What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-10-04 compared with 2020-09-29 · 324 added, 442 removed, 1239 unchanged (38% of the section changed)

20 unchanged sentences

OTHER INFORMATION

Not applicable.

As described in the supplement to the Company’s Proxy Statement for Fiscal 2020 Annual Meeting of Stockholders filed with the SEC on December 1, 2020, on November 30, 2020, our Executive Compensation Committee approved amending all existing change-in-control agreements to reflect feedback and recommendations of Institutional Shareholder Services regarding payments and benefits provided under such agreements (the “2020 Amendments”).

In addition to the changes previously disclosed, the 2020 Amendments also provided that, for our executive officers who are parties to Tier 1 change-in-control agreements (including Messrs.

Fred Kornberg, Michael Porcelain and Michael Bondi) (such agreements, the “Amended CIC Agreements”), in the event that the officer’s employment is terminated by us without cause or terminated by the officer for "good reason" or "modified good reason" (as defined in the agreement), the "performance awards" (as defined in the agreement) will vest at the maximum level of performance.

The foregoing description of the Amended CIC Agreements in this Annual Report on Form 10-K is a summary of, and is qualified in its entirety by, the terms of the Amended CIC Agreement.

A copy of the form of the Amended CIC Agreement is attached hereto as Exhibit 10.(l)(1) and incorporated herein by reference.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

17 unchanged sentences

Reference to Exhibit

Agreement and Plan of Merger, dated as of January 29, 2020, among Comtech Telecommunications Corp., Gilat Satellite Networks Ltd.

and Convoy Ltd.

Exhibit 2.1 to the Registrant’s Form 8-K, filed January 29, 2020

Restated Certificate of Incorporation of the Registrant

9 unchanged sentences

Exhibit A to the Registrant’s Proxy Statement, filed November 16, 2018

2000 Stock Incentive Plan, Amended and Restated, Effective November 15, 2019, as amended effective August 4, 2020

2000 Stock Incentive Plan, Amended and Restated, Effective November 15, 2019, as amended effective August 4, 2020, as further amended August 10, 2021

Form of Stock Option Agreement pursuant to the 2000 Stock Incentive Plan

1 unchanged sentence

Form of Stock Option Agreement for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

Exhibit 10(f)(8) to the Registrant’s 2006 Form 10-K

Form of Stock Option Agreement for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

Exhibit 10(d)(3) to the Registrant's Form 2020 Form 10-K

Form of Performance Share Agreement pursuant to the 2000 Stock Incentive Plan

1 unchanged sentence

Form of Long-Term Performance Share Award Agreement pursuant to the 2000 Stock Incentive Plan - 2018

Exhibit 10.8 to the Registrant's Form 8-K, filed June 7, 2017

Form of Long-Term Performance Share Award Agreement pursuant to the 2000 Stock Incentive Plan - 2018

Exhibit 10(f)(2) to the Registrant's 2019 Form 10-K

3 unchanged sentences

Exhibit 10(ab) to the Registrant’s 2016 Form 10-K

Description of Exhibit

Incorporated By

Reference to Exhibit

Form of Restricted Stock Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2019

4 unchanged sentences

Exhibit 10(z) to the Registrant’s 2016 Form 10-K

Form of Restricted Stock Unit Agreement for Employees pursuant to the 2000 Stock Incentive Plan - 2013

Exhibit 10(w) to the Registrant's 2013 Form 10-K

Form of Restricted Stock Unit Agreement for Non-employee Directors pursuant to the 2000 Stock Incentive Plan

4 unchanged sentences

Exhibit 10(x) to the Registrant's 2013 Form 10-K

Description of Exhibit

Incorporated By

Reference to Exhibit

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

11 unchanged sentences

Form of Change - in - Control Agreement (Tier 1)

Exhibit 10.2 to the Registrant’s Form 8-K, filed March 4, 2020

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Cer t a in Named Executive Officers (other than the CEO) and Certain Other Executive Officers

Exhibit 10.2 to the Registrant’s Form 8-K, filed June 7, 2017

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (California Employees)

2 unchanged sentences

Exhibit 10.4 to the Registrant’s Form 8-K, filed June 7, 2017

Description of Exhibit

Incorporated By

Reference to Exhibit

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (California Divisional/Subsidiary Presidents)

4 unchanged sentences

Exhibit 10.1 to the Registrant's Form 10-Q, filed December 4, 2019

Consulting Agreement

Exhibit 10.2 to the Registrant's Form 10-Q, filed December 4, 2019

Agreement and Plan of Merger, dated as of November 22, 2015, among Comtech Telecommunications Corp., Typhoon Acquisition Corp.

3 unchanged sentences

Exhibit 10.1 to the Registrant’s Form 8-K, filed November 5, 2018

Commitment Letter, dated as of January 29, 2020, among Comtech Telecommunications Corp., Citibank, N.A.and the other commitment parties party thereto.

Exhibit 10.1 to the Registrant’s Form 8-K, filed January 29, 2020

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Description of Exhibit

Incorporated By

Reference to Exhibit

Certification of CEO and Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

Description of Exhibit

Incorporated By

Reference to Exhibit

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

4 unchanged sentences

COMTECH TELECOMMUNICATIONS CORP.

September 29, 2020 By:

October 4, 2021 By:

/s/Fred Kornberg

3 unchanged sentences

Signature Title

September 29, 2020 /s/Fred Kornberg Chairman of the Board

October 4, 2021 /s/Fred Kornberg Chairman of the Board

(Date) Fred Kornberg Chief Executive Officer

(Principal Executive Officer)

September 29, 2020 /s/Michael A.

October 4, 2021 /s/Michael A.

Bondi Chief Financial Officer

1 unchanged sentence

Bondi (Principal Financial and Accounting Officer)

September 29, 2020 /s/Edwin Kantor Director

October 4, 2021 /s/Judy Chambers Director

(Date) Judy Chambers

October 4, 2021 /s/Edwin Kantor Director

(Date) Edwin Kantor

September 29, 2020 /s/Ira S.

October 4, 2021 /s/Ira S.

Kaplan Director

(Date) Ira S.

September 29, 2020 /s/Lisa Lesavoy Director

October 4, 2021 /s/Lisa Lesavoy Director

(Date) Lisa Lesavoy

September 29, 2020 /s/Robert G.

October 4, 2021 /s/Robert G.

Paul Director

(Date) Robert G.

September 29, 2020 /s/Dr.

October 4, 2021 /s/Dr.

Shamash Director

September 29, 2020 /s/Lawrence J.

October 4, 2021 /s/Lawrence J.

Waldman Director

21 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 29, 2020 , expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2021, based on criteria established in Internal Control — Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 4, 2021 , expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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This requires management to make significant estimates related to forecasts of future costs for the identified specific contracts.

Changes in these estimates for the identified specific contracts could have a significant impact on either the timing or amount of revenue recognition for the year or both.

Changes in these estimates for the identified specific contracts could have a significant impact on the Company's results of operations.

Given the significant judgment and estimates used in management’s projections, auditing the Company’s estimates at completion and estimates to completion involved especially subjective judgment.

6 unchanged sentences

◦ Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.

◦ Evaluated the estimates of total cost and profit for the

◦ Evaluated the estimates of total cost and profit for the performance obligation by:

▪ Performing a retrospective review by comparing the estimated margins at contract inception to the actual margins as of year-end in order to assess management’s ability to accurately estimate costs.

6 unchanged sentences

Jericho, New York

September 29, 2020

October 4, 2021

We have served as the Company’s auditor since 2015.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2021, based on criteria established in Internal Control — Integrated Framework ( 2013 ) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2020, of the Company and our report dated September 29, 2020 , expressed an unqualified opinion on those financial statements and financial statement schedule.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2021, of the Company and our report dated October 4, 2021 , expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

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Jericho, New York

September 29, 2020

October 4, 2021

COMTECH TELECOMMUNICATIONS CORP.

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Operating lease liabilities, current 8,841,000 8,247,000

Finance lease and other obligations, current 57,000 757,000

Dividends payable 2,601,000 2,468,000

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282,256,000 211,659,000 206,033,000

Operating income 15,174,000 41,407,000 35,075,000

Operating (loss) income ( 68,298,000 ) 15,174,000 41,407,000

Other expenses (income):

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Interest (income) and other ( 139,000 ) ( 190,000 ) 35,000

Income before provision for (benefit from) income taxes 9,310,000 28,910,000 24,626,000

Provision for (benefit from) income taxes 2,290,000 3,869,000 ( 5,143,000 )

Net income $ 7,020,000 25,041,000 29,769,000

Net income per share:

(Loss) income before (benefit from) provision for income taxes ( 74,980,000 ) 9,310,000 28,910,000

(Benefit from) provision for income taxes ( 1,500,000 ) 2,290,000 3,869,000

Net (loss) income $ ( 73,480,000 ) 7,020,000 25,041,000

Net (loss) income per share:

Basic $ ( 2.86 ) 0.28 1.04

18 unchanged sentences

43,316 4,000 922,000 — — — 926,000

Forfeiture of restricted stock

Issuance of restricted stock

10,386 1,000 ( 1,000 ) — — — —

1 unchanged sentence

145,119 15,000 ( 3,931,000 ) — — — ( 3,916,000 )

Common stock issued for acquisition of Solacom Technologies, Inc.

