,840,900
189,077,900
—
30,583,200
76,750,200
$ 51,164,700
208,708,700
25,563,900
—
83,702,700
$ 74,636,000
206,495,800
14,380,400
—
108,787,200
$ 74,789,400
199,423,700
10,862,700
2,300
108,051,600
$ 77,194,500
173,980,500
26,500
29,800
108,016,300
(1) See “Reconciliation of Non-GAAP Measures” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations,
below in this Annual Report on Form 10-K.
(2) Net income divided by the average total assets.
(3) Net income divided by the average total equity.
Item 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”, “our”, “us”, or the “Company”) architects and delivers
innovative product and value chain solutions to support wireless systems. Although we sell products to customers in over
50 countries, approximately 97% of our sales are to customers in the United States. We have operations and office facilities
in Timonium and Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.
On December 2, 2020, we sold most of our Retail inventory and certain other retail-related assets to Voice Comm.
In connection with this sale, we assigned or licensed certain Ventev®- related intellectual property to Voice Comm,
including our Ventev® trademark for their use in connection with the sale of mobile device and accessory products.
Together, this resulted in our exit from our Retail business. Cash proceeds of $9.5 million were received at the time of
sale. As part of the sale agreement, we are entitled to royalty payments, up to $3.0 million in the aggregate, on the sale of
Ventev® branded products by Voice Comm over a four-year period after closing. Additionally, some customer returns we
receive may be resold to Voice Comm over a two-year period after closing. As a result of the disposal, the operating results
of our former Retail segment have been included in Income (loss) from discontinued operations, net of taxes in the
Consolidated Statements of (Loss) Income for all periods presented. We retain the Ventev® tradename for non-mobile
device accessory products.
As a result of this sale and our exit from the Retail business during the third quarter of fiscal 2021, we now operate
as one business segment, which we had historically referred to as our Commercial segment.
We provide certain information within two key markets: (1) public carriers that are generally responsible for
building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-
added resellers and integrators, which includes value-added resellers, the government channel and private system operator
Back to Table of Contents | 30
markets. Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes
products typically used by business entities or governments.
We offer a wide range of products that are classified into three categories: base station infrastructure; network
systems; and installation, test and maintenance. Base station 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. In this category, 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.
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, 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 suppliers looking to us for product and supply chain solutions are typically of limited duration and are terminable by
either party upon several months or otherwise short notice. Our ability to maintain these relationships is subject to
competitive pressures and challenges. 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 300 manufacturers provide us with a significant competitive advantage over new entrants to the market.
Results of Continuing Operations
The following tables summarize the results of our continuing operations for fiscal years 2021, 2020 and 2019:
(Dollars in thousands, except per share data)
2020 to 2021
2019 to 2020
2021
2020
$ Change
% Change
2019
$ Change
% Change
Revenues
Public Carriers
Value-added resellers and integrators
Total Revenues
(6,570)
$ 149,825 $ 156,395 $
(29,103)
252,619
223,516
$ 373,341 $ 409,014 $ (35,673)
(588)
(4.2) % $ 156,983 $
(9,443)
(11.5) % 262,062
(8.7) % $ 419,045 $ (10,031)
(0.4) %
(3.6) %
(2.4) %
2021
2020
$ Change
% Change
2019
2020 to 2021
2019 to 2020
$ Change % Change
Gross Profit
Public Carriers
Value-added resellers and integrators
Total Gross Profit
Selling, general and administrative expenses
Goodwill impairment
Restructuring Charge
Operating loss
Interest, net
Loss from continuing operations before
provision for income taxes
Benefit from income taxes
Net loss from continuing operations
Diluted loss per share from continuing
operations
60,943
79,642
92,005
9,109
488
(21,960)
1,116
85,507
—
—
(17,791)
426
(18,218)
(3,845)
(23,076)
(7,475)
$ (14,373) $ (15,601) $
16,585 $
$
51,131
67,716
18,699 $
(2,114)
(9,812)
(11,926)
20,275 $
(11.3) % $
(16.1) % 64,130
(15.0) % 84,405
(1,576)
(3,187)
(4,763)
(6,498)
(9,109)
(488)
4,168
(691)
4,858
3,630
1,228
(7.1) % 95,347
—
(100.0) %
(100.0) %
—
(19.0) % (10,942)
854
(61.9) %
(3,342)
9,109
488
(11,018)
263
(21.1) % (11,796)
(2,914)
(48.6) %
(8,882) $
(7.9) % $
(11,280)
(4,561)
(6,719)
(7.8) %
(5.0) %
(5.6) %
(3.5) %
100.0 %
— %
100.7 %
30.7 %
95.6 %
156.5 %
75.6 %
$
(1.65) $
(1.83) $
0.18
(9.7) % $
(1.05) $
(0.78)
73.8 %
Back to Table of Contents | 31
Fiscal Year 2021 Compared to Fiscal Year 2020
As noted above, we exited our Retail business during fiscal year 2021 and now report activity from that Retail
business as discontinued operations. The analysis below reflects activity and results from continuing operations only,
including references to Ventev®.
Revenues. Revenue for fiscal year 2021 decreased by 8.7% as compared to fiscal year 2020. Revenue in our
public carrier market and value-added resellers and integrators market decreased by 4.2% and 11.5%, respectively. The
decline was largely driven by a combination of continued headwinds from the economic downturn and the impact of
COVID-19. Both markets were also impacted in the fourth quarter by delays in the global supply chain which delayed our
receipt of inventory from our vendors and as a result caused delays in our ability to ship products to our customers. These
delays are expected to continue into a substantial portion of fiscal year 2022.
Cost of Goods Sold. Cost of goods sold for fiscal year 2021 decreased by 7.2% as compared to fiscal year 2020.
Cost of goods sold in our public carrier market and value-added resellers and integrators market decreased by 3.2% and
10.1%, respectively. The decline was primarily due to a decrease in related revenue in both markets.
Gross Profit. Gross profit decreased by 15.0% in fiscal year 2021 as compared to fiscal year 2020. This compares
to a decline in revenue of 8.7% in fiscal year 2021 as compared to fiscal year 2020. Gross profit in our public carrier market
and value-added resellers and integrators market decreased from 12.0% to 11.1% and from 24.1% to 22.9%, respectively.
We experienced margin compression within our public carrier market primarily due to a change in customer mix, with
increased sales going to larger customers which require better pricing. The margin decline in the value-added resellers and
integrators market declined due to product mix, including lower sales of Ventev® products and customer mix. As a result
of these drivers on gross profit, overall gross profit margin decreased to 18.1% in fiscal year 2021, compared to 19.5% in
fiscal year 2020.
Our ongoing ability to earn revenues and gross profits from customers and suppliers 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 supplier’s business, the supply and
demand for the product or service, including price stability, changing customer or supplier requirements, and our ability
to support the customer or supplier and to continually demonstrate that we can improve the way they do business. In
addition, the agreements or arrangements on which our customer and supplier relationships are based are typically of
limited duration, typically do not include any obligation in respect of any specific product purchase or sale and are
terminable by either party upon several months or otherwise short notice. Our customer relationships could also be affected
by wireless carrier consolidation or global financial crisis, including the COVID-19 pandemic or other events beyond our
control.
We account for inventory at the lower of cost or net realizable value and as a result write-offs/write-downs occur
due to damage, deterioration, obsolescence, changes in prices and other causes. These expenses were 3% or less of overall
purchases for each of the last three fiscal years.
Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative
expenses decreased 7.1% during fiscal year 2021 as compared to fiscal year 2020. Total selling, general and administrative
expenses as a percentage of revenues increased from 22.5% in fiscal year 2020 to 22.9% in fiscal year 2021. The following
are descriptions of changes in significant components of selling, general, administrative, goodwill charges and
restructuring expenses.
• Compensation and benefits expenses decreased by $6.2 million in fiscal year 2021 as compared to fiscal
year 2020, mainly due to lower operations overhead as well as a $1.4 million decrease in health insurance
expense.
• Marketing expenses, including travel and entertainment costs, decreased by $2.7 million in fiscal year 2021
as compared to fiscal year 2020, primarily as a result of fewer customer and vendor events and tradeshows
as a result of the COVID-19 pandemic.
• Fiscal year 2021 included $2.6 million of costs, net of insurance recoveries, related to the consent solicitation
that concluded during the third quarter.
Back to Table of Contents | 32
• The Company also incurred a $0.5 million restructuring charge related to severance expense for the first
quarter of fiscal 2020, and a $9.1 million non-cash goodwill impairment loss during fiscal 2020. The
goodwill impairment was due to the decline of results in fiscal year 2020 and future year projections, the
significant reduction in our market capitalization during the second half of the fiscal year (due to a decrease
in stock price) and significant decline in market multiples considered in the market based valuation. There
was no restructuring cost or goodwill impairment loss during fiscal 2021.
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 recovery of bad debts of $0.3 million for fiscal year 2021, and a provision for bad debts of $1.1 million, for
fiscal year 2020. The recovery of bad debts for fiscal year 2021 primarily related to receivables written off in fiscal 2020
based on the uncertainty caused by the COVID-19 pandemic.
Interest, Net. Net interest expense decreased from $1.1 million in fiscal year 2020 to $0.6 million in fiscal year
2021. The decrease is primarily related to higher capitalized interest amount. Refer to Note 6 of the financial statements
included as part of this Annual Report on Form 10-K for additional information on our borrowings.
Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2021 and
2020 were 21.1% and 32.4%, respectively. The decrease in the effective tax rate is primarily a result of provisions in the
CARES Act which allowed the Company to carry back certain net operating losses up to five years. These net operating
losses were applied against net income that was taxed at a higher federal rate prior to the Tax Cuts & Jobs Act which was
signed into law in December 2017 (the “2017 Tax Act”) and went into effect in the third quarter of fiscal 2018. The benefit
of the carry back provision of the CARES Act was partially offset by valuation allowances on the deferred tax assets. As
a result of the factors discussed above, net loss for fiscal year 2021 decreased 7.9% and net loss per diluted share decreased
by 9.7%, compared with fiscal year 2020.
Fiscal Year 2020 Compared to Fiscal Year 2019
As noted above, we exited our Retail business during fiscal year 2021 and now report activity from that Retail
business as discontinued operations. The analysis below is based on activity and results from continuing operations only,
including references to Ventev®.
Revenues. Revenue for fiscal year 2020 decreased by 2.4% as compared to fiscal year 2019. Revenue in our
public carrier market and value-added resellers and integrators market decreased by 0.4% and 3.6%, respectively. The
decline was primarily because we did not realize the full benefits of sales strategy refinements in the value-added resellers
and integrators market.
Cost of Goods Sold. Cost of goods sold for fiscal year 2020 decreased by 1.6% as compared to fiscal year 2019.
Cost of goods sold in our value-added resellers and integrators market decreased by 3.2%, partially offset by a cost of
goods sold increase in our public carrier market of 0.7%. The decline was primarily due to a decrease in related revenue
in the value-added resellers and integrators market.
The imposition of tariffs on products that we imported increased the costs of those products and adversely affected
our gross profits and overall financial performance. A significant portion of our Ventev products are manufactured in
foreign countries, including China and increasingly of late, Vietnam. On May 9, 2019, the United States government
announced a 25% tariff on a range of products from China that are exported to the U.S. Responding to this, we were
successful in moving the manufacturing of a majority of our Ventev products out of China in an effort to mitigate tariff
costs, but we continued to incur additional tariff costs on product we have manufactured in, or component parts we continue
to source from, China. In January 2020, China and the U.S. entered the first phase of an economic and trade agreement.
There is no assurance that a broader trade agreement will be successfully negotiated between the U.S. and China to reduce
or eliminate existing tariffs applicable to the business of the Company.
Back to Table of Contents | 33
Gross Profit. Gross profit decreased by 5.6% in fiscal year 2020 as compared to fiscal year 2019. This compares
to a decline in revenue of 2.4% in fiscal year 2020 as compared to fiscal year 2019. Gross profit in our public carrier market
and value-added resellers and integrators market decreased from 12.9% to 12.0% and from 24.5% to 24.1%, respectively.
We experienced margin compression within our public carrier market primarily due to a change in customer mix, with
increased sales going to larger customers which require better pricing. As a result of these drivers on gross profit, overall
gross profit margin decreased to 19.5% in fiscal year 2020, compared to 20.1% in fiscal year 2019.
Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative
expenses decreased 3.5% during fiscal year 2020 as compared to fiscal year 2019. Total selling, general and administrative
expenses as a percentage of revenues decreased from 22.8% in fiscal year 2019 to 22.5% in fiscal year 2020. The following
are descriptions of changes in significant components of selling, general, administrative, goodwill charges and
restructuring expenses.
