What changed in this filing

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Item 1. Financial Statements

2021-06-08 compared with 2021-03-11 · 269 added, 258 removed, 815 unchanged (39% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets January 31, 2021 July 31, 2020

Assets April 30, 2021 July 31, 2020

Current assets:

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authorized 100,000,000 shares;

issued 40,059,977 shares and 39,924,439 shares at January 31, 2021 and July 31, 2020, respectively

issued 41,102,215 shares and 39,924,439 shares at April 30, 2021 and July 31, 2020, respectively

4,110,000 3,992,000

2 unchanged sentences

933,471,000 991,148,000

Treasury stock, at cost ( 15,033,317 shares at January 31, 2021 and July 31, 2020)

Treasury stock, at cost ( 15,033,317 shares at April 30, 2021 and July 31, 2020)

( 441,849,000 ) ( 441,849,000 )

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

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Interest (income) and other ( 276,000 ) 108,000 ( 276,000 ) 37,000

Income (loss) before (benefit from) provision for income taxes 4,050,000 4,612,000 ( 84,029,000 ) 12,145,000

(Benefit from) provision for income taxes ( 155,000 ) 1,117,000 ( 2,394,000 ) 2,262,000

Income (loss) before provision for (benefit from) income taxes 1,108,000 ( 4,748,000 ) ( 82,921,000 ) 7,397,000

Provision for (benefit from) income taxes 316,000 ( 759,000 ) ( 2,078,000 ) 1,503,000

Net income (loss) $ 792,000 ( 3,989,000 ) ( 80,843,000 ) 5,894,000

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three months ended January 31, 2021 and 2020

Three months ended April 30, 2021 and 2020

Common Stock Additional

1 unchanged sentence

Shares Amount Shares Amount

Balance as of October 31, 2019 39,402,226 $ 3,940,000 $ 551,316,000 $ 424,237,000 15,033,317 $ ( 441,849,000 ) $ 537,644,000

Balance as of January 31, 2020 39,752,559 $ 3,975,000 $ 563,834,000 $ 425,243,000 15,033,317 $ ( 441,849,000 ) $ 551,203,000

Equity-classified stock award compensation

— — 981,000 — — — 981,000

Proceeds from exercises of stock options

6,100 1,000 161,000 — — — 162,000

Proceeds from issuance of employee stock purchase plan shares

3 unchanged sentences

2,079 1,000 ( 29,000 ) — — — ( 28,000 )

Common Stock issued for acquisition of CGC Technology Limited ("CGC") 323,504 32,000 11,543,000 — — — 11,575,000

Cash dividends declared, net ($ 0.10 per share)

2 unchanged sentences

— — — ( 56,000 ) — — ( 56,000 )

— — — 3,495,000 — — 3,495,000

Net loss — — — ( 3,989,000 ) — — ( 3,989,000 )

Balance as of April 30, 2020 39,765,257 $ 3,977,000 $ 564,965,000 $ 418,732,000 15,033,317 $ ( 441,849,000 ) $ 545,825,000

Balance as of January 31, 2021 40,059,977 $ 4,006,000 $ 570,891,000 $ 330,236,000 15,033,317 $ ( 441,849,000 ) $ 463,284,000

Balance as of October 31, 2020 40,043,753 $ 4,004,000 $ 569,422,000 $ 328,575,000 15,033,317 $ ( 441,849,000 ) $ 460,152,000

Equity-classified stock award compensation

2 unchanged sentences

12,113 1,000 204,000 — — — 205,000

Forfeiture of restricted stock ( 480 ) — — — — — —

Net settlement of stock-based awards

4,038 — ( 59,000 ) — — — ( 59,000 )

Common stock issued for acquisition of UHP Networks Inc.

1,026,567 103,000 28,789,000 — — — 28,892,000

Cash dividends declared, net ($ 0.10 per share)

3 unchanged sentences

Net income — — — 792,000 — — 792,000

Balance as of January 31, 2021 40,059,977 $ 4,006,000 $ 570,891,000 $ 330,236,000 15,033,317 $ ( 441,849,000 ) $ 463,284,000

Balance as of April 30, 2021 41,102,215 $ 4,110,000 $ 601,029,000 $ 328,332,000 15,033,317 $ ( 441,849,000 ) $ 491,622,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Six months ended January 31, 2021 and 2020

Nine months ended April 30, 2021 and 2020

Common Stock Additional

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109,405 11,000 ( 3,498,000 ) — — — ( 3,487,000 )

Common stock issued for acquisition of CGC 323,504 32,000 11,543,000 — — — 11,575,000

Common stock issued for acquisition of CGC Technology Limited 323,504 32,000 11,543,000 — — — 11,575,000

Cash dividends declared, net ($ 0.30 per share)

3 unchanged sentences

— — — 5,894,000 — — 5,894,000

Balance as of January 31, 2020 39,752,559 $ 3,975,000 $ 563,834,000 $ 425,243,000 15,033,317 $ ( 441,849,000 ) $ 551,203,000

Balance as of April 30, 2020 39,765,257 $ 3,977,000 $ 564,965,000 $ 418,732,000 15,033,317 $ ( 441,849,000 ) $ 545,825,000

Balance as of July 31, 2020 39,924,439 $ 3,992,000 $ 569,891,000 $ 417,265,000 15,033,317 $ ( 441,849,000 ) $ 549,299,000

3 unchanged sentences

43,235 4,000 570,000 — — — 574,000

Issuance of restricted stock

35,975 4,000 ( 4,000 ) — — — —

Issuance of restricted stock, net of forfeiture 35,495 4,000 ( 4,000 ) — — — —

Net settlement of stock-based awards

72,479 7,000 ( 1,407,000 ) — — — ( 1,400,000 )

Common stock issued for acquisition of UHP 1,026,567 103,000 28,789,000 — — — 28,892,000

Cash dividends declared, net ($ 0.30 per share)

4 unchanged sentences

Net loss — — — ( 80,843,000 ) — — ( 80,843,000 )

Balance as of January 31, 2021 40,059,977 $ 4,006,000 $ 570,891,000 $ 330,236,000 15,033,317 $ ( 441,849,000 ) $ 463,284,000

