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Article by DailyStocks_admin    (07-17-08 04:06 AM)

Filed with the SEC from July 3 to July 9:

Tessco Technologies (TESS)
Discovery Group I plans to withhold its votes for two director nominees at the supply-chain and integrated-product management company's annual meeting, scheduled for July 24. The two nominees are Robert B. Barnhill, Jr. and Benn R. Konsynski. Discovery said that it opposes the board's adoption of a "poison pill" and an amendment to the company's bylaws that increased the percentage of stockholders required to call a special meeting to 50% from 25%. Discovery said it believes both items are "material to the rights and ownership value of Tessco shares and, therefore, should have been voted upon by the stockholders." The investment firm also plans to withhold its votes because of Tessco's repurchase of shares held by a potential strategic acquirer, and what it views as an "emerging corporate governance crisis at the company." Discovery holds 635,399 shares (13.1%).

BUSINESS OVERVIEW

General


TESSCO Technologies Incorporated (TESSCO, or the Company) is a leading provider of integrated product and supply chain solutions to the professionals that design, build, run, maintain and use wireless mobile, fixed and in-building systems.



We link customers with integrated product and supply chain solutions configured from product choices made by world-class manufacturers. While creating Your Total Source ® opportunity for our customers to improve the way business is done, we present, market, sell, supply, and support manufacturers’ products as a part of a total customer solution, thus providing a cost-effective channel to a broad and diverse customer base.



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



We began our “total source” operations in 1982, reincorporated as a Delaware corporation in 1987, and have been listed on the NASDAQ Global Market (symbol: TESS) since 1994. Today, we operate 24 hours a day, seven days a week, under ISO 9001:2000 registration. Our solution offering falls within the broad business segment categories of network infrastructure, mobile devices and accessories, and installation, test and maintenance products.



We currently serve an average of approximately 8,700 commercial customers whose purchases each exceed $250 per month, and 2,300 consumers per month, including a diversified mix of carrier and public network operators, infrastructure site owners, program managers, contractors and integrators, industrial and enterprise self-maintained users, governments, manufacturers, repair centers, retailers, dealers and value-added resellers, affinity partners and consumers.



On November 29, 2006, we issued a stock dividend in order to effect a 3-for-2 stock split of our common stock. The share prices and number of shares included in this Annual Report on Form 10-K prior to the November 29, 2006 stock split have been retroactively restated to reflect the stock dividend for all periods presented.



Products and Services



We identify, select, present, market, sell, supply, and support products and services required to design, build, run, maintain and use a wireless system. We principally offer competitively priced, manufacturer brand-name products, ranging from simple hardware items to sophisticated test equipment, with per item prices ranging from less than $1 to $75,000 and gross profit margins ranging from less than 5% to over 95%. During fiscal year 2008, we offered products classified into our three business segments: network infrastructure, mobile devices and accessories, and installation, test and maintenance products, which accounted for approximately 32%, 52% and 16% of revenues, respectively. Network infrastructure products are used to build, repair and upgrade wireless telecommunications, computing and Internet networks, and generally complement radio frequency transmitting and switching equipment provided directly by original equipment manufacturers (OEMs). Products include base station antennas, cable and transmission lines, fixed broadband equipment, filtering systems, small towers, lightning protection devices, connectors and miscellaneous hardware. Our network infrastructure service offering includes connector installation, custom jumper assembly, filter product tuning, site kitting and logistics integration. Mobile devices and accessory products include cellular phone and data device accessories such as replacement batteries, cases, speakers, mobile amplifiers, power supplies, headsets, mounts, and car antennas, as well as two-way radios and related accessories. Retail merchandising displays, promotional programs, customized order fulfillment services and affinity-marketing programs, such as providing outsourced call centers and private label Internet sites, complement our mobile devices and accessory product offering. Installation, test and maintenance products are used to install, tune, maintain and repair wireless communications equipment. Products include sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware, replacement and component parts and supplies required by service technicians. For more detailed financial information regarding our business segments for each of the past three fiscal years, see Note 10 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for the fiscal year ended March 30, 2008.



While we principally provide manufacturer brand-name products, a variety of products, which are primarily subscriber accessory products and infrastructure accessory components, are developed and offered under TESSCO owned-brands, Wireless Solutions Ò , TerraWave ® and Airstream. Also, our WLAN certification training is offered under our GigaWave ® trade name. We have not incurred significant research and development expenditures in any of the last three fiscal years.



Our products are sold as part of our integrated product and supply chain solutions. Our supply chain services for all product areas are grouped under Knowledge, Configuration, Delivery and Control. Knowledge solutions include the entire suite of TESSCO publications that focus on product choice comparison, with comprehensive specifications organized by product, not manufacturer, reinforced by engineering, sales and technical support staff and hands-on training programs. Configuration services are comprised of customized product kitting, logistics management and consumer and retail merchandising and marketing, allowing the products to be delivered ready for immediate use, installation or resale. Our delivery system allows the customer to select 1-, 3- or 5-day “just-in-time” delivery, to specific delivery locations, designed to eliminate the customer’s need for staging and warehousing. Our services that increase customer control include predetermined monthly pricing levels, the ability to monitor multi-site purchasing with pre-approved, customized parameters indicating who is able to order how much of which specific products, order delivery tracking, product and usage tracking and history reporting and alternative financing options.