• Compensation and benefits expenses decreased by $3.6 million in fiscal year 2020 as compared to fiscal
year 2019, mainly due to a decrease in variable compensation in both sales and operations related to the
decline in overall revenues.
• Performance bonus expense (including both cash and equity plans) decreased by $2.1 million in fiscal year
2020 as compared to fiscal year 2019. Our bonus programs are typically based on achieving annual
performance targets. The relationship between expected performance and actual performance led to lower
bonus expenses in fiscal 2020, as compared to fiscal 2019.
• Expenses related to information technology increased by $2.8 million in fiscal year 2020 as compared to
fiscal year 2019, primarily due to increased cost to support our sales initiatives and to build more efficient
and effective systems.
The Company also incurred a $0.5 million restructuring charge related to severance expense for the first quarter
of fiscal 2020, and a $9.1 million non-cash goodwill impairment loss during fiscal 2020. The goodwill impairment was
due to the decline of results in fiscal year 2020 and future year projections, the significant reduction in our market
capitalization during the second half of the fiscal year (due to decrease in stock price) and significant decline in market
multiples considered in the market based valuation.
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 $1.1 million and $1.4 million for fiscal year 2020 and fiscal year 2019, respectively.
Interest, Net. Net interest expense increased from $0.9 million in fiscal year 2019 to $1.1 million in fiscal year
2020. The increase is primarily related to higher borrowing levels on our secured revolving credit facility. Refer to Note 6
of the financial statements included as part of this Annual Report on Form 10-K for additional information on our
borrowings.
Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2020 and
2019 were 32.4% and 24.7%, respectively. The change in the effective tax rate is primarily a result of provisions in the
CARES Act which allows the Company to carry back certain net operating losses up to five years. These net operating
losses for fiscal year 2020 were applied against net income that was taxed at a higher federal rate prior to the Tax Cuts &
Jobs Act which was signed into law in December 2017 (the “2017 Tax Act”) and went into effect in the third quarter of
fiscal 2018. The benefit of the carry back provision of the CARES Act was partially offset by valuation allowances
recorded in fiscal year 2020 on the deferred tax assets. As a result of the factors discussed above, net loss and diluted loss
per share for fiscal year 2020 increased 75.6% and 74.3%, respectively, compared with fiscal year 2019.
Back to Table of Contents | 34
Liquidity and Capital Resources
In summary, our cash flows were as follows (includes both continuing and discontinued operations):
2021
Fiscal Year
2020
2019
Cash flow (used in) provided by operating
activities
Cash flow used in investing activities
Cash flow provided by (used in) financing
activities
Net increase in cash and cash equivalents
$
(684,200) $
(2,654,400)
908,200 $ 8,246,700
(5,164,700)
(6,845,700)
4,398,600
$ 1,060,000 $
5,957,200
19,700 $
(3,071,100)
10,900
We used $0.7 million of net cash from operating activities during fiscal year 2021. This outflow was driven by
net loss (net of depreciation and amortization, gain on the retail sale, and non-cash stock compensation expense), and a
decrease in accounts payable partially offset by the decreases in accounts receivable and inventory. A decrease in deferred
income tax assets was offset by an increase income taxes receivable. Accounts receivable, inventory, and accounts payable
decreased due to our exit of the Retail business during the third quarter of fiscal 2021.
We generated $0.9 million of net cash from operating activities during fiscal year 2020. This inflow was driven
by net loss (net of depreciation and amortization, goodwill impairment loss, and non-cash stock compensation expense)
and a decrease in accounts receivable, partially offset by an increase in prepaid expenses and other current assets and an
increase in deferred income taxes. Accounts receivable decreased due to the timing of sales at the end of the fourth quarter
of fiscal year 2020 as compared to the fourth quarter of fiscal year 2019. Prepaid expenses and other current assets increased
due to an increase in income taxes receivable. Due to the CARES Act, the Company is able to carry back net operating
losses up to five years and receive a refund of taxes paid in prior years.
We generated $8.2 million of net cash from operating activities during fiscal year 2019. This inflow was driven
by net income (net of depreciation and amortization and non-cash stock compensation expense), an increase in accounts
payable and a decrease in inventory, partially offset by an increase in accounts receivable. Accounts payable increased due
to strategic purchase of inventory during the fourth quarter with extended terms to support our public carrier business.
Inventory decreased due to an intentional reduction of overall inventory in line with our efforts to manage working capital.
Accounts receivable increased due to the timing of sales at the end of the fourth quarter of fiscal year 2019 as compared
to the fourth quarter of fiscal year 2018.
Capital expenditures of $11.9 million in fiscal year 2021 were up from $6.8 million in fiscal year 2020 and from
$5.2 million in fiscal year 2019. Fiscal year 2020, 2019 and 2018 capital expenditures were largely comprised of
investments in information technology of $11.4 million, $6.8 million, and $4.4 million, respectively, primarily related to
the anticipated replacement of our legacy ERP system with a modern SAP ERP system. In fiscal year 2021, we generated
$9.2 million in cash proceeds related to the sale of certain retail assets to Voice Comm.
Cash flows generated from financing in fiscal year 2021 were primarily related to borrowings from our line of
credit. Cash flows generated from financing in fiscal year 2020 were primarily related to borrowings from our line of
credit, partially offset by cash dividends paid to shareholders. During the fourth quarter of fiscal year 2020, the Board of
Directors decreased the cash dividend from $0.20 to $0.02 in order to reallocate resources to increase investment in the
technology and talent to accelerate the Company’s long-term growth. Subsequent to fiscal year 2020, the Board of
Directors suspended Tessco’s dividend to further strengthen its cash position as the Company continues to monitor and
address the effects of the COVID-19 pandemic and other challenges. Cash flows used in financing in fiscal year 2019 were
primarily related to cash dividends paid to shareholders partially offset by borrowings from our line of credit.
On October 29, 2020, we entered into a Credit Agreement (the “Credit Agreement”) among the Company, the
Company’s primary operating subsidiaries as co-borrowers, the Lenders party thereto, and Wells Fargo Bank, National
Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank, and terminated our previous secured
Revolving Credit Facility. The Credit Agreement provides for a senior secured asset based revolving credit facility of up
Back to Table of Contents | 35
to $75 million (the “Revolving Credit Facility”), which matures in forty-two months, on April 29, 2024. As of March 28,
2021, borrowings under the secured Revolving Credit Facility totaled $30.6 million; therefore, we then had $44.4 million
available, subject to the Borrowing Base limitations and compliance with the other applicable terms of the Credit
Agreement discussed in Note 6 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Borrowings under the Credit Agreement accrue interest at the rates, and the Company is required to pay a monthly
commitment fee, as also discussed in Note 6 to our Consolidated Financial Statements included in this Annual Report on
Form 10-K.
At the end of fiscal year 2021, we were in compliance with all required financial covenants applicable under our
revolving credit facility with SunTrust Bank.
Working capital (current assets less current liabilities) increased to $67.8 million as of March 28, 2021 as
compared to $51.2 million as of March 29, 2020. Shareholders' equity was $76.8 million as of March 28, 2021, and $83.7
million as of March 29, 2020.
We believe that our existing cash, payments from customers, pending tax refunds and availability under our
revolving credit facility (including any amendment or replacement thereof), or if needed, financing we believe would be
available to us from other sources, will be sufficient to support our operations for at least the next twelve months. We
expect to meet short-term liquidity needs through cash on our balance sheet and operating cash flow, supplemented by our
revolving credit facility; and we expect to meet long-term liquidity needs through these same resources. If we were to
undertake an acquisition or other major capital purchases that require funds in excess of our 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, either to fund an acquisition or major capital purchase, or to
support our cash flow needs in the event of the termination of our existing revolving credit facility before it can be replaced
with an asset based facility, would be available on terms acceptable to us, if at all.
In addition, our liquidity could be negatively impacted by decreasing revenues and profits resulting from a
decrease in demand for our products or a reduction in capital expenditures by our customers, or by the weakened financial
conditions of our customers or suppliers, in each case as a result of a possible downturn in the global economy, caused in
part by the COVID-19 pandemic among other factors. Anticipated capital expenditures for fiscal year 2022 are expected
to range from $6 million to $10 million.
Reconciliation of Non-GAAP Measures
We believe that presenting certain non-GAAP financial measures may enhance an investor’s understanding of
our financial performance. We further believe that these financial measures are useful in assessing our operating
performance from period to period by excluding certain items that we believe are not representative of our core business.
We also use certain of these financial measures for business planning purposes, including management incentives.
Accordingly, the below selected financial data includes certain non-GAAP financial measures we believe are
commonly used by investors to evaluate our performance and that of our competitors. The use of EBITDA (earnings before
interest, taxes, depreciation, and amortization) and Adjusted EBITDA (EBITDA, less stock compensation and goodwill
impairment) should not be considered as an alternative to operating income (loss), net income (loss) or any other
performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows
or liquidity.
In accordance with the SEC staff Financial Reporting Manual and in conjunction with the filing of the fiscal 2021
Form 10-K, we elected not to recast the selected financial data for fiscal year 2017 and 2018 for the exit of the Retail
business that occurred in fiscal 2021 as discontinued operations. As such, the below selected financial data for fiscal years
2017 and 2018 includes the results of the since divested Retail segment, while fiscal years 2021, 2020, and 2019 exclude
that Retail activity.
Back to Table of Contents | 36
March 28, 2021 March 29, 2020 March 31, 2019 April 1, 2018
March 26, 2017
Fiscal Years Ended
Net income (loss) from continuing
operations
Add:
(Benefit from) provision for income
taxes
Interest, net
Depreciation and amortization
EBITDA
Add:
Stock-based compensation
Goodwill impairment
Adjusted EBITDA
$ (14,373,300) $ (15,601,400) $ (8,882,300) $ 5,195,400 $ 1,445,100
(3,844,500)
426,300
3,744,500
(14,047,000)
(7,474,800)
1,116,300
4,026,100
(17,933,800)
(2,913,800)
853,800
3,618,900
(7,323,400)
2,277,200
429,100
3,992,600
11,894,300
1,041,200
58,600
4,238,900
6,783,800
1,211,000
—
434,400
—
$ (12,836,000) $ (7,650,600) $ (6,079,400) $ 12,896,400 $ 7,218,200
1,244,000
—
1,002,100
—
1,174,600
9,108,600
Contractual Obligations
The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of
March 28, 2021:
Payment Due by Fiscal Year
Total
Less Than
1 Year
Years 1-3
Years 4-5
More Than
5 Years
Revolving credit facility (1)
Lease obligations
Other long-term liabilities (2)
Total contractual cash
obligations
$ 35,156,000
13,505,500
954,800
$ 1,487,300
3,164,000
63,300
$ 2,974,600
5,744,000
126,600
$ 30,694,100
4,597,500
126,600
$
—
—
638,300
$ 49,616,300
$ 4,714,600
$ 8,845,200
$ 35,418,200
$ 638,300
(1) We are subject to a variable interest rate on the outstanding balance on our revolving credit facility and a 0.25% fee
on the unused portion of our revolving credit facility. This balance includes projected variable interest payments based
on there being no movement on the line from what was outstanding at March 28, 2021, with the variable payments
based on a static rate of 4.5% on the outstanding balance and 0.25% related to the unused commitment fee.
(2) Other Long-Term Liabilities reflected on the Consolidated Balance Sheet include amounts owed under a Supplemental
Executive Retirement Plan.
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 account for revenue in accordance with ASC No. 606, Revenue from Contracts with
Customers, which we adopted on April 2, 2018, using the modified retrospective method. We recognize revenue when
control of promised goods is transferred to the customer. The amount of revenue recognized reflects the consideration to
which the Company expects to be entitled in exchange for transferring the goods.
Back to Table of Contents | 37
In most cases, shipments are made using Freight on Board (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 price concessions provided to customers,
future discounts provided by the Company, or other incentives subsequent to a sale. The Company sells under normal
commercial terms and, therefore, only records sales on transactions where collectability is reasonably assured. The
Company recognizes revenues net of sales tax.
We recognize revenues from sales transactions containing sales returns provisions at the time of the sale. The
potential for customer returns are considered a component of variable consideration under ASC No. 606 and it is therefore
considered when estimating the transaction price for a sale. We use the most likely amount method to determine the
amount of expected returns. The amount of expected returns is recognized as a refund liability, representing the obligation
to return the customer’s consideration. The return asset is measured at the former carrying amount of the inventory, less
any expected costs to recover the goods.
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 supplier
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 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;
whether the customer holds us responsible for the acceptability of the product; whether the product returns are handled by
us; and whether an obligation exists between the other parties and our customer. 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 1% of our total revenues for fiscal year 2021).
Allowance for Doubtful Accounts. We use estimates to determine the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable 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 write-off receivables deemed to be uncollectible to the allowance for doubtful accounts.
Accounts receivable balances are not collateralized by our customers.