Balance as of April 30, 2021 41,102,215 $ 4,110,000 $ 601,029,000 $ 328,332,000 15,033,317 $ ( 441,849,000 ) $ 491,622,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended January 31,

Nine months ended April 30,

Cash flows from operating activities:

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Amortization of deferred financing costs 552,000 553,000

Estimated contract settlement costs — 444,000

Changes in other liabilities ( 5,067,000 ) ( 3,100,000 )

Loss on disposal of property, plant and equipment 29,000 3,000

Provision for (benefit from) allowance for doubtful accounts 204,000 ( 626,000 )

Benefit from allowance for doubtful accounts ( 287,000 ) ( 364,000 )

Provision for excess and obsolete inventory 3,213,000 1,238,000

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Income taxes payable ( 1,167,000 ) ( 2,176,000 )

Net cash (used in) provided by operating activities (See Note (2)) ( 63,372,000 ) 31,267,000

Net cash (used in) provided by operating activities ( 56,582,000 ) 39,007,000

Cash flows from investing activities:

Net cash acquired from acquisition of UHP 1,381,000 —

Payment for acquisition of CGC, net of cash acquired ( 750,000 ) ( 11,165,000 )

Payment for acquisition of NG-911 Inc.

— ( 781,000 )

Purchases of property, plant and equipment ( 8,237,000 ) ( 4,420,000 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six months ended January 31,

Nine months ended April 30,

Supplemental cash flow disclosures:

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Common stock issued for acquisitions $ 28,892,000 11,575,000

Fair value of UHP acquisition contingent earn-out consideration $ 8,500,000 —

Accruals related to acquisitions $ — 4,020,000

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and six months ended January 31, 2021 and 2020 are unaudited.

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and nine months ended April 30, 2021 and 2020 are unaudited.

In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods.

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Since March 2020, we have conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards.

Additionally, we have experienced order delays, production delays, minor supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs.

Additionally, we have experienced order and production delays, minor supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs.

Although the COVID-19 pandemic is by no means over and additional waves of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us.

Our long-term fundamentals remain strong and we continue to believe both of our segments are well-positioned for growth.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Acquisitions

CGC Technology Limited

On January 27, 2020, we completed the acquisition of CGC Technology Limited ("CGC"), a privately held company located in the United Kingdom, pursuant to the Share Purchase Agreement, dated as of January 27, 2020.

CGC is a leading global provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment.

The acquisition has an aggregate purchase price for accounting purposes of $ 23,650,000 , of which $ 12,075,000 was paid in cash and $ 11,575,000 was paid by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $ 35.78 .

The fair value of consideration transferred in connection with this acquisition was $ 23,490,000 , which was net of $ 160,000 of cash acquired.

We are accounting for the acquisition of CGC under the acquisition method of accounting in accordance with FASB ASC 805.

The purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of January 27, 2020, pursuant to the business combination accounting rules.

UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc.

("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions, pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 1, 2021, respectively.

With end-markets for high-speed satellite-based network significantly growing, our acquisition of UHP allows us to enhance our Commercial Solutions segment's offerings with low cost time division multiple access ("TDMA") satellite modems.

The acquisition has a preliminary purchase price for accounting purposes of $ 37,402,000 .

The initial upfront payment of approximately $ 23,902,000 was paid primarily in shares of our common stock, with $ 10,000 in cash.

An additional $ 5,000,000 , payable at our option in cash and or shares of our common stock, was placed in escrow and is subject to certain conditions that we expect will be satisfied within twelve months after the acquisition.

The stock purchase agreement also provides for an earn-out payment of up to $ 9,000,000 , also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022.

The preliminary estimated fair value of such contingent earn-out consideration at the acquisition date was $ 8,500,000 .

Of the $ 23,902,000 paid at closing, $ 5,060,000 was placed into escrow to be released once the following conditions are met pursuant to the stock purchase agreement:

(i) $ 500,000 payable upon settlement of net working capital adjustments;

and (ii) $ 4,560,000 payable ratably over three years upon settlement of potential indemnification obligations of the seller.

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average stock price of approximately $ 28.14 per share, in satisfaction of initial payment and escrow arrangements under the terms of the stock purchase agreement.

We are accounting for the acquisition of UHP under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805").

The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of March 2, 2021 pursuant to the business combination accounting rules.

Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred.

Pro forma financial information is not disclosed, as the acquisition was not material.

Our condensed consolidated statements of operations for the three and nine months ended April 30, 2021 include a nominal amount of revenue contribution from UHP.

Pro forma financial information is not disclosed, as the acquisition is not material.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:

Purchase Price Allocation (1)

Measurement Period Adjustments Purchase Price Allocation

Paid in cash $ 12,075,000 — $ 12,075,000

Paid in common stock 11,575,000 — 11,575,000

Purchase price at fair value $ 23,650,000 — $ 23,650,000

Allocation of aggregate purchase price:

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in connection with the UHP acquisition:

March 2, 2021

Initial upfront payment $ 23,902,000

Hold-back amount 5,000,000

Contingent earn-out consideration 8,500,000

Preliminary purchase price at fair value $ 37,402,000

Preliminary allocation of aggregate purchase price:

Cash and cash equivalents $ 1,391,000

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Property, plant and equipment 10,000

Operating lease assets 924,000 — 924,000

Deferred tax assets, non-current 470,000 47,000 517,000

Non-current assets 89,000 — 89,000

Deferred tax assets 286,000

Contract liabilities ( 657,000 )

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Non-current liabilities ( 160,000 )

Net tangible liabilities at fair value $ ( 4,976,000 ) ( 332,000 ) $ ( 5,308,000 )

Net tangible assets at preliminary fair value $ 189,000

Identifiable intangibles, deferred taxes and goodwill:

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Trade name 800,000 20 years

Other intangible liabilities — ( 2,500,000 ) ( 2,500,000 ) 1.5 years

Deferred tax liabilities ( 8,374,000 )

Goodwill 13,987,000 Indefinite

Allocation of aggregate purchase price $ 23,650,000 — $ 23,650,000

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2020.

