Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Mar. 31, 2016

Stock-based Compensation:

Employee Stock Incentive Plans

The Westell Technologies, Inc. 2015 Omnibus Incentive Compensation Plan (the 2015 Plan) was approved at the annual meeting of stockholders on September 16, 2015. The 2015 Plan replaces the Westell Technologies, Inc. 2004 Stock Incentive Plan (the 2004 Plan). If any award granted under the 2015 Plan or the 2004 Plan is canceled, terminates, expires, or lapses for any reason, any shares subject to such award will again be available for the grant of an award under the 2015 Plan. Shares subject to an award will not be made available again for issuance under the Plan if such shares are: (a) shares delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) shares delivered to or withheld by the Company to pay the withholding taxes related to an award. Any awards or portions thereof that are settled in cash and not in shares will not be counted against the foregoing Share limit. There are a total of 6,014,433 shares available for issuance under the 2015 Plan as of March 31, 2016. The stock options, restricted stock awards, and RSUs awarded granted under the 2015 Plan vest in equal annual installments over 3 years for employees and 1 year for independent directors. The stock options, restricted stock awards, and RSUs awarded under the 2004 Plan vest in equal annual installments over 4 years. PSUs earned vest over the performance period, as described below. Certain awards provide for accelerated vesting if there is a change in control (as defined in the 2015 Plan), or when provided within individual employment contracts. As a result of the early adoption of ASU 2016-09 described in Note 3, the Company made the policy election to account for forfeitures as they occur. Using a modified retrospective transition method, the $87,000 impact of this policy election was recorded as a cumulative-effect adjustment to retained earnings. The Company issues new shares of stock for awards under the 2015 Plan.

Stock-Based Compensation

Total stock-based compensation is reflected in the Consolidated Statements of Operations as follows:



	Fiscal Year Ended March 31,
(in thousands)	2016			2015		2014
Cost (benefit) of revenue	$	(5	)	$	89	$	53
Sales and marketing	221			170		337
Research and development	310			452		338
General and administrative	739			1,894		1,143
Stock-based compensation	1,265			2,605		1,871
Income tax benefit	—			—		—
Total stock-based compensation, after taxes	$	1,265		$	2,605	$	1,871

Stock Options

Stock options that have been granted by the Company have an exercise price that is equal to the reported value of the Company’s stock on the grant date. The Company’s options have a contractual term of 5, 7 or 10 years. Compensation expense is recognized on a straight-line basis over the vesting period for the award.

The Company uses the Black-Scholes model to estimate the fair value of employee stock options on the date of grant. That model employs parameters for which the Company has made estimates according to the assumptions noted below. Expected volatilities were based on historical volatilities of the Company’s stock. The expected option lives represent the period of time that options granted are expected to be outstanding based on historical trends. The risk-free interest rates were based on the United States Treasury yield curve for the expected term at the time of grant. The dividend yield was based on expected dividends at the time of grant, which has always been zero.

The Company recorded expense of $0.2 million in each of the fiscal years ended March 31, 2016, 2015 and 2014 related to stock options. The Company received proceeds from the exercise of stock options of $0.3 million, and $1.7 million in fiscal years 2015 and 2014, respectively. The total intrinsic value of options exercised during the fiscal years 2015 and 2014 was $0.4 million, and $1.3 million, respectively. The were no options exercised in fiscal year 2016.

Option activity for the fiscal year ended March 31, 2016 is as follows:



	Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value⁽¹⁾ (in thousands)
Outstanding on March 31, 2015	1,170,515		$	2.20
Granted	1,567,500		$	1.21
Exercised	—		$	—
Forfeited	(302,500	)	$	1.52
Expired	(588,015	)	$	2.37
Outstanding on March 31, 2016	1,847,500		$	1.42	5.6	$	9
Exercisable on March 31, 2016	244,667		$	2.18	2.8	$	0

(1) The intrinsic value for the stock options is calculated based on the difference between the exercise price of the underlying awards and the Westell Technologies’ closing stock price as of the reporting date.

As of March 31, 2016, there was $0.7 million of pre-tax stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted-average period of 2.8 years.