208,669 21,000 5,585,000 — — — 5,606,000

Cash dividends declared ($ 0.40 per share)

14 unchanged sentences

251,797 25,000 ( 4,913,000 ) — — — ( 4,888,000 )

Common stock issued for acquisition of Solacom Technologies, Inc.

Common stock issued for acquisition of CGC Technology Limited ("CGC")

323,504 32,000 11,543,000 — — — 11,575,000

7 unchanged sentences

— — 9,983,000 — — — 9,983,000

Proceeds from exercises of stock options

16,700 2,000 466,000 — — — 468,000

Proceeds from issuance of employee stock purchase plan shares

54,762 5,000 804,000 — — — 809,000

Issuance of restricted stock

3,319 — — — — — —

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

Net settlement of stock-based awards

240,549 24,000 ( 4,024,000 ) — — — ( 4,000,000 )

Common stock issued for acquisition of CGC Technology Limited ("CGC")

323,504 32,000 11,543,000 — — — 11,575,000

Common stock issued for acquisition of UHP Networks Inc.

("UHP") 1,026,567 103,000 28,789,000 — — — 28,892,000

Cash dividends declared, net ($ 0.40 per share)

2 unchanged sentences

— — — ( 380,000 ) — — ( 380,000 )

— — — 7,020,000 — — 7,020,000

Adoption of current expected credit loss standard — — — ( 215,000 ) — — ( 215,000 )

Net loss — — — ( 73,480,000 ) — — ( 73,480,000 )

Balance as of July 31, 2021 41,281,812 $ 4,128,000 $ 605,439,000 $ 333,001,000 15,033,317 $ ( 441,849,000 ) $ 500,719,000

6 unchanged sentences

Cash flows from operating activities:

Net income $ 7,020,000 25,041,000 29,769,000

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 73,480,000 ) 7,020,000 25,041,000

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization of property, plant and equipment 9,379,000 10,561,000 11,927,000

9 unchanged sentences

Provision for excess and obsolete inventory 4,364,000 1,647,000 6,015,000

Deferred income tax expense (benefit) 860,000 4,283,000 ( 6,379,000 )

Deferred income tax (benefit) expense ( 3,263,000 ) 860,000 4,283,000

Other ( 225,000 ) — —

Changes in assets and liabilities, net of effects of business acquisitions:

9 unchanged sentences

Income taxes payable 3,136,000 ( 1,427,000 ) ( 2,418,000 )

Net cash provided by operating activities 52,764,000 68,031,000 50,344,000

Net cash (used in) provided by operating activities ( 40,638,000 ) 52,764,000 68,031,000

Cash flows from investing activities:

Net cash acquired from acquisition of UHP 1,304,000 — —

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

6 unchanged sentences

Cash flows from financing activities:

Net (payments) borrowings of long-term debt under Credit Facility ( 15,500,000 ) 165,000,000 —

Net borrowings (payments) of long-term debt under Credit Facility 51,500,000 ( 15,500,000 ) 165,000,000

Net payments under Revolving Loan portion of Prior Credit Facility — — ( 48,603,000 )

Repayment of debt under Term Loan portion of Prior Credit Facility — — ( 120,121,000 )

Remittance of employees' statutory tax withholdings for stock awards ( 5,276,000 ) ( 5,042,000 ) ( 1,143,000 )

Remittance of employees' statutory tax withholding for stock awards ( 2,803,000 ) ( 5,276,000 ) ( 5,042,000 )

Cash dividends paid ( 10,334,000 ) ( 10,020,000 ) ( 9,789,000 )

4 unchanged sentences

Payment of shelf registration costs — — ( 148,000 )

Net cash used in financing activities ( 30,278,000 ) ( 21,271,000 ) ( 40,062,000 )

Net cash provided by (used in) financing activities 39,104,000 ( 30,278,000 ) ( 21,271,000 )

COMTECH TELECOMMUNICATIONS CORP.

3 unchanged sentences

2021 2020 2019

Net increase in cash and cash equivalents $ 2,302,000 2,092,000 1,640,000

Net (decrease) increase in cash and cash equivalents $ ( 17,017,000 ) 2,302,000 2,092,000

Cash and cash equivalents at beginning of year 47,878,000 45,576,000 43,484,000

8 unchanged sentences

Cash dividends declared but unpaid (including accrual of dividend equivalents) $ 2,981,000 2,762,000 2,733,000

Finance lease and other obligations incurred $ — — 1,306,000

Accrued additions to property, plant and equipment $ 2,466,000 1,408,000 902,000

Issuance (forfeiture) of restricted stock $ — 1,000 ( 1,000 )

Issuance of restricted stock $ 4,000 — 1,000

Common stock issued for acquisitions $ 28,892,000 11,575,000 5,606,000

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

Accrued deferred financing costs $ 139,000 — —

Accruals related to acquisitions $ — 1,157,000 —

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dollars, advance or milestone payments, credit insurance and irrevocable letters of credit in our favor.

On October 4, 2021, we announced that our Board of Directors has appointed Michael D.

Porcelain, our President and Chief Operating Officer, to be Chief Executive Officer, taking over from Fred Kornberg after a short transition period.

The change of leadership is expected to occur by the end of calendar 2021, at which point Mr.

Porcelain will also join our Board of Directors and continue as President.

Kornberg will serve as non-executive Chairman of the Board and is expect to take on a technology advisory role.

Costs associated with this leadership transition will be announced once they are finalized.

COMTECH TELECOMMUNICATIONS CORP.

25 unchanged sentences

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

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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Notes to Consolidated Financial Statements, Continued

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.

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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Notes to Consolidated Financial Statements, Continued

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

Most 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).

62 unchanged sentences

Total $ 353,730,000 262,985,000 $ 616,715,000

Fiscal Year Ended July 31, 2019

Commercial Solutions Government Solutions Total

Geographical region and customer type

government $ 68,534,000 200,708,000 $ 269,242,000

Domestic 192,516,000 39,432,000 231,948,000

Total United States 261,050,000 240,140,000 501,190,000

International 96,243,000 74,364,000 170,607,000

Total $ 357,293,000 314,504,000 $ 671,797,000

Contract type

Firm fixed-price $ 350,850,000 231,400,000 $ 582,250,000

Cost reimbursable 6,443,000 83,104,000 89,547,000

Total $ 357,293,000 314,504,000 $ 671,797,000

Transfer of control

Point in time $ 177,090,000 176,067,000 $ 353,157,000

Over time 180,203,000 138,437,000 318,640,000

Total $ 357,293,000 314,504,000 $ 671,797,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

1 unchanged sentence

For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables.

In fiscal 2020, contract assets increased $ 417,000 due to business combinations discussed in Note (2) - "Acquisitions .

Under ASC 606, unbilled receivables constitute contract assets.

There were no material impairment losses recognized on contract assets during the fiscal years ended 2020 and 2019, respectively.

There were no material impairment losses recognized on contract assets during the fiscal years ended July 31, 2021, 2020 and 2019, 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.

3 unchanged sentences

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.

In fiscal 2020, contract liabilities increased $ 6,890,000 due to business combinations discussed in Note (2) - "Acquisitions .

" Of the contract liability balance at July 31, 2019 and August 1, 2018, $ 34,225,000 and $ 33,139,000 was recognized as revenue during fiscal years 2020 and 2019, respectively.

Of the contract liability balance at July 31, 2020 and July 31, 2019, $ 34,545,000 and $ 34,225,000 was recognized as revenue during fiscal years 2021 and 2020, respectively.

In fiscal 2021 and 2020, contract liabilities increased $ 648,000 and $ 6,890,000 , respectively, due to business combinations discussed in Note (2) - " Acquisitions ."

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.

3 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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.

7 unchanged sentences

Cash equivalents are carried at cost, which approximates fair value.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(e) Inventories

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Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We assess the recoverability of the carrying value of our other long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

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These amounts are not reflected in the reported research and development expenses in each of the respective periods but are included in net sales with the related costs included in cost of sales in each of the respective periods.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(h) Income Taxes

18 unchanged sentences

Our EPS calculations exclude 232,000 , 201,000 and 243,000 weighted average performance shares outstanding for fiscal 2021, 2020 and 2019, respectively, as the performance conditions have not yet been satisfied.

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

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.

4 unchanged sentences

2021 2020 2019

Net income for basic calculation $ 7,020,000 25,041,000 29,769,000

Net (loss) income for basic calculation $ ( 73,480,000 ) 7,020,000 25,041,000

Numerator for diluted calculation $ ( 73,480,000 ) 7,020,000 25,041,000

17 unchanged sentences

Comprehensive income was the same as our net income in fiscal 2021, 2020 and 2019.