The acquired identifiable intangible assets and liabilities are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets and liabilities are utilized over their estimated useful lives.

The fair value of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future.

The fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets.

The fair value of other intangible liabilities was based on the difference in cash flows related to remaining performance obligations under certain acquired contracts as compared to market terms for similar arrangements that a market participant would expect.

Other intangible liabilities will be credited against the cost of sales over the remaining performance of the contracts.

Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce.

This goodwill has been assigned to our Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

Preliminary allocation of aggregate purchase price $ 37,402,000

The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized over their estimated useful lives.

The preliminary fair value of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future.

The preliminary fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets.

The preliminary estimated fair value of contingent earn-out consideration represents the present value of the estimated amount payable, based on a probability-weighted amount of net sales, as defined, during the earn-out period, which reflects significant management estimates and assumptions using unobservable Level 3 inputs, including:

(i) possible outcomes for targeted net sales during the earn-out period;

(ii) timing of each possible outcome;

(iii) probability of each possible outcome;

and (vi) discount rate reflecting the credit risk of the Company.

Among the factors contributing to the recognition of goodwill, as a component of the preliminary purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce.

This goodwill has been assigned to our Commercial Solutions segment based on specific identification and is generally not deductible for income tax purposes.

The allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period, generally one year from the acquisition date.

The primary areas of the purchase price allocation not yet finalized include the purchase price (due to customary adjustments for final net working capital, potential indemnification obligations of the seller under the stock purchase agreement and contingent earn-out consideration), a final assessment of assets acquired and liabilities assumed, accrued warranty obligations, income taxes and residual goodwill.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Event - Acquisition of UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc.

("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 2, 2021.

The initial up-front payment of approximately $ 24,000,000 was paid in shares of our common stock.

An additional $ 5,000,000 , payable at our option in cash and or shares of common stock, is subject to certain conditions that we expect will be satisfied within twelve months after the acquisition.

The stock purchase agreement also provides for an earn-out payment of up to an additional $ 9,000,000 , also payable at our option in cash and or common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022.

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average price of approximately $ 28.14 per share, to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.

Acquisition Plan Expenses

During the three and six months ended January 31, 2021 and 2020, we incurred acquisition plan expenses of $ 3,357,000 and $ 6,025,000 and $ 94,540,000 and $ 8,414,000 , respectively.

Of the amount recorded in the six months ended January 31, 2021, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

During the three and nine months ended April 30, 2021 and 2020, we incurred acquisition plan expenses of $ 5,267,000 and $ 5,983,000 and $ 99,807,000 and $ 14,397,000 , respectively.

Of the amount recorded in the nine months ended April 30, 2021, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

("Gilat"), including $ 70,000,000 paid in cash to Gilat.

The remaining costs for the three and six months ended January 31, 2021 primarily related to the acquisition of UHP and GD NG-911 acquisition-related litigation.

Additionally, we recorded $ 1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter.

Cash Flow Presentation of $ 70,000,000 Merger Termination Fee

Because we did not complete the Gilat acquisition, we presented the first quarter fiscal 2021 $ 70,000,000 payment to Gilat as a reduction to cash flows from operating activities for the period rather than as a cash outflow stemming from investing activities.

The remaining costs primarily related to the April 2021 settlement of litigation associated with the 2019 acquisition of GD NG-911 as well as our acquisition of UHP which closed in March 2021.

We do not expect any significant acquisition plan expense during the fourth quarter of fiscal 2021.

(3) Adoption of Accounting Standards and Updates

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generally accepted accounting principles, which are commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs").

During the six months ended January 31, 2021, we adopted:

During the nine months ended April 30, 2021, we adopted:

• FASB ASU No.

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Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• FASB ASU No.

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Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(4) Revenue Recognition

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Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The cost-to-cost method is principally used to account for contracts in our mission-critical technologies and high-performance transmission technologies product lines and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line.

For service-based contracts in our public safety and location technologies product line, we recognize revenue over time.

The cost-to-cost method is principally used to account for contracts in our Government Solutions segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Commercial Solutions segment.

For service-based contracts in our public safety and location technologies product line, we also recognize revenue over time.

These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide.

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Modifications to such contracts and or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices.

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power amplifiers in our high-performance transmission technologies product line.

Point in time accounting is also applied to certain contracts in our mission-critical technologies product line.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line in our Commercial Solutions segment (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power RF amplifiers in our Government Solutions segment.

The contracts related to these product lines do not meet the requirements for over time revenue recognition because our customers cannot utilize the equipment for its intended purpose during any phase of our manufacturing process;

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In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

When identifying the transaction price, we typically utilize the contract's stated price as a starting point.

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If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations.

Almost all of our contracts with customers are denominated in U.S.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Substantially all of our contracts with customers are denominated in U.S.

dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts).

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Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

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Included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which accounted for 10.0 % and 11.1 % of consolidated net sales for the three and six months ended January 31, 2021, respectively.

("Verizon"), which accounted for 11.4 % and 11.2 % of consolidated net sales for the three and nine months ended April 30, 2021, respectively.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales during the three and six months ended January 31, 2020.

government, there were no customers that represented more than 10.0% of consolidated net sales during the three and nine months ended April 30, 2020.

Except for the U.S., no individual country (including sales to U.S.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and six months ended January 31, 2021 and 2020.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three and six months ended January 31, 2021 and 2020.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and nine months ended April 30, 2021 and 2020.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three and nine months ended April 30, 2021 and 2020.

We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors which impact our business:

Three months ended January 31, 2021 Six months ended January 31, 2021

Three months ended April 30, 2021 Nine months ended April 30, 2021

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

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Total $ 91,364,000 48,012,000 $ 139,376,000 $ 260,991,000 174,895,000 $ 435,886,000

Three months ended January 31, 2020 Six months ended January 31, 2020

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended April 30, 2020 Nine months ended April 30, 2020

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

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Total $ 78,311,000 56,810,000 $ 135,121,000 $ 268,747,000 198,295,000 $ 467,042,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed Consolidated Balance Sheet.

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Under ASC 606, unbilled receivables constitute contract assets.