As part of our commitment to customer service, we typically allow 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 5% of revenues in each of the past three fiscal years.



As of March 30, 2008, we offered products purchased from approximately 360 manufacturers. A substantial portion of our inventory purchases are concentrated with a small number of vendors. In fiscal year 2008, products purchased from our largest vendor, Motorola Inc., generated approximately 16% of our revenue. Our next nine top vendors accounted for approximately 33% of our fiscal year 2008 revenues, thus resulting in revenue from sales of products purchased from our top ten vendors of approximately 49% of our total revenues. Although we do not maintain long-term supply contracts with our vendors, we believe that, for other than those products purchased by us as part of our affinity relationships as described below, alternative sources of supply are available for many of the product types we carry. The agreements and arrangements on which most of our affinity relationships are based, are of limited duration and terminable by either party upon several months or otherwise short notice.



In mid-September 2005, T-Mobile, previously our largest affinity and overall customer relationship, completed its transition from the TESSCO provided e-commerce marketing and sales system to an in-house Web solution and alternative third-party logistics provider, and thus revenues then ceased from this relationship.



We supply repair and replacement materials to authorized service centers for Nokia Inc. (Nokia) in the United States, Canada and Latin America. Sales of the Nokia repair and replacement materials, that we purchase from Nokia and sell to approximately 1,200 separate and distinct service centers, accounted for approximately 8% of our total revenues in fiscal year 2008. This relationship is a complete supply chain relationship and, therefore, we have no alternative sources of supply, and our purchases, and ultimately our resale of these products, is dependent upon the continuation of the Nokia relationship. We also sell products other than Nokia repair and replacement materials to many of these customers. Absent this arrangement with Nokia, we would maintain the ability to sell these other products to these customers.



We are dedicated to superior performance and quality and consistency of service in an effort to maintain and expand these types of 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 revenue from these relationships.

Customers



Our customer base consists of commercial customers and consumers, which accounted for approximately 98% and 2%, respectively, of fiscal year 2008 revenues. Commercial customers share the characteristic that they are organizations that design, install, operate, repair or sell some type of wireless communications system. Beginning in fiscal year 2008, we categorize our commercial customers into three different categories: 1) public carriers and network operators, 2) resellers and 3) self-maintained users (SMUs) and governments, which accounted for approximately 12%, 62% and 24%, respectively, of fiscal year 2008 revenues.



Public carriers and network operators are system operators that are generally responsible for building and maintaining the infrastructure system and providing airtime service to individual subscribers.



Resellers include dealers and resellers that sell, install and service cellular telephone, paging and two-way radio communications equipment primarily for the consumer and small business markets. These resellers include local and national proprietorships and retailers.



SMUs and government customers include commercial entities such as major utilities, transportation companies and installation centers and federal agencies and state and local governments, including public safety organizations.



Consumers place orders for devices and related accessories via telephone and the Internet primarily through our affinity-marketing programs. Under these programs, we collaborate with our affinity-marketing clients to market to their customers under their brands. In many cases, we act as the merchant on behalf of the affinity-marketing client, interfacing with the customer, accepting the order, shipping from our inventory and collecting payment. Our affinity-marketing programs create a high level of customer service and supplementary income for the client through revenue share payments. In addition to our affinity programs, we maintain our own internally developed consumer Web site, YourWirelessSource.com TM , which offers cellular phone accessories from OEMs and Wireless Solutions ® , our own private brand, and other complementary consumer wireless products.



Our largest customer relationship, AT&T Mobility (formerly Cingular Wireless), a top tier cellular carrier purchasing phone accessories, accounted for approximately 26% of our revenues during fiscal year 2008. Our next nine largest customer relationships accounted for 5% of our total revenues during fiscal year 2008, and therefore, our top ten customer relationships totaled 31% of our total revenues.



Although we currently service customers in over 100 countries, approximately 96% of our sales have been made to customers in the United States during each of the past three years. Due to our diverse product segments and our wide customer base, our business is not significantly affected by seasonality. However, sales to our retailers generally peak in our second and third quarters in preparation for the winter holiday season. Also, our network infrastructure sales are typically affected by weather conditions in the United States, especially in our fourth quarter.



Method of Operation



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



• Understanding and anticipating customers’ needs and building solutions by cultivating lasting relationships;

• Allowing customers to make the best decisions by delivering product knowledge, not just information, through our knowledge tools, including The Wireless Guide , and TESSCO.com ® , our Internet-based Solution and Transaction System;

• Responding to what we refer to as “the moments of truth” by providing customers with sales, service and technical support, 24 hours a day, 7 days a week, 365 days a year;

• Providing customers what they need, when and where they need it by delivering integrated product and supply chain solutions; and

• Helping customers enhance their operations by providing real-time order tracking and performance measurement.

We operate as a team of teams structured to enhance marketing innovation, customer focus and operational excellence and consist of these integrated units:



Market Development and Sales: In order to meet the needs of a dynamic and diverse marketplace, sales and marketing activities are organized on an end-market basis. Sales teams are focused on: public carrier and network operator (e.g., carriers, infrastructure site owners, program site managers, contractors and integrators); SMUs and governments (e.g., self-maintained users, governments, manufacturers, repair centers); resellers (e.g. retailers, dealers and value-added resellers); and consumers (e.g., affinity programs, Web store programs and fulfillment and consumer services). This organization allows for the development of unique product and solution offerings to meet the needs of our diverse customer base.



