Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Mar. 31, 2015

Stock-based Compensation:

Employee Stock Incentive Plans

In September 2010, stockholders approved the amendment and restatement of the Westell Technologies, Inc. 2004 Stock Incentive Plan (the 2004 SIP Plan) that permits the issuance of restricted Class A Common Stock, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units and performance stock units share awards to selected officers, employees, and non-employee directors of the Company. There are a total of 3,181,863 shares available for issuance under this plan as of March 31, 2015. Certain awards provide for accelerated vesting if there is a change in control (as defined in the 2004 SIP Plan) or when provided within individual employment contracts. The Company issues new shares of stock for awards under the 2004 SIP Plan.

Stock-Based Compensation Expense

Total stock-based compensation, excluding the impact of discontinued operations, is reflected in the Consolidated Statements of Operations as follows:



	Fiscal Year Ended March 31,
(in thousands)	2015		2014		2013
Cost of revenue	$	89	$	53	$	27
Sales and marketing	170		337		190
Research and development	452		338		115
General and administrative	1,894		1,143		1,075
Stock-based compensation expense	2,605		1,871		1,407
Income tax benefit	—		—		—
Total stock-based compensation expense after taxes	$	2,605	$	1,871	$	1,407

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. Options usually vest annually from the date of grant over a period of 4 years. 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 the twelve months ended March 31, 2015, 2014 and 2013 related to stock options. The Company received proceeds from the exercise of stock options of $0.3 million, $1.7 million, and $0.1 million in fiscal years 2015, 2014 and 2013, respectively. The total intrinsic value of options exercised during the years ended March 31, 2015, 2014 and 2013 was $0.4 million, $1.3 million, and $0.2 million, respectively.

Option activity for the twelve months ended March 31, 2015 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, 2014	1,835,445		$	2.02
Granted	290,000		$	1.75
Exercised	(415,000	)	$	0.62
Forfeited	(287,500	)	$	2.45
Expired	(252,430	)	$	2.68
Outstanding on March 31, 2015	1,170,515		$	2.20	2.9	$	0
Vested or expected to vest as of March 31, 2015	1,121,371		$	2.22	2.8	$	0
Exercisable on March 31, 2015	697,682		$	2.38	1.4	$	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’ close stock price as of the reporting date.

As of March 31, 2015, there was $0.3 million of pre-tax stock option compensation expense related to non-vested awards not yet recognized, including estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.9 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,
	2015			2014			2015
Input assumptions:
Expected volatility	45		%	42		%	49		%
Risk-free interest rate	1.2		%	1.1		%	0.7		%
Expected life	4 years			5 years			5 years
Expected dividend yield	—		%	—		%	—		%
Output weighted-average grant-date fair value	$	0.63		$	0.91		$	0.89

Restricted Stock

Vesting of restricted stock is subject to continued employment with the Company. During fiscal years 2015, 2014 and 2013, non-employee directors received grants of 100,000, 90,000 and 70,000 shares, respectively, that each vests annually over 4 years. The Company recognizes compensation expense for employee issued 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 adjusted for estimated forfeitures. 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 unvested restricted stock was shortened to the next expected nomination date in July 2015.

The following table sets forth restricted stock activity for the twelve months ended March 31, 2015:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2014	407,500		$	1.94
Granted	100,000		$	3.53
Vested	(337,500	)	$	1.89
Forfeited	—		$	—
Non-vested as of March 31, 2015	170,000		$	2.98

The Company recorded $0.5 million, $0.5 million, and $0.6 million of expense in the twelve months ended March 31, 2015, 2014 and 2013, respectively, related to restricted stock. As of March 31, 2015, 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 0.3 years. The total intrinsic fair value of shares vested during the years ended March 31, 2015, 2014, and 2013, was $1.2 million, $0.7 million, and $0.8 million, respectively.

Restricted Stock Units (RSUs)

In fiscal years 2015, 2014 and 2013, 780,500, 1,182,000 and 530,000 shares, respectively, of RSUs were awarded to certain key employees. These awards convert into shares of Class A Common Stock on a one-for-one basis upon vesting and vest in equal annual installments over 4 years from the grant dates. 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 adjusted for estimated forfeitures.

The Company recorded stock-based compensation expense of $1.7 million, $0.9 million and $0.6 million for RSUs in fiscal years 2015, 2014 and 2013, respectively. As of March 31, 2015, there was approximately $3.0 million of pre-tax unrecognized compensation expense, including estimated forfeitures, related to the RSUs, which is expected to be recognized over a weighted-average period of 2.8 years. The total intrinsic fair value of RSUs vested during the years ended March 31, 2015, 2014, and 2013, was $1.5 million, $0.5 million, and $0.3 million, respectively.

The following table sets forth the RSUs activity for the twelve months ended March 31, 2015:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2014	1,679,000		$	3.09
Granted	780,500		$	2.29
Vested	(677,500	)	$	3.15
Forfeited	(372,250	)	$	2.73
Non-vested as of March 31, 2015	1,409,750		$	2.72

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 on a straight-line basis for each annual performance measurement vesting period of the awards based on the market value of Westell Technologies stock on the date of grant adjusted for estimated forfeitures.

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

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 performance measurement period in fiscal year 2015 were not achieved and therefore no additional PSUs were earned in that period.

The Company recorded stock-based compensation expense of $0.1 million and $0.3 million for PSUs in fiscal years 2015 and 2014. There was no PSU expense in fiscal years 2013. As of March 31, 2015, there was approximately $0.1 million of pre-tax unrecognized compensation expense, including estimated forfeitures, related to the PSUs, which is expected to be recognized over a weighted-average period of 1.5 years. The total intrinsic fair value of PSUs vested during fiscal year 2015, was $0.3 million. There were no PSUs that vested in fiscal years 2014 or 2013.

The following table sets forth the PSUs activity for the twelve months ended March 31, 2015:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2014	285,000		$	2.45
Granted	217,500		$	3.83
Vested	(130,011	)	$	2.44
Forfeited	(190,601	)	$	3.36
Non-vested as of March 31, 2015	181,888		$	3.14