There were no material impairment losses recognized on contract assets during the six months ended January 31, 2021 and 2020, respectively.

There were no material impairment losses recognized on contract assets during the nine months ended April 30, 2021 and 2020, respectively.

On large long-term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits.

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Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition.

Of the contract liability balance at July 31, 2020 and July 31, 2019, $ 24,320,000 and $ 26,665,000 was recognized as revenue during the six months ended January 31, 2021 and 2020, respectively.

Of the contract liability balance at July 31, 2020 and July 31, 2019, $ 30,011,000 and $ 31,000,000 was recognized as revenue during the nine months ended April 30, 2021 and 2020, respectively.

Contract liabilities increased $ 657,000 as a result of our acquisition of UHP discussed in Note ( 2 ) - “ Acquisitions - UHP Networks Inc.

We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or less.

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Therefore, such types of commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period.

Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts.

As of January 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 659,957,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at January 31, 2021 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three and six months ended January 31, 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

As of April 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 636,460,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at April 30, 2021 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three and nine months ended April 30, 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5) Fair Value Measurements and Financial Instruments

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The fair value of our Credit Facility that we entered into on October 31, 2018 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

As of January 31, 2021 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of April 30, 2021 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(6) Earnings Per Share

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When calculating our diluted earnings per share, we consider the amount an employee must pay upon assumed exercise of stock-based awards and the amount of stock-based compensation cost attributed to future services and not yet recognized.

There were no repurchases of our common stock during the three or six months ended January 31, 2021 and 2020.

There were no repurchases of our common stock during the three and nine months ended April 30, 2021 and 2020.

See Note (17) - " Stockholders’ Equity " for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,496,000 for the three months ended January 31, 2021 and 1,515,000 and 178,000 shares for the six months ended January 31, 2021 and 2020, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 237,000 and 203,000 weighted average performance shares outstanding for the three months ended January 31, 2021 and 2020, respectively, and 235,000 and 196,000 for the six months ended January 31, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied.

Weighted average stock options, RSUs and restricted stock outstanding of 912,000 and 1,440,000 for the three months ended April 30, 2021 and 2020 and 1,499,000 and 642,000 for the nine months ended April 30, 2021 and 2020, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 236,000 and 203,000 weighted average performance shares outstanding for the three months ended April 30, 2021 and 2020, respectively, and 235,000 and 201,000 for the nine months ended April 30, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied.

However, net income (loss) (the numerator) for EPS calculations for each respective period, is reduced by the compensation expense related to these awards.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

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Accounts receivable consist of the following at:

January 31, 2021 July 31, 2020

April 30, 2021 July 31, 2020

Receivables from commercial and international customers $ 71,383,000 67,109,000

7 unchanged sentences

Accounts receivable, net $ 144,132,000 126,816,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unbilled receivables as of January 31, 2021 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Unbilled receivables as of April 30, 2021 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

Management estimates that a substantial portion of the amounts not yet billed at January 31, 2021 will be billed and collected within one year.

Allowance for doubtful accounts as of January 31, 2021 includes $ 215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No.

Management estimates that a substantial portion of the amounts not yet billed at April 30, 2021 will be billed and collected within one year.

Allowance for doubtful accounts as of April 30, 2021 includes $ 215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No.

2016-13, which is discussed in more detail in Note (3) - " Adoption of Accounting Standards and Updates ."

As of January 31, 2021, the U.S.

As of April 30, 2021, the U.S.

government (and its agencies) and Verizon represented 30.8 % and 14.6 %, respectively, of total accounts receivable.

1 unchanged sentence

government (and its agencies), which represented 31.0 % of total accounts receivable, there were no other customers which accounted for greater than 10.0% of total accounts receivable.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(8) Inventories

Inventories consist of the following at:

January 31, 2021 July 31, 2020

April 30, 2021 July 31, 2020

Raw materials and components $ 63,288,000 59,175,000

3 unchanged sentences

Inventories, net $ 83,106,000 82,302,000

As of January 31, 2021 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 5,535,000 and $ 7,215,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,597,000 and $ 1,387,000 , respectively.

As of April 30, 2021 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 6,442,000 and $ 7,215,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,531,000 and $ 1,387,000 , respectively.

(9) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:

January 31, 2021 July 31, 2020

April 30, 2021 July 31, 2020

Accrued wages and benefits $ 28,167,000 20,857,000

3 unchanged sentences

Accrued commissions and royalties 4,728,000 4,621,000

Accrued acquisition plan expenses 3,376,000 7,014,000

Accrued acquisition-related costs 12,175,000 7,014,000

Other 15,866,000 19,624,000

1 unchanged sentence

Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued warranty obligations as of January 31, 2021 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

Accrued acquisition-related costs as of April 30, 2021 include $ 8,581,000 of contingent earn-out consideration related to our acquisition of UHP.

See Note ( 2 ) - “ Acquisitions - UHP Networks Inc.

” for further discussion.

Accrued warranty obligations as of April 30, 2021 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery.

1 unchanged sentence

Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our accrued warranty obligations during the six months ended January 31, 2021 and 2020 were as follows:

Six months ended January 31,

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes in our accrued warranty obligations during the nine months ended April 30, 2021 and 2020 were as follows:

Nine months ended April 30,

Balance at beginning of period $ 15,200,000 15,968,000

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If we issue new unsecured debt in excess of $ 5,000,000 with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As of January 31, 2021, the amount outstanding under our Credit Facility was $ 208,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At January 31, 2021, we had $ 2,991,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the six months ended January 31, 2021, we had outstanding balances under the Credit Facility ranging from $ 125,000,000 to $ 217,000,000 .

As of January 31, 2021, total net deferred financing costs related to the Credit Facility were $ 2,023,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended January 31, 2021 and 2020 was $ 1,414,000 and $ 1,572,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the six months ended January 31, 2021 and 2020 was $ 2,525,000 and $ 3,325,000 , respectively.

Our blended interest rate approximated 2.73 % and 4.33 %, respectively, for the three months ended January 31, 2021 and 2020.