We attempt to understand and anticipate customers’ needs and to build solutions by cultivating lasting relationships. Our commercial customer database contains detailed information on approximately 264,000 existing and potential customers, including the names of key personnel, past contacts, inquiries, and buying and credit histories. This extensive customer database enables us to identify and target potential customers and to market specific products to these targeted customers. Potential customers are identified through their responses to TESSCO.com ® , direct-marketing materials, advertisements in trade journals and industry trade shows, as well as through referrals from other TESSCO customers and vendors. Customer relationship representatives pursue these customer inquiries through distribution of our Knowledge Tools and through phone contact, electronic communications and field visits. The information technology system tracks potential customer identification from the initial marketing effort through the establishment and development of a purchasing relationship. Once a customer relationship is established, we carefully analyze purchasing patterns and identify opportunities to encourage customers to make more frequent purchases of a broader array of products. Scheduled contacts are made to each regularly purchasing customer for the purpose of information dissemination, order generation, database maintenance and the overall enhancement of the business relationship. The process is aimed at the attraction of prospects to TESSCO, the conversion of these prospects to buying customers, and the ultimate migration to loyal, total-source monthly buyers.



Solutions Development and Marketing: We actively monitor advances in technologies and industry trends, both through market research and continual customer and manufacturer interaction, and continue to enhance our product offering as new wireless communications products and technologies are developed.



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



We utilize our WPKS to develop both broad-based and customized product information materials. These materials are designed to encourage both existing and potential customers to realize the value we provide in their product and supply chain decisions. These Knowledge Tools are an integrated suite of informational print and electronic media. They include: The Wireless Guide , which is distributed annually to more than 60,000 current and prospective buyers; The Wireless Journal ® , a bi-monthly trade journal with an annual circulation of approximately 480,000, which is designed to introduce the reader to our capabilities and product offerings, and contains information on significant industry trends and product reviews; The Wireless Update , which is emailed monthly to more than 100,000 different individuals, and is uniquely produced for various portions of our customer base; the family of Wireless Bulletins including The Wireless Bulletin for Accessories for Handsets & Music Devices, The Wireless Bulletin for Installation, Test & Maintenance Products, The Wireless Bulletin for Site Planning, The Wireless Bulletin for Training, and The Wireless Bulletin for Wireless Networking Solutions, which are distributed throughout different times of the year and have an annual circulation of approximately 445,000; The Wireless Guide At-a-Glance , which is annually distributed to more than 100,000 individuals, Technical Application Notes and White Papers, which provide in-depth planning and installation instructions and diagrams; Tech Tips, which offer suggestions and ideas from TESSCO customers; and TESSCO.com ® .

• Electronic versions of various Knowledge Tools, including: The Wireless Update , The Wireless Journal ® , and five customized versions of The Wireless Bulletin ;

• 13 product search options, ranging from key word searches to product category browsing;

• Real-time pricing and product availability;

• Easy ordering capabilities, including a recently-improved worksheet ordering tool which allows for the construction and configuration of a total-source order; additionally, worksheets can be saved with or without protection, as well as copied, shared, uploaded and emailed;

• Order confirmation – specifying the contents, order status, delivery date, tracking number and total cost of an order;

• Order reservations, order status, back-order details and four-month order history;

• The ability to view invoices online and customer-specific pricing, based on our tiered pricing levels tied to a customer’s aggregate purchase volume;

• Comprehensive, targeted marketing pages for more than 200 product solutions;

• Interactive, how-to illustrations for a range of wireless applications; and

• Variety of useful customer service, financial and technical support pages.



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



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



We use our information technology system to monitor and manage our inventory. Historical sales results, sales projections and information regarding vendor lead times are all used to determine appropriate inventory levels. The information technology system also provides early warning reports regarding upcoming inventory requirements. As of March 30, 2008 and April 1, 2007, we had an immaterial level of backlog orders. Most backlog orders as of March 30, 2008, are expected to be filled within 90 days of fiscal year-end. For the fiscal years ended March 30, 2008 and April 1, 2007, inventory write-offs, excluding purchases from vendors for whom we hold goods on consignment, were 1.2% and 1.0% of total purchases, respectively. In many cases, we have been able to return slow-moving inventory to our vendors pursuant to stock rotation agreements. Inventory turns for fiscal years 2008 and 2007 were 9.3 and 8.6, respectively. This increase is largely due to an amended repair parts and components arrangement implemented with Nokia in the fourth quarter of fiscal year 2007, in which inventory formerly owned by us, became held by us on a consignment basis.



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



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



We believe that our commitment to providing prompt, friendly and efficient customer service before, during and after the sale enables us to maximize sales, customer satisfaction and customer retention. The average number of commercial customers whose purchases each exceed $250 per month increased from 8,400 in fiscal year 2007 to 8,700 in fiscal year 2008. An average of 3,200 consumer end-users were served per month in fiscal year 2008 as compared with 7,100 in fiscal year 2007. This decline in consumers is due to changes in relationships with some of our affinity partners.