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2016			2015			2014
Input assumptions:
Expected volatility	48		%	45		%	42		%
Risk-free interest rate	1.3		%	1.2		%	1.1		%
Expected life	4 years			4 years			5 years
Expected dividend yield	0		%	0		%	0		%
Output weighted-average grant date fair value	$	0.46		$	0.63		$	0.91

Restricted Stock

Vesting of restricted stock is subject to continued employment with the Company. During fiscal years 2016, 2015 and 2014, non-employee directors received grants of 110,000, 100,000 and 90,000 shares, respectively. The Company recognizes compensation expense restricted stock on a straight-line basis over the vesting periods for the award based on the market value of Westell Technologies stock on the date of grant. On September 16, 2014, the Board of Directors modified the vesting provisions on all outstanding non-employee director restricted stock awards to include an accelerated vesting provision triggered upon a termination of service as a director following a failure to be nominated by the Board of Directors for re-election as a director. As a result of that modification, the requisite service period on all non-vested restricted stock, at the time of the modification, was shortened to the then next expected nomination date in July 2015.

The following table sets forth restricted stock activity for the fiscal year ended March 31, 2016:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2015	170,000		$	2.98
Granted	110,000		$	1.18
Vested	(62,500	)	$	2.94
Forfeited	—		$	—
Non-vested as of March 31, 2016	217,500		$	2.07

The Company recorded $0.2 million, $0.5 million, and $0.5 million of expense in the fiscal years ended March 31, 2016, 2015 and 2014, respectively, related to restricted stock. As of March 31, 2016, there was $0.1 million of pre-tax unrecognized compensation expense, including estimated forfeitures, related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 0.5 years. The total intrinsic fair value of shares vested during the fiscal years ended March 31, 2016, 2015, and 2014, was $0.1 million, $1.2 million, and $0.7 million, respectively.

Restricted Stock Units (RSUs)

In fiscal years 2016, 2015 and 2014, there were 1,502,500, 780,500 and 1,182,000 shares, respectively, of RSUs awarded to certain key employees. These awards convert into shares of Class A Common Stock on a one-for-one basis upon vesting. The Company recognizes compensation expense on a straight-line basis over the vesting for the award based on the market value of Westell Technologies stock on the date of grant.

The Company recorded stock-based compensation expense of $0.9 million, $1.7 million and $0.9 million for RSUs in fiscal years 2016, 2015 and 2014, respectively. As of March 31, 2016, there was approximately $2.3 million of pre-tax unrecognized compensation expense related to the RSUs, which is expected to be recognized over a weighted-average period of 2.5 years. The total intrinsic fair value of RSUs vested during the fiscal years ended March 31, 2016, 2015, and 2014, was $0.3 million, $1.5 million, and $0.5 million, respectively.

The following table sets forth the RSUs activity for the fiscal year ended March 31, 2016:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2015	1,409,750		$	2.72
Granted	1,502,500		$	1.21
Vested	(303,500	)	$	2.72
Forfeited	(765,375	)	$	2.46
Non-vested as of March 31, 2016	1,843,375		$	1.59

Performance-based RSUs (PSUs)

The PSUs vest in annual increments based on the achievement of pre-established Company performance goals and continued employment. The number of PSUs earned, if any, can range from 0% to 200% of the target amount, depending on actual performance for four fiscal years following the grant date. Upon vesting, the PSUs convert into shares of Class A Common Stock on a one-for-one basis. The Company recognizes compensation expense using the accelerated attribution model based on the market value of Westell Technologies stock on the date of grant.

In fiscal year 2016, there were no PSUs granted.

In fiscal year 2015, certain executives were granted a total of 217,500 PSUs at target. The performance targets in fiscal years 2016 and 2015 for the fiscal year 2015 grants were not achieved and therefore no shares were earned in the first or second measurement periods.

In fiscal year 2014, certain executives were granted a total of 285,000 PSUs at target. The performance in fiscal year 2014 measured against the first performance target resulted in the executives earning 94% of the PSUs. The targets in the second and third performance measurement period in fiscal years 2015 and 2016, respectively, were not achieved and therefore no additional PSUs were earned in those periods.

The Company recorded stock-based compensation expense of $0.0 million and $0.1 million and $0.3 million for PSUs in fiscal years 2016, 2015 and 2014, respectively. As of March 31, 2016, there was approximately $10,000 of pre-tax unrecognized compensation expense related to the PSUs, which is expected to be recognized over a weighted-average period of 1.0 year. The total intrinsic fair value of PSUs vested during fiscal years 2016 and 2015 was $31,000 and $0.3 million. There were no PSUs that vested in fiscal year 2014.

The following table sets forth the PSUs activity for the fiscal year ended March 31, 2016:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2015	181,888		$	3.14
Granted	—		$	—
Vested	(25,767	)	$	2.47
Forfeited	(92,046	)	$	3.22
Non-vested as of March 31, 2016	64,075		$	3.29