Our blended interest rate approximated 2.71 % and 4.51 %, respectively, for the six months ended January 31, 2021 and 2020.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of April 30, 2021, the amount outstanding under our Credit Facility was $ 215,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At April 30, 2021, we had $ 2,022,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the nine months ended April 30, 2021, we had outstanding balances under the Credit Facility ranging from $ 125,000,000 to $ 217,000,000 .

As of April 30, 2021, total net deferred financing costs related to the Credit Facility were $ 1,839,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended April 30, 2021 and 2020 was $ 1,515,000 and $ 1,470,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the nine months ended April 30, 2021 and 2020 was $ 4,040,000 and $ 4,795,000 , respectively.

Our blended interest rate approximated 2.97 % and 3.73 %, respectively, for the three months ended April 30, 2021 and 2020.

Our blended interest rate approximated 2.80 % and 4.24 %, respectively, for the nine months ended April 30, 2021 and 2020.

Borrowings under the Credit Facility shall be either:

1 unchanged sentence

Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Credit Facility contains customary representations, warranties and affirmative covenants.

7 unchanged sentences

and (iii) a Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

As of January 31, 2021, our Secured Leverage Ratio was 3.00 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of January 31, 2021 was 12.45 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

As of April 30, 2021, our Secured Leverage Ratio was 2.78 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of April 30, 2021 was 13.78 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

4 unchanged sentences

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility, which has been documented and filed with the SEC.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our leases historically relate to the leasing of facilities and equipment.

7 unchanged sentences

Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices.

5 unchanged sentences

For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease.

As of January 31, 2021, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

As of April 30, 2021, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

The components of lease expense are as follows:

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

7 unchanged sentences

Total lease expense $ 4,450,000 4,530,000 $ 12,452,000 13,771,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additional information related to leases is as follows:

Six months ended January 31,

Nine months ended April 30,

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Operating leases $ 24,504,000 $ 3,096,000

During the second quarter of fiscal 2021, we commenced a 15 -year operating lease for a facility in Chandler, Arizona and a 10 -year operating lease for a facility in the United Kingdom.

Accordingly, amounts related to both leases are reflected as an operating lease right-of-use assets or the related operating lease liabilities in our Condensed Consolidated Balance Sheet as of January 31, 2021.

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of January 31, 2021:

In fiscal 2021, we commenced a 15 -year operating lease for a facility in Chandler, Arizona and a 10 -year operating lease for a facility in the United Kingdom.

Accordingly, amounts related to both leases are reflected as an operating lease right-of-use asset or related operating lease liability in our Condensed Consolidated Balance Sheet as of April 30, 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of April 30, 2021:

Operating Finance Total

11 unchanged sentences

We lease our Melville, New York production facility from a partnership controlled by our CEO and Chairman.

Lease payments made during the six months ended January 31, 2021 and 2020 were $ 329,000 and $ 322,000 , respectively.

Lease payments made during the nine months ended April 30, 2021 and 2020 were $ 494,000 and $ 486,000 , respectively.

The current lease provides for our use of the premises as they exist through December 2031.

1 unchanged sentence

We have a right of first refusal in the event of a sale of the facility.

There are no other rental commitments that have not commenced as of January 31, 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There are no other rental commitments that have not commenced as of April 30, 2021.

(12) Income Taxes

At January 31, 2021 and July 31, 2020, total unrecognized tax benefits were $ 8,727,000 and $ 8,345,000 , respectively, including interest of $ 125,000 and $ 75,000 , respectively.

At January 31, 2021 and July 31, 2020, $ 2,286,000 and 1,963,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,441,000 and $ 6,382,000 at January 31, 2021 and July 31, 2020, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,009,000 and $ 7,700,000 at January 31, 2021 and July 31, 2020, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

At April 30, 2021 and July 31, 2020, total unrecognized tax benefits were $ 9,170,000 and $ 8,345,000 , respectively, including interest of $ 150,000 and $ 75,000 , respectively.

At April 30, 2021 and July 31, 2020, $ 2,588,000 and 1,963,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,582,000 and $ 6,382,000 at April 30, 2021 and July 31, 2020, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,406,000 and $ 7,700,000 at April 30, 2021 and July 31, 2020, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements.

We do not expect that there will be any significant changes to our total unrecognized tax benefits within the next twelve months.

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future Internal Revenue Service ("IRS") audit.

federal income tax returns for fiscal 2017 through 2020 are subject to potential future Internal Revenue Service ("IRS") audit.

None of our state income tax returns prior to fiscal 2016 are subject to audit.

Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(13) Stock-Based Compensation

3 unchanged sentences

Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of January 31, 2021, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500 .

As of April 30, 2021, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500 .

Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0 % of the voting power, no more than five years .

We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of January 31, 2021, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,395,629 shares (net of 4,410,781 expired and canceled awards), of which an aggregate of 6,929,904 have been exercised or settled.

As of January 31, 2021, the following stock-based awards, by award type, were outstanding:

January 31, 2021

As of April 30, 2021, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,361,233 shares (net of 4,446,870 expired and canceled awards), of which an aggregate of 6,936,724 have been exercised or settled.

As of April 30, 2021, the following stock-based awards, by award type, were outstanding:

April 30, 2021

Stock options 1,312,785

3 unchanged sentences

Total 2,424,509

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock.

Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85 % of fair market value on the first or last day of each calendar quarter, whichever is lower.

Through January 31, 2021, we have cumulatively issued 871,131 shares of our common stock to participating employees in connection with our ESPP.

Through April 30, 2021, we have cumulatively issued 883,244 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

6 unchanged sentences

Net stock-based compensation expense $ 944,000 777,000 $ 2,506,000 2,434,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award.

At January 31, 2021, unrecognized stock-based compensation of $ 12,736,000 , net of estimated forfeitures of $ 1,103,000 , is expected to be recognized over a weighted average period of 3.3 years.

Total stock-based compensation capitalized and included in ending inventory at both January 31, 2021 and July 31, 2020 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of January 31, 2021 or July 31, 2020.

At April 30, 2021, unrecognized stock-based compensation of $ 11,162,000 , net of estimated forfeitures of $ 1,124,000 , is expected to be recognized over a weighted average period of 3.2 years.