Fu lfillment and Distribution: Orders are received at our Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas customer sales support centers. As orders are received, customer representatives have access to technical information, alternative and complementary product selections, product availability and pricing information, as well as customer purchasing and credit histories and recent inquiry summaries. An automated materials-handling system, which is integrated with the product planning and procurement system, allows us to ensure inventory control, minimize multiple product shipments to complete an order and limit inventory duplication. Bar-coded labels are applied to 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. Orders are delivered to customers by a variety of freight line and parcel transportation carrier partners with whom we contract.



Delivery charges are generally calculated on the basis of the weight of the products ordered and on the delivery service requested, not distance to the customer. We generally believe that this approach, combined with our Performance and Delivery Guarantee, which emphasizes on-time delivery instead of shipment dates, enables customers to minimize their inventories and reduce their overall procurement costs, thereby encouraging them to make us their total source supplier.



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



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



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



Acquisitions



In July 2007, we acquired the net assets and business of NetForce Solutions, Inc. (NetForce), a provider of technical and sales training solutions to wireless, telecommunications, and networking industries. The purchase included substantially all of the non-cash business assets for an initial cash payment of approximately $659,500 and potential additional cash earn-out payments of up to approximately $2.8 million over a four-year period, contingent on the achievement of certain earnings thresholds.



In April 2006, we acquired the non-cash assets and businesses of TerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWave Technologies, Ltd. for an initial cash payment of approximately $3.9 million, and potential additional cash earn-out payments over a four-year period, contingent on the achievement of certain minimum earnings thresholds ($1.5 million of the $3.8 million cash amount paid at closing is a prepayment against future earn-out payments, if earned). To the extent that certain minimum earnings thresholds are not achieved, we will not be able to recover the remainder of this prepayment. The maximum amount of contingent future earn-out payments as of March 30, 2008 (after subtracting the $1.5 million prepayment) is $13.3 million.



The TerraWave business designs, configures and offers Wi-Fi products and accessories, many of which are branded under TerraWave’s private label. Some of the TerraWave-branded products are sold with products of Cisco Systems under Cisco’s Strategic Technology Integrator program. The GigaWave business provides curriculum development and hands-on, instructor-led training courses for the Wireless Local Area Network (WLAN) industry. GigaWave develops and delivers wireless networking courseware for Cisco Systems, allowing IT professionals to obtain Cisco Wireless Certifications.

Competition



The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors, such as Hutton Communications, Cellstar, Brightpoint, Embarq Logistics, Anixter, Westcon, Comstor, Tech Data, Ingram Micro, Superior Communications, Site Pro 1 and Wincomm, as well as numerous regional distributors, including Talley Communications and Alliance Semiconductor. In addition, many manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. In addition, the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions, are typically of limited duration and are terminable by either party upon several months or otherwise short notice. Accordingly, 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 purchasing relationships with approximately 360 manufacturers provide us with a significant competitive advantage over new entrants to the market. Some of our current competitors, particularly certain manufacturers, have substantially greater capital resources and sales and distribution capabilities. 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.



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, 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 technology to sign confidentiality and nondisclosure agreements. There can be no assurance that these confidentiality and nondisclosure agreements will be honored, or whether they can be fully enforced, or that other entities may not independently develop systems, technologies or information similar to that on which we rely.



TESSCO Communications Incorporated, a wholly-owned subsidiary of TESSCO Technologies Incorporated, maintains a number of registered trademarks and service marks in connection with our business activities, including “TESSCO Ò ,” “Delivering What You Need…When and Where You Need It Ò ,” “Your Total Source Ò ,” “Your Virtual Inventory Ò ,” “ The Wireless Journal Ò ,” “Wireless Solutions Ò ,” “The Vital Link to a Wireless World Ò ,” “Transmitter ® ,” “T-Flash ® ,” “Techdirect ® ,” “A Simple Way of Doing Business Better ® ,” “TerraWave Solutions ® ,” and “GigaWave Technologies ® .” 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.



Although we currently hold no patents, we intend, if and when appropriate, to seek patent protection for 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.

CEO BACKGROUND

Robert B. Barnhill, Jr. , age 64, has served as President and Chief Executive Officer of the Company since founding the business in its current form, in 1982. Mr. Barnhill has been a director of the Company since 1982, and has been Chairman of the Board since November 1993.

Benn R. Konsynski, Ph.D. , age 57, has been a director of the Company since November 1993. He is the George S. Craft Professor of Business Administration for Decision and Information Analysis at the Goizueta Business School of Emory University. He was named Hewlett Fellow at the Carter Center in 1995. Prior to arriving at the Goizueta Business School, he was on the faculty at the Harvard Business School for seven years where he taught in the MBA program and several executive programs. Professor Konsynski specializes in issues of digital commerce and information technology in relationships across organizations.