(m) Reclassifications

Certain reclassifications have been made to previously reported consolidated financial statements to conform to the fiscal 2021 presentation.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

(m) Reclassifications

Certain reclassifications have been made to previously reported consolidated financial statements to conform to the fiscal 2020 presentation.

(n) Adoption of Accounting Standards and Updates

3 unchanged sentences

• FASB ASU No.

2016-02 Leases (Topic 842).

See Note (9) - "Leases" for further information.

2016-13, which requires companies to utilize an impairment model (current expected credit loss ("CECL”)) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to trade receivables and contract assets.

This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses.

On August 1, 2020, we adopted this ASU on a modified-retrospective basis and recorded a $ 215,000 decrease to opening retained earnings.

• FASB ASU No.

2017-11, which provides guidance on the accounting for certain financial instruments with embedded features that result in the strike price of the instrument or embedded conversion option being reduced on the basis of the pricing of future equity offerings (commonly referred to as "down round" features).

2018-13, which modifies the disclosure requirements for fair value measurements in Topic 820.

On August 1, 2020, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any financial instruments with such "down round" features.

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

• FASB ASU No.

2017-12, which expands and refines hedge accounting for both non-financial and financial risk components and simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU.

On August 1, 2020, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

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

• FASB ASU No.

2018-07, which expands the scope of ASC 718 to include certain share-based payment transactions for acquiring goods and services from nonemployees.

2018-17, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety, when determining whether a decision-making fee is a variable interest.

On August 1, 2020, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any outstanding share-based awards with nonemployees that required remeasurement.

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

• FASB ASU No.

2018-16, which expands the list of eligible U.S.

benchmark interest rates permitted in the application of hedge accounting due to broad concerns about the long-term sustainability of the LIBO Rate.

This ASU adds the Overnight Index Swap ("OIS") rate, based on the Secured Overnight Financing Rate ("SOFR"), as an eligible U.S.

benchmark interest rate.

2018-18, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination.

The ASU also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers.

On August 1, 2020, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

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

• FASB ASU No.

2019-08, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718.

The amount recorded as a reduction of the transaction price is required to be measured based on the grant-date fair value of the share-based payment award.

On August 1, 2020, we adopted this ASU.

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

(2) Acquisitions

Solacom Technologies Inc.

On February 28, 2019, we completed our acquisition of Solacom Technologies Inc.

("Solacom"), pursuant to the Arrangement Agreement, dated as of January 7, 2019, by and among Solacom, Comtech and Solar Acquisition Corp., a Canadian corporation and a direct, wholly-owned subsidiary of Comtech.

Solacom is a leading provider of Next Generation 911 ("NG-911") solutions for public safety agencies.

The acquisition of Solacom was a significant step in our strategy of enhancing our public safety and location technologies.

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 networks anticipated to significantly grow, our acquisition allows us to enhance our Commercial Solutions segment's offerings with low cost time division multiple access ("TDMA") satellite modems.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

The acquisition had an aggregate purchase price for accounting purposes of $ 32,934,000 , of which $ 27,328,000 was settled in cash and $ 5,606,000 was settled with the issuance of 208,669 shares of Comtech’s common stock.

The fair value of consideration transferred in connection with this acquisition was $ 31,489,000 , which was net of $ 1,445,000 of cash acquired.

The cash portion of the purchase price was funded principally through borrowings under our Credit Facility.

We accounted for the acquisition of Solacom 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 fair value as of February 28, 2019, pursuant to the business combination accounting rules and was finalized as of January 31, 2020.

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

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

GD NG-911 Business

On April 29, 2019, we completed the acquisition of a state and local government NG-911 business pursuant to the Asset Purchase Agreement, dated as of April 29, 2019, by and among General Dynamics Information Technology, Inc., Comtech and Comtech NextGen LLC, a Delaware limited liability company and indirect, wholly-owned subsidiary of Comtech.

The acquisition of this NG-911 business (the "GD NG-911 business") had a final cash purchase price of $ 11,013,000 .

In connection with this acquisition, we also announced an award of a five-year contract to develop, implement and operate a NG-911 emergency communications system for a Northeastern state.

Immediately after our announcement of this acquisition, we hired approximately sixty GD NG-911 employees and completed the integration of this business into our Commercial Solutions segment’s public safety and location technologies product line.

The acquisition, contract award and hiring of talented employees are expected to strengthen Comtech’s position in the growing NG-911 solutions market.

We accounted for the acquisition of this business 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 April 29, 2019, pursuant to the business combination accounting rules and was finalized as of April 29, 2020.

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.

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 provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment around the world.

The acquisition of CGC brought established relationships with several top-tier European aerospace companies and other government entities, and we expect CGC to participate in the anticipated growth in the number of low Earth orbit ("LEO") and medium Earth orbit ("MEO") satellite constellations.

The acquisition has a preliminary purchase price for accounting purposes of $ 23,650,000 , of which $ 12,075,000 was payable in cash and $ 11,575,000 was payable 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 $ 22,740,000 , which was net of $ 160,000 of cash acquired and $ 750,000 payable by us upon the first anniversary of the closing of the transaction, subject to certain conditions.

The preliminary purchase price for accounting purposes is subject to finalization.

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 preliminary fair value as of January 27, 2020, pursuant to the business combination accounting rules.

The acquisition has a preliminary purchase price for accounting purposes of $ 37,470,000 .

Pursuant to the stock purchase agreement, during fiscal 2021, the initial upfront payment of approximately $ 23,979,000 was paid mostly in shares of our common stock, with $ 87,000 paid in cash.

In August 2021, $ 3,991,000 of the $ 4,991,000 hold back amount previously placed into escrow at closing was paid to the seller in shares of our Common Stock, as the conditions pursuant to the stock purchase agreement were met.

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 $ 23,979,000 paid at closing, $ 4,560,000 was placed into escrow to be released 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 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.

Our consolidated statement of operations for the fiscal year ended July 31, 2020 includes a nominal amount of revenue contribution from CGC.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

Purchase Price Allocation (1)

Our consolidated statements of operations for the fiscal year ended July 31, 2021 include a nominal amount of revenue contribution from the acquisition.

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

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

Price Allocation (1)

Measurement Period Adjustments Purchase Price Allocation

(As adjusted)

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

Payable in common stock issued by Comtech 11,575,000 — 11,575,000

Initial upfront payment $ 23,902,000 $ 77,000 $ 23,979,000

Hold back amount 5,000,000 ( 9,000 ) 4,991,000

Contingent earn-out consideration 8,500,000 — 8,500,000

Preliminary purchase price at fair value $ 37,402,000 $ 68,000 $ 37,470,000

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Property, plant and equipment 10,000 — 10,000

Operating lease assets 924,000 — 924,000

Deferred tax assets, non-current 1,075,000 ( 605,000 ) 470,000

Non-current assets — 89,000 89,000

Deferred tax assets 286,000 27,000 313,000

Contract liabilities ( 657,000 ) 9,000 ( 648,000 )

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Non-current liabilities ( 160,000 ) — ( 160,000 )

Net tangible liabilities at preliminary fair value $ ( 7,411,000 ) 2,334,000 $ ( 5,077,000 )

Net tangible assets at preliminary fair value $ 189,000 150,000 $ 339,000

Identifiable intangibles, deferred taxes and goodwill:

Estimated Useful Lives

Technology $ 15,300,000 $ — $ 15,300,000 15 years

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Preliminary allocation of aggregate purchase price $ 37,402,000 $ 68,000 $ 37,470,000

(1) As reported in the Company's Quarterly Report on Form 10-Q for the nine months ended April 30, 2020.

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three and nine months ended April 30, 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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 (which include acquired backlog) 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 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 Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

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 potential indemnification obligations of the seller under the Share Purchase Agreement), a final assessment of assets acquired and liabilities assumed, income taxes and residual goodwill.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

UHP Networks Inc.

In November 2019, we entered into an agreement to acquire UHP Networks, Inc.

and its sister company (together, "UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions.

UHP is based in Canada and has developed revolutionary technology that is transforming the Very Small Aperture Terminal ("VSAT") market.

With end-markets for high-speed satellite-based networks significantly growing, our acquisition of UHP, if consummated, will allow us to enhance our solution offerings with low cost time division multiple access ("TDMA") satellite modems, which we do not currently offer.

In June 2020, we agreed with UHP to amend the terms of our purchase agreement, which resulted in the total aggregate purchase price being reduced by approximately 24 % from $ 50,000,000 to $ 38,000,000 (of which $ 5,000,000 will be paid in cash, with the remainder in shares of our common stock, cash, or a combination of both, as we may elect at the time of closing).

The transaction is subject to customary closing conditions, including regulatory approval to allow us to purchase UHP's sister company which is headquartered in Moscow.