Total stock-based compensation capitalized and included in ending inventory at both April 30, 2021 and July 31, 2020 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of April 30, 2021 or July 31, 2020.

Stock-based compensation expense (benefit), by award type, is summarized as follows:

Three months ended January 31, Six months ended January 31,

Three months ended April 30, Nine months ended April 30,

2021 2020 2021 2020

10 unchanged sentences

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled.

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2021 and July 31, 2020.

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of April 30, 2021 and July 31, 2020.

The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

10 unchanged sentences

Outstanding at January 31, 2021 1,331,835 25.96

Exercisable at January 31, 2021 1,003,835 $ 28.58 2.51 $ 1,000

Vested and expected to vest at January 31, 2021 1,319,141 $ 26.03 4.13 $ 1,078,000

Stock options outstanding as of January 31, 2021 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years .

Expired/canceled ( 19,050 ) 20.89

Outstanding at April 30, 2021 1,312,785 $ 26.03 3.88 $ 1,941,000

Exercisable at April 30, 2021 1,001,485 $ 28.56 2.27 $ 48,000

Vested and expected to vest at April 30, 2021 1,300,153 $ 26.11 3.83 $ 1,864,000

Stock options outstanding as of April 30, 2021 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years .

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

11 unchanged sentences

Outstanding at January 31, 2021 1,133,890 20.04

Vested at January 31, 2021 396,254 $ 16.61 $ 8,456,000

Vested and expected to vest at January 31, 2021 1,085,777 $ 19.98 $ 23,170,000

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2021 was $ 9,000 and $ 2,905,000 , respectively.

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2020 was $ 19,000 and $ 5,825,000 .

The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements.

As of January 31, 2021, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Granted 1,693 28.97

Settled ( 6,820 ) 15.59

Canceled/Forfeited ( 17,039 ) 21.62

Outstanding at April 30, 2021 1,111,724 $ 20.05 $ 26,652,000

Vested at April 30, 2021 391,134 $ 16.64 $ 9,372,000

Vested and expected to vest at April 30, 2021 1,063,198 $ 19.98 $ 25,488,000

The total intrinsic value relating to fully-vested awards settled during the three and nine months ended April 30, 2021 was $ 178,000 and $ 3,083,000 , respectively.

The total intrinsic value relating to fully-vested awards settled during the three and nine months ended April 30, 2020 was $ 70,000 and $ 5,895,000 .

The performance shares granted to employees principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements.

As of April 30, 2021, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to July 31, 2019 have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

3 unchanged sentences

Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

Cumulatively, through January 31, 2021, 672,085 share units granted have been settled.

Cumulatively, through April 30, 2021, 677,562 share units granted have been settled.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions.

2 unchanged sentences

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award.

During the three and six months ended January 31, 2021, we accrued $ 49,000 and $ 191,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 1,000 and $ 276,000 , respectively.

During the three and nine months ended April 30, 2021, we accrued $ 96,000 and $ 286,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 3,000 and $ 278,000 , respectively.

Accrued dividend equivalents were recorded as a reduction to retained earnings.

As of January 31, 2021 and July 31, 2020, accrued dividend equivalents were $ 698,000 and $ 783,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2021, we recorded income tax expense of $ 8,000 and $ 207,000 , respectively, and during the three and six months ended January 31, 2020, we recorded an income tax expense of $ 141,000 and an income tax benefit of $ 471,000 , respectively.

As of April 30, 2021 and July 31, 2020, accrued dividend equivalents were $ 791,000 and $ 783,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and nine months ended April 30, 2021, we recorded an income tax benefit of $ 18,000 and an income tax expense of $ 189,000 , respectively, and during the three and nine months ended April 30, 2020, we recorded an income tax expense of $ 122,000 and an income tax benefit of $ 349,000 , respectively.

(14) Segment Information

5 unchanged sentences

government) that have requirements for off-the-shelf commercial equipment.

Our Government Solutions segment provides mission-critical technologies (such as tactical satellite-based networks and ongoing support for complicated communications networks) and high-performance transmission technologies (such as troposcatter systems and solid-state, high-power amplifiers) to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our Government Solutions segment provides tactical satellite-based networks and ongoing support for complicated communications networks and troposcatter systems and solid-state, high-power amplifiers to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

Our CODM primarily uses a metric that we refer to as Adjusted EBITDA to measure an operating segment’s performance and to make decisions about resources to be allocated.

Our Adjusted EBITDA metric for the Commercial Solutions and Government Solutions segments do not consider any allocation of indirect expense, or any of the following:

income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangible assets, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, facility exit costs, strategic alternatives analysis expenses and other that relate to our Unallocated segment.

income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangible assets, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, strategic alternatives analysis expenses and other.

These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results.

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Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

Operating segment information, along with a reconciliation of segment net income (loss) and consolidated net income (loss) to Adjusted EBITDA is presented in the tables below:

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating segment information, along with a reconciliation of segment net income and consolidated net (loss) income to Adjusted EBITDA is presented in the tables below:

Three months ended January 31, 2021

Three months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

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COVID-19 related costs — 416,000 — 416,000

Strategic emerging technology costs — 315,000 — 315,000

Adjusted EBITDA

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$ 3,159,000 1,389,000 3,000 $ 4,551,000

Total assets at January 31, 2021

Long-lived assets acquired in connection with acquisitions $ 45,597,000 — — $ 45,597,000

Total assets at April 30, 2021

$ 721,857,000 237,798,000 38,937,000 $ 998,592,000

Three months ended January 31, 2020

Three months ended April 30, 2020

Commercial Solutions Government Solutions Unallocated Total

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$ 3,462,000 4,253,000 ( 11,704,000 ) $ ( 3,989,000 )

(Benefit from) provision for income taxes ( 112,000 ) — 1,229,000 1,117,000

Provision for (benefit from) income taxes

481,000 ( 65,000 ) ( 1,175,000 ) ( 759,000 )

Interest (income) and other

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Long-lived assets acquired in connection with acquisitions $ 4,023,000 4,402,000 — $ 8,425,000

Total assets at January 31, 2020

Total assets at April 30, 2020

$ 663,455,000 235,739,000 52,538,000 $ 951,732,000

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six months ended January 31, 2021