John D. Beletic , age 56, has been a director of the Company since July 1999. Since August 2006, he has served as Executive Chairman of FiberTower Corporation, a provider of wireless backhaul services to mobile network carriers. Also, since July 2002, he has been a venture partner with Oak Investment Partners, a venture capital firm. From July 2002 to September 2004, Mr. Beletic also served as Executive Chairman of Oculan Corporation, a network monitoring and intrusion detection company. From August 1994 until December 2001, Mr. Beletic served as Chief Executive Officer and Chairman of the Board of PageMart Inc. and Weblink Wireless, Inc., a communications service company. Prior to 1994, he was a Venture Partner at Morgan Stanley Venture Capital Partners, following a five-year term as President and Chief Executive Officer of Tigon which was acquired by Ameritech. Mr. Beletic serves on the board of iPass Inc., an internet access provider, Aventail, Inc., a virtual private network appliance provider, River Logic, a provider of business optimization software and iBahn, Inc., a provider of broadband internet access for the hospitality industry.

Daniel Okrent , age 60, has been a director of the Company since January 2004. He is a writer, a publishing consultant, and an associate of the Shorenstein Center at the John F. Kennedy School of Government at Harvard University. He has previously been public editor of the New York Times and a senior executive at Time Inc. Mr. Okrent formerly served on the Board of Lands' End, Inc., and is currently chairman of the National Portrait Gallery, a division of the Smithsonian Institution.

Morton F. Zifferer, Jr. , age 60, has been a director of the Company since November 1993. He has served as Chairman and CEO of New Standard Corporation, a metal products manufacturer, since 1983. Mr. Zifferer and New Standard Corporation have partnered with several Fortune 500 companies globally to implement Six-Sigma continuous improvement activities and execute lean manufacturing techniques and sophisticated supply chain strategies and practices.

Dennis J. Shaughnessy , age 61, has been a director of the Company since 1989. He is Chairman of the Board of FTI Consulting Inc. Prior to joining FTI, Mr. Shaughnessy served as General Partner of Grotech Capital Group, a private equity firm. Prior to joining Grotech, Mr. Shaughnessy had been President and CEO of CRI International, an international petroleum refining service business.

Jay G. Baitler , age 61, has been a director of the Company since 2007. He has served as Executive Vice President of Staples Contract Division since 2004. He has been with Staples since 1995, and prior to his position as Executive Vice President, Mr. Baitler served as Mid-Atlantic Regional President and Senior Vice President, Contract Division. Prior to joining Staples, Mr. Baitler served as the Northeast Regional President at BT Office Products.

Board Independence

The Board has determined that each of the current directors, other than Mr. Barnhill, are independent within the meaning of the Company's director independence standards, which reflect both the NASDAQ and Securities and Exchange Commission director independence standards, as currently in effect. Furthermore, the Board has determined that none of the members of the three standing committees of the Board of Directors has any material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and that each such member is "independent" within the meaning of the independence standards applicable to each such committee.

MANAGEMENT DISCUSSION FROM LATEST 10K

Business Overview and Environment



TESSCO Technologies Incorporated (TESSCO) is a leading provider of integrated product and supply chain solutions to the professionals that design, build, run, maintain and use wireless mobile, fixed and in-building systems. Although we sell products to customers in over 100 countries, approximately 96% of our sales are made to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.



We offer a wide range of products that are classified into three business segments: network infrastructure; mobile devices and accessories; and installation, test and maintenance. Network infrastructure products, which are sold to our commercial customers, are used to build, repair and upgrade wireless telecommunications, computing and Internet networks. Sales of traditional network infrastructure products, such as cable, transmission lines and antennas are in part dependent on capital spending in the wireless communications industry. However, we have also been growing our offering of wireless broadband and network equipment products, which are not as dependent on the overall capital spending of the industry. Mobile devices and accessory products include cellular phone and data device accessories, as well as two-way radios and related accessories. Mobile devices and accessory products are widely sold to commercial customers and consumers. Commercial customers include retail stores, value-added resellers and dealers. Consumers are primarily reached through our affinity partnerships, where we offer services including customized order fulfillment, outsourced call centers, and building and maintaining private label Internet sites. Installation, test and maintenance products, which are sold to our commercial customers, are used to install, tune, maintain and repair wireless communications equipment. Approximately 50% of all of our installation, test and maintenance sales for fiscal year 2008 were generated from the sales of replacement parts and materials for original equipment manufacturers, primarily Nokia, Inc. (Nokia). The remainder of this segment is made up of sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware and supplies required by service technicians. Both our repair and replacement parts sales and consumer sales through our affinity partnerships are reliant on relationships with a small number of vendors.



We view our customer base in four major categories:



• Commercial Public Carriers and Network Operators. Public carriers and network operators include systems operators that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers.

• Commercial Resellers. Resellers include dealers and resellers that sell, install and service cellular telephone, paging and two-way radio communications equipment primarily for the consumer and small business markets. These resellers include local and national proprietorships and retailers, as well as sales and installation centers operated by cellular and paging carriers.

• Commercial Self-Maintained Users (SMUs) and Governments. SMUs and government customers include commercial entities such as major utilities and transportation companies, federal agencies and state and local governments, including public safety organizations.

• Consumers. Consumers are customers buying through any of our affinity-partner relationships or directly from our consumer website, YourWirelessSource.com TM .

Business Overview and Environment



TESSCO Technologies Incorporated (TESSCO) is a leading provider of integrated product and supply chain solutions to the professionals that design, build, run, maintain and use wireless mobile, fixed and in-building systems. Although we sell products to customers in over 100 countries, approximately 96% of our sales are made to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.