In August 2020, at the request of the Federal Antimonopoly Service ("FAS") of the Russian Federation we submitted an application for regulatory approval to the FAS and the Commission for Supervising Foreign Investments in the Russian Federation (the "Russian Commission") pursuant to Russia’s Foreign Investment Law ("FIL").

In order to purchase UHP’s sister company, which is based in Moscow, approval by the Russian Commission and the FAS is required.

If we do not receive approval by December 31, 2020, either we or UHP may terminate the purchase agreement.

Gilat Satellite Networks Ltd.

On January 29, 2020, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Gilat Satellite Networks Ltd.

("Gilat"), a worldwide leader in satellite networking technology, solutions and services with market leading positions in the satellite ground station and in-flight connectivity solutions markets and deep expertise in operating large network infrastructures.

The acquisition, if consummated, would provide several strategic benefits to us including:

• strengthening our position as a leading supplier of advanced communications solutions, uniquely capable of servicing the expanding need for ground infrastructure to support both existing and emerging satellite networks;

• expanding our product portfolio with highly complementary technologies including Gilat’s high-performance TDMA-based satellite modems and its next generation amplifiers;

• facilitating adoption of our satellite technologies into the 4G and 5G cellular backhaul ecosystems;

• bolstering our world-class research and development capabilities, enabling us to offer customers more complete end-to-end technology solutions;

• enhancing our ability to accelerate shareholder value creation by contributing to our ongoing strategy to move toward higher margin solutions and by increasing customer diversification geographically and by market.

Under the terms of the Merger Agreement, Comtech would acquire Gilat by way of a merger of Comtech's newly formed subsidiary with and into Gilat, with Gilat surviving the merger as a wholly-owned subsidiary of Comtech.

Pursuant to the Merger Agreement, each Gilat ordinary share will be converted into the right to receive consideration of (i) $ 7.18 in cash, without interest, plus (ii) 0.08425 of a share of Comtech common stock (worth approximately $ 1.12 per Gilat ordinary share as of September 24, 2020), with cash payable in lieu of fractional shares.

Based on the terms agreed to on January 29, 2020 and the September 24, 2020 closing price of Comtech Common Stock of $ 13.32 , the total amount payable to Gilat shareholders would have been approximately $ 465,800,000 (consisting of $ 402,900,000 in cash with the remainder in Comtech Common Stock) or $ 8.30 per Gilat ordinary share.

We expect to fund the cash portion of the amount payable by redeploying a large portion of both our and Gilat's unrestricted cash and cash equivalents, with the remaining funds provided by a new secured credit facility (the "Gilat Acquisition Related Credit Facility") that would replace our existing Credit Facility, which is discussed further in Note (11) - " Credit Facility ."

During the six months ended June 30, 2020, Gilat publicly reported revenue of $ 85,988,000 , a GAAP operating loss of $ 14,219,000 and negative Adjusted EBITDA (as Gilat defines it) of $ 4,895,000 .

As of June 30, 2020.

Gilat had approximately $ 59,601,000 of unrestricted cash and cash equivalents and debt of approximately $ 4,000,000 .

The primary areas of the purchase price allocation not yet finalized include the purchase price (due to customary adjustments for 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.

CGC Technology Limited

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

The acquisition had 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 our 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 accounted 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.

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.

Acquisition Plan Expenses

During fiscal 2021, 2020 and 2019, we incurred acquisition plan expenses of $ 100,292,000 , $ 20,754,000 and $ 5,871,000 , respectively.

Of the amount recorded in fiscal 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 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.

Additionally, we recorded $ 1,178,000 of incremental interest expenses in fiscal 2021 related to a now terminated financing commitment letter.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

See Note (13)(a) - " Commitments and Contingencies - Legal Proceedings and Other Matters " for further discussion of the Gilat acquisition and related litigation.

On February 21, 2020, we completed our acquisition of NG-911, Inc.

(“NG-911”), a privately-held company based in Iowa, Illinois and Missouri, pursuant to a stock purchase agreement dated December 27, 2019.

NG-911 is a pioneer in providing next generation 911 solutions, including those designed by Comtech Solacom Technologies, Inc., to public safety agencies in the Midwest.

Of the $ 1,188,000 total purchase price, $ 781,000 was paid in cash at closing, with the remaining $ 407,000 subject to an earn-out payable over a five-year period, subject to customary post-closing adjustments.

The acquisition allows us to cost-effectively expand sales of our industry leading Solacom Guardian call management solutions for public safety.

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

(3) Accounts Receivable

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Under ASC 606, unbilled receivables constitute contract assets.

Management estimates that substantially all amounts not yet billed at July 31, 2020 will be billed and collected within one year.

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

As of July 31, 2021, 23.0 %, 12.7 % and 12.1 % of total accounts receivable related to U.S.

government and its agencies, AT&T, Inc.

and Verizon Communications Inc., respectively.

Except for the U.S.

government and its agencies, which represented 31.0 % and 27.8 %, respectively, there were no other customers which accounted for greater than 10.0% of total accounts receivable as of July 31, 2020 and July 31, 2019.

government and its agencies, which represented 31.0 %, respectively, no other customers accounted for greater than 10.0% of total accounts receivable as of July 31, 2020.

(4) Inventories

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As of July 31, 2021 and 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 7,028,000 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 $ 1,509,000 and $ 1,387,000 , respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Property, Plant and Equipment

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Depreciation and amortization expense on property, plant and equipment amounted to $ 9,343,000 , $ 10,386,000 and $ 11,927,000 for the fiscal years ended July 31, 2021, 2020 and 2019, respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Accrued Expenses and Other Current Liabilities

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Accrued wages and benefits $ 26,367,000 20,857,000

Accrued contract costs 15,306,000 15,007,000

Accrued warranty obligations 17,600,000 15,200,000

Accrued legal costs 2,539,000 2,835,000

Accrued contract costs 12,750,000 15,306,000

Accrued acquisition-related costs 9,222,000 7,014,000

Accrued commissions and royalties 5,342,000 4,621,000

Accrued legal costs 2,854,000 2,539,000

Other 15,466,000 19,624,000

Accrued expenses and other current liabilities $ 89,601,000 85,161,000

As discussed further in Note (9) - "Leases," on August 1, 2019, we adopted Topic 842 and, as required by the new standard, reclassified $ 2,934,000 of accrued expenses and other current liabilities as follows:

(i) $ 2,366,000 of short-term deferred rent liabilities related to operating leases were offset against the respective operating lease right-of-use assets;

and (ii) the remaining $ 568,000 of estimated facility exit costs were reclassified to the current portion of operating lease liabilities.

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.

Accrued acquisition-related costs as of July 31, 2021 include $ 8,705,000 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 July 31, 2021 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Changes in our accrued warranty obligations during the fiscal years ended July 31, 2021 and 2020 were as follows:

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

Reclass to contract liabilities (see below) — ( 1,679,000 )

Provision for warranty obligations 4,360,000 2,277,000

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Charges incurred ( 2,710,000 ) ( 4,347,000 )

Warranty settlement and reclass (see below) 302,000 1,727,000

Reclassification of non-current liabilities — 302,000

Balance at end of year $ 17,600,000 15,200,000

On August 1, 2018, in connection with our adoption of ASC 606 , $ 1,679,000 of accrued warranty obligations presented in the above table were reclassified to contract liabilities, as they represented deferred revenue related to service-type warranty performance obligations.

Our current accrued warranty obligations at July 31, 2020 and 2019 include $ 2,158,000 and $ 3,999,000 , respectively, of warranty obligations for a small product line that we refer to as the TCS 911 call handling software solution.

This solution was licensed to customers prior to our acquisition of TeleCommunication Systems, Inc.

In connection with our acquisitions of Solacom, the GD NG-911 business and CGC, during the fiscal year ended July 31, 2020 and 2019, we assumed warranty obligations related to certain contracts acquired.

See Note (2) - "Acquisitions" for further information pertaining to these acquisitions.

(7) Prior Period Cost Reduction Actions

During the first quarter of fiscal 2019, we took steps to improve our future operating results and successfully consolidated our Government Solutions segment’s manufacturing facility located in Tampa, Florida with another facility that we maintain in Orlando, Florida.

In doing so, during fiscal 2019, we recorded $ 1,373,000 of facility exit costs in selling, general and administrative expenses in our Consolidated Statements of Operations.

As discussed further in Note (9) - "Leases," on August 1, 2019, we adopted Topic 842 and, as required by the new standard, reclassified $ 568,000 of estimated facility exit costs to the current portion of operating lease liabilities.

During the second quarter of fiscal 2019, we began an evaluation and repositioning of our public safety and location technologies solutions in order to focus on providing higher margin solution offerings.

To-date, we have ceased offering certain solutions, have worked with customers to wind-down certain legacy contracts and have not renewed certain contracts.

In connection with this evaluation and repositioning, we recorded estimated contract settlement costs of $ 444,000 and $ 6,351,000 for the fiscal years ended July 31, 2020 and 2019, respectively.

(7) Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders, replacing our prior Credit Agreement dated as of February 23, 2016 (as amended by that certain First Amendment, dated as of June 6, 2017 (the "Prior Credit Facility")).

In connection with the establishment of our Credit Facility, during the three months ended October 31, 2018, we wrote-off $ 3,217,000 of deferred financing costs primarily related to the Term Loan Facility portion of our Prior Credit Facility and capitalized deferred financing costs of $ 1,813,000 related to the Credit Facility.

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

The Credit Facility provides a senior secured loan facility of up to $ 550,000,000 consisting of:

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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.

The proceeds of the Credit Facility were used, in part, to repay in full the outstanding borrowings under the Prior Credit Facility, and additional proceeds of the Credit Facility are expected to be used by us for working capital and other general corporate purposes.

As of July 31, 2021, the amount outstanding under our Credit Facility was $ 201,000,000 which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet.

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As of July 31, 2021, total net deferred financing costs related to the Credit Facility were $ 1,824,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

In fiscal 2019, we wrote off $ 3,217,000 of deferred financing costs primarily related to the Term Loan Facility of our Prior Credit Facility.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the fiscal years ended July 31, 2021, 2020 and 2019 was $ 5,628,000 , $ 5,905,000 and $ 8,859,000 , respectively.

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

The obligations under the Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the "Guarantors").

As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

The obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Guarantors").

On December 6, 2018, we entered into the first amendment to the Credit Facility.

The purpose of the amendment was to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items.

On July 30, 2021, we entered into an amendment to incorporate certain foreign subsidiaries as loan parties and Guarantors into the Credit Facility and added certain definitional items.

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

As discussed in Note (2) - "Acquisitions," in connection with the Merger Agreement with Gilat, we entered into the Gilat Acquisition Related Credit Facility, the exact terms of which are expected to be finalized upon completion of the Gilat acquisition, if it occurs.

The Gilat Acquisition Related Credit Facility would replace our existing Credit Facility.

On August 1, 2019, we adopted ASU No.

2016-02 - Leases (Topic 842), which requires the recognition of lease rights and obligations as assets and liabilities on the balance sheet.

Previously, operating leases were not recognized on the balance sheet.

As we elected the modified retrospective adoption method, prior-period information was not restated.

We also elected the transition package of practical expedients available in the standard, which permits us to not reassess under the new standard our prior conclusions about lease identification, classification and initial direct costs.

As part of our adoption, however, we did not elect to use the hindsight or land easements practical expedients.

On August 1, 2019, in connection with our adoption of Topic 842 , we recognized $ 35,825,000 of operating lease right-of-use ("ROU") assets (net of a $ 3,023,000 deferred rent liability that existed as of August 1, 2019 under prior applicable GAAP) and $ 38,848,000 of related liabilities.

Except for the recording of the ROU assets and lease liabilities on our Consolidated Balance Sheet, and the expanded disclosures about our leasing activities, our adoption did not have a material impact on our consolidated financial statements.

Our adoption also did not result in any cumulative-effect adjustment to opening retained earnings.

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

We determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease.

At lease commencement, we recognize an ROU asset and lease liability based on the present value of the future lease payments over the estimated lease term.

We have elected to not recognize an ROU asset or lease liability for any leases with terms of twelve months or less.

In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease.

At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term.

We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less.

Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term.

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These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date.

Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by Topic 842 to be excluded from the ROU asset and lease liability and expensed as incurred.

Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred.

In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions).

For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies).

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses.

1 unchanged sentence

As of July 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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The components of lease expense are as follows:

Fiscal Year Ended July 31, 2020

Fiscal years ended July 31,

Finance lease expense:

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Additional information related to leases is as follows:

Fiscal Year Ended July 31, 2020

Fiscal years ended July 31,

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

4 unchanged sentences

Operating leases $ 24,987,000 $ 3,561,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

11 unchanged sentences

Weighted-average discount rate 3.52 % 7.37 %

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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 Consolidated Balance Sheet as of July 31, 2021.

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

Lease payments made during the fiscal year ended July 31, 2020 were $ 649,000 .

The current lease provides for our use of the premises as they exist through December 2021 with an option for an additional ten years .

Lease payments made during the fiscal year ended July 31, 2021 and 2020 were $ 660,000 and $ 649,000 , respectively.

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

The annual rent of the facility for calendar year 2022 is $ 665,000 and is subject to customary adjustments.

1 unchanged sentence

As of July 31, 2021, we do not have any rental commitments that have not commenced.

As we have not restated prior year information given our method of adopting the new standard, the following represents our future minimum lease payments for operating leases and capital leases as of July 31, 2019 under ASC Topic 840 and as reported in our Form 10-K filed with the SEC on September 24, 2019:

Operating Capital Total

Fiscal 2020 $ 11,812,000 $ 789,000 $ 12,601,000

Fiscal 2021 8,723,000 — 8,723,000

Fiscal 2022 7,343,000 — 7,343,000

Fiscal 2023 5,776,000 — 5,776,000

Fiscal 2024 3,430,000 — 3,430,000

Thereafter 7,130,000 — 7,130,000

Total $ 44,214,000 $ 789,000 $ 45,003,000

Less amount representing interest * 32,000 32,000

Present value of net minimum lease payments * $ 757,000 $ 44,971,000

* Not applicable for operating leases

In September 2020, we signed a 15-year lease commencing in December 2020 for a facility in Chandler, Arizona to support our anticipated growth and long-term business goals for our satellite earth station product line.

We anticipate that all existing Tempe, Arizona locations will be fully relocated to this new facility by February 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(9) Income Taxes

In December 2017, H.R.1, also known as the Tax Cuts and Jobs Act ("Tax Reform"), was enacted in the U.S.

Tax Reform significantly lowered the amount of our current and future income tax expense primarily due to the reduction in the U.S.

statutory income tax rate from 35.0% to 21.0%.

This provision went into effect on January 1, 2018 and required us to remeasure our deferred tax assets and liabilities.

In connection with Tax Reform, during fiscal 2018, we recorded a net discrete tax benefit of $ 11,792,000 , primarily related to the remeasurement of deferred tax liabilities associated with non-deductible amortization related to intangible assets.

This remeasurement was recorded pursuant to ASC 740 "Income Taxes" ("ASC 740") and SEC Staff Accounting Bulletin ("SAB") 118, using estimates based on reasonable and supportable assumptions and available information as of such reporting date.

In the event the Internal Revenue Service ("IRS") issues clarifying or interpretive guidance related to Tax Reform, it may result in a change to our estimated income tax.

Beginning in fiscal 2019, Tax Reform resulted in the loss of our ability to take the domestic production activities deduction, which has been repealed, and also resulted in lower tax deductions for certain executive compensation expenses.

For fiscal 2020 and 2019, we were subject to a U.S.

statutory income tax rate of 21.0%.

For fiscal 2018, we were subject to a 35.0% statutory income tax rate with respect to the period August 1, 2017 through December 31, 2017 and a 21.0% statutory income tax rate with respect to the period January 1, 2018 through July 31, 2018, or a blended U.S.

statutory income tax rate for fiscal 2018 of approximately 27.0 %.

As such, our effective tax rate for accounting purposes in fiscal 2018, excluding discrete items, was 27.0 %.

Income before provision for (benefit from) income taxes consists of the following:

(Loss) income before (benefit from) provision for income taxes consists of the following:

Fiscal Years Ended July 31,

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$ ( 74,980,000 ) 9,310,000 28,910,000

The provision for (benefit from) income taxes included in the accompanying Consolidated Statements of Operations consists of the following:

The (benefit from) provision for income taxes included in the accompanying Consolidated Statements of Operations consists of the following:

Fiscal Years Ended July 31,

6 unchanged sentences

Foreign – deferred ( 1,787,000 ) 393,000 ( 179,000 )

Provision for (benefit from) income taxes $ 2,290,000 3,869,000 ( 5,143,000 )

(Benefit from) provision for income taxes $ ( 1,500,000 ) 2,290,000 3,869,000

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

The provision for (benefit from) income taxes differed from the amounts computed by applying the U.S.

The (benefit from) provision for income taxes differed from the amounts computed by applying the U.S.

Federal income tax rate as a result of the following:

2 unchanged sentences

Amount Rate Amount Rate Amount Rate

Computed "expected" tax expense $ 1,955,000 21.0 % 6,071,000 21.0 % 6,615,000 27.0 %

Computed "expected" tax expense (benefit) $ ( 15,746,000 ) 21.0 % 1,955,000 21.0 % 6,071,000 21.0 %

Increase (reduction) in income taxes resulting from:

State and local income taxes, net of federal benefit ( 1,371,000 ) 1.8 ( 278,000 ) ( 3.0 ) 967,000 3.3

( 278,000 ) ( 3.0 ) 967,000 3.3 1,193,000 4.8

Stock-based compensation ( 20,000 ) — 308,000 3.3 ( 44,000 ) ( 0.1 )

308,000 3.3 ( 44,000 ) ( 0.1 ) ( 1,112,000 ) ( 4.5 )

Research and experimentation credits ( 1,018,000 ) 1.4 ( 1,210,000 ) ( 13.0 ) ( 1,129,000 ) ( 3.9 )

( 1,210,000 ) ( 13.0 ) ( 1,129,000 ) ( 3.9 ) ( 678,000 ) ( 2.8 )

Foreign-derived intangible income deduction 164,000 ( 0.2 ) ( 162,000 ) ( 1.7 ) ( 632,000 ) ( 2.2 )

( 162,000 ) ( 1.7 ) ( 632,000 ) ( 2.2 ) — —

Nondeductible transaction costs 402,000 ( 0.5 ) 301,000 3.2 394,000 1.4

301,000 3.2 394,000 1.4 — —

Nondeductible executive compensation 628,000 ( 0.8 ) 595,000 6.4 330,000 1.1

595,000 6.4 330,000 1.1 ( 22,000 ) ( 0.1 )

Fines and penalties — — 189,000 2.0 2,000 —

Audit settlements 6,000 — 1,000 — ( 2,081,000 ) ( 7.2 )

Change in the beginning of the year valuation allowance for deferred tax assets ( 805,000 ) 1.1 — — — —

Change in valuation allowance 15,582,000 ( 20.8 ) — — — —

Remeasurement of

2 unchanged sentences

Other, net 226,000 ( 0.4 ) 273,000 3.0 ( 14,000 ) —

Provision for (benefit from) income taxes $ 2,290,000 24.6 % 3,869,000 13.4 % ( 5,143,000 ) ( 21.0 ) %

(Benefit from) provision for income taxes $ ( 1,500,000 ) 2.0 % 2,290,000 24.6 % 3,869,000 13.4 %

COMTECH TELECOMMUNICATIONS CORP.

4 unchanged sentences

Inventory and warranty reserves $ 6,774,000 5,786,000

$ 5,786,000 7,318,000

Compensation and commissions 4,338,000 3,210,000

3,210,000 3,548,000

Contract liabilities

Federal, state and foreign research and experimentation credits 19,324,000 19,656,000

19,656,000 18,183,000

Stock-based compensation 4,979,000 4,955,000

4,955,000 5,817,000

Foreign scientific research and experimental development expenditures 1,496,000 1,765,000

1,765,000 1,689,000

Federal, state and foreign net operating losses 5,413,000 3,942,000

Federal and state capital losses 15,582,000 28,000

Lease liabilities 10,980,000 7,335,000

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If management determines that it is more likely than not that some or all of its deferred tax assets will not be realized, a valuation allowance will be recorded against such deferred tax assets.

At July 31, 2020, we had federal alternative minimum tax credit carryforwards of $ 506,000 , which are available to offset future federal income taxes.

We have federal research and experimentation credits of $ 9,566,000 that will begin to expire in 2028.

At July 31, 2021, we have federal research and experimentation credits of $ 9,471,000 that will begin to expire in 2028.

The timing and manner in which we may utilize tax credits in future tax years will be limited by the amounts and timing of future taxable income and by the application of the ownership change rules under Section 383 of the Internal Revenue Code.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We have state net operating loss carryforwards available of $ 3,267,000 , which expire through 2040, utilization of which will be limited by the amounts and timing of future taxable income and by the application of the ownership change rules under Section 382 of the Internal Revenue Code.

1 unchanged sentence

In recognition of this risk, we have provided a valuation allowance of $ 3,178,000 on the deferred tax assets relating to these state net operating loss carryforwards.

We have state research and experimentation credit carryforwards of $ 7,620,000 expiring through 2039.

We have state research and experimentation credit carryforwards of $ 8,038,000 , which expire through 2040.

We believe that it is more likely than not that the benefit from certain state research and experimentation credits will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 7,451,000 on the deferred tax assets relating to these state credits.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At July 31, 2020, we had foreign deferred tax assets relating to net operating loss carryforwards of $ 1,491,000 .

These losses were generated by Solacom prior to being acquired by Comtech and will begin to expire in 2024.

We believe that it is more likely than not that a portion of these net operating loss carryforwards may not be realized.

We have federal and state capital loss carryforwards of $ 15,582,000 , which begin to expire in 2026.

We believe that it is more likely than not that the benefit from these capital losses will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 15,582,000 on the deferred tax assets relating to these capital losses.

At July 31, 2021, we had foreign deferred tax assets relating to net operating loss carryforwards of $ 2,116,000 , which will begin to expire in 2032.

We believe that it is more likely than not that certain net operating loss carryforwards may not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 656,000 on the deferred tax assets relating to these net operating loss carryforwards.

We have foreign deferred tax assets relating to research and experimentation credits of $ 2,471,000 that will begin to expire in 2020.

We believe that it is more likely than not that the benefit from certain foreign research and experimentation credits may not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 586,000 on the deferred tax assets relating to foreign research and experimentation credits.

We have foreign deferred tax assets relating to research and experimentation credits of $ 1,814,000 , which will begin to expire in 2024.

Our foreign earnings and profits are insignificant and, as such, we have not recorded any deferred tax liability on unremitted foreign earnings.

16 unchanged sentences

Balance at end of period $ 9,009,000 8,270,000 7,203,000

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future IRS audit.

federal income tax returns for fiscal 2018 through 2020 are subject to potential future Internal Revenue Service ("IRS") audit.

None of our state income tax returns prior to fiscal 2017 are subject to audit.

None of TCS' state income tax returns prior to calendar year 2015 are subject to audit.

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

3 unchanged sentences

(10) Stock-Based Compensation

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the "Plan") and our 2001 Employee Stock Purchase Plan (the "ESPP") and recognize related stock-based compensation in our consolidated financial statements.

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our consolidated financial statements.

The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants):

63 unchanged sentences

Outstanding at July 31, 2019 1,555,555 28.72

Granted 327,100 17.88

Expired/canceled ( 174,840 ) 29.06

1 unchanged sentence

Outstanding at July 31, 2020 1,422,025 26.17

Granted 327,100 17.88

Expired/canceled ( 348,590 ) 27.44

Exercised ( 285,790 ) 28.82

Outstanding at July 31, 2021 1,073,435 $ 25.76 4.31 $ 2,178,000

1 unchanged sentence

Vested and expected to vest at July 31, 2021 1,060,830 $ 25.85 4.26 $ 2,088,000

Stock options outstanding as of July 31, 2020 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 .

Stock options outstanding as of July 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 ten years and a vesting period of five years .

The total intrinsic value relating to stock options exercised during the fiscal years ended July 31 2020 and 2019 was $ 1,869,000 and $ 576,000 , respectively.

There were no stock options exercised during the fiscal year ended July 31, 2021.

During fiscal 2020 and 2019, at the election of certain holders of vested stock options, 269,090 and 72,830 , respectively, of stock options were net settled upon exercise.

As a result, 27,994 and 9,345 shares of our common stock were issued during the fiscal years ended July 31, 2020 and 2019, respectively, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.

There were no stock options granted during fiscal 2019 and 2018.

There were no stock options granted during fiscal years ended July 31, 2021 or 2019.

The estimated per-share weighted average grant-date fair value of stock options granted during fiscal 2020 was $ 5.52 , which was determined using the Black-Scholes option pricing model, and included weighted average assumptions as follows:

31 unchanged sentences

The total intrinsic value relating to fully-vested awards settled during the fiscal years ended July 31, 2021, 2020 and 2019 was $ 9,878,000 , $ 9,635,000 and $ 8,772,000 respectively.

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.

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 July 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.

17 unchanged sentences

As of July 31, 2021 and 2020, accrued dividend equivalents were $ 884,000 and $ 783,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal year ended July 31, 2020, we recorded an income tax expense of $ 224,000 , and during the fiscal years ended July 31, 2019 and 2018 we recorded income tax benefits of $ 479,000 and $ 1,193,000 respectively.

Such income tax expense generally relates to the reversal of deferred tax assets associated with expired and unexercised stock-based awards and any net income tax shortfalls upon settlement.

Such income tax benefit generally relates to any net excess income tax benefits upon settlement.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal year ended July 31, 2021, we recorded an income tax benefit of $ 142,000 , and during the fiscal years ended July 31, 2020 and 2019 we recorded an income tax expense of $ 224,000 and an income tax benefit of $ 479,000 , respectively.

Subsequent Events

4 unchanged sentences

Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer.

Our Commercial Solutions segment offers satellite ground station technologies (such as modems and amplifiers) and public safety and location technologies (such as 911 call routing and mapping solutions) to commercial customers and smaller government customers, such as state and local governments.

We manage our business through the following reportable operating segments:

Our Commercial Solutions segment offers satellite ground station technologies (such as modems and amplifiers) and public safety and location technologies (such as 911 call routing, 911 call handling and mapping solutions) to commercial customers and smaller government customers, such as state and local governments.

This segment also serves certain large government customers (including the U.S.

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 Consolidated Financial Statements, Continued

Our Government Solutions segment provides tactical satellite-based networks and ongoing support for complicated communications networks, 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, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, strategic alternatives expenses, proxy solicitation related costs 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.

2 unchanged sentences

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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

4 unchanged sentences

Net income (loss) $ 39,200,000 9,553,000 ( 122,233,000 ) $ ( 73,480,000 )

$ 34,414,000 20,232,000 ( 47,626,000 ) $ 7,020,000

Provision for (benefit from) income taxes 1,794,000 ( 1,376,000 ) ( 1,918,000 ) ( 1,500,000 )

410,000 ( 100,000 ) 1,980,000 2,290,000

Interest (income) and other 68,000 161,000 ( 368,000 ) ( 139,000 )

( 31,000 ) ( 169,000 ) 10,000 ( 190,000 )

Interest expense 2,000 64,000 6,755,000 6,821,000

Amortization of stock-based compensation — — 9,983,000 9,983,000

— — 9,275,000 9,275,000

Amortization of intangibles 17,054,000 3,966,000 — 21,020,000

17,325,000 4,270,000 — 21,595,000

8,347,000 1,446,000 768,000 10,561,000

Estimated contract settlement costs

444,000 — — 444,000

Depreciation 7,451,000 1,586,000 342,000 9,379,000

Acquisition plan expenses ( 1,052,000 ) — 101,344,000 100,292,000

751,000 — 20,003,000 20,754,000

Restructuring costs 1,804,000 978,000 — 2,782,000

COVID-19 related costs — 1,046,000 — 1,046,000

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

Adjusted EBITDA $ 66,321,000 16,293,000 ( 6,095,000 ) $ 76,519,000

$ 61,687,000 25,704,000 ( 9,588,000 ) $ 77,803,000

Purchases of property, plant and equipment $ 10,899,000 5,055,000 83,000 $ 16,037,000

$ 5,281,000 1,617,000 327,000 $ 7,225,000

Long-lived assets acquired in connection with acquisitions $ 45,515,000 2,443,000 — $ 47,958,000

$ 6,060,000 32,391,000 — $ 38,451,000

Total assets at July 31, 2021 $ 738,095,000 232,763,000 22,253,000 $ 993,111,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Fiscal Year Ended July 31, 2020

3 unchanged sentences

Net income (loss) $ 34,414,000 20,232,000 ( 47,626,000 ) $ 7,020,000

$ 35,888,000 29,029,000 ( 39,876,000 ) $ 25,041,000

Provision for income taxes

19,000 — 3,850,000 3,869,000

Provision for (benefit from) income taxes 410,000 ( 100,000 ) 1,980,000 2,290,000

Interest (income) and other ( 31,000 ) ( 169,000 ) 10,000 ( 190,000 )

75,000 ( 41,000 ) 1,000 35,000

Write-off of deferred financing costs — — 3,217,000 3,217,000

Interest expense 27,000 25,000 6,002,000 6,054,000

Amortization of stock-based compensation — — 9,275,000 9,275,000

— — 11,427,000 11,427,000

Amortization of intangibles 17,325,000 4,270,000 — 21,595,000

14,944,000 3,376,000 — 18,320,000

9,265,000 1,891,000 771,000 11,927,000

Depreciation 8,347,000 1,446,000 768,000 10,561,000

Estimated contract settlement costs 444,000 — — 444,000

6,351,000 — — 6,351,000

Settlement of intellectual property litigation

— — ( 3,204,000 ) ( 3,204,000 )

Acquisition plan expenses 751,000 — 20,003,000 20,754,000

— — 5,871,000 5,871,000

Facility exit costs

— 1,373,000 — 1,373,000

Adjusted EBITDA $ 61,687,000 $ 25,704,000 $ ( 9,588,000 ) $ 77,803,000

$ 66,613,000 $ 35,637,000 $ ( 8,778,000 ) $ 93,472,000

Purchases of property, plant and equipment $ 5,281,000 1,617,000 327,000 $ 7,225,000

$ 6,293,000 1,902,000 590,000 $ 8,785,000

Long-lived assets acquired in connection with acquisitions $ 6,060,000 32,391,000 — $ 38,451,000

$ 60,693,000 — — $ 60,693,000

Total assets at July 31, 2020 $ 647,964,000 232,052,000 49,631,000 $ 929,647,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Fiscal Year Ended July 31, 2019

3 unchanged sentences

Net income (loss) $ 35,888,000 29,029,000 ( 39,876,000 ) $ 25,041,000

$ 40,297,000 10,835,000 ( 21,363,000 ) $ 29,769,000

Provision for (benefit from) income taxes

270,000 — ( 5,413,000 ) ( 5,143,000 )

Provision for income taxes 19,000 — 3,850,000 3,869,000

Interest (income) and other 75,000 ( 41,000 ) 1,000 35,000

151,000 112,000 ( 9,000 ) 254,000

Write-off of deferred financing costs — — 3,217,000 3,217,000

Interest expense 71,000 9,000 9,165,000 9,245,000

Amortization of stock-based compensation — — 11,427,000 11,427,000

— — 8,569,000 8,569,000

Amortization of intangibles 14,944,000 3,376,000 — 18,320,000

17,699,000 3,376,000 — 21,075,000

9,479,000 3,088,000 1,088,000 13,655,000

Depreciation 9,265,000 1,891,000 771,000 11,927,000

Estimated contract settlement costs 6,351,000 — — 6,351,000

Settlement of intellectual property litigation — — ( 3,204,000 ) ( 3,204,000 )

Acquisition plan expenses — — 5,871,000 5,871,000

Facility exit costs — 1,373,000 — 1,373,000

Adjusted EBITDA $ 66,613,000 35,637,000 ( 8,778,000 ) $ 93,472,000

$ 68,015,000 17,414,000 ( 7,055,000 ) $ 78,374,000

Purchases of property, plant and equipment $ 6,293,000 1,902,000 590,000 $ 8,785,000

$ 7,151,000 901,000 590,000 $ 8,642,000

Long-lived assets acquired in connection with acquisitions $ 60,693,000 — — $ 60,693,000

Total assets at July 31, 2019 $ 662,580,000 186,438,000 38,693,000 $ 887,711,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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 fiscal 2020 and 2019, we recorded $ 20,754,000 and $ 5,871,000 of acquisition plan expenses, respectively.

These expenses were recorded primarily in our unallocated expenses.

During fiscal 2021, 2020 and 2019, we recorded $ 100,292,000 , $ 20,754,000 and $ 5,871,000 of acquisition plan expenses, respectively, most of which were recorded primarily in our unallocated expenses.

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

1 unchanged sentence

Court of Appeals for the Federal Circuit related to a legacy TCS intellectual property matter.

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

In addition, during fiscal 2019, we recorded a $ 3,217,000 loss from the write-off of deferred financing costs primarily related to the Term Loan Facility portion of our Prior Credit Facility.

During fiscal 2021, our Commercial Solutions segment recorded $ 1,804,000 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.

There were no such charges recorded in fiscal 2020 or 2019.

During fiscal 2021, our Government Solutions segment recorded $ 978,000 of restructuring costs incurred to consolidate certain administrative and operating functions in our tactical communications technologies product line.

In addition, during fiscal 2021, this segment also recorded $ 1,046,000 of incremental operating costs related to 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 fiscal 2020 or 2019.

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

See Note (7) - " Credit Facility " for further discussion.

In addition, interest expense for fiscal 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 ." During fiscal 2019, we recorded a $ 3,217,000 loss from the write-off of deferred financing costs primarily related to the Term Loan Facility portion of our Prior Credit Facility.

See Note (7) - " Credit Facility " for further discussion.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Intersegment sales in fiscal 2021, 2020 and 2019 by the Commercial Solutions segment to the Government Solutions segment were $ 3,481,000 , $ 9,837,000 and $ 17,371,000 , respectively.

2 unchanged sentences

Unallocated assets at July 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.

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

(12) Commitments and Contingencies

(a) Legal Proceedings and Other Matters

Gilat Litigation Matter

In July 2020, we commenced litigation in the Delaware Court of Chancery (the “Delaware Court”) seeking certain declaratory judgments, including a declaratory judgment that Gilat has suffered a Material Adverse Effect (as defined in the Merger Agreement) and that, as a result, we are not obligated to complete the acquisition of Gilat.

The amended complaint also seeks a declaratory judgment that certain actions, if taken by Gilat, relating to Comtech’s application for Russian regulatory approval, would breach Gilat’s obligations under the Merger Agreement.

Gilat subsequently sued in the Delaware Court for declaratory judgments, including that it has not suffered a Material Adverse Effect and that Comtech has not used reasonable best efforts to obtain Russian regulatory approval for the transaction.

To-date, we incurred significant amounts of legal expenses and professional fees in connection with the litigation and a trial is scheduled for October 5, 2020.

The Delaware Court has indicated that it intends to render a judgment prior to the October 29, 2020, the date that we or Gilat may terminate the Merger Agreement.

Lawsuit Against Competitor and Counter-Claims From A Former Employee

In March 2019, we filed a lawsuit against a former employee and her new employer arising from such former employee's violation of her obligation to TCS of confidentiality, non-competition and non-solicitation of customers.

The former employee has responded with her own lawsuit against us.

The ultimate resolution of this lawsuit 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

On September 17, 2020 we reported that we reached an agreement with OFAC resolving a previously disclosed investigation pending since 2014.

In October 2014, as previously disclosed in our SEC filings, we reported to OFAC following a self-assessment of our export transactions and the collection of further information that a shipment of modems sent to a Canadian customer by Comtech’s subsidiary, Comtech EF Data Corp., was incorporated into a communication system, the ultimate end user of which was the Sudan Civil Aviation Authority.

The sales value of our equipment was approximately $ 288,000 .

At the time of shipment, OFAC regulations prohibited U.S.

persons from doing business directly or indirectly with Sudan.

Most of the U.S.

sanctions related to Sudan were removed in 2017.

After we reported the matter to OFAC, we responded to administrative subpoenas and OFAC initiated an investigation into the matter.

Pursuant to the agreement, we will make a payment to OFAC of $ 894,000 and implement additional internal compliance commitments, a number of which were already in process.

Additionally, we committed to creating a new position of Chief Trade Compliance Officer.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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.

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 the 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 ) items, for which export licenses were not obtained, were either spares or repaired power amplifier subassembly components valued at less than $ 100,000 (in aggregate) and were shipped to Brazil, Italy, Russia, Thailand and the United Arab Emirates.

The EAR provides an exception to the requirement to obtain an export license for the replacement of a defective or damaged component.

During our self-assessment, we determined that we inadvertently did not obtain export licenses for the spares or evidence of the return or destruction of the defective or damaged components necessary to authorize our use of the export license exception for the replacements.

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 have entered a Tolling Agreement with DoC, which extended the statute of limitations in this matter through February 1, 2021.

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.

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.

16 unchanged sentences

(13) Goodwill

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the fiscal year ended July 31, 2020:

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill as of July 31, 2021:

Commercial Solutions Government Solutions Total

Balance as of July 31, 2020 $ 255,432,000 75,087,000 $ 330,519,000

Change related to Solacom acquisition ( 420,000 ) — ( 420,000 )

Change related to GD NG-911 acquisition 4,556,000 — 4,556,000

Change related to CGC acquisition — 15,894,000 15,894,000

Changes related to CGC acquisition — 2,222,000 2,222,000

Changes related to Solacom Technologies Inc.

("Solacom") 1,052,000 — 1,052,000

UHP acquisition 13,905,000 — 13,905,000

Balance as of July 31, 2021 $ 270,389,000 77,309,000 $ 347,698,000

As discussed further in Note (2) -" Acquisitions ," the goodwill resulting from the acquisition of CGC was based upon a valuation and estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date).

During fiscal 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.

14 unchanged sentences

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 22.7 % and 94.1 %, 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 2022 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.

Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global activity.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

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

Such deterioration could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global business activity.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2022 or beyond.

31 unchanged sentences

2026 19,888,000

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 July 31, 2021.

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

Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

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

In light of the COVID-19 pandemic, during the fiscal year ended July 31, 2020, we evaluated whether our long-lived assets, including intangibles with finite lives, were impaired.

Based on our assessment, we believe that the carrying values of our net intangible assets were recoverable as of July 31, 2020.

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

Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

(15) Stockholders’ Equity

3 unchanged sentences

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.

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

" for further information.

Stock Repurchase Program

As of July 31, 2020, we were authorized to repurchase up to an additional $ 8,664,000 of our common stock, pursuant to a $ 100,000,000 stock repurchase program.

On September 29, 2020, our Board of Directors authorized a new $ 100,000,000 stock repurchase program, which replaced our prior program.

2 unchanged sentences

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 24, 2019, December 4, 2019, March 4, 2020 and June 3, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 15, 2019, February 14, 2020, May 15, 2020 and August 14, 2020, respectively.

On September 29, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020.

On September 29, 2020, December 9, 2020, March 11, 2021 and June 8, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on October 27, 2020, February 19, 2021, May 21, 2021 and August 20, 2021, respectively.

On October 4, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, payable on November 12, 2021 to stockholders of record at the close of business on October 13, 2021.

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

7 unchanged sentences

Gross profit 50,208,000 55,680,000 53,016,000 55,054,000 213,958,000

Net (loss) income ( 85,840,000 ) 4,205,000 792,000 7,363,000 ( 73,480,000 )

Diluted (loss) income per share ( 3.39 ) 0.17 0.03 0.28 ( 2.86 ) *

Fiscal 2020 First Quarter Second Quarter Third Quarter Fourth Quarter Total

Net sales $ 170,267,000 161,654,000 135,121,000 149,673,000 $ 616,715,000

Gross profit 63,567,000 60,602,000 53,001,000 49,663,000 226,833,000

Net income (loss) 6,388,000 3,495,000 ( 3,989,000 ) 1,126,000 7,020,000

Diluted income (loss) per share 0.26 0.14 ( 0.16 ) 0.04 0.28 *

0.26 0.14 ( 0.16 ) 0.04 0.28 *

Fiscal 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Total

3 unchanged sentences

Diluted income per share 0.14 0.32 0.31 0.25 1.03 *

0.14 0.32 0.31 0.25 1.03 *

Fiscal 2018 First Quarter Second Quarter Third Quarter Fourth Quarter Total

Net sales $ 121,569,000 133,731,000 147,854,000 167,435,000 $ 570,589,000

Gross profit 47,716,000 50,801,000 62,436,000 62,988,000 223,941,000

Net (loss) income ( 1,660,000 ) 15,761,000 8,210,000 7,458,000 29,769,000

Diluted (loss) income per share

( 0.07 ) 0.66 0.34 0.31 1.24 *

* The per share information is computed independently for each quarter and the full year based on the respective weighted average number of common shares outstanding.

13 unchanged sentences

Year ended July 31,

2020 $ 1,867,000 45,000 (A) — ( 143,000 ) (B) $ 1,769,000

2019 1,761,000 1,136,000 (A) — ( 1,030,000 ) (B) 1,867,000

2018 1,300,000 573,000 (A) — ( 112,000 ) (B) 1,761,000

2021 $ 1,769,000 ( 18,000 ) (A) 215,000 (B) ( 318,000 ) (C) $ 1,648,000

2020 1,867,000 45,000 (A) — ( 143,000 ) (C) 1,769,000

2019 1,761,000 1,136,000 (A) — ( 1,030,000 ) (C) 1,867,000

Inventory reserves:

Year ended July 31,

2020 $ 19,696,000 1,647,000 (C) — ( 2,267,000 ) (D) $ 19,076,000

2019 17,427,000 6,015,000 (C) — ( 3,746,000 ) (D) 19,696,000

2018 16,019,000 5,628,000 (C) — ( 4,220,000 ) (D) 17,427,000

2021 $ 19,076,000 4,364,000 (D) — ( 3,211,000 ) (E) $ 20,229,000

2020 19,696,000 1,647,000 (D) — ( 2,267,000 ) (E) 19,076,000

2019 17,427,000 6,015,000 (D) — ( 3,746,000 ) (E) 19,696,000

Valuation allowance for deferred tax assets:

Year ended July 31,

2020 $ 12,568,000 750,000 (E) — ( 1,847,000 ) (E) $ 11,471,000

2019 11,854,000 58,000 (E) 656,000 (F) — 12,568,000

2018 8,633,000 3,221,000 (E) — — 11,854,000

2021 $ 11,471,000 17,750,000 (F) — ( 837,000 ) (F) $ 28,384,000

2020 12,568,000 750,000 (F) — ( 1,847,000 ) (F) 11,471,000

2019 11,854,000 58,000 (F) 656,000 (G) — 12,568,000

(A) Provision for doubtful accounts.

The amount recorded in the fiscal year ended July 31, 2020 includes $ 476,000 of estimated contract settlement costs in connection with evaluation and repositioning of certain legacy customer contracts.

(B) Write-off of uncollectible receivables.

(D) Write-off of inventory.

(E) Change in valuation allowance.

(F) Acquisition related valuation allowance charged to goodwill.

(B) Increase due to our adoption FASB ASU No.

2016-13 ("CECL”).

See Note (1)(n) "Summary of Significant Accounting and Reporting Policies" for further discussion

(D) Provision for excess and obsolete inventory.

(E) Write-off of inventory.

(F) Change in valuation allowance.

See Note (9) - "Income Taxes" for further discussion.

(G) Acquisition related valuation allowance charged to goodwill.

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-K

Item 9A. Controls and Procedures