Nine months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

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COVID-19 related costs — 576,000 — 576,000

Strategic emerging technology costs 315,000 315,000

Adjusted EBITDA

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$ 5,123,000 3,031,000 83,000 $ 8,237,000

Total assets at January 31, 2021

Long-lived assets acquired in connection with acquisitions $ 45,597,000 2,443,000 — $ 48,040,000

Total assets at April 30, 2021

$ 721,857,000 237,798,000 38,937,000 $ 998,592,000

Six months ended January 31, 2020

Nine months ended April 30, 2020

Commercial Solutions Government Solutions Unallocated Total

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$ 26,031,000 16,364,000 ( 36,501,000 ) $ 5,894,000

(Benefit from) provision for income taxes ( 99,000 ) — 2,361,000 2,262,000

Provision for (benefit from) income taxes

382,000 ( 65,000 ) 1,186,000 1,503,000

Interest (income) and other

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$ 6,060,000 34,609,000 — $ 40,669,000

Total assets at January 31, 2020

Total assets at April 30, 2020

$ 663,455,000 235,739,000 52,538,000 $ 951,732,000

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Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs and also includes all of our amortization of stock-based compensation.

During the three months ended January 31, 2021 and 2020, we recorded $ 3,357,000 and $ 6,025,000 of acquisition plan expenses, respectively, and during the six months ended January 31, 2021 and 2020, we recorded $ 94,540,000 and $ 8,414,000 of acquisition plan expenses, respectively, all of which were recorded in our unallocated expenses.

During the three months ended April 30, 2021 and 2020, we recorded $ 5,267,000 and $ 5,983,000 of acquisition plan expenses, respectively, and during the nine months ended April 30, 2021 and 2020, we recorded $ 99,807,000 and $ 14,397,000 of acquisition plan expenses, respectively, most of which were recorded in our unallocated expenses.

See Note (2) - " Acquisitions " for further information.

During the three and six months ended January 31, 2021, our Commercial Solutions segment recorded $ 601,000 of restructuring costs in connection with our efforts to shift production of our key satellite earth station products to a new 146,000 square foot facility in Chandler, Arizona.

In addition, during the three and six months ended January 31, 2021, our Government Solutions segment recorded $ 160,000 of additional operating costs incurred for our antenna facility located in the United Kingdom due to the impact of COVID-19 pandemic.

There were no such charges recorded in in the three and six months ended January 31, 2020.

During the three and nine months ended April 30, 2021, our Commercial Solutions segment recorded $ 594,000 and $ 1,195,000 , respectively, of restructuring costs incurred to shift production of our key satellite earth station products to a new 146,000 square foot facility in Chandler, Arizona.

In addition, during the three and nine months ended April 30, 2021, our Government Solutions segment recorded $ 416,000 and $ 576,000 , respectively, of incremental operating costs incurred for our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic, which resulted in a temporary but complete shut-down of this facility.

There were no such charges recorded in the three and nine months ended April 30, 2020.

Interest expense in the tables above primarily relates to our Credit Facility, and includes the amortization of deferred financing costs.

See Note (10) - " Credit Facility " for further discussion.

In addition, interest expense for the six months ended January 31, 2021 includes $ 1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

Intersegment sales for the three months ended January 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 944,000 and $ 1,862,000 , respectively.

Intersegment sales for the six months ended January 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 1,795,000 and $ 3,761,000 , respectively.

In addition, interest expense for the nine months ended April 30, 2021 includes $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

Intersegment sales for the three months ended April 30, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 827,000 and $ 3,115,000 , respectively.

Intersegment sales for the nine months ended April 30, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 2,622,000 and $ 6,876,000 , respectively.

There were nominal sales by the Government Solutions segment to the Commercial Solutions segment for these periods.

All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at January 31, 2021 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

Substantially all of our long-lived assets are located in the U.S.

Unallocated assets at April 30, 2021 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

The large majority of our long-lived assets are located in the U.S.

(15) Goodwill

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the six months ended January 31, 2021:

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the nine months ended April 30, 2021:

Commercial Solutions Government Solutions Total

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("Solacom") 1,052,000 — 1,052,000

Balance as of January 31, 2021

UHP acquisition 13,987,000 — 13,987,000

Balance as of April 30, 2021

$ 270,471,000 77,309,000 $ 347,780,000

During the six months ended January 31, 2021, we recorded an adjustment to Solacom's goodwill to correct an immaterial item.

During the nine months ended April 30, 2021, we recorded an adjustment to Solacom's goodwill to correct an immaterial item.

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods.

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Based on our quantitative evaluation, we determined that our Commercial Solutions and Government Solutions reporting units had estimated fair values in excess of their carrying values of at least 8.4 % and 78.0 %, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

It is possible that, during fiscal 2021 or beyond, business conditions (both in the U.S.

It is possible that, during the remainder of fiscal 2021 or beyond, business conditions (both in the U.S.

and internationally) could deteriorate from the current state, our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, or our common stock price could fluctuate.

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Intangible assets with finite lives are as follows:

January 31, 2021

April 30, 2021

Weighted Average

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The weighted average amortization period in the above table excludes fully amortized intangible assets.

Amortization expense for the three months ended January 31, 2021 and 2020 was $ 4,795,000 and $ 5,229,000 , respectively.

Amortization expense for the six months ended January 31, 2021 and 2020 was $ 10,361,000 and $ 10,435,000 , respectively.

Amortization expense for the three months ended April 30, 2021 and 2020 was $ 5,310,000 and $ 5,517,000 , respectively.

Amortization expense for the nine months ended April 30, 2021 and 2020 was $ 15,671,000 and $ 15,952,000 , respectively.

The estimated amortization expense consists of the following for the fiscal years ending July 31:

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We review net intangible assets with finite lives for impairment when an event occurs indicating the potential for impairment.

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of January 31, 2021.

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of April 30, 2021.

However, if business conditions deteriorate, we may be required to record impairment losses, and or increase the amortization of intangibles in the future.

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To-date, we have not issued any securities pursuant to our $ 400,000,000 shelf registration statement.