We offer a wide range of products that are classified into three business segments: network infrastructure; mobile devices and accessories; and installation, test and maintenance. Network infrastructure products, which are sold to our commercial customers, are used to build, repair and upgrade wireless telecommunications, computing and Internet networks. Sales of traditional network infrastructure products, such as cable, transmission lines and antennas are in part dependent on capital spending in the wireless communications industry. However, we have also been growing our offering of wireless broadband and network equipment products, which are not as dependent on the overall capital spending of the industry. Mobile devices and accessory products include cellular phone and data device accessories, as well as two-way radios and related accessories. Mobile devices and accessory products are widely sold to commercial customers and consumers. Commercial customers include retail stores, value-added resellers and dealers. Consumers are primarily reached through our affinity partnerships, where we offer services including customized order fulfillment, outsourced call centers, and building and maintaining private label Internet sites. Installation, test and maintenance products, which are sold to our commercial customers, are used to install, tune, maintain and repair wireless communications equipment. Approximately 50% of all of our installation, test and maintenance sales for fiscal year 2008 were generated from the sales of replacement parts and materials for original equipment manufacturers, primarily Nokia, Inc. (Nokia). The remainder of this segment is made up of sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware and supplies required by service technicians. Both our repair and replacement parts sales and consumer sales through our affinity partnerships are reliant on relationships with a small number of vendors.



We view our customer base in four major categories:



• Commercial Public Carriers and Network Operators. Public carriers and network operators include systems operators that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers.

• Commercial Resellers. Resellers include dealers and resellers that sell, install and service cellular telephone, paging and two-way radio communications equipment primarily for the consumer and small business markets. These resellers include local and national proprietorships and retailers, as well as sales and installation centers operated by cellular and paging carriers.

• Commercial Self-Maintained Users (SMUs) and Governments. SMUs and government customers include commercial entities such as major utilities and transportation companies, federal agencies and state and local governments, including public safety organizations.

• Consumers. Consumers are customers buying through any of our affinity-partner relationships or directly from our consumer website, YourWirelessSource.com TM .

Fiscal Year 2008 Compared to Fiscal Year 2007



Revenues. Revenues for fiscal year 2008 increased 5.8% as compared with fiscal year 2007, primarily due to a 5.4% increase in commercial revenues, and to a much lesser extent, a 32.9% increase in consumer revenues. The increase in commercial revenues was driven primarily by growth in our mobile devices and accessories commercial line of business, and to a much lesser extent, by growth in our network infrastructure line of business, and was partially offset by a decline in our installation, test, and maintenance commercial line of business.



Our mobile devices and accessories revenues, including both commercial and consumer sales, increased 17.1% for fiscal year 2008 compared with fiscal year 2007. We experienced significant growth in commercial sales of mobile devices and accessory products, and to a much lesser extent, an increase in consumer sales. Commercial revenues for mobile devices and accessories, which are sold primarily to resellers, but are also sold to SMUs, governments and public carriers and network operators, increased 16.6% over the prior year, due in part to new product introductions, enhanced merchandising and packaging programs and increased sales of accessory products to carrier and independent retail customers.



The 0.6% increase in our network infrastructure sales from fiscal year 2007 to fiscal year 2008 is primarily attributable to an increase in sales of radio frequency (RF) propagation and site support products, partially offset by lower sales of broadband products. Our growth in sales of network infrastructure product was in sales to resellers as well as SMUs and governments, as we have continued to focus on diversification beyond the traditional infrastructure carrier customer.



Revenues from our installation, test and maintenance line of business decreased 12.1% in fiscal year 2008 as compared to the prior fiscal year, primarily due to a decline in sales of repair parts related to our major repair components relationship with Nokia, as well as decreased sales of test and bench equipment partially offset by an increase in sales of shop supplies. While revenues and gross profits from this Nokia relationship were significantly higher in fiscal year 2007 compared to fiscal year 2008, revenues and gross profits decreased significantly in the last six months of fiscal year 2007 as compared to the first six months of the year. We had previously anticipated fiscal year 2008 revenues and profits from this business to approximate the levels we experienced in the last half of the fiscal year 2007.



Gross Profit. Gross profit decreased 3.6% in fiscal year 2008 compared with fiscal year 2007, driven by a decline in our installation, test and maintenance commercial line of business, partially offset by growth in our network infrastructure and mobile devices and accessories commercial business segments. Commercial gross profit declined 4.2% and was partially offset by a 17.5% increase in consumer gross profit. Gross profit margin decreased to 22.5% in fiscal year 2008, from 24.7% in fiscal year 2007. Except as noted below, our gross margins by product within each segment have been sustained and variations are related to sales mix within the segment product offerings. Gross profit margin increased to 25.4% in fiscal year 2008 in our network infrastructure segment, from 24.3% in fiscal year 2007. In our installation, test and maintenance segment, gross profit margin decreased to 22.4% in fiscal year 2008, from 28.9% in fiscal year 2007. This decline was due primarily to the return to historical levels of gross profit attributable to our Nokia repair and replacement parts relationship as a result of price changes. Gross profit margin in our mobile devices and accessories segment decreased to 20.6% in fiscal year 2008, from 23.2% in fiscal year 2007. This decline is primarily attributable to the commercial gross profit margin for our mobile devices and accessories segment, which decreased from 22.5% for fiscal year 2007 to 20.0% for fiscal year 2008, principally due to product mix in sales to a large tier-one carrier and other retail customers. The gross profit margin for our consumer sales decreased from 41.9% to 37.0% in fiscal year 2008. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes.



During fiscal year 2006, we began sourcing a significant portion of our private branded subscriber accessory product line directly from factories in China. All of such purchases are denominated in U.S. dollars. Although our total gross profit percentage decreased for fiscal year 2008, primarily related to our arrangements with Nokia and our large tier-one carrier, we have been increasing the amount of products and services sold under TESSCO’s private labels, including our GigaWave training. While sales of these directly sourced products and services represented only 9% of our total sales, we believe that this direct sourcing initiative has allowed us to realize lower costs of goods sold on sales of these products, after accounting for additional supply chain costs and lead times. We also believe that these cost savings have allowed us to be more competitive in the market.



Our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent upon a number of factors. The terms, and accordingly the factors, applicable to each affinity relationship often differ. Among these factors are the strength of the customer’s or vendor’s business, the supply and demand for the product or service, including price stability, changing customer or vendor requirements, and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our affinity relationships are based are typically of limited duration, and are terminable by either party upon several months or otherwise short notice. These affinity relationships could also be affected by wireless carrier consolidation.



As total revenues and gross profits from larger customer and vendor relationships, including AT&T Mobility (formerly Cingular) and Nokia, increase, we occasionally experience and expect to continue to experience pricing pressures that may adversely affect future results. In an effort to mitigate the overall effect of these pressures and to meet these consistent challenges, we are focused on our continuing efforts to grow revenues and gross profits from other customer and vendor relationships.



Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased by 0.3% during fiscal year 2008 as compared with fiscal year 2007. Total selling, general and administrative expenses as a percentage of revenues decreased from 22.2% in fiscal year 2007 to 20.9% in fiscal year 2008, due to the decreases in expenses discussed below.



The largest factors contributing to the decrease in total selling, general and administrative expenses during fiscal year 2008 were decreased marketing, sales promotion, freight expense and bonus accruals, partially offset by increased labor costs.



During the second quarter of fiscal year 2007, we began a media campaign utilizing different marketing techniques to broaden our outreach. We reduced the scope of this program significantly during fiscal year 2008. Also in fiscal year 2007, we had increased sales promotion expense due to costs related to a one time racks and graphics expenditure associated with our large tier-one carrier. Total marketing and sales promotion expenses decreased by approximately $3.0 million from fiscal year 2007 to fiscal year 2008.



Freight costs in fiscal year 2008 decreased approximately $1.2 million over the prior year, primarily due to increased productivity in our distribution operations, partially offset by higher fuel surcharges.



Labor cost primarily related to business generation and fulfillment activities increased from fiscal year 2007 to fiscal year 2008. These increases are reflective of our increased focus on our commercial business. However, the increase in labor costs was partially offset by decreased expenses related to our bonus programs, including stock compensation expense. Total labor costs, including benefits, increased by approximately $4.0 million from fiscal year 2007 to fiscal year 2008, offset by an approximately $2.7 million decrease in our bonus expense in fiscal year 2008 compared with fiscal year 2007.



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 customers and make decisions regarding extension of credit terms to such prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $937,900 and $999,900 for fiscal year 2008 and fiscal year 2007, respectively.



Interest, Net. Net interest expense decreased from $879,400 in fiscal year 2007 to $574,100 in fiscal year 2008, primarily due to decreased average balances on our revolving credit facility, as well as decreased interest rates on our revolving credit facility and our term bank loan. As noted below, beginning October 1, 2005, we entered into a receive variable/pay fixed interest rate swap on our existing bank loan, thus fixing the interest rate on this loan at 6.38%. Interest expense on our other debt instruments had only minor variances from year-to-year in total.



Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2008 and 2007 were 36.1% and 37.8%, respectively. The effective tax rate for fiscal year 2008 decreased due to changes in the relationship between non-deductible expenses and taxable income, as well as other minor differences in the taxability of certain other items, including a reduction of $196,300 in unrecognized tax benefits due to the lapse of an applicable statute of limitations. As a result of the factors discussed above, net income and diluted earnings per share for fiscal year 2008 decreased 31.6% and 24.8%, respectively, compared with fiscal year 2007. Diluted earnings per share was positively impacted by the stock buyback program further discussed in the liquidity and capital resources section below.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Third Quarter of Fiscal Year 2008 Compared with Third Quarter of Fiscal Year 2007



Revenues. Revenues for the third quarter of fiscal year 2008 increased 0.8% as compared with the third quarter of fiscal year 2007, primarily due to a 0.5% growth in commercial revenues and, to a much lesser extent, a 17.7% increase in consumer revenues. While sales in our network infrastructure and installation, test, and maintenance lines of business declined, sales in our mobile devices and accessories line of business grew.



Network infrastructure sales decreased 0.6% as compared with the third quarter of fiscal year 2007, as a result of lower sales of broadband products, primarily to public carriers and network operators, partially offset by higher sales of radio frequency propagation and site support products across all of our market categories. Our overall decline in sales of network infrastructure products was in sales to public carriers, partially offset by an increase in sales to resellers and SMUs and governments, which is the result of our focus on diversification beyond the traditional infrastructure carrier customer.



Sales in the mobile devices and accessories line of business increased 5.7% in the third quarter of fiscal year 2008, as compared with the same period last year. The increase was due to a 5.3% increase in commercial sales and, to a much lesser extent, a 17.7% increase in consumer sales. The increase in commercial revenues for mobile devices and accessories, which are sold primarily to resellers, but also to SMUs and governments and public carriers and network operators, was primarily due to increased sales to our smaller resellers and users. Sales to a large national tier-one carrier declined by 3.4%.



Revenues from our installation, test and maintenance line of business had a 10.0% decrease from the prior-year quarter, primarily due to a decrease in the sale of repair components related to our major repair components relationship with Nokia.



Gross Profit. Gross profit for the third quarter of fiscal year 2008 decreased 7.5% as compared with the third quarter of fiscal year 2007. Total commercial gross profit decreased 8.1%, while consumer gross profit increased 15.1%. Gross profit margin decreased to 22.4% in the third quarter of fiscal year 2008 from 24.4% in third quarter of fiscal year 2007. Gross profit margin in our network infrastructure segment increased from 24.2% in the third quarter of fiscal year 2007 to 25.8% in the third quarter of fiscal year 2008. Gross profit margin in our mobile devices and accessories segment decreased to 20.4% in the third quarter of this fiscal year from 24.4% in the third quarter of last fiscal year. This decline was primarily attributable to the commercial gross profit margin for our mobile devices and accessories, which decreased to 19.8% in the third quarter of fiscal year 2008 from 24.0% for the third quarter of fiscal year 2007, principally due to product mix in sales to a large tier-one carrier and other retail customers. Consumer gross profit margin for our mobile devices and accessories decreased to 36.7% in the third quarter of this fiscal year from 37.6% for the third quarter of last fiscal year. Gross profit margin in our installation, test and maintenance line of business decreased from 24.7% in the third quarter of fiscal year 2007 to 21.8% in the third quarter of fiscal year 2008. This decline was due primarily to the return to historical levels of gross profit attributable to our Nokia repair and replacement parts relationship as a result of price changes as we discussed on previous occasions. Generally, our gross margins by product within these segments have been sustained, except as noted above for gross margins attributable to our relationships with a large tier-one carrier and Nokia, and generally these variations are related to sales mix within the segment product offerings. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes.



Our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent upon a number of factors. The terms, and accordingly the factors, applicable to each affinity relationship often differ. Among these factors are the strength of the customer’s or vendor’s business, the supply and demand for the product or service, including price stability, changing customer or vendor requirements, and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our affinity relationships are based are typically of limited duration, and are terminable by either party upon several months or otherwise relatively short notice. These affinity relationships could also be affected by wireless carrier consolidation.



As total revenues and gross profits from larger customer and vendor relationships, including AT&T and Nokia, increase, we occasionally experience and expect to continue to experience pricing pressures that may adversely affect future results.

In an effort to mitigate the overall effect of these pressures and to meet these consistent challenges, we are focused on our continuing efforts to grow revenues and gross profits from other customer and vendor relationships.



Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased by 6.7% in the third quarter of fiscal year 2008 as compared with the third quarter of fiscal year 2007. Selling, general and administrative expenses as a percentage of revenues decreased to 20.4% in the third quarter of fiscal year 2008 from 22.1% in the third quarter of fiscal year 2007. The largest factors contributing to the decrease in total selling, general and administrative expenses were decreased marketing, sales promotion, freight expense and bonus accruals, during the third quarter of fiscal year 2008.



Marketing and sales promotion expenses decreased by approximately $1.8 million in the third quarter of fiscal year 2008 as compared with the third quarter of fiscal year 2007, primarily due to lower racks and graphics expense associated with our large tier-one carrier in the third quarter of fiscal year 2008, as well as decreased expense for media and advertising campaigns.



Freight expense decreased by approximately $468,500 due to increased productivity in our freight operations.



Labor expenses related to business generation and fulfillment activities increased over the prior-year quarter. These increases are reflective of our increased focus on our commercial business. However, the increase in labor cost was offset by decreased accruals related to our bonus program. Total labor costs, including benefits, increased by approximately $1.1 million from the third quarter of fiscal year 2007 to the third quarter of fiscal year 2008, offset by an approximately $1.4 million decrease in our bonus expense in the third quarter of fiscal year 2008 as compared with the third quarter of fiscal year 2007.



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 customers and make decisions regarding extension of credit terms to such prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $258,100 and $302,600 for the third quarter ended December 30, 2007 and December 24, 2006, respectively.



Interest, Net. Net interest expense decreased from $323,800 in the third quarter of fiscal year 2007 to $161,000 in the third quarter of fiscal year 2008, primarily due to decreased average borrowings on our revolving line of credit facility as well as decreased interest rates.



Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate in the third quarter of fiscal year 2008 was 38.9% as compared with 37.5% in the third quarter of fiscal year 2007. The increase in the tax rate is primarily attributable to an increase in non-deductible expenses as a percentage of income, as well as changes in our state tax effective rate. As a result of the factors discussed above, net income and diluted earnings per share for the third quarter of fiscal year 2008 decreased 13.0% and 6.5%, respectively, compared to the prior-year quarter.

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