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 as of March 28, 2021,
includes indefinite lived intangible assets of $0.8 million. We perform an annual impairment test for the indefinite lived
asset on the first day of our fourth quarter. We also periodically evaluate our long-lived assets for potential impairment
indicators. The 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 a quantitative analysis. Our judgments regarding the existence of impairment
indicators are based on estimated future cash flows, market conditions, operational performance and legal factors.
Back to Table of Contents | 38
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 long-lived assets or intangible assets are impaired. Had the determination
been made that the indefinite lived intangible assets were impaired, the value of this asset would have been reduced by an
amount up to $0.8 million, resulting in a corresponding charge to operations.
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 established a valuation allowance on the
deferred tax assets that are not more likely than not realizable.
We account for income taxes under the FASB’s ASC No. 740 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 de-recognition, measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
Stock-Based Compensation. We record stock-based compensation in accordance with the FASB standard
regarding stock compensation and share-based payments. We account for forfeitures as they occur rather than estimate
expected 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
A description of recently issued and adopted accounting pronouncements is contained in Note 2 to our
Consolidated Financial Statements.
Forward-Looking Statements
This Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts contained herein, including statements regarding our future results of operations and financial
position, strategy and plans, and our expectations for future operations, are 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.
We have based these forward-looking statements on our current expectations and projections about future events
and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business
operations and objectives, and financial needs. 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 described in Part I, Item IA “Risk Factors.” In light of these risks, uncertainties
and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could
differ materially and adversely from those anticipated or implied in the forward-looking statements. Consequently, the
reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject. Forward-
looking statements include, but are not limited to, statements about:
•
our expectations regarding the continuing impact of the COVID-19 pandemic on our business,
operations, revenues, profits, customers or suppliers;
Back to Table of Contents | 39
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to sustain or grow our customer base and market share;
our ability to sustain and grow our supplier relationships;
our expectations regarding the size and growth in markets;
the needs and demands of our customers and the production capacity of our suppliers;
trends in the wireless communications industry, our competitors and competing business models;
the execution of our business plans and strategies;
our ability to benefit from the disposition of our Retail business, including royalty revenues;
our ability to benefit from our Commercial business;
our liquidity and working capital requirements and ability to access capital;
our ability to secure, maintain and upgrade our information technology, telecommunications and e-
commerce systems;
our ability to anticipate and navigate existing and changes in laws or regulations, including tariffs and
trade restrictions, applicable to our business;
our ability to enter into and perform contracts and to realize anticipated revenues or anticipated savings;
and
our expectations regarding future revenues, expenses and profitability, and financial results generally.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person
assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-
looking statement made by us in this Annual Report speaks only as of the date on which it is made. We disclaim any duty
to update any of these forward-looking statements after the date of this Annual Report to confirm these statements to actual
results or revised expectations.
The above list should not be construed as exhaustive and should be read in conjunction with our other disclosures,
including but not limited to the risk factors described in Part I, Item 1A of this Annual Report. Other risks may be described
from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for
our management to predict all risks.
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. Based on March 28, 2021 borrowing levels, a 1.0% increase or decrease in current
market interest rates would not have material effect on our Consolidated Statements of (Loss) Income.
Foreign Currency Exchange Rate Risk:
We are exposed to an immaterial level of market risk from changes in foreign currency rates. Almost all of our
sales are made in U.S. Dollars so we have an immaterial amount of foreign currency risk. Those sales not made in U.S.
Dollars are made in Canadian Dollars.
Back to Table of Contents | 40
Item 8. Financial Statements and Supplementary Data.
TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
March 28,
March 29,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts receivable, net
Product inventory, net
Income taxes receivable
Prepaid expenses and other current assets
Current portion of assets held for sale
Total current assets
Property and equipment, net
Intangible assets, net
Deferred tax assets, net
Lease asset - right of use
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable
Payroll, benefits and taxes
Income and sales tax liabilities
Accrued expenses and other current liabilities
Revolving line of credit
Lease liability, current
Total current liabilities
Deferred tax liabilities, net
Revolving line of credit
Non-current lease liability
Other non-current liabilities
Total liabilities
Shareholders’ equity:
$
1,110,000 $
70,045,700
53,060,000
10,432,500
3,980,900
1,196,900
139,826,000
50,000
82,868,400
50,298,100
5,746,700
5,960,800
18,849,900
163,773,900
12,571,600
19,136,500
—
11,285,800
6,258,000
13,433,700
11,157,400
3,032,500
13,949,800
3,361,400
$ 189,077,900 $ 208,708,700
$ 59,415,600 $ 75,512,600
4,258,300
450,800
4,244,400
25,563,900
2,579,200
112,609,200
6,279,800
803,900
2,912,300
—
2,573,500
71,985,100
26,500
30,583,200
8,923,500
809,400
112,327,700
—
—
11,481,100
915,700
125,006,000
Preferred stock, $0.01 par value per share, 500,000 shares authorized and no
shares issued and outstanding
Common stock, $0.01 par value per share, 15,000,000 shares authorized,
8,844,083 shares issued and 8,833,833 shares outstanding as of March 28, 2021,
and 14,354,368 shares issued and 8,577,549 shares outstanding as of March 29,
2020
Additional paid-in capital
Treasury stock, at cost, 10,250 shares as of March 28, 2021 and 5,776,819 shares
as of March 29, 2020
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
—
—
104,200
67,227,700
101,400
65,318,500
(62,800)
9,481,100
76,750,200
(58,496,200)
76,779,000
83,702,700
$ 189,077,900 $ 208,708,700
The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
Back to Table of Contents | 41
TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of (Loss) Income
March 28, 2021
March 29, 2020
March 31, 2019
Fiscal Years Ended
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Restructuring charge
Operating loss
Interest expense, net
Loss from continuing operations before benefit
from income taxes
Benefit from income taxes
Net loss from continuing operations
Income (loss) from discontinued operations, net of
taxes
Net loss
Basic (loss) income per share
Continuing operations
Discontinued operations
Consolidated operations
Diluted (loss) income per share
Continuing operations
Discontinued operations
Consolidated operations
$
$
$
$
$
$
$
$
373,340,700 $
305,625,100
67,715,600
85,507,100
—
—
(17,791,500)
426,300
409,014,400 $
329,372,500
79,641,900
92,005,200
9,108,600
488,000
(21,959,900)
1,116,300
(18,217,800)
(3,844,500)
(14,373,300)
(23,076,200)
(7,474,800)
(15,601,400)
419,044,800
334,640,100
84,404,700
95,347,000
—
—
(10,942,300)
853,800
(11,796,100)
(2,913,800)
(8,882,300)
5,630,400
(8,742,900) $
(5,967,500)
(21,568,900) $
14,428,100
5,545,800
(1.65) $
0.65 $
(1.01) $
(1.65) $
0.65 $
(1.01) $
(1.83) $
(0.70) $
(2.53) $
(1.83) $
(0.70) $
(2.53) $
Basic weighted-average common shares outstanding
Effect of dilutive options and other equity instruments
Basic and diluted weighted-average common shares
outstanding
Cash dividends declared per common share
$
8,697,369
—
8,526,965
—
8,697,369
8,526,965
— $
0.62 $
The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.
Back to Table of Contents | 42
(1.05)
1.71
0.66
(1.05)
1.68
0.65
8,436,796
—
8,436,796
0.80
TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Common Stock
Additional
Paid-in
Amount Capital
Treasury
Retained
Earnings
Shares
8,396,537 99,000 60,611,900 (57,503,000) 104,843,700 108,051,600
811,300
(111,100)
—
(111,100)
52,067
(6,332)
810,800
—
—
—
500
—
Stock
Total
Shareholders’
Equity
300
—
—
26,257
—
—
1,243,700
—
—
1,244,000
(6,754,400) (6,754,400)
5,545,800
8,468,529 99,800 62,666,400 (57,614,100) 103,635,100 108,787,200
798,000
(882,100)
72,430
(55,321)
—
(882,100)
797,300
—
—
—
—
5,545,800
—
—
700
—
—
400
500
—
—
43,786
48,125
—
—
1,174,200
680,600
—
—
—
—
—
—
8,577,549 101,400 65,318,500 (58,496,200)
—
(121,600)
130,907
(23,031)
699,700
—
1,300
—
—
—
1,174,600
681,100
(5,287,200) (5,287,200)
(21,568,900) (21,568,900)
83,702,700
76,779,000
701,000
—
(121,600)
—
Balance at April 1, 2018
Proceeds from issuance of stock
Treasury stock purchases
Non-cash stock compensation
expense
Cash dividends paid
Net income
Balance at March 31, 2019
Proceeds from issuance of stock
Treasury stock purchases
Non-cash stock compensation
expense
Exercise of stock options
Cash dividends paid
Net income
Balance at March 29, 2020
Proceeds from issuance of stock
Treasury stock purchases
Non-cash stock compensation
expense
Retirement of treasury stock
Net loss
Balance at March 28, 2021
8,833,833 $ 104,200 $ 67,227,700 $
(62,800) $
148,408
—
—
1,500
—
—
1,209,500
—
—
—
58,555,000
—
1,211,000
—
(58,555,000)
—
(8,742,900) (8,742,900)
9,481,100 $ 76,750,200
The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.
Back to Table of Contents | 43
TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization
Goodwill impairment
Gain on sale of discontinued operations
Non-cash stock-based compensation expense
Deferred income taxes and other
Change in trade accounts receivable
Change in product inventory
Change in prepaid expenses and other current assets
Change in other assets and other liabilities
Change in trade accounts payable
Change in payroll, benefits and taxes
Change in income and sales tax liabilities
Change in accrued expenses and other current liabilities
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
Proceeds from sale of discontinued operations
Purchases of internal use software licenses eligible for
capitalization
Net cash used in investing activities
March 28, 2021
March 29, 2020 March 31, 2019
Year Ended
$
(8,742,900) $ (21,568,900)
$ 5,545,800
3,744,500
—
(3,020,800)
1,211,000
3,032,500
12,676,000
9,279,900
(2,007,600)
(3,304,200)
(15,197,600)
2,021,500
353,100
(729,600)
(684,200)
4,026,100
11,677,700
—
1,174,600
(2,977,200)
11,097,800
2,697,400
(6,144,700)
(251,400)
905,300
(1,671,200)
(298,200)
2,240,900
908,200
3,618,900
—
—
1,244,000
665,200
(6,103,900)
477,600
(1,073,700)
938,900
5,073,600
(2,361,600)
(1,590,200)
1,812,100
8,246,700
(806,100)
9,201,500
(288,000)
—
(2,855,200)
—
(11,049,800)
(2,654,400)
(6,557,700)
(6,845,700)
(2,309,500)
(5,164,700)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (borrowings) from 2016 Revolving Credit Facility
Gross proceeds from borrowings from 2020 Revolving Credit
Facility
Repayments of borrowings on 2020 Revolving Credit Facility
Payments of debt issuance costs
Payments on long term debt
Proceeds from issuance of stock
Proceeds from exercise of stock options
Cash dividends paid
Purchase of treasury stock and repurchase of stock from employees
and directors for minimum tax withholdings
Net cash provided by (used in) financing activities
(25,565,300)
11,185,800
3,542,700
137,868,500
(107,283,900)
(698,300)
—
199,200
—
—
—
—
—
(2,300)
262,400
680,600
(5,287,200)
—
—
—
(27,300)
279,000
—
(6,754,400)
(121,600)
4,398,600
(882,100)
5,957,200
(111,100)
(3,071,100)
Net increase in cash and cash equivalents
1,060,000
19,700
10,900
CASH AND CASH EQUIVALENTS, beginning of period
50,000
30,300
19,400
CASH AND CASH EQUIVALENTS, end of period
$
1,110,000 $
50,000
$
30,300
The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
Back to Table of Contents | 44
Note 1. Organization
TESSCO Technologies Incorporated, a Delaware corporation (“Tessco”, “we”, “our”, 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 97% of the Company’s sales are made to customers
in the United States. The Company takes orders in several ways, including phone, fax, online and through electronic data
interchange. Almost all of the Company’s sales are made in United States Dollars.
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.
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 years
ended March 28, 2021, March 29, 2020 and March 31, 2019 contained 52 weeks.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentations, including Income
taxes receivable on the Company’s Consolidated Balance Sheets. The Company has filed for a refund with the IRS.
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 by our customers. At March 28, 2021 and March 29, 2020, the Company had a reserve for the allowance for
doubtful accounts related to customers in continuing operations of $1,584,200 and $3,288,800, respectively.
Product Inventory
Product inventory, consisting primarily of finished goods, is stated at the lower of cost or net realizable value,
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 net realizable value, based upon specifically known
inventory-related risks (such as technological obsolescence and the nature of supplier terms surrounding price protection
and product returns), and assumptions about future demand. At March 28, 2021 and March 29, 2020, the Company had a
reserve for excess and obsolete inventory of $3,359,000 and $9,666,100, respectively. At March 28, 2021 and March 29,
2020, the reserve for excess and obsolete inventory included balances related to the discontinued Retail operations of
$81,000 and $6,350,800 respectively, which are included in the Current portion of assets held for sale on the Consolidated
Balance Sheets. The reduction in the reserve is primarily related to the exit from the Retail business that occurred in fiscal
year 2020. The reserve as of March 29, 2020 included reserves on retail inventory and were higher than normal levels due
in part to concerns surrounding the COVID-19 pandemic at that time.
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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:
Information technology equipment
Furniture, telephone system, equipment and tooling
Building, building improvements and leasehold improvements
Useful lives
1 - 3 years
3 - 10 years
2 - 40 years
Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease term.
Intangibles
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 focus of the software project is either to develop 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. Amortization is recorded using the straight-line method over the
estimated useful life which ranges from one to three years.
Impairment of Long-Lived Assets
Long-lived 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 future undiscounted cash flows are less than the carrying value of the asset group, the Company calculates the
fair value of the asset group. 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. There were no impairment charges of long-lived assets other than goodwill, in fiscal years 2021, 2020, or
2019.
Indefinite-Lived Intangible Assets
The indefinite lived intangible asset 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 determines 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. We measure the fair value of our indefinite-lived intangible asset using the “relief
from royalty” method. Significant estimates in this approach include projected revenues and royalty and discount rates.
The estimates of discounted cash flows will likely change over time as impairment tests are performed.
Based on the Company’s quantitative impairment tests performed, the Company recognized a $11.7 million
impairment loss on goodwill in fiscal year 2020 ($9.1 million related to continuing operations and $2.6 million related to
discontinued operations). The Company did not recognize an impairment loss on goodwill or other indefinite lived
intangible assets in fiscal years 2021 or 2019.
The methods of assessing fair value for our 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.
Back to Table of Contents | 46
Other Long-Term Assets
Other long-term assets consist of capitalized implementation costs of hosting arrangements, cash surrender value
of life insurance policies related to a Supplemental Executive Retirement Plan (see Note 13), and deferred debt financing
costs. Capitalized implementation costs of hosting arrangements that are accounted for as service contracts, which relate
to our SAP ERP implementation, was $3.1 million and $0.8 million as of March 28, 2021 and March 29, 2020, respectively.
Revenue Recognition
We account for revenue in accordance with ASC No. 606, Revenue from Contracts with Customers, which we
adopted on April 2, 2018, using the modified retrospective method. We recognize revenue when control of promised goods
is transferred to the customer. The amount of revenue recognized reflects the consideration to which the Company expects
to be entitled in exchange for transferring the goods.
In most cases, shipments are made using FOB (freight on board) 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 provided by the Company, or other incentives subsequent to a sale. The Company sells under normal
commercial terms and, therefore, only records sales on transactions at the estimated transaction price. The Company
recognized revenues net of sales tax.
We recognize revenues from sales transactions containing sales returns provisions at the time of the sale. The
potential for customer returns are considered a component of variable consideration under ASC No. 606 and it is therefore
considered when estimating the transaction price for a sale. We use the most likely amount method to determine the
amount of expected returns. The amount of expected returns is recognized as a refund liability, representing the obligation
to return the customer’s consideration. The return asset is measured at the former carrying amount of the inventory, less
any expected costs to recover the goods, which is included in prepaid expenses and other current assets on the
accompanying Consolidated Balance Sheets.
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 supplier
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 offerings continually evolve to meet
the needs of our 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 ASC No.
606, the Company looks 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; whether the customer holds us responsible for
the acceptability of the product; whether the product returns are handled by us; and whether obligation exists between the
other parties and our customer. 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 does have relationships where it is
not the principal and records revenues on a net fee basis, regardless of amounts billed (less than 1% of total revenues for
fiscal year 2021).
Other than sales relating to the Company’s private brands, we offer no product warranties in excess of original
equipment manufacturers’ warranties. Warranty expense was immaterial for fiscal years 2021, 2020, and 2019.
Supplier Programs
Funds received from suppliers for price protection, product rebates and marketing/promotion are recorded as a
reduction in cost of goods sold in accordance with ASC No. 705-20: Cost of Sales and Services - Accounting for
Consideration Received from a Vendor.
Back to Table of Contents | 47
Shipping and Handling Costs
Shipping costs incurred to ship products from our distribution centers to our customers’ sites are included in
selling, general and administrative expenses in the Consolidated Statements of (Loss) Income and totaled $10,036,100,
$10,222,800, and $11,647,700 for fiscal years 2021, 2020, and 2019, respectively.
Stock Compensation Awards
The Company records stock compensation expense for awards in accordance with ASC No. 718. The Company
accounts for forfeitures as they occur rather than estimate expected 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 in accordance with ASC No. 740.
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 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 ASC No. 740, no provision for tax uncertainties was determined to be necessary as of March
28, 2021, March 29, 2020 and March 31, 2019.
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, accounts receivable
reserves, inventory reserves and future cash flows associated with impairment testing for long-lived assets. Actual results
could significantly differ from those estimates.
Recently issued accounting pronouncements not yet adopted:
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses
rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables.
This may result in the earlier recognition of allowances for losses. This ASU is effective for periods beginning after
December 15, 2022. The Company is currently evaluating the impact the adoption of this new standard will have on its
Consolidated Financial Statements and will adopt the standard on the first day of the Company’s 2024 fiscal year.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in
ASC 740 related to the approach for intraperiod tax allocation, and the methodology for calculating income taxes in an
interim period. This ASU is effective for periods beginning after December 15, 2020. The Company is currently
evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
Back to Table of Contents | 48
Note 3. Property and Equipment
All of the Company’s property and equipment is located in the United States and is summarized as follows:
Land
Building, building improvements and leasehold
improvements
Information technology equipment
Furniture, telephone system, equipment and tooling
Less accumulated depreciation
Property and equipment, net
2021
2020
$
4,740,800 $
4,740,800
21,265,400
5,003,000
8,910,500
39,919,700
(27,348,100)
12,571,600 $
20,921,800
5,255,000
9,039,000
39,956,600
(26,522,900)
13,433,700
$
Depreciation of property and equipment was $1,667,500, $1,683,000, and $1,507,300 for fiscal years 2021, 2020
and 2019, respectively.
Note 4. Goodwill and Other Intangible Assets
Due to lower than expected results and a significant reduction in market capitalization (due to reduced stock
price), we performed a quantitative impairment test for goodwill during the third and fourth quarters of fiscal year 2020.
Based on the quantitative tests we did in fiscal year 2020, we recorded $9.1 million of non-cash goodwill impairment loss
related to continuing operations and $2.6 million of impairment loss related to discontinued operations. There was no
goodwill carrying amount at any time during fiscal year 2021.
Intangibles, net on our Consolidated Balance Sheets as of March 28, 2021 and March 29, 2020, consists of
capitalized software for internal use and an indefinite lived intangible assets. Capitalized software for internal use, net of
accumulated amortization, which primarily related to our SAP ERP implementation as of March 28, 2021 and March 29,
2020 was $18,341,100 and $10,362,100, respectively. Amortization expense of capitalized software for internal use was
$2,077,000, $1,954,700, and $1,620,800 for fiscal years 2021, 2020, and 2019. Indefinite lived intangible assets were
$795,400 as of March 28, 2021 and March 29, 2020.
Note 5. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
Returns Reserve
Other Accrued Expenses
Total Accrued Expenses and other
current liabilities
$
$
March 28, 2021
March 29, 2020
1,967,300
945,000
$
3,440,100
804,300
2,912,300
$
4,244,400
The amount of expected returns are recognized as a refund liability within the Accrued expenses and other current
liabilities line item on the Consolidated Balance Sheets. This liability represents the obligation to return customer
consideration. The value of the expected goods returned by customers is recognized as a return asset within the Prepaid
expenses and other current assets line item of the Consolidated Balance Sheets. The return asset value is initially measured
at the former carrying amount in inventory, less any expected costs to recover the goods. The Company expects products
returned by customers to be in new and salable condition, as required by our standard terms and conditions, and therefore
impairment of the return asset is unlikely. Changes to the return liability are recorded as revenue adjustments and changes
to the return asset are recorded as reductions to cost of goods sold. As of March 28, 2021, the return asset and return
liability amounts were $1.0 million and $2.0 million, respectively. As of March 29, 2020, the return asset and return
liability amounts were $2.7 million and $3.4 million, respectively.
Back to Table of Contents | 49
Note 6. Borrowings Under Revolving Credit Facility
Fiscal Year 2020 Revolving Credit Facility Activity
On June 24, 2016, the Company and its primary operating subsidiaries entered into a Credit Agreement (the
“Credit Agreement”) with SunTrust Bank, as Administrative Agent and Lender, and Wells Fargo Bank, National
Association, as a Lender, for a senior asset based secured revolving credit facility of up to $35 million (the Revolving
Credit Facility”). On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, entered into
an Amended and Restated Credit Agreement with SunTrust Bank, as Administrative Agent and Lender, and Wells Fargo
Bank, National Association, as a Lender (the “Amended and Restated Credit Agreement”). Pursuant to the Amended and
Restated Credit Agreement, the Credit Agreement for the secured Revolving Credit Facility, as previously established in
June 2016, was amended and restated in order to, among other things, increase the Company’s borrowing limit from up to
$35 million to up to $75 million. Capitalized terms used but not otherwise defined in this Note 6 under the heading, “Fiscal
Year 2020 Revolving Credit Facility Activity” have the meanings ascribed to each in the Amended and Restated Credit
Agreement.
On March 29, 2020, the interest rate applicable to borrowings under the Revolving Credit Facility was 3.09%.
The weighted average interest rate on borrowings under the Company’s Revolving Credit Facility during fiscal year 2020
was 3.52%. Under certain circumstances, the Applicable Rate was subject to change at the Lenders’ option from the
Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin.
Interest expense on the Revolving Credit Facility for fiscal year 2020 totaled $1,114,900. Average borrowings
under this Revolving Credit Facility totaled $33,755,700 and maximum borrowings totaled $56,069,900 for fiscal year
2020. In addition to the interest charged on borrowings, the Company was subject to a 0.25% fee on the unused portion of
this Revolving Credit Facility.
Borrowings under this Revolving Credit Facility could be used for working capital and other general corporate
purposes, and as further provided in, and subject to the applicable terms of, the Amended and Restated Credit Agreement.
As of March 29, 2020, borrowings under this Revolving Credit Facility totaled $25.6 million and, therefore, the Company
had $49.4 million available for borrowing as of March 29, 2020, subject to the Borrowing Base limitation and compliance
with the other applicable terms of the Amended and Restated Credit Agreement, including the applicable covenants. The
Company’s previous line of credit had a lockbox arrangement associated with it and therefore the outstanding balance was
classified as a current liability on our Consolidated Balance Sheet as of March 29, 2020.
There is a financial covenant that the Company was required to maintain at any time during which borrowings
under this Revolving Credit Facility exceeded $65 million. The Company’s borrowings did not exceed $65 million
during fiscal year 2020. The Company was in compliance with the terms and other covenants applicable to the revolving
credit facility at the end of fiscal year 2020.
This Revolving Credit Facility restricted our ability to pay dividends and to repurchase our shares, either upon a
default or when our borrowing availability was below $15.0 million, or in certain more limited circumstances $11.3
million, and also limited to $2.0 million the aggregate dollar value of shares that may be withheld or repurchased in
connection with satisfaction of tax withholding obligations related to vested equity grants during any 12 month period. It
also contained other financial covenants and ratios that could restrict dividends and repurchases. At March 29, 2020, we
had the ability to withhold or repurchase $1.8 million in additional shares of our common stock during fiscal 2020,
without violating this covenant.
Fiscal Year 2021 Revolving Credit Facility Activity
On October 29, 2020, the Company entered into a Credit Agreement (the “2020 Credit Agreement”) among the
Company, the Company’s primary operating subsidiaries as co-borrowers, the Lenders party thereto, and Wells Fargo
Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank, and terminated the
secured Revolving Credit Facility discussed above. Terms used, but not defined, in this Note 6 under the heading “Fiscal
Year 2021 Revolving Credit Facility Activity” have the meanings set forth in the Credit Agreement or the related Guaranty
and Security Agreement.
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The 2020 Credit Agreement provides for a senior secured asset based revolving credit facility of up to $75 million
(the “2020 Revolving Credit Facility”), which matures in forty-two months, on April 29, 2024. The 2020 Revolving Credit
Facility includes a $5.0 million letter of credit sublimit and provides for the issuance of Swing Loans. The 2020 Credit
Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate
amount of the commitments under the 2020 Revolving Credit Facility to an aggregate commitment amount of up to $125
million with optional additional commitments from then existing Lenders or new commitments from additional lenders,
although no Lender is obligated to increase its commitment. Availability is determined in accordance with the Borrowing
Base, which is generally 85% of Eligible Accounts minus the Dilution Reserve, plus a calculated value of Eligible
Inventory aged less than 181 days plus the lesser of $4 million and a calculated value of Inventory aged more than 180
days minus a calculated Reserve, as further detailed and set forth in the Credit Agreement.
Borrowings initially accrue interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, at a per annum
rate equal to the LIBOR Rate plus the LIBOR Rate Margin of 2.25% until the March 2021 financial statements are
delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 2.25% or (ii) if the Fixed Charge
Coverage Ratio is greater than or equal to 1.10:1.00, then 2.00%; (B) if a Base Rate Loan, at a per annum rate equal to the
Base Rate plus the Base Rate Margin of 1.25% per annum until the March 2021 financial statements are delivered and
thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 1.25% or (ii) if the Fixed Charge Coverage
Ratio is greater than or equal to 1.10:1.00, then 1.00%. The Credit Agreement contains a LIBOR floor of 0.25% so that if
the LIBOR Rate is below 0.25%, then the LIBOR Rate will be deemed to be equal to 0.25% for purposes of the Credit
Agreement. On March 28, 2021, the interest rate applicable to borrowings under the secured 2020 Revolving Credit Facility
was 4.50%.
Following an Event of Default, the Lenders’ may at their option increase the applicable per annum rate to a rate
equal to two percentage points above such rate and, with certain events of default such increase is automatic.
The Company is required to pay a monthly Unused Line Fee on the average daily unused portion of the 2020
Revolving Credit Facility, at a per annum rate equal to 0.25%.
The Credit Agreement contains one financial covenant, a Fixed Charge Coverage Ratio, which is tested only if
Excess Availability is less than the greater of (a) 16.7% of the maximum amount of the Credit Facility (at closing,
$12,525,000) and (b) $12,500,000. In addition, the 2020 Credit Agreement contains provisions that could limit our ability
to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets,
payment of dividends, issuance of additional debt and other matters.
Borrowings under the 2020 Revolving Credit Facility were initially used to pay all indebtedness outstanding
under the previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto and
Truist Bank (successor by merger to SunTrust Bank), as administrative agent, and may be used for working capital and
other general corporate purposes, and as further provided in, and subject to the applicable terms of, the 2020 Credit
Agreement.
The Company is required to make certain prepayments under the 2020 Revolving Credit Facility under certain
circumstances, including from net cash proceeds from certain asset dispositions in excess of certain thresholds.
The 2020 Credit Agreement contains representations, warranties and affirmative covenants. The Credit
Agreement also contains negative covenants and restrictions on, among other things: (i) Indebtedness, (ii) liens, (iii)
fundamental changes, (iv) disposition of assets, (v) restricted payments (including certain restrictions on redemptions and
dividends, discussed below), (vi) investments and (vii) transactions with affiliates. The 2020 Credit Agreement also
contains events of default, such as payment defaults, cross-defaults to other material indebtedness, misrepresentations,
bankruptcy and insolvency, the occurrence of a Change of Control and the failure to observe the negative covenants and
other covenants contained in the 2020 Credit Agreement and the other loan documents.
The secured Revolving Credit Facility also restricts our ability to pay dividends and to repurchase our shares.
Assuming that no default exists, we may redeem or repurchase up to $2,000,000 of our shares in any twelve consecutive
month period in connection with the payment or satisfaction of tax withholding obligations of participants under our equity
Back to Table of Contents | 51
compensation plans. We may pay dividends or effect redemptions provided that no default exists or will exist after giving
effect to the dividend or repurchase, and the average Excess Availability is not less than $18,750,000 during the
immediately preceding thirty-day period and after giving effect to the dividend or repurchase on a pro forma basis, and for
each day of the thirty-day period not less than $12,500,000. Excess Availability is generally defined as Availability minus
the aggregate amount of trade payables aged in excess of historical levels and all book overdrafts in excess of historical
practices. In addition to these conditions, dividends and repurchase of our shares are in any event limited to $625,000 per
quarter and not more than $2,500,000 in the aggregate during the period October 29, 2020 through October 28, 2021, at
which time these quarterly and aggregate limits expire.
Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under
the 2020 Credit Agreement and other operating subsidiaries of the Company (collectively, the “Loan Parties”), and Wells,
as Administrative Agent, the Obligations, which include the obligations under the 2020 Credit Agreement, are guaranteed
by the Loan Parties, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’
(including both borrowers and guarantors) Accounts, Books, Chattel Paper, Deposit Accounts, General Intangibles,
Inventory, Negotiable Collateral, Supporting Obligations, Money, Cash Equivalents or other assets that come into the
possession, custody or control of the Agent or any Lender, and related assets, and the proceeds and products of any of the
foregoing (the “Collateral”). The security interests in the Collateral are in favor of the Administrative Agent, for the benefit
of the Lenders party to the 2020 Credit Agreement from time to time. The Obligations secured also include certain other
obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and
cash management and other bank products.
On March 28, 2021, the interest rate applicable to borrowings under the 2020 Revolving Credit Facility was
4.50%. The weighted average interest rate on borrowings under the Company’s Revolving Credit Facility during fiscal
year 2021 was 2.89%. Under certain circumstances, the Applicable Rate is subject to change at the Lenders’ option from
the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin.
Interest expense on both Revolving Credit Facilities in the aggregate for fiscal year 2021 totaled $556,100, net of
capitalized interest of $450,200. Average borrowings under the facilities totaled $34,404,500 and maximum borrowings
totaled $43,283,000 for fiscal year 2021. In addition to the interest charged on borrowings, the Company continues to be
subject to a 0.25% fee on the unused portion of the 2020 Revolving Credit Facility.
Borrowings under the 2020 Revolving Credit Facility may be used for working capital and other general corporate
purposes, and as further provided in, and subject to the applicable terms of, the 2020 Credit Agreement. As of March 28,
2021, borrowings under the 2020 Revolving Credit Facility totaled $30.6 million and, therefore, the Company had $44.4
million available for borrowing as of March 28, 2021, subject to the Borrowing Base limitation and compliance with the
other applicable terms referenced above. The 2020 Revolving Credit Facility has no lockbox arrangement associated with
it, and therefore the outstanding balance is classified as a long-term liability on the Consolidated Balance Sheet as of March
28, 2021. Accordingly, borrowings from and repayments to the Company’s current line of credit are reflected on a gross
basis in the cash flows from financing activities in the Consolidated Statements of Cash Flow.
Note 7. Lease
The Company is committed to making rental payments under non-cancelable operating leases covering various
facilities and equipment. Our leases have remaining lease terms of 1 to 5 years, some of which include options to extend
the leases for up to 5 years. Rent expense for fiscal years 2021, 2020 and 2019 totaled $3,453,500, $3,046,000, and
$3,001,800, respectively.
The Company leases office space in Timonium, Maryland, where the Company’s sales, marketing and
administrative offices are located. This space is nearby to the Company’s Global Logistics Center in Hunt Valley,
Maryland. The Agreement of Lease expires on December 31, 2025. Monthly rent payments now range from $183,000 to
$203,800 through the remaining lease term.
The Company also leases office and warehouse space in Hunt Valley, Maryland, adjacent to the Company’s
Global Logistics Center, expiring on July 31, 2023. The Company has an ongoing annual option to terminate the lease.
The monthly rental fee ranges from $40,500 to $43,000 through the remaining lease term.
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Additional sales and marketing offices are located in additional leased office space in San Antonio, Texas. This
space is leased pursuant to a lease agreement expiring on October 31, 2021. Monthly rent payments are $19,100 through
the remaining lease term.
Quantitative information regarding the Company’s leases is as follows:
Maturities of lease liabilities by fiscal year are as follow:
2022
2023
2024
2025
2026
Total
Less: present value discount
Present value of lease liabilities
Weighted-average discount rate:
Weighted-average remaining lease term
Note 8. Commitments and Contingencies
As of March 28, 2021
$
$
3,164,000
3,018,300
2,725,700
2,609,900
1,987,600
13,505,500
(2,008,500)
11,497,000
3.9%
4.5 years
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 effect 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.
As the Company is routinely audited by state taxing authorities, the Company has estimated exposure and
established reserves for its estimated sales tax audit liability.
Note 9. Operating Segment
The Company evaluates its business as one segment, as the chief operating decision maker reviews results as one
unit. However, to provide investors with increased visibility into the markets it serves, the Company also reports revenue
and gross profit by the following customer markets: (1) public carriers that are generally responsible for building and
maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers
and integrators, which includes value-added resellers, the government channel and private system operator markets.
Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products
typically used by business entities or governments.
Market activity for the fiscal years ended 2021, 2020 and 2019 is as follows (in thousands):
Revenues
Public Carrier
Value-added resellers and Integrators
Total revenues
Gross Profit
Public Carrier
Value-added resellers and Integrators
Total gross profit
Year Ended
March 28, 2021 March 29, 2020 March 31, 2019
$
$
149,825 $
223,516
373,341 $
156,395 $
252,619
409,014 $
156,983
262,062
419,045
$
$
16,585 $
51,131
67,716 $
18,699 $
60,943
79,642 $
20,275
64,130
84,405
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Note 10. Stock Buyback
The Company withholds shares of common stock 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 2021, 2020, and 2019 the total value of shares withheld for taxes was $121,500, $201,000,
and $111,100, respectively.
Note 11. Retirement of Treasury Stock
On July 2, 2020, the Board of Directors adopted resolutions providing for the retirement of the Company’s then
accumulated treasury stock, and for a corresponding reduction in capital. Immediately prior to the retirement, the Company
held 5,789,600 shares of issued but not outstanding common stock as treasury stock, at a cost of $58,555,000. Upon
retirement, the cost of the treasury stock was netted against retained earnings, and the number of authorized and unissued
shares of common stock correspondingly increased by 5,789,600 shares. The total number of authorized shares of common
stock remains unchanged at 15,000,000. There has been no change to the total stockholders’ equity as a result of such
resolutions.
Note 12. Income Taxes
A reconciliation of the difference between the provision for income taxes computed at statutory rates and the
provision for income taxes from continuing operations provided in the consolidated statements of income is as follows:
Statutory federal rate
State taxes, net of federal benefit
Non-deductible expenses
Change in uncertain tax positions
Change in valuation allowance
Rate change for loss carrybacks
Other
Effective rate
2021
2020
2019
21.0 %
3.4
(1.2)
—
(7.6)
6.2
(0.7)
21.1 %
21.0 %
1.8
(0.7)
—
(2.9)
12.5
0.7
32.4 %
21.0 %
(1.3)
2.2
2.8
—
—
—
24.7 %
The provision for income taxes from continuing operations was comprised of the following:
2021
2020
2019
Federal: Current
Deferred
State: Current
Deferred
Benefit from income taxes
$
$
(4,263,700)
(48,200)
16,700
450,700
(3,844,500)
$
$
(4,008,000)
(2,642,800)
(411,000)
(413,000)
(7,474,800)
$
$
(3,120,400)
509,400
(321,500)
18,700
(2,913,800)
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Total net deferred tax assets (liabilities) as of March 28, 2021 and March 29, 2020, 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, are as follows:
2021
2020
Deferred tax assets:
Deferred compensation
Accrued vacation
Deferred rent
Allowance for doubtful accounts
Inventory reserves
Sales tax reserves
Sales return assets
Net operating loss
Business interest limitation carryforward
Other assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Sales return liabilities
Lease right of use
Prepaid expenses and other liabilities
Total deferred tax liabilities
Net deferred tax (liability) assets
$
$
163,600
362,600
2,638,100
357,300
766,300
104,500
451,400
518,500
383,800
925,900
6,672,000
(2,866,800)
3,805,200
(214,600)
(224,100)
(2,589,600)
(803,400)
(3,831,700)
(26,500)
$
$
264,300
469,100
3,258,600
1,130,900
2,794,200
122,900
1,200,400
275,400
259,300
1,013,600
10,788,700
(2,047,300)
8,741,400
(419,200)
(950,600)
(3,232,900)
(1,106,200)
(5,708,900)
3,032,500
The valuation allowance recorded by the Company as of March 28, 2021 and March 29, 2020 resulted from the
uncertainties of the future realization of federal and state deferred tax assets. The Company will continue to assess and
evaluate strategies that will enable the deferred tax asset, or portion thereof, to be realized, and will reduce the valuation
allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied.
As of March 28, 2021, the Company had state net operating loss carryforwards of $72,966,720 which will
generally begin to expire in fiscal year 2030 through fiscal year 2040. Certain state net operating loss carryovers do not
expire.
As of March 28, 2021 and March 29, 2020, the Company had no unrecognized tax benefits.
The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify
these amounts as part of the provision for income taxes. The total amount of interest and penalties related to tax
uncertainties recognized in the consolidated statement of income for fiscal year 2021, 2020 and 2019 was a benefit of $0,
$0, and $250,500 (net of federal benefit), respectively. The cumulative amount included in the consolidated balance sheet
as of March 28, 2021 and March 29, 2020 was $0.
A reconciliation of the changes in the gross balance of unrecognized tax benefit amounts, exclusive of interest, is
as follows:
Beginning balance of unrecognized tax benefit
Increases related to current period tax positions
Reductions as a result of a lapse in the applicable statute of limitations
Ending balance of unrecognized tax benefits
2021
2020
2019
$
$
— $
—
—
— $
— $ 112,700
3,500
—
(116,200)
—
—
— $
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On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which we refer to herein as
the 2017 Tax Act. While the changes from the Tax Act were generally effective for tax years beginning after December
31, 2017, ASC No. 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in
the period of enactment. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118
(SAB 118), which allowed registrants to record provisional amounts in earnings for the year ended April 1, 2018. The
Company was required to complete its tax accounting for the 2017 Tax Act when it had obtained, prepared and analyzed
the information to complete the income tax accounting but no later than December 22, 2018. Accordingly, during fiscal
year 2019, the Company completed its accounting for the tax effects of the enactment of the 2017 Tax Act based on the
Company’s interpretation on the new tax regulations and related guidance issued by the U.S. Department of the Treasury
and the IRS. The Company did not record a material adjustment in fiscal year 2019 to the provided provisional amount of
$0.2 million.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law
making several changes to the Internal Revenue Code. The changes include but are not limited to: increasing the limitation
on the amount of deductible business interest expense, allowing companies to carryback certain net operating losses to the
preceding five years, and increasing the amount of net operating loss carryforwards that corporations can use to offset
taxable income.
The Company files income tax returns in U.S. federal, state and local jurisdictions. Tax returns for fiscal years
2015 through 2021 remain open to examination by U.S. federal, state and local tax authorities. All state net operating
losses generated to date are subject to adjustment for state income tax purposes.
Note 13. 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 $806,000, $937,500, and $957,100 during fiscal years 2021, 2020, and 2019, respectively. As of March
28, 2021, plan assets included 232,000 shares of common stock of the Company.
The Company maintains a Supplemental Executive Retirement Plan for Robert B. Barnhill, Jr., the Company’s
Chairman of the Board. This plan is funded through life insurance policies for which the Company is the sole beneficiary.
The cash surrender value of the life insurance policies and the net present value of the benefit obligation of approximately
$2,680,700 and $809,400, respectively, as of March 28, 2021 and $2,523,500 and $915,700, respectively, as of March 29,
2020, are included in Other long-term assets and Other non-current liabilities, respectively, in the accompanying
Consolidated Balance Sheets.
Note 14. Earnings Per Share
The Company presents the computation of earnings per share (“EPS”) on a basic and diluted basis. Basic EPS is
computed by dividing net income by the weighted average number of shares outstanding during the reported period.
Diluted earnings per share are computed similarly to basic earnings per share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding if the potential additional common
shares that were dilutive had been issued. Shares of common stock are excluded from the calculation if they are determined
to be anti-dilutive. In fiscal years 2021 and 2020, the Company had a net loss and accordingly recorded EPS by using only
basic shares outstanding.
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The following table presents the calculation of basic and diluted earnings per common share from continuing
operations:
Amounts in thousands, except per share amounts
Earnings per share from continuing operations – Basic:
Net loss
Amounts in thousands, except per share amounts
2020
2019
2021
$ (14,373) $ (15,601) $
(8,882)
Weighted average common shares outstanding – Basic
8,697
8,527
8,437
Earnings per common share from continuing operations – Basic
$
(1.65) $
(1.83) $
(1.05)
Earnings per share – Diluted:
Net loss
Weighted average common shares outstanding – Basic
Effect of dilutive options
Weighted average common shares outstanding – Diluted
$ (14,373) $ (15,601) $
(8,882)
8,697
—
8,697
8,527
—
8,527
8,437
—
8,437
Loss per common share from continuing operations – Diluted
$
(1.65) $
(1.83) $
(1.05)
Anti-dilutive equity awards not included above
755
852
94
At March 28, 2021, March 29, 2020, and March 31, 2019 stock options with respect to 925,000, 862,000 and
591,500 shares of common stock were outstanding, respectively. The anti-dilutive stock options outstanding at March 28,
2021, March 29, 2020, and March 31, 2019 total 755,000, 852,000 and 94,000, respectively. There were no anti-dilutive
Performance Stock Units or Restricted Stock Units outstanding as of March 28, 2021, March 29, 2020, and March 31,
2019.
Note 15. Stock-Based Compensation
The Company’s selling, general and administrative expenses for the fiscal years ended March 28, 2021, March
29, 2020, and March 31, 2019 includes $1,211,000, $1,174,600, and $1,244,000, respectively, of stock compensation
expense. Provision for income taxes for the fiscal years ended March 28, 2021, March 29, 2020, and March 31, 2019
includes $255,600, $386,100, and $307,300, 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”) and 2019 Stock and Incentive Plan (the “2019 Plan” and together with the 1994 Plan, the
“Plans), which was approved at the Annual Meeting of Shareholders held on July 25, 2019. No additional awards may be
granted under the 1994 Plan, although awards outstanding under the 1994 Plan remain outstanding and governed by its
terms.
As of March 28, 2021, 528,709 shares were available for issue in respect of future awards under the 2019 Plan.
Subsequent to the Company’s 2021 fiscal year end, on May 15, 2021, 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 187,500 shares of the Company’s common stock. In addition, as further discussed below, RSU awards for
12,000 shares and restricted stock awards for 22,252 shares were made on April 29, 2021, entitling the recipients to receive
up to 34,252 shares of common stock in the aggregate, depending upon vesting. Accordingly, as of June 2, 2021, and after
accounting for shares added back to the 2019 Plan in the interim, an aggregate of 303,279 shares were available for future
awards under the 2019 Plan.
Performance Stock Units: Under a program established by the Board of Directors, PSUs have been granted
under the Plans 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
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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 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 2021, 2020 and
2019:
Unvested shares available for issue under
outstanding PSUs, beginning of period
PSUs Granted
PSUs Vested
PSUs Forfeited/Cancelled
Unvested shares available for issue under
outstanding PSUs, end of period
2021
Weighted
Average Fair
Value at Grant Shares
2020
Weighted
Average Fair
Value at Grant Shares
2019
Weighted
Average Fair
Value at Grant
Shares
68,355 $
—
(21,690)
(33,113)
15.00
—
98,306 $
51,616
14.21 (29,036)
15.69 (52,532)
14.55 67,000 $
15.93 71,000
14.09 (14,257)
9.82 (25,437)
12.65
15.58
12.66
13.46
13,552 $
14.57
68,355 $
15.00 98,306 $
14.55
As of March 28, 2021, there was $16,943 unrecognized compensation cost, related to PSUs earned. Total fair
value of shares vested during fiscal years 2021, 2020 and 2019 was $103,300, $780,400 and $460,800, respectively.
The PSUs canceled during fiscal year 2021 primarily related to the fiscal year 2020 grant of PSUs which had a
one-year measurement period (fiscal 2020) and employee departures. The PSUs were canceled because the minimum
applicable fiscal 2020 performance targets were not fully satisfied. Per the provisions of the 2019 Plan, the shares related
to these forfeited and canceled PSUs were added back to the 2019 Plan and became available for future issuance under the
2019 Plan.
The remaining 13,552 shares covered by PSUs outstanding at the end of fiscal year 2021 were earned based on
fiscal year 2019 and 2018 performance, but were not yet vested as of March 28, 2021. Assuming the respective participants
remain employed by, or affiliated with the Company, these shares will vest on or about May 1 of 2021 and 2022 as follows:
Fiscal Year 2022
Fiscal Year 2023
Number of Shares
9,023
4,529
13,552
Subsequent to the Company’s 2021 fiscal year end, on May 26, 2021, the Compensation Committee, with the
concurrence of the full Board of Directors, granted an aggregate of 96,603 PSU awards to certain employees of the
Company. These awards will be earned based on achievement of pre-defined EBITDA targets for the Company’s
continuing operations and if earned, provide for the issuance of shares of the Company’s common stock in accordance
with a vesting schedule. These awards, if earned, will vest and shares will be issued June 1, 2022 provided that the
participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on that date.
Restricted Stock/Restricted Stock Units: On May 10, 2018 and June 6, 2018, the Compensation Committee,
with the concurrence of the full Board of Directors, granted an aggregate of 21,000 RSU awards to non-employee directors
of the Company and to the then Executive Chairman. These awards provide for the issuance of shares of the Company’s
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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 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. As of March 28, 2021, there
was less than $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 years.
On May 10, 2019, the Compensation Committee, with the concurrence of the full Board of Directors, granted an
aggregate of 21,000 RSU, ratably to the then six non-employee directors, including the then Chairman of the Board of the
Company. These RSU awards provide for the issuance of shares of the Company’s common stock in four equal
installments beginning on May 10, 2020 and continuing on the same date in 2021, 2022 and 2023, provided that the director
remains associated with the Company on each such date (or meets other criteria as prescribed in the applicable award
agreement). As of March 28, 2021, there was less than $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 15, 2020, July 24, 2020 and November 12, 2020, the Compensation Committee, with the concurrence of
the full Board of Directors, granted an aggregate of 30,000 RSU awards to the then non-employee directors of the
Company. These RSU awards provide for the issuance of shares of the Company’s common stock in accordance with a
vesting schedule. These awards provide for vesting and that shares will be issued 25% on or about each of May 1 of 2021,
2022, 2023 and 2024, 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 28, 2021, 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 three years.
In addition, and also on May 15, 2020 and July 24, 2020, the Compensation Committee, with the concurrence of
the full Board of Directors, granted an aggregate of 72,202 shares of restricted stock to non-employee directors of the
Company in lieu of their annual cash retainer for fiscal 2021. The amount of shares issued was the cash equivalent of the
required retainers on the approval date. These awards provide for the issuance of shares of the Company’s common stock
subject to a risk of forfeiture that will lapse in whole or in part in July 2021, generally depending on the length of continued
service of the recipient on the Board for fiscal 2021. Dividends accruing in respect of the shares of restricted stock, if any,
will accrue but will not be paid until July 1, 2021 and only in respect of those shares for which the risk of forfeiture has
then lapsed. At March 28, 2021, 56,805 of these shares were expected to vest.
Changes in the composition of the Board during fiscal year 2021, in connection with or occurring during the term
of a consent solicitation initiated by certain of our stockholders during the year resulted in the accelerated vesting of 30,000
of the current and prior year RSUs discussed in the previous two paragraphs and the issuance of a corresponding number
of shares of Common Stock to departing directors.
Subsequent to the Company’s 2021 fiscal year end, on April 29, 2021, the Compensation Committee, with the
concurrence of the full Board of Directors, granted an aggregate of 12,000 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 will vest and shares will be issued 25% on or about each of April 29 of 2022, 2023, 2024 and
2025, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the
agreement) on each such date.
Also subsequent to the Company’s 2021 fiscal year end, on May 25, 2021, the Compensation Committee, with
the concurrence of the full Board of Directors, granted an aggregate of 24,761 RSU awards to non-employee directors of
the Company. These awards were awarded in lieu of the directors’ receiving estimated cash payments that would otherwise
be received for attendance at Board and Committee meetings during fiscal 2022 and provide for the vesting and issuance
of shares of the Company’s common stock to the non-employee director on May 25, 2022, provided that the director
remains associated with the Company (or meets service and other criteria as prescribed in the agreement) on that date.
In addition, and also on April 29, 2021, the Compensation Committee, with the concurrence of the full Board of
Directors, granted an aggregate of 22,252 shares of restricted stock to non-employee directors of the Company in lieu of
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their annual cash retainer for fiscal 2022. The amount of shares issued was the cash equivalent of the required retainers
on the approval date. These awards provide for the issuance of shares of the Company’s common stock subject to a risk
of forfeiture that will lapse in whole or in part on July 1, 2022, generally depending on the length of continued service of
the recipient on the Board for fiscal 2022. Dividends accruing in respect of the shares of restricted stock, if any, will accrue
but will not be paid until July 1, 2022 and only in respect of those shares for which the risk of forfeiture has then lapsed.
PSUs, RSUs and restricted stock awards 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, in the case of PSUs and RSUs, 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 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 2021, stock options for 177,042 shares were
forfeited due to employee departures. The weighted-average remaining contractual term of options exercisable as of March
28, 2021 was 2.8 years.
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.
Unvested options, beginning of period
Options Granted
Options Forfeited/Cancelled
Options Vested
Unvested options, end of period
2021
Weighted
Average Fair
Shares
Value at Grant
281,292
2.38
405,000
2.05
3.13
(81,376)
3.28 (139,542)
465,374
1.47
2020
Weighted
Average Fair
Value at Grant
2.39
2.53
3.23
2.32
2.38
Shares
465,374 $
240,000
(127,625)
(194,079)
383,670
Grant
Fiscal
Year
2021
2020
2019
2018
2017
2016
Total
Options
Granted
240,000
405,000
66,500
230,000
410,000
100,000
Option
Exercise
Price
4.70
13.54
16.31
15.12
12.57
22.42
$
$
$
$
$
$
March 28, 2021
Options
Outstanding
165,000
341,000
35,000
80,000
263,958
40,000
924,958
Options
Exercisable
-
138,788
23,749
74,791
263,961
40,000
541,288
Grant Fiscal
Year
2021
2020
2019
Expected Stock Price
Volatility
Risk-Free Interest
Rate
Expected Dividend
Yield
46.82 %
35.88 %
35.59 %
1.17 %
2.00 %
3.11 %
0.00 %
5.82 %
4.99 %
Average
Expected Term
4.0
4.0
4.0
Resulting Black
Scholes Value
$
$
$
2.05
2.53
3.38
As of March 28, 2021, 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. Total value of options exercised during fiscal 2020 was $681,100. 48,125 shares were
Back to Table of Contents | 60
exercised, and the weighted average exercise price of these shares was $14.15. No options were exercised during fiscal
2021 or 2019.
On April 30, 2020, May 15, 2020, August 19, 2020 and February 8, 2021, the Compensation Committee, with
the concurrence of the full Board of Directors, granted an aggregate of 165,000 stock options to select key employees.
The grant date value of these 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.
On May 15, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an
aggregate of 65,000 performance-based stock options to select key employees. The grant date value of these 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. If
certain performance-based milestones are met and the employee remains employed by the Company, the stock options
vest 25% after one year and then 1/36 per month for the following three years.
Subsequent to the Company’s 2021 fiscal year end, on April 29, 2021, the Compensation Committee, with the
concurrence of the full Board of Directors, granted an aggregate of 187,500 stock options to select key employees. The
grant date value of these 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.
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 March 28, 2021, March 29,
2020, and March 31, 2019 were $61,500, $78,400, and $82,600, respectively. During the fiscal years ended March 28,
2021, March 29, 2020, and March 31, 2019, 40,493, 34,829, and 19,183 shares were sold to employees under this plan,
having a weighted average market value of $4.92, $7.51, and $14.54, respectively.
Note 16. Fair Value Disclosure
Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active
markets, and quoted prices for identical or similar assets or liabilities in markets that are not active.
• Level 3: Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions
about the inputs used in pricing the asset or liability.
As of March 28, 2021 and March 29, 2020, the Company has no assets or liabilities recorded at fair value.
The carrying amounts of cash and cash equivalents, trade accounts receivable, product inventory, trade accounts
payable, accrued expenses, revolving credit facility, life insurance policies and other current liabilities approximate their
fair values as of March 28, 2021 and March 29, 2020 due to their short-term nature.
Note 17. Supplemental Cash Flow Information
Cash paid for income taxes net of refunds, for fiscal years 2021, 2020, and 2019 totaled $21,000, $1,515,300, and
$1,835,400, respectively. Cash paid for interest during fiscal years 2021, 2020, and 2019 totaled $952,700, $1,106,300,
and $809,000, respectively. Interest capitalized during fiscal years 2021 and 2020 was $450,200 and $87,700, respectively.
No interest was capitalized during fiscal year 2019.
Back to Table of Contents | 61
Note 18. Concentration of Risk Related to Continuing Operations
Sales to customers and purchases from suppliers 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 suppliers, but they are largely administrative in nature and are terminable by either party upon several 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 effect 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 2021, 2020, and 2019, sales of products purchased from the
Company's top ten suppliers accounted for 53%, 54%, and 50% of total revenues, respectively. Products purchased from
the Company’s largest supplier related to continuing operations accounted for approximately 29%, 30%, and 24% of total
revenues in fiscal years 2021, 2020, and 2019, respectively. The Company is dependent on the ability of its suppliers to
provide products on a timely basis and on favorable pricing terms. The Company believes that alternative sources of supply
are available for many of the product types it carries, but not for all products offered by the Company. The loss of certain
principal suppliers, including the suppliers referenced above, or of other suppliers whose products may be difficult to
source on comparable terms elsewhere, would 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
supplier relationships. For fiscal years 2021, 2020, and 2019, sales of products to the Company's top ten customer
relationships accounted for 34%, 34%, and 31% of total revenues, respectively. There was one customer that accounted
for 11%, 15%, and 14% of total revenues in fiscal year 2021, 2020 and 2019, respectively.
Note 19. Discontinued Operations
On December 2, 2020, the Company sold most of its Retail inventory and certain other Retail-related assets to
Voice Comm. In addition, we assigned or licensed Ventev®- related intellectual property to Voice Comm, including the
Ventev® trademark, for their use in connection with the sale of mobile device and accessory products. Cash proceeds of
$9.5 million were received at closing. As part of the sale agreement, the Company is entitled to royalty payments of up to
$3.0 million in the aggregate on the sale of Ventev® branded products by Voice Comm over a four-year period after the
closing. Additionally, future customer returns to the Company may be resold to Voice Comm over a two-year period after
the closing.
A pre-tax gain on disposal of $3.0 million was recorded in the fiscal quarter ended December 27, 2020, which is
included in Income (loss) from discontinued operations, net of taxes in the Consolidated Statements of (Loss) Income.
Back to Table of Contents | 62
The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail
segment as a discontinued operation. The following table presents the financial results of the Retail segment for the fiscal
years ended March 28, 2021, March 29, 2020 and March 31, 2019:
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Income (loss) from operations
Gain on disposal
Income (loss) before provision for (benefit from)
income taxes
Provision for (benefit from) income taxes
Net income (loss) attributable to discontinued
operations
March 28, 2021
March 29, 2020
March 31, 2019
Fiscal Years Ended
$
86,728,300 $
74,238,800
12,489,500
7,652,100
—
4,837,400
3,020,800
131,283,900 $
119,102,800
12,181,100
15,809,500
2,569,100
(6,197,500)
—
187,769,000
150,815,000
36,954,000
17,866,700
—
19,087,300
—
7,858,200
2,227,800
(6,197,500)
(230,000)
19,087,300
4,659,200
$
5,630,400 $
(5,967,500) $
14,428,100
The financial results reflected above may not fully represent our former Retail segment stand-alone operating net
profit, as the results reported within Income (loss) from discontinued operations, net of taxes, include only certain costs
that are directly attributable to this former segment and exclude certain corporate overhead and operational costs that may
have been previously allocated for each period.
The following table summarizes the major classes of assets attributable to discontinued operations that are
included in the Current portion of assets held for sale in the Company’s consolidated balance sheets as of March 28, 2021
and March 29, 2020:
ASSETS
Product inventory, net
Current portion of assets held for sale
March 28,
March 29,
2021
2020
$
$
1,196,900 $ 18,849,900
1,196,900 $ 18,849,900
The product inventory remaining at March 28, 2021 represents Retail inventory that was not sold to Voice Comm.
Management intends to sell through this inventory in the near term in alignment with its complete exit from the Retail
business.
Discontinued operations related to this Retail sale in future years will primarily include:
• Revenue related to royalty income, purchase price adjustments and selling inventory from customer
returns to Voice Comm
• Sale or liquidation of inventory continuing to be held for sale
• Product returns from customers
• Changes in estimates of inventory and returns reserves
• Minor operating expenses related to above items
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately
classified. Cash provided by operating activities from discontinued operations during fiscal 2021, 2020, and 2019 was
$13.2 million, $11.3 million, and $17.3 million, respectively. Cash provided by investing activities from discontinued
operations during fiscal 2021, 2020, and 2019 was $9.2 million, $0 million, and $0 million, respectively.
Back to Table of Contents | 63
Note 20. Quarterly Results of Operations (Unaudited)
Summarized quarterly financial data for the fiscal years ended March 28, 2021 and March 29, 2020 is presented
in the table below.
March 28,
Fiscal Year 2021 Quarters Ended
September 27,
December 27,
2021
$ 88,733,100 $
2020
2020
99,237,600 $
88,892,400 $ 96,477,600 $
105,839,700 $
100,844,000 $
103,651,000 $ 98,679,700
June 28,
2020
March 29,
2020
Fiscal Year 2020 Quarters Ended
December 29,
September 29,
2019
2019
June 30,
2019
$
Revenues
Cost of goods
sold
Gross profit
Selling, general
and
administrative
expenses
Goodwill
impairment
Restructuring
charges
Operating
expenses
Operating loss
Interest, net
Loss from
continuing
operations
before (benefit
from) provision
for income
taxes
(Benefit from)
provision for
income taxes
Net loss from
continuing
operations
(Loss) income
from
discontinued
operations, net
of taxes
Net (loss)
income
Basic and
diluted (loss)
earnings per
share from
continuing
operations
Continuing
operations
Discontinued
operations
Consolidated
operations
Basic weighted-
average
common shares
outstanding
Effect of
dilutive options
and other equity
instruments
Basic and
diluted
weighted-
average
common shares
outstanding
Cash dividends
declared per
common share $
$
$
$
$
71,907,100
16,826,000
81,921,900
17,315,700
71,771,200
17,121,200
80,024,900
16,452,700
86,251,300
19,588,400
81,196,300
19,647,700
83,466,700
20,184,300
78,458,200
20,221,500
19,580,000
23,606,800
20,787,800
21,532,500
23,547,600
21,994,800
22,029,900
24,432,900
—
—
—
—
—
—
—
—
9,108,600
—
—
—
—
—
—
488,000
19,580,000
(2,754,000)
58,500
23,606,800
(6,291,100)
151,200
20,787,800
(3,666,600)
105,900
21,532,500
(5,079,800)
110,700
32,656,200
(13,067,800)
204,600
21,994,800
(2,347,100)
367,900
22,029,900
(1,845,600)
335,100
24,920,900
(4,699,400)
208,700
(2,812,500)
(6,442,300)
(3,772,500)
(5,190,500)
(13,272,400)
(2,715,000)
(2,180,700)
(4,908,100)
(1,958,000)
(740,400)
(824,300)
(321,800)
(5,297,200)
(641,000)
(109,600)
(1,427,000)
(854,500) $
(5,701,900) $
(2,948,200) $
(4,868,700) $
(7,975,200) $
(2,074,000) $
(2,071,100) $
(3,481,100)
(2,075,700)
4,787,500
2,681,300
237,300
(6,101,500)
(2,947,400)
2,093,100
988,300
(2,930,200) $
(914,400) $
(266,900) $
(4,631,400) $
(14,076,700) $
(5,021,400) $
22,000 $
(2,492,800)
(0.10) $
(0.66) $
(0.34) $
(0.56) $
(0.93)
$
(0.24) $
(0.24) $
(0.41)
(0.24) $
0.55 $
0.31 $
0.03 $
(0.71)
$
(0.35) $
0.24 $
0.12
(0.33) $
(0.11) $
(0.03) $
(0.54) $
(1.65)
$
(0.59) $
0.00 $
(0.29)
8,814,859
8,699,937
8,656,877
8,617,803
8,554,348
8,541,020
8,650,320
8,494,168
—
—
—
—
—
—
—
—
8,814,859
8,699,937
8,656,877
8,617,803
8,554,348
8,541,020
8,650,320
8,494,168
— $
— $
— $
— $
0.02
$
0.20 $
0.20 $
0.20
Back to Table of Contents | 64
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TESSCO Technologies Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries
(the Company) as of March 28, 2021 and March 29, 2020, the related consolidated statements of (loss) income, changes
in shareholders' equity and cash flows for each of the three fiscal years in the period ended March 28, 2021, and the related
notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at March 28, 2021 and March 29, 2020, and the results of its operations and its cash
flows for each of the three years in the period ended March 28, 2021, in conformity with U.S generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of March 28, 2021, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated June 11, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
auditor judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Back to Table of Contents | 65
Description of the
Matter
is sensitive to changes in assumptions, including changes to future demand.
Inventory Reserve
The Company had inventories of $53.1 million as of March 28, 2021, net of reserves for excess
and obsolete inventory of $3.4 million. The Company's inventory is evaluated for estimated
obsolescence and is written down based on the difference between the cost of inventory and the
estimated net realizable value. As described in Note 2 to the consolidated financial statements,
management applies judgment to determine its reserves for excess and obsolete inventory,
considering specifically known inventory risks and assumptions about future demand.
Auditing the Company’s estimated inventory reserves were complex and highly judgmental
because the estimate was sensitive to changes in assumptions, including changes to future demand.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company's process to estimate inventory reserves. For example, we tested
controls over management’s review of the significant assumptions and data underlying the
inventory reserve estimate.
To test the adequacy of the Company's inventory reserves, our audit procedures included, among
others, testing the accuracy and completeness of the underlying data, evaluating the consistency of
the methodology between periods, and evaluating management’s significant assumptions. For
example, we tested the historical purchasing and sales data in the calculation of excess inventory
and tested the mathematical accuracy of the Company’s reserve calculation. We assessed the future
demand assumptions by performing inquiries with those who were involved in sales and inventory
management, and we compared future demand assumptions to historical data and trends, sales
subsequent to year end, and potential contrary information. To evaluate management's ability to
accurately estimate future demand in their sales projections, we retrospectively reviewed inventory
write-offs and reserves during the current year in order to assess the accuracy of the prior year
reserve.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Baltimore, Maryland
June 11, 2021
Back to Table of Contents | 66
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 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 and Chief Financial Officer have evaluated our disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form 10-K, and have concluded that our disclosure
controls and procedures are effective at the reasonable assurance level.
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 President and Chief Executive
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control-Integrated Framework (2013) 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 March 28,
2021.
The effectiveness of our internal control over financial reporting as of March 28, 2021 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 II 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 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting. We rely extensively on information systems and technology to manage our business and summarize operating
results. We are in the process of implementation of a new enterprise resource planning (“ERP”) system, which will replace
our existing operating and financial systems. The ERP system is designed to accurately maintain our financial records,
enhance operational functionality and provide timely information to the Company’s management team related to the
operation of the business. The implementation is expected to occur in phases over the next several quarters. There have
been no significant changes in our internal control over financial reporting as of March 28, 2021. However, as the next
phases of the updated processes are rolled out in connection with the ERP implementation, we will give appropriate
consideration to whether these process changes necessitate changes in the design of and testing for effectiveness of internal
controls over financial reporting.
Back to Table of Contents | 67
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TESSCO Technologies Incorporated
Opinion on Internal Control over Financial Reporting
We have audited TESSCO Technologies Incorporated and subsidiaries’ internal control over financial reporting as of
March 28, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion,
TESSCO Technologies Incorporated and subsidiaries (the Company) maintained, in all material respects, effective
internal control over financial reporting as of March 28, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of March
28, 2021 and March 29, 2020, the related consolidated statements of (loss) income, changes in shareholders’ equity and
cash flows for each of the three years in the period ended March 28, 2021, and the related notes and financial statement
schedule listed in the Index at Item 15(a)2 and our report dated June 11, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 Management’s Annual Report on
Internal Control Over Financial Reporting, appearing in Item 9A. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Baltimore, Maryland
June 11, 2021
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Item 9B. Other Information.
None.
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) 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 28, 2021 and March 29, 2020
Consolidated Statements of (Loss) Income for the fiscal years ended March 28, 2021, March 29, 2020 and March
31, 2019
Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended March 28, 2021, March
29, 2020 and March 31, 2019
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2021, March 29, 2020 and March
31, 2019
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
3.1.1 Amended and Restated Certificate of Incorporation of the Company 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)).
3.1.2 Certificate of Retirement of the Company 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)).
3.1.3 Certificate of Amendment to Certificate of Incorporation of the Company 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)).
3.1.4 Certificate of Amendment to Certificate of Incorporation of the Company 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 filed for the fiscal year ended March 28, 1997).
3.1.5 Certificate of Correction filed with the Secretary of State of Delaware on February 7, 2007 to Certificate of
Amendment to Certificate of Incorporation of the Company 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 for the fiscal quarter ended December 24, 2006).
3.2.1 Sixth Amended and Restated Bylaws of the Company (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).
3.2.2 First Amendment to Sixth Amended and Restated Bylaws of the Company (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 July 22, 2011).
3.2.3 Second Amendment to Sixth Amended and Restated Bylaws of the Company (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 March 29, 2016).
3.2.4 Third Amendment to Sixth Amended and Restated Bylaws of the Company (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 August 11, 2020).
3.2.5 Fourth Amendment to Sixth Amended and Restated Bylaws of the Company (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 December 17, 2020).
4.1.1 Description of Capital Stock (incorporated by reference to Exhibit 4.1.1 to the Company’s Annual Report on
Form 10-K filed for the fiscal year ended March 29, 2020).
10.1.1 Team 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).
10.2.1 TESSCO Technologies Incorporated Third Amended and Restated 1994 Stock and Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 27, 2016).
10.2.2 Form of TESSCO Technologies Incorporated Performance Share Unit Agreement – Officers and Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal
quarter ended June 27, 2004).
10.2.3 Form of TESSCO Technologies Incorporated Performance Share Unit Agreement – Non-Employee Directors
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal
quarter ended June 27, 2004).
10.2.4 Form of Restricted Stock Award under the TESSCO Technologies Incorporated Third Amended and Restated
1994 Stock and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q filed for the fiscal quarter ended June 26, 2011).
10.2.5 Form of Restricted Stock Unit Award (incorporated herein 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 30, 2013).
10.2.6 Form of Performance Stock Unit Agreement – Officers and Employees (incorporated by reference to Exhibit
10.5.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 26, 2016).
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10.2.7 Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 10, 2017).
10.2.8 Form of Stock Option (incorporated herein by reference to Exhibit 10.1.1 to the Company’s Quarterly Report
on Form 10-Q filed for the fiscal quarter ended July 1, 2018).
10.3.1 TESSCO Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July
30, 2019.
10.3.2 Form of Stock Option (Performance) under the Tessco Technologies Incorporated 2019 Stock and Incentive
Plan (incorporated by reference to Exhibit 10.3.2 to the Company’s Annual Report on Form 10-K filed for the
fiscal year ended March 29, 2020).
10.3.3 Form of Restricted Stock Award under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan
(incorporated by reference to Exhibit 10.3.3 to the Company’s Annual Report on Form 10-K filed for the fiscal
year ended March 29, 2020).
10.3.4 Form of Stock Option under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan
(incorporated by reference to Exhibit 10.3.4 to the Company’s Annual Report on Form 10-K filed for the fiscal
year ended March 29, 2020).
10.3.5 Form of Restricted Stock Unit Award under the Tessco Technologies Incorporated 2019 Stock and Incentive
Plan (incorporated by reference to Exhibit 10.3.5 to the Company’s Annual Report on Form 10-K filed for the
fiscal year ended March 29, 2020).
10.3.6 Form of Performance Share Unit Agreement – Officers and Employees, under the Tessco Technologies
Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.6 to the Company’s
Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).
10.4.1 Agreement 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 filed for the fiscal
quarter ended September 28, 2003).
10.4.2 Third 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
with the Securities and Exchange Commission on February 18, 2011).
10.4.3 Sixth Amendment to Agreement of Lease by and between ATAPCO Padonia, LLC and TESSCO Technologies
Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-K,
filed with the Securities and Exchange Commission on August 2, 2019).
10.5.1 Credit Agreement dated as of October 29, 2020, among TESSCO Technologies Incorporated, the additional
borrowers party thereto, the Lenders party thereto, and Wells Fargo Bank, National Association, as
Administrative Agent for each member of the Lender Group and the Bank Product Providers (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 November 4, 2020).
10.5.2 Guaranty and Security Agreement dated as of October 29, 2020, among TESSCO Technologies Incorporated
and its subsidiaries and Wells Fargo Bank, National Association, as Administrative Agent for each member of
the Lender Group and the Bank Product Providers (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 November 4, 2020).
10.6.1 Supplemental Executive Retirement Plan, dated as of March 31, 1994, 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 29, 2009).
10.6.2 Amendment No. 1 to Supplemental Executive Retirement Plan, effective as of January 1, 2005, between the
Company and Robert B. Barnhill, Jr. (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 29, 2009).
10.7.1 Form of Severance and Restrictive Covenant Agreement entered into between the Company and Douglas A.
Rein (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 29, 2009).
10.7.2 Form of Severance and Restrictive Covenant Agreement, entered into between the Company and Aric
Spitulnik (incorporated by reference to Exhibit 10.8.2 to the Company’s Annual Report on Form 10-K filed
for the fiscal year ended March 30, 2014).
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10.7.3 Form of Severance and Restrictive Covenant Agreement entered into between the Company and Elizabeth S.
Robinson (incorporated by reference to Exhibit 10.7.3 to the Company’s Annual Report on Form 10-K filed
for the fiscal year ended April 1, 2018).
10.7.4 Form of Severance and Restrictive Covenant Agreement, entered into between the Company and Joseph
Cawley (incorporated by reference to Exhibit 10.7.4 to the Company’s Annual Report on Form 10-K filed for
the fiscal year ended March 29, 2020).
10.8.1 Employment Agreement, dated as of August 29, 2016, by and between the Company and Murray Wright
(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, 2016).
10.8.2 Form of Stock Option to Murray Wright (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 September 1, 2016).
10.8.3 Letter Agreement dated August 14, 2019, by and between the Company and Murray Wright (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 August 20, 2019).
10.9.1 Employment Agreement, dated as of August 19, 2019, by and between the Company and Sandip Mukerjee
(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 August 20, 2019).
10.10.1
10.9.2 Form of Stock Option to Sandip Mukerjee on November 15, 2019 (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
November 19, 2019).
Inventory Purchase Agreement dated as of October 28, 2020, by and among Voice Comm, LLC and TESSCO
Technologies Incorporated, TESSCO Communications Incorporated and TESSCO Incorporated (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 November 6, 2020).
21.1.1 * Subsidiaries of the Company.
23.1.1 * Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1.1 * Rule 15d-14(a) Certification of Sandip Mukerjee, Chief Executive Officer.
31.2.1 * Rule 15d-14(a) Certification of Aric Spitulnik, Chief Financial Officer.
32.1.1 * Section 1350 Certification of Sandip Mukerjee, Chief Executive Officer.
32.2.1 * Section 1350 Certification of Aric Spitulnik, Chief Financial Officer.
101.1 * The following financial information from TESSCO Technologies Incorporated’s Annual Report on Form 10-
K for the year ended March 28, 2021 formatted in Inline XBRL: (i) Consolidated Statement of Income for the
years ended March 28, 2021, March 29, 2020 and March 31, 2019; (ii) Consolidated Balance Sheet at March
28, 2021 and March 29, 2020; (iii) Consolidated Statement of Cash Flows for the years March 28, 2021 and
March 29, 2020; and (iv) Notes to Consolidated Financial Statements.
104.1 * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)
* Filed herewith
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Schedule II: Valuation and Qualifying Accounts
For the fiscal years ended:
Allowance for doubtful accounts:
Balance, beginning of period
Provision for bad debts and other adjustments
Write-offs
Balance, end of period
Inventory Reserve:
Balance, beginning of period
Inventory reserve expense
Write-offs and other adjustments
Balance, end of period
Allowance for deferred tax asset:
Balance, beginning of period
Income tax expense
Write-offs and other adjustments
Balance, end of period
2021
2020
2019
$ 3,288,800 $ 2,137,900 $ 1,094,900
1,721,200
(678,200)
$ 1,584,200 $ 3,288,800 $ 2,137,900
(971,600)
(733,000)
2,100,400
(949,500)
2021
2020
2019
$ 9,666,100 $ 5,870,600 $ 5,739,700
4,863,100
11,801,500
(4,732,200)
(8,006,000)
$ 3,359,100 $ 9,666,100 $ 5,870,600
146,600
(6,453,600)
2021
2020
2019
141,600 $
$ 2,047,300 $
819,500
—
—
141,600
—
$ 2,866,800 $ 2,047,300 $ 141,600
1,905,700
—
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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/ Sandip Mukerjee
Sandip Mukerjee, President and Chief Executive Officer
June 11, 2021
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/ Sandip Mukerjee
Sandip Mukerjee
President and Chief Executive Officer (principal executive
June 11, 2021
officer)
/s/ Aric Spitulnik
Aric Spitulnik
Senior Vice President, Chief Financial Officer, and Corporate
Secretary (principal financial and accounting officer)
June 11, 2021
/s/ Paul J. Gaffney
Paul J. Gaffney
/s/ Jay G. Baitler
Jay G. Baitler
Chairman of the Board
Director
/s/ Robert B. Barnhill, Jr.
Robert B. Barnhill, Jr.
Director
/s/ Tim Bryan
Tim Bryan
/s/ Stephanie Dismore
Stephanie Dismore
/s/ Kathleen McLean
Kathleen McLean
Director
Director
Director
June 11, 2021
June 11, 2021
June 11, 2021
June 11, 2021
June 11, 2021
June 11, 2021
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