On March 3, 2021, in connection with our acquisition of UHP, we filed a shelf registration statement with the SEC for the sale by the selling stockholder of UHP of up to 1,381,567 shares of our common stock, including 712,439 shares that the Company may elect to deliver in lieu of cash upon termination of certain escrow arrangements, the satisfaction of specified post-closing conditions and/or upon achievement of a post-closing sales target.

Of the 1,026,567 shares that the Company issued to date pursuant to the stock purchase agreement, 357,439 shares are deliverable to the selling stockholder of UHP in the future and may, at our election, be substituted in whole or in part with cash.

See Note (2) - " Acquisitions - Subsequent Event - UHP Networks Inc ." for further information.

See Note (2) - " Acquisitions - UHP Networks Inc ." for further information.

Stock Repurchase Program

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The new $ 100,000,000 stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws.

There were no repurchases made during the six months ended January 31, 2021 or 2020.

There were no repurchases made during the nine months ended April 30, 2021 or 2020.

Since September 2010, we have paid quarterly dividends pursuant to an annual targeted dividend amount that was established by our Board of Directors.

On September 29, 2020 and December 9, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on October 27, 2020 and February 19, 2021, respectively.

On March 11, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, payable on May 21, 2021 to stockholders of record at the close of business on April 21, 2021.

On September 29, 2020, December 9, 2020 and March 11, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on October 27, 2020, February 19, 2021 and May 21, 2021, respectively.

On June 8, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, payable on August 20, 2021 to stockholders of record at the close of business on July 21, 2021.

Future dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

(18) Legal Proceedings and Other Matters

GD NG-911 Acquisition-Related Litigation

In April 2019, we completed the acquisition of a state and local government NG-911 business (the “GD NG-911 business”) from General Dynamics Information Technology, Inc.

During negotiations preceding such acquisition, we learned that a TeleCommunication Systems Inc.

employee who we had terminated for cause in April 2018 was violating her one-year non-competition obligations.

Amongst other things, this former employee began working for a competitor, Motorola Solutions, Inc.

("Motorola") and we believe she interfered with our negotiations with GDIT, as well as improperly soliciting our customers.

Consequently, in March 2019, we filed a lawsuit against this former employee and her new employer.

Only after we filed a lawsuit against the former employee and Motorola, did the former employee respond with her own lawsuit against us for alleged discrimination and alleged breach of her employment agreement as a result of a wrongful termination.

During the first quarter of fiscal 2021, we devoted significant efforts to litigate both cases and spent several million dollars related to these matters.

These cases have been consolidated for purposes of a trial which is now set to commence on May 10, 2021.

As such, we anticipate spending several million dollars of legal and professional fees through trial.

We believe we have meritorious claims against this former employee and her new employer.

Additionally, as we believe the claims made against us are without merit, we intend to vigorously defend ourselves in these matters.

The ultimate resolution of this litigation is not expected to have any material negative impact on our consolidated results of operations or financial position.

April 2021 Settlement of Litigation Related to the 2019 Acquisition of GD NG-911

In April 2021, we fully and finally settled two related lawsuits with a former employee and Motorola Solutions, Inc.

("Motorola"), and the cases were dismissed with the Court's approval.

The resolution of this litigation, which related to our 2019 acquisition of GD NG-911, did not have a material negative impact on our consolidated results of operations, cash flows, or financial position.

Other Matters

In March 2021, Comtech Xicom Technology, Inc.

(“Xicom”) reached an agreement with the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”) resolving a previously disclosed matter pending since 2017, which we made a voluntarily disclosure to the U.S.

Department of Commerce Office of Export Enforcement (“OEE”).

Based on our own audit of approximately 7,800 transactions, it was determined that for three ( 3 ) separate transactions between December 2015 and March 2017, Xicom engaged in conduct prohibited by the Export Administration Regulations (the “Regulations”) when it exported items subject to the Regulations from the United States to Russia, the United Arab Emirates, and Brazil without obtaining the necessary BIS authorizations required for exports to each of these countries.

The exports were valued at $ 154,000 .

Upon discovery of this issue, we implemented additional controls and procedures and increased awareness of these specific export requirements throughout Comtech to help avoid similar occurrences in the future.

Pursuant to the agreement with BIS, Xicom made a payment to BIS of $ 122,000 in April 2021.

No other actions are to be taken by BIS or required of Xicom or Comtech in connection with this matter and we now considered the matter closed.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Matters

In May 2018, we were informed by the Office of Export Enforcement ("OEE") of the Department of Commerce ("DoC") that it was forwarding to the OEE's Office of Chief Counsel, the results of its audit of international shipments by Comtech Xicom Technology, Inc.

("Xicom") for further review and possible determination of an administrative penalty.

We fully cooperated with the OEE in their audit and, based on our self-assessment of approximately 7,800 individual transactions audited, have determined that six ( 6 ) transactions may not have been fully in compliance with the Export Administration Regulations ("EAR").

These six ( 6 ) transactions, for which export licenses were not obtained, were either spares or repaired power amplifier subassembly components valued at approximately $ 230,000 (in aggregate) and were shipped to Brazil, Italy, Russia, Thailand and the United Arab Emirates.

Since discovering this issue, we have implemented additional controls and procedures and have increased awareness of these specific export requirements throughout the Company to help avoid similar occurrences in the future.

Administrative penalties under the EAR can range from a warning letter to a denial of export privileges.

A civil monetary penalty not to exceed the amount set forth in the Export Administration Act ("EAA") may be imposed for each violation, and in the event that any provision of the EAR is continued by any other authority, the maximum monetary civil penalty for each violation shall be that provided by such other authority.

Administrative penalties under the EAR are currently determined pursuant to the International Emergency Economic Powers Act ("IEEPA"), which can reach the greater of twice the amount of the transaction that is the basis of the violation or approximately $300,000 per violation.

We continue to work cooperatively with the OEE and Xicom entered a Tolling Agreement with DoC, which extended the statute of limitations in this matter most recently through April 1, 2021.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts to indemnify, hold harmless and reimburse such customers for certain losses, including but not limited to losses related to third-party claims of intellectual property infringement arising from the customer’s use of our products or services.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements