What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-09-29 compared with 2021-10-04 · 461 added, 390 removed, 1173 unchanged (42% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out by us under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman and Chief Financial Officer.

Based on that evaluation, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Form 10-K, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out by us under the supervision and with the participation of our management, including our President, Chief Executive Officer and Chairman and Chief Financial Officer.

Based on that evaluation, our President, Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

15 unchanged sentences

OTHER INFORMATION

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.

Not applicable.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Reference to Exhibit

Restated Certificate of Incorporation of the Registrant

Restated Certificate of Incorporation of the Registrant, dated August 18, 2006

Exhibit 3(a)(i) to the Registrant’s 2006 Form 10-K

Third Amended and Restated By-Laws of the Registrant, as of September 26, 2017

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Comtech Telecommunications Corp., dated December 28, 2021

Exhibit 3.1 to the Registrant's Form 8-K, filed December 30, 2021

Third Amended and Restated By-Laws of the Registrant, dated September 26, 2017

Exhibit 3(a)(ii) to the Registrant’s 2017 Form 10-K

Certificate of Designations designating the Series A Convertible Preferred Stock, dated October 19, 2021

Exhibit 3.1 to the Registrant's Form 8-K filed October 22, 2021

Certificate of Correction of Certificate of Designations of Series A Convertible Preferred Stock, dated November 9, 2021

Exhibit 3.1 to the Registrant's 8-K, filed November 12, 2021

Description of Comtech Telecommunication Corp.'s Securities Registered Pursuant to Section 12 of the Exchange Act

1 unchanged sentence

Exhibit 10.1 to the Registrant’s Form 8-K, filed March 4, 2020

Lease agreement, dated September 23, 2011, on the Melville, New York Facility

Lease A greement, dated September 23, 2011, between TM Squared and Comtech PST Corp.

(with respect to the Melville, New York f acility )

Exhibit 10(s) to the Registrant's 2011 Form 10-K

Consulting Agreement, dated January 3, 2022, between Comtech and Fred Kornberg

Exhibit 10.2 to the Registrant's Form 8-K, filed January 5, 2022

Restricted Stock Award Agreement with Fred Kornberg Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.1 to the Registrant's Form 10-Q, filed March 10, 2022

Second Amended and Restated 2001 Employee Stock Purchase Plan

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, as further amended August 10, 2021

2000 Stock Incentive Plan, Amended and Restated, dated September 9, 2022

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

12 unchanged sentences

Exhibit 10(g)(3) to the Registrant's 2019 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 - 2022

Form of Restricted Stock Unit Agreement for Employees pursuant to the 2000 Stock Incentive Plan - 2017

8 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

Exhibit 10.1 to the Registrant's Form 10-Q, filed June 3, 2020

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2022

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan - 2022

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

12 unchanged sentences

Exhibit 10.3 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 (Divisional/Subsidiary Presidents)

4 unchanged sentences

Exhibit 10.6 to the Registrant’s Form 8-K, filed June 7, 2017

Retirement and Transition Agreement

Retirement and Transition Agreement, dated September 30 2019

Exhibit 10.1 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.

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

and TeleCommunication Systems, Inc.

Exhibit 2.1 to the Registrant’s Form 8-K, filed November 23, 2015

First Amended and Restated Credit Agreement, dated as of October 31, 2018, among Comtech Telecommunications Corp., the lenders party thereto and Citibank N.A., as administrative agent, issuing bank and swingline lender.

First Amended and Restated Credit Agreement, dated October 31, 2018, among Comtech Telecommunications Corp., the lenders party thereto and Citibank N.A., as administrative agent, issuing bank and swingline lender.

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

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Subscription Agreement, dated October 18, 2021, by and among Comtech Telecommunications Corp.

and the Investors named therein

Exhibit 10.1 to the Registrant's Form 8-K filed October 22, 2021

Registration Rights Agreement, dated October 19, 2021, by and among Comtech Telecommunications Corp.

and the Investors named therein

Exhibit 99.2 to the Registrant's Form 8-K filed October 22, 2021

Form of Amended and Restated Voting Agreement

Exhibit 3.1 to the Registrant's Form 8-K, filed November 12, 2021

Cooperation Agreement dated December 16, 2021, by and among Comtech Telecommunications Corp., Outerbridge Partners, LP, Outerbridge Capital Management, LLC, Outerbridge Partners GP, LLC, Outerbridge Bartleby Fund, LP, Outerbridge Bartleby GP, LLC, and Rory Wallace

Exhibit 10.1 to the Registrant's Form 8-K, filed December 21, 2021

Employment Agreement, dated December 31, 2021, between Comtech and Michael Porcelain

Exhibit 10.1 to the Registrant's Form 8-K, filed January 5, 2022

Restricted Stock Unit Agreement with Michael Porcelain Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.2 to the Registrant's Form 10-Q, filed March 10, 2022

Separation Agreement and General Release with Michael Porcelain, dated August 9, 2022

Exhibit 10.1 to the Registrant's Form 8-K, filed August 10, 2022

CEO Employment Agreement with Ken Peterman, dated September 12, 2022

Exhibit 10.1 to the Registrant’s Form 8-K, filed September 13, 2022

Restricted Stock Unit Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.2 to the Registrant’s Form 8-K, filed September 13, 2022

Long-Term Performance Share Award Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.3 to the Registrant’s Form 8-K, filed September 13, 2022

Description of Exhibit

1 unchanged sentence

Reference to Exhibit

Long-Term Performance Share Award (VWAP) Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.4 to the Registrant’s Form 8-K, filed September 13, 2022

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

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

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COMTECH TELECOMMUNICATIONS CORP.

October 4, 2021 By:

/s/Fred Kornberg

(Date) Fred Kornberg, Chairman of the Board

and Chief Executive Officer

September 29, 2022 By:

/s/Ken Peterman

(Date) Ken Peterman, Chairman of the Board

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title

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

(Date) Fred Kornberg Chief Executive Officer

September 29, 2022 /s/Ken Peterman Chairman of the Board

(Date) Ken Peterman President and Chief Executive Officer

(Principal Executive Officer)

October 4, 2021 /s/Michael A.

September 29, 2022 /s/Michael A.

Bondi Chief Financial Officer

1 unchanged sentence

Bondi (Principal Financial and Accounting Officer)

October 4, 2021 /s/Judy Chambers Director

September 29, 2022 /s/Wendi Carpenter Director

(Date) Wendi Carpenter

September 29, 2022 /s/Judy Chambers Director

(Date) Judy Chambers

October 4, 2021 /s/Edwin Kantor Director

(Date) Edwin Kantor

October 4, 2021 /s/Ira S.

Kaplan Director

(Date) Ira S.

October 4, 2021 /s/Lisa Lesavoy Director

September 29, 2022 /s/Fred Kornberg Director

(Date) Fred Kornberg

September 29, 2022 /s/Lisa Lesavoy Director

(Date) Lisa Lesavoy

October 4, 2021 /s/Robert G.

Paul Director

(Date) Robert G.

October 4, 2021 /s/Dr.

September 29, 2022 /s/Mark Quinlan Director

(Date) Mark Quinlan

September 29, 2022 /s/Dr.

Shamash Director

October 4, 2021 /s/Lawrence J.

September 29, 2022 /s/Lawrence J.

Waldman Director

3 unchanged sentences

Index to Consolidated Financial Statements and Schedule

Reports of Independent Registered Public Accounting Firms

Reports of Independent Registered Public Accounting Firms (PCAOB ID:

Consolidated Financial Statements:

1 unchanged sentence

Statements of Operations for each of the years in the three-year period ended July 31, 2022

Statements of Stockholders' Equity for each of the years in the three-year period ended July 31, 2021

Statements of Convertible Preferred Stock and Stockholders' Equity for each of the years in the three-year period ended July 31, 2022

Statements of Cash Flows for each of the years in the three-year period ended July 31, 2022

9 unchanged sentences

We have audited the accompanying consolidated balance sheets of Comtech Telecommunications Corp.

and subsidiaries (the "Company") as of July 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the three years in the period ended July 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of July 31, 2022 and 2021, the related consolidated statements of operations, convertible preferred stock and stockholders’ equity, and cash flows, for each of the three years in the period ended July 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2022, 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, 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.

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, 2022, 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, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Net Sales – Over Time Accounting Using the Cost-to-Cost Measure for Specific Identified Material Contracts — Refer to Note 1 to the financial statements .

6 unchanged sentences

Our audit procedures related to the Company’s determination of revenue recognition for specific identified material contracts accounted for over time included the following, among others:

• We tested the design and operating effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion.

• We tested the design, implementation, and operating effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion.

• For each specific identified material contract selected, we performed the following:

9 unchanged sentences

◦ Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation.

Goodwill — Refer to Note 13 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used the income approach, also known as the discounted cash flow ("DCF") method, to determine the present value of cash flows to estimate fair value.

The future cash flows for the Company’s reporting units were projected based on their estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures).

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The Satellite and Space and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least 18.4% and 11.6%, respectively.

We identified goodwill for the reporting units as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units and the differences between their fair value and carrying value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margins.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the discount rate and forecasts of future revenue and operating margins used by management to estimate the fair values of the reporting units included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting units, such as controls related to management’s selection of the discount rate and forecasts of future revenue and operating margins.

• We evaluated management’s ability to accurately forecast future revenues and operating margins by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s revenue forecasts and forecasts of operating margins by comparing the forecasts to:

◦ Historical revenues and operating margins.

◦ Internal communications to management and the Board of Directors.

◦ Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:

◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ DELOITTE & TOUCHE LLP

Jericho, New York

October 4, 2021

September 29, 2022

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

7 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2022, 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, 2021, of the Company and our report dated October 4, 2021 , 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, 2022, of the Company and our report dated September 29, 2022, expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

16 unchanged sentences

Jericho, New York

October 4, 2021

September 29, 2022

COMTECH TELECOMMUNICATIONS CORP.

16 unchanged sentences

Total assets $ 974,297,000 993,111,000

Liabilities and Stockholders’ Equity

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

Current liabilities:

14 unchanged sentences

Commitments and contingencies (See Note 12)

Convertible preferred stock, par value $ 0.10 per share;

authorized 125,000 shares;

issued 100,000 at July 31, 2022 (includes accrued dividends of $ 566,000 )

105,204,000 —

Stockholders’ equity:

Preferred stock, par value $ 0.10 per share;

shares authorized and unissued 2,000,000

authorized and unissued 1,875,000 shares

Common stock, par value $ 0.10 per share;

8 unchanged sentences

Total stockholders’ equity 466,585,000 500,719,000

Total liabilities and stockholders’ equity $ 993,111,000 929,647,000

Total liabilities, convertible preferred stock and stockholders’ equity $ 974,297,000 993,111,000

See accompanying notes to consolidated financial statements.

10 unchanged sentences

Amortization of intangibles 21,396,000 21,020,000 21,595,000

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

CEO transition costs 13,554,000 — —

Proxy solicitation costs 11,248,000 — —

Acquisition plan expenses — 100,292,000 20,754,000

3 unchanged sentences

Interest expense 5,031,000 6,821,000 6,054,000

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

Interest (income) and other ( 703,000 ) ( 139,000 ) ( 190,000 )

Change in fair value of convertible preferred

stock purchase option liability ( 1,005,000 ) — —

(Loss) income before (benefit from) provision for income taxes ( 37,075,000 ) ( 74,980,000 ) 9,310,000

1 unchanged sentence

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

Adjustments to reflect redemption value of convertible

preferred stock:

Convertible preferred stock issuance costs ( 4,007,000 ) — —

Establishment of initial convertible

preferred stock purchase option liability ( 1,005,000 ) — —

Dividend on convertible preferred stock ( 5,204,000 ) — —

Net (loss) income attributable to common

stockholders $ ( 43,268,000 ) ( 73,480,000 ) 7,020,000

Net (loss) income per share:

3 unchanged sentences

Weighted average number of common and common equivalent shares outstanding – diluted 26,506,000 25,685,000 24,899,000

25,685,000 24,899,000 24,302,000

See accompanying notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

Fiscal Years Ended July 31, 2022, 2021 and 2020

Common Stock Additional

Series A Convertible Preferred Stock Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

Shares Amount Shares Amount

Shares Amount Shares Amount Shares Amount

Balance as of July 31, 2019 — $ — 39,276,161 $ 3,928,000 $ 552,670,000 $ 420,333,000 15,033,317 $ ( 441,849,000 ) $ 535,082,000

Equity-classified stock award compensation — — — — 9,275,000 — — — 9,275,000

— — 11,427,000 — — — 11,427,000

Proceeds from exercises of stock options — — 16,700 2,000 466,000 — — — 468,000

8,100 1,000 215,000 — — — 216,000

Proceeds from issuance of employee stock purchase plan shares — — 52,958 5,000 850,000 — — — 855,000

43,316 4,000 922,000 — — — 926,000

Issuance of restricted stock — — 3,319 — — — — — —

10,386 1,000 ( 1,000 ) — — — —

Net settlement of stock-based awards — — 251,797 25,000 ( 4,913,000 ) — — — ( 4,888,000 )

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

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

Cash dividends declared ($ 0.40 per share)

2 unchanged sentences

— — — — — ( 294,000 ) — — ( 294,000 )

— — — 25,041,000 — — 25,041,000

Net income — — — — — 7,020,000 — — 7,020,000

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

Equity-classified stock award compensation — — — — 9,983,000 — — — 9,983,000

— — 9,275,000 — — — 9,275,000

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

52,958 5,000 850,000 — — — 855,000

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 )

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

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

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

Cash dividends declared, net ($ 0.40 per share)

Common stock issued for acquisition of UHP Networks Inc.

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

Cash dividends declared ($ 0.40 per share)

— — — — — ( 10,189,000 ) — — ( 10,189,000 )

1 unchanged sentence

— — — — — ( 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

Equity-classified stock award compensation — — — — 7,767,000 — — — 7,767,000

— — 9,983,000 — — — 9,983,000

CEO transition costs related to equity-classified stock-based awards (See Note 11) — — — — 7,388,000 — — — 7,388,000

Proceeds from issuance of employee stock purchase plan shares — — 49,138 5,000 725,000 — — — 730,000

54,762 5,000 804,000 — — — 809,000

Issuance of restricted stock, net of forfeiture — — 132,854 13,000 ( 13,000 ) — — — —

Net settlement of stock-based awards — — 247,721 25,000 ( 4,640,000 ) — — — ( 4,615,000 )

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

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)

Common stock issued for settlement of UHP earn-out liability — — 961,302 96,000 8,818,000 — — — 8,914,000

Issuance of convertible preferred stock 100,000 100,000,000 — — — — — — —

Convertible preferred stock issuance costs — ( 4,007,000 ) — — — — — — —

Establishment of initial convertible preferred stock purchase option liability — ( 1,005,000 ) — — — — — — —

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 10,216,000 — — — ( 10,216,000 ) — — ( 10,216,000 )

Cash dividends declared ($ 0.40 per share)

— — — — — ( 10,661,000 ) — — ( 10,661,000 )

1 unchanged sentence

— — — — — ( 389,000 ) — — ( 389,000 )

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

Net loss — — — — — ( 33,052,000 ) — — ( 33,052,000 )

8 unchanged sentences

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

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

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

Depreciation and amortization of property, plant and equipment 10,314,000 9,379,000 10,561,000

1 unchanged sentence

Amortization of stock-based compensation 7,767,000 9,983,000 9,275,000

CEO transition costs related to equity-classified stock-based awards 7,388,000 — —

Amortization of deferred financing costs 811,000 736,000 737,000

Estimated contract settlement costs — 444,000 6,351,000

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

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

Change in fair value of convertible preferred stock purchase option liability ( 1,005,000 ) — —

Changes in other liabilities ( 4,132,000 ) ( 6,633,000 ) ( 4,133,000 )

Loss on disposal of property, plant and equipment ( 310,000 ) 215,000 —

(Benefit from) provision for allowance for doubtful accounts ( 18,000 ) ( 431,000 ) 1,136,000

Provision for (benefit from) allowance for doubtful accounts 838,000 ( 18,000 ) ( 431,000 )

Provision for excess and obsolete inventory 4,447,000 4,364,000 1,647,000

12 unchanged sentences

Income taxes payable ( 1,071,000 ) 3,136,000 ( 1,427,000 )

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

Net cash provided by (used in) operating activities 1,997,000 ( 40,638,000 ) 52,764,000

Cash flows from investing activities:

1 unchanged sentence

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

Payment for acquisition of Solacom, net of cash acquired — — ( 25,883,000 )

Payment for acquisition of the GD NG-911 business — ( 1,013,000 ) ( 10,000,000 )

Payment for acquisition of NG-911 Inc.

— ( 781,000 ) —

Payments for acquisition of NG-911 businesses — — ( 1,794,000 )

Purchases of property, plant and equipment ( 19,619,000 ) ( 16,037,000 ) ( 7,225,000 )

1 unchanged sentence

Cash flows from financing activities:

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 )

Proceeds from issuance of convertible preferred stock 100,000,000 — —

Net (payments) borrowings of long-term debt under Credit Facility ( 71,000,000 ) 51,500,000 ( 15,500,000 )

Remittance of employees' statutory tax withholding for stock awards ( 6,109,000 ) ( 2,803,000 ) ( 5,276,000 )

Cash dividends paid ( 11,048,000 ) ( 10,334,000 ) ( 10,020,000 )

Payment of convertible preferred stock issuance costs ( 4,007,000 ) — —

Repayment of principal amounts under finance lease and other obligations ( 15,000 ) ( 38,000 ) ( 805,000 )

2 unchanged sentences

Proceeds from exercises of stock options — — 468,000

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

Net cash provided by (used in) financing activities 8,415,000 39,104,000 ( 30,278,000 )

12 unchanged sentences

Non-cash investing and financing activities:

Reclass of finance lease right-of-use assets to property, plant and equipment $ — 698,000 —

Accrued remittance of employees' statutory tax withholdings for fully-vested share units $ 1,102,000 2,596,000 1,399,000

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

Cash dividends declared on common stock but unpaid (including accrual of dividend equivalents) $ 3,135,000 2,981,000 2,762,000

Adjustment to reflect redemption value of convertible preferred stock 10,216,000 — —

Establishment of initial convertible preferred stock purchase option liability $ 1,005,000 — —

Accrued additions to property, plant and equipment $ 5,586,000 2,466,000 1,408,000

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

Common stock issued for acquisitions $ 9,000,000 28,892,000 11,575,000

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

9 unchanged sentences

(b) Nature of Business

We design, develop, produce and market innovative products, systems and services for advanced communications solutions.

We design, produce and market innovative products, systems and services for advanced communications solutions.

We conduct our business through two reportable operating segments:

Commercial Solutions and Government Solutions.

Satellite and Space Communications and Terrestrial and Wireless Networks.

Our business is highly competitive and characterized by rapid technological change.

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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.

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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 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.

The cost-to-cost method is principally used to account for contracts in our Satellite and Space Communications segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our Terrestrial and Wireless Networks segment.

For service-based contracts in our Terrestrial and Wireless Networks segment, 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 RF amplifiers in our Government Solutions segment.

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

Point in time accounting is principally applied to contracts in our Satellite and Space Communications segment, which includes satellite modems, solid-state and traveling wave tube amplifiers and to certain contracts for our solid-state, high-power RF amplifiers.

The contracts related to these products 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;

customers do not simultaneously receive and or consume the benefits provided by our performance;

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and, although many of our contracts have termination for convenience clauses and or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point of delivery.

In determining that our equipment has alternative use, we considered the underlying manufacturing process for our products.

In determining that our equipment has alternative use, we considered the underlying manufacturing process.

In the early phases of manufacturing, raw materials and work in process (including subassemblies) consist of common parts that are highly fungible among many different types of products and customer applications.

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Included in domestic sales are sales to Verizon Communications Inc.

Sales to Verizon were 10.7 % of consolidated net sales for fiscal 2021.

("Verizon"), which were 11.1 % and 10.7 % of consolidated net sales for fiscal 2022 and 2021, respectively.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales during fiscal 2020 and 2019.

government, there were no customers that represented more than 10.0% of consolidated net sales during fiscal 2020.

International sales for fiscal 2022, 2021 and 2020 (which include sales to U.S.

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

See Note (11) - "Segment Information " for more information related to our segments.

Fiscal Year Ended July 31, 2022

Commercial Solutions Government Solutions Total

Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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Fiscal Year Ended July 31, 2021

Commercial Solutions Government Solutions Total

Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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Fiscal Year Ended July 31, 2020

Commercial Solutions Government Solutions Total

Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

26 unchanged sentences

Of the contract liability balance at July 31, 2021 and July 31, 2020, $ 51,762,000 and $ 34,545,000 was recognized as revenue during fiscal years 2022 and 2021, 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.

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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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Our inventories are principally recorded using either average or standard costing methods.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Work-in-process (including our contracts-in-progress) and finished goods inventory reflect all accumulated production costs, which are comprised of direct production costs and overhead, and is reduced by amounts recorded in cost of sales as the related revenue is recognized.

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If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.

(g) Research and Development Costs

We charge research and development costs to operations as incurred, except in those cases in which such costs are reimbursable under customer funded contracts.

In fiscal 2021, 2020 and 2019, we were reimbursed by customers for such activities in the amount of $ 13,635,000 , $ 11,923,000 and $ 14,679,000 , respectively.

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

(g) Income Taxes

Income taxes are accounted for under the asset and liability method.

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Our policy is to recognize potential interest and penalties related to uncertain tax positions in income tax expense.

(i) Earnings Per Share

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(h) Earnings Per Share

Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")) outstanding during each respective period.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, if dilutive, outstanding during each respective period.

Pursuant to FASB ASC 260 " Earnings Per Share, " equity-classified stock-based awards that are subject to performance conditions are not considered in our diluted EPS calculations until the respective performance conditions have been satisfied.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow and earn-out arrangements related to our acquisition of UHP and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period.

Pursuant to FASB ASC 260 " Earnings Per Share, " shares whose issuance is contingent upon the satisfaction of certain conditions are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.

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

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Our EPS calculations exclude 293,000 , 232,000 and 201,000 weighted average performance shares outstanding for fiscal 2022, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied.

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

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

Weighted average common shares of 591,000 and 82,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for fiscal 2022 and 2021, respectively, because their effect would have been anti-dilutive.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

Weighted average common shares of 3,342,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for fiscal 2022 because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for fiscal 2022 is the respective net loss attributable to common stockholders.

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

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2022 2021 2020

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

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

Convertible preferred stock issuance costs ( 4,007,000 ) — —

Establishment of initial convertible preferred

stock purchase option liability ( 1,005,000 ) — —

Dividend on convertible preferred stock ( 5,204,000 ) — —

Net (loss) income attributable to common

stockholders $ ( 43,268,000 ) ( 73,480,000 ) 7,020,000

Denominator for basic calculation 26,506,000 25,685,000 24,798,000

2 unchanged sentences

Denominator for diluted calculation 26,506,000 25,685,000 24,899,000

(j) Fair Value Measurements and Financial Instruments

As discussed further in Note (15) - " Convertible Preferred Stock ," the Convertible Preferred Stock issued in October 2021 represents a "participating security" as defined in ASC 260.

As a result, our EPS calculations for fiscal 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for fiscal 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(i) Fair Value Measurements and Financial Instruments

Using the fair value hierarchy described in FASB ASC 820 " Fair Value Measurements and Disclosures," we valued our cash and cash equivalents using Level 1 inputs that were based on quoted market prices.

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As of July 31, 2022 and 2021, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(k) Use of Estimates

(j) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of net sales and expenses during the reported period.

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Actual results may differ from those estimates.

(l) Comprehensive Income

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(k) Comprehensive Income

In accordance with FASB ASC 220 " Comprehensive Income ," we report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, for the period in which they are recognized.

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Comprehensive income was the same as our net income in fiscal 2022, 2021 and 2020.

(m) Reclassifications

(l) Reclassifications

Certain reclassifications have been made to previously reported consolidated financial statements to conform to the fiscal 2022 presentation.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(n) Adoption of Accounting Standards and Updates

(m) Adoption of Accounting Standards and Updates

We are required to prepare our consolidated financial statements in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritative U.S.

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• FASB ASU No.

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.

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

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.

• FASB ASU No.

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

2019-12, which simplifies various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

Our adoption of this ASU on August 1, 2021 did not have a material impact on our consolidated financial statements or disclosures.

• FASB ASU No.

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

2020-01, which clarifies the interactions between Topics 321, 323 and 815.

This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815.

Our adoption of this ASU on August 1, 2021 did not impact our consolidated financial statements or disclosures.

• FASB ASU No.

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

2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments.

As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives.

On August 1, 2021, we early adopted this ASU.

Our early 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.

2021-08, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts.

Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date.

On August 1, 2021, we early adopted this ASU.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Acquisitions

1 unchanged sentence

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.

With end-markets for high-speed satellite-based networks anticipated to significantly grow, our acquisition allows us to enhance our Satellite and Space Communications segment's offerings with time division multiple access ("TDMA") satellite modems.

The acquisition had a final purchase price for accounting purposes of $ 37,470,000 , which represents the sum of $ 23,979,000 paid at closing, $ 4,991,000 paid on August 1, 2021 and $ 8,500,000 related to the acquisition date estimated fair value of a $ 9,000,000 contingent earn-out payment.

At closing, we funded the $ 23,979,000 and $ 4,991,000 payments with 1,026,567 shares of our common stock, based on a volume weighted average stock price of approximately $ 28.14 per share, plus $ 87,000 in cash.

As of July 31, 2022, 132,005 of the 1,026,567 shares of our common stock issued at closing were held in escrow to satisfy potential indemnification obligations of the seller.

In addition, the specified sales milestones were met and the full $ 9,000,000 earn-out payment was settled on July 12, 2022 with 961,302 newly issued shares of our common stock, based on a volume weighted average stock price of approximately $ 9.36 per share.

Upon payment, twenty-percent, or 192,260 of the 961,302 newly issued shares were placed into escrow and are anticipated to be released to the seller equally on March 2, 2023 and 2024.

The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

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 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:

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

Price Allocation

Measurement Period Adjustments Purchase Price Allocation

(As adjusted)

Initial upfront payment $ 23,979,000

1 unchanged sentence

Contingent earn-out consideration 8,500,000

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

Preliminary allocation of aggregate purchase price:

Purchase price at fair value $ 37,470,000

Allocation of aggregate purchase price:

Cash and cash equivalents $ 1,391,000

6 unchanged sentences

Non-current liabilities ( 160,000 )

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

Net tangible assets at fair value $ 345,000

Identifiable intangibles, deferred taxes and goodwill:

4 unchanged sentences

Goodwill 13,899,000 Indefinite

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

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

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

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

(ii) timing of each possible outcome;

(iii) probability of each possible outcome;

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

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

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

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

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

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, 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.

Allocation of aggregate purchase price $ 37,470,000

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

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.

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

Our consolidated statements of operations for the fiscal years ended July 31, 2022 and 2021 include a nominal amount of revenue contribution from the acquisition.

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

Acquisition Plan Expenses

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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.

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

COMTECH TELECOMMUNICATIONS CORP.

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(3) Accounts Receivable

Accounts receivable consist of the following at July 31, 2021 and 2020:

Accounts receivable consists of the following at July 31, 2022 and 2021:

Receivables from commercial and international customers $ 59,922,000 86,890,000

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As of July 31, 2022, 20.9 % and 13.4 % of total accounts receivable related to U.S.

government (and its agencies) and Verizon, respectively.

As of July 31, 2021, 23.0 %, 12.7 % and 12.1 % of total accounts receivable related to the 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 %, respectively, no other customers accounted for greater than 10.0% of total accounts receivable as of July 31, 2020.

and Verizon, respectively.

(4) Inventories

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As of July 31, 2022 and 2021, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 4,100,000 and $ 7,028,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,866,000 and $ 1,509,000 , 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 $ 10,303,000 , $ 9,343,000 and $ 10,386,000 for the fiscal years ended July 31, 2022, 2021 and 2020, respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Accrued Expenses and Other Current Liabilities

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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.

Accrued acquisition-related costs for fiscal 2021 include $ 8,705,000 of contingent earn-out consideration related to our acquisition of UHP, which was paid in the fourth quarter of fiscal 2022.

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

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

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

Additions (in connection with acquisitions) 750,000 1,000,000

(Benefit from) provision for warranty obligations ( 1,255,000 ) 4,360,000

Adjustments for changes in estimates ( 2,500,000 ) —

Charges incurred ( 4,425,000 ) ( 2,710,000 )

Reclassification of non-current liabilities — 302,000

Additions (in connection with acquisitions) — 750,000

Balance at end of year $ 9,420,000 17,600,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

During the second quarter of fiscal 2022, we recorded a $ 2,500,000 benefit to cost of sales in our Terrestrial and Wireless Networks segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(7) Credit Facility

5 unchanged sentences

and (iv) a swingline loan credit sublimit of $ 25,000,000 .

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date").

4 unchanged sentences

As of July 31, 2022, total net deferred financing costs related to the Credit Facility were $ 1,014,000 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, 2022, 2021 and 2020 was $ 4,933,000 , $ 5,628,000 and $ 5,905,000 , respectively.

The amount for the fiscal year ended July 31, 2019 relates to both our Prior Credit Facility and our existing Credit Facility.

Our blended interest rate approximated 3.41 %, 2.84 % and 3.87 %, respectively, for fiscal 2022, 2021 and 2020.

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In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The Credit Facility provides for, among other things:

4 unchanged sentences

Our Interest Expense Coverage Ratio as of July 31, 2022 was 8.81 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

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

Although we expect our Secured Leverage Ratio to remain elevated during the first quarter of fiscal 2023, as we make payments to various vendors associated with the build-out of our high-volume technology manufacturing facilities, to support our working capital needs for our existing contracts and to make required CEO transition related payments, given our overall expected 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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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.

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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).

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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).

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As of July 31, 2022, 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 years ended July 31,

2022 2021 2020

Finance lease expense:

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Fiscal years ended July 31,

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

2022 2021 2020

Cash paid for amounts included in the measurement of lease

Operating leases - Operating cash outflows $ 11,864,000 10,868,000 11,437,000

1 unchanged sentence

Finance leases - Financing cash outflows 15,000 38,000 322,000

ROU assets obtained in the exchange for lease liabilities (non-cash):

ROU assets obtained in the exchange for lease liabilities

Operating leases $ 15,233,000 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, 2022:

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Weighted-average discount rate 3.43 % 6.59 %

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.

In fiscal 2022, we modified our existing lease for a facility in Seattle, Washington, increasing the lease term through October 2033.

Accordingly, amounts related to the modified lease are reflected as an operating lease right-of-use asset or related operating lease liability in our Consolidated Balance Sheet as of July 31, 2022.

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

Lease payments made during the fiscal year ended July 31, 2022 and 2021 were $ 675,000 and $ 660,000 , respectively.

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

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

As of July 31, 2022, we do not have any material rental commitments that have not commenced.

(9) Income Taxes

5 unchanged sentences

$ ( 37,075,000 ) ( 74,980,000 ) 9,310,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

8 unchanged sentences

(Benefit from) provision for income taxes $ ( 4,023,000 ) ( 1,500,000 ) 2,290,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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

Revaluation of convertible preferred stock option liability ( 211,000 ) 0.6 — — — —

Nondeductible transaction costs — — 402,000 ( 0.5 ) 301,000 3.2

41 unchanged sentences

Notes to Consolidated Financial Statements, Continued

We have a federal net operating loss carryforward of $ 3,822,000 , with an indefinite carryforward period.

We have state net operating loss carryforwards available of $ 4,685,000 , which expire through 2042, 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.

4 unchanged sentences

In recognition of this risk, we have provided a valuation allowance of $ 7,828,000 on the deferred tax assets relating to these state credits.

In addition, we have provided a valuation allowance of $ 1,724,000 on certain other state deferred tax assets.

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

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

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

We believe it is reasonably possible that the gross unrecognized tax benefits could decrease by as much as $ 1,400,000 in the next 12 months due to the expiration of a statute of limitations related to federal, state and foreign tax positions.

Our policy is to recognize potential interest and penalties relating to uncertain tax positions in income tax expense.

7 unchanged sentences

Balance at end of period $ 9,675,000 9,009,000 8,270,000

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.

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

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

federal income tax returns for fiscal 2019 through 2021 are subject to potential future Internal Revenue Service ("IRS") audit.

None of our state income tax returns prior to fiscal 2018 are subject to audit.

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

(10) Stock-Based Compensation

11 unchanged sentences

Performance shares 333,987

RSUs and restricted stock 568,399

Share units 263,507

RSUs, restricted stock and share units 776,763

Total 1,594,230

2 unchanged sentences

Through July 31, 2022, we have cumulatively issued 943,909 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

4 unchanged sentences

Research and development expenses 763,000 963,000 925,000

Stock-based compensation expense before income tax benefit

9,983,000 9,275,000 11,427,000

Stock-based compensation expense 7,767,000 9,983,000 9,275,000

CEO transition costs related to equity-classified stock-based

awards 7,388,000 — —

Total stock-based compensation expense before income tax benefit 15,155,000 9,983,000 9,275,000

Estimated income tax benefit ( 2,260,000 ) ( 2,164,000 ) ( 2,042,000 )

Net stock-based compensation expense $ 12,895,000 7,819,000 7,233,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

2 unchanged sentences

There are no liability-classified stock-based awards outstanding as of July 31, 2022 or 2021.

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

Selling, general and administrative expenses included in the table above, for fiscal 2022, includes $ 827,000 of amortization of stock-based compensation related to three , long-standing members of our Board of Directors who retired in December 2021.

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

Fiscal Years Ended July 31,

2 unchanged sentences

Performance shares 1,136,000 1,345,000 1,491,000

RSUs and restricted stock 2,985,000 2,543,000 2,149,000

RSUs, restricted stock and share units 5,912,000 8,060,000 7,120,000

ESPP 200,000 208,000 222,000

Share units 5,075,000 4,577,000 6,770,000

Stock-based compensation expense before income tax benefit

9,983,000 9,275,000 11,427,000

Stock based compensation expense 7,767,000 9,983,000 9,275,000

CEO transition costs related to equity-classified stock-based

awards 7,388,000 — —

Total stock-based compensation expense before income tax benefit 15,155,000 9,983,000 9,275,000

Estimated income tax benefit ( 2,260,000 ) ( 2,164,000 ) ( 2,042,000 )

1 unchanged sentence

ESPP stock-based compensation expense primarily relates to the 15 % discount offered to participants in the ESPP.

During the fiscal years ended July 31, 2021, 2020 and 2019 we recorded benefits of $ 616,000 , $ 310,000 and $ 130,000 respectively, which primarily represents the recoupment of certain share units.

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

12 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

Expired/canceled ( 588,735 ) 26.86

Exercised ( 1,220 ) 17.88

Outstanding at July 31, 2022 483,480 $ 24.43 4.39 $ —

42 unchanged sentences

As of July 31, 2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

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

RSUs and restricted stock granted to non-employee directors after July 31, 2019 have a vesting period of five years .

RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one -for-one basis for no cash consideration.

RSUs and restricted stock granted to non-employee directors prior to August 12, 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

RSUs and restricted stock granted to non-employee directors after August 12, 2022 have a vesting period of one year .

Also, restricted stock granted to our former non-executive Chairman of the Board of Directors, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven equal monthly installments thereafter.

RSUs granted to employees prior to August 12, 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one -for-one basis for no cash consideration.

RSUs granted to employees after August 12, 2022 have a vesting period of three years .

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

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

On July 31, 2021, 253,257 fully vested share units were granted to certain employees in lieu of fiscal 2021 non-equity incentive compensation.

Also, on July 31, 2021, 266,354 fully vested share units (previously granted in lieu of fiscal 2020 non-equity incentive compensation) were settled by delivery of 98,502 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements.

Cumulatively, through July 31, 2021, 949,357 share units granted have been settled.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

On July 28, 2022, 286,000 fully vested share units were granted to certain employees in lieu of fiscal 2022 non-equity incentive compensation.

Also, on July 31, 2022, 221,052 fully vested share units (previously granted in lieu of fiscal 2021 non-equity incentive compensation) were settled by delivery of 131,782 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements.

Cumulatively, through July 31, 2022, 1,184,851 share units granted have been settled.

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

5 unchanged sentences

As of July 31, 2022 and 2021, accrued dividend equivalents were $ 742,000 and $ 884,000 , respectively.

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.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal year ended July 31, 2022, we recorded an income tax expense of $ 924,000 , during the fiscal year ended July 31, 2021, we recorded an income tax benefit of $ 142,000 and during the fiscal year ended July 31, 2020, we recorded an income tax expense of $ 224,000 .

Subsequent Events

4 unchanged sentences

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

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 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.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services and our CODM began managing our business in two new reportable segments:

“Satellite and Space Communications” and “Terrestrial and Wireless Networks.” As a result, the segment information for the prior fiscal years has been recast to conform to the current year presentation.

Satellite and Space Communications is organized into four product areas:

Satellite Modem and Amplifier Technologies, Troposcatter and SATCOM Solutions, Space Components and Antennas, and High-Power Amplifiers and Switches.

This segment offers customers:

Satellite ground station technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and frequency converters;

Satellite communications and tracking antenna systems, including high precision full motion fixed and mobile X/Y tracking antennas, RF feeds, reflectors and radomes;

Over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction, including the Comtech COMET™;

Solid-state, RF microwave high-power amplifiers and control components designed for radar, electronic warfare, data link, medical and aviation applications;

and Procurement and supply chain management of high reliability EEE parts for satellite, launch vehicle and manned space applications.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Terrestrial and Wireless Networks is organized into four product areas:

Next Generation 911 & Call Delivery, Solacom Call Handling Solutions, Trusted Location and Messaging Solutions, and Cyber Security Training & Services.

This segment offers customers:

SMS Text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points;

Next Generation 911 solutions, providing emergency call routing, location validation, policy-based routing rules, logging and security functionality;

Emergency Services IP Network transport infrastructure for emergency services communications and support of Next Generation 911 services;

Call handling applications for Public Safety Answering Points;

Wireless emergency alerts solutions for network operators;

Software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services, and Cybersecurity training, skills labs, and competency assessments for both technical and non-technical applications.

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.

Our Adjusted EBITDA metric for the Satellite and Space Communications and Terrestrial and Wireless Networks segments do not consider any allocation of indirect expense, or any of the following:

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, 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, CEO transition costs, proxy solicitation costs, strategic alternatives expenses and other.

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

Any amounts shown in the Adjusted EBITDA calculation for our Commercial Solutions and Government Solutions segments are directly attributable to those segments.

Any amounts shown in the Adjusted EBITDA calculation for our Satellite and Space Communications and Terrestrial and Wireless Networks segments are directly attributable to those segments.

Our Adjusted EBITDA is also used by our management in assessing the Company's operating results.

5 unchanged sentences

Fiscal Year Ended July 31, 2022

Commercial Solutions Government Solutions Unallocated Total

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 279,678,000 206,561,000 — $ 486,239,000

Operating income (loss) $ 41,064,000 8,402,000 ( 117,764,000 ) $ ( 68,298,000 )

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

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

Operating (loss) income $ ( 5,671,000 ) 18,925,000 ( 47,006,000 ) $ ( 33,752,000 )

Net (loss) income $ ( 3,852,000 ) 18,796,000 ( 47,996,000 ) $ ( 33,052,000 )

(Benefit from) provision for income taxes ( 1,120,000 ) 19,000 ( 2,922,000 ) ( 4,023,000 )

Interest (income) and other ( 797,000 ) 110,000 ( 16,000 ) ( 703,000 )

Change in fair value of convertible

preferred stock purchase option liability — — ( 1,005,000 ) ( 1,005,000 )

Interest expense 98,000 — 4,933,000 5,031,000

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

Amortization of stock-based

compensation — — 7,767,000 7,767,000

Amortization of intangibles 7,312,000 14,084,000 — 21,396,000

Depreciation 4,049,000 6,069,000 196,000 10,314,000

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

Amortization of cost to fulfill assets 469,000 — — 469,000

CEO transition costs — — 13,554,000 13,554,000

Proxy solicitation costs — — 11,248,000 11,248,000

Restructuring costs 5,666,000 — 299,000 5,965,000

3 unchanged sentences

Purchases of property, plant and equipment $ 8,915,000 10,704,000 — $ 19,619,000

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

Total assets at July 31, 2022 $ 487,235,000 461,443,000 25,619,000 $ 974,297,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Fiscal Year Ended July 31, 2021

Commercial Solutions Government Solutions Unallocated Total

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 374,850,000 206,845,000 — $ 581,695,000

1 unchanged sentence

Net income (loss) $ 24,357,000 24,396,000 ( 122,233,000 ) $ ( 73,480,000 )

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

(Benefit from) provision for income taxes ( 377,000 ) 795,000 ( 1,918,000 ) ( 1,500,000 )

Interest (income) and other 235,000 ( 6,000 ) ( 368,000 ) ( 139,000 )

Interest expense 66,000 — 6,755,000 6,821,000

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

Amortization of stock-based

compensation — — 9,983,000 9,983,000

Amortization of intangibles 5,695,000 15,325,000 — 21,020,000

Depreciation 3,721,000 5,316,000 342,000 9,379,000

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

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

Restructuring costs 2,782,000 — — 2,782,000

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

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

Adjusted EBITDA $ 37,840,000 44,774,000 ( 6,095,000 ) $ 76,519,000

Purchases of property, plant and equipment $ 8,456,000 7,498,000 83,000 $ 16,037,000

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

Long-lived assets acquired in connection

with acquisitions $ 47,958,000 — — $ 47,958,000

Total assets at July 31, 2021 $ 507,981,000 462,877,000 22,253,000 $ 993,111,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Fiscal Year Ended July 31, 2020

Commercial Solutions Government Solutions Unallocated Total

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 411,073,000 205,642,000 — $ 616,715,000

1 unchanged sentence

Net income (loss) $ 25,714,000 28,932,000 ( 47,626,000 ) $ 7,020,000

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

(Benefit from) provision for income taxes ( 29,000 ) 339,000 1,980,000 2,290,000

Interest (income) and other ( 218,000 ) 18,000 10,000 ( 190,000 )

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

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

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

Amortization of stock-based

compensation — — 9,275,000 9,275,000

Amortization of intangibles 5,133,000 16,462,000 — 21,595,000

1 unchanged sentence

Estimated contract settlement costs 476,000 ( 32,000 ) — 444,000

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

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

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

Adjusted EBITDA $ 35,706,000 51,685,000 ( 9,588,000 ) $ 77,803,000

Purchases of property, plant and equipment $ 3,801,000 3,097,000 327,000 $ 7,225,000

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

Long-lived assets acquired in connection

with acquisitions $ 32,391,000 6,060,000 — $ 38,451,000

Total assets at July 31, 2020 $ 412,704,000 467,312,000 49,631,000 $ 929,647,000

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.

1 unchanged sentence

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

In addition, offsetting unallocated expenses in fiscal 2019 is a $ 3,204,000 benefit as a result of a favorable ruling issued by the U.S.

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

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.

During fiscal 2022, we incurred $ 11,248,000 of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

Also, during fiscal 2022, we expensed $ 13,554,000 of transition costs related to our former CEO, Fred Kornberg.

During fiscal 2022 and 2021, our Satellite and Space Communications segment recorded $ 5,666,000 and $ 2,782,000 , respectively, of restructuring costs incurred to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona, as well as to consolidate certain administrative and operating functions in our troposcatter and SATCOM solutions product line.

In addition, during fiscal 2022 and 2021, this segment also recorded $ 1,105,000 and $ 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.

There were no such charges recorded in fiscal 2020.

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.

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

Intersegment sales in fiscal 2022, 2021 and 2020 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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

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(a) Legal Proceedings and Other Matters

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.

Settled Litigation Related to the Convertible Preferred Stock Issuance

In October 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company's current directors, the Company, White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was fully resolved by the parties and the case dismissed by court order on May 3, 2022.

The ultimate resolution of this matters did not result in a material adverse effect on our consolidated results of operations and financial condition.

Other Matters

In March 2021, Comtech Xicom Technology, Inc.

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

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

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

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

The exports were valued at $ 154,000 .

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

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

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

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

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Accordingly, pending or future claims asserted against us by a party that we agree to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

There are certain other pending and threatened legal actions which arise in the normal course of business.

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(b) Employment Change of Control and Indemnification Agreements

We have an employment agreement with our CEO and Chairman.

The employment agreement generally provides for an annual salary and bonus award.

As of July 31, 2022, we had an employment agreement with Michael Porcelain, our President and CEO.

The employment agreement generally provided for an annual salary and bonus award.

On August 10, 2022, we announced the mutually agreed separation between the Company and Mr.

Porcelain as President and CEO and member of the Board of Directors.

The Company entered into a separation agreement with Mr.

On August 9, 2022, subsequent to year end, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and CEO, and the Company entered an employment agreement with Mr.

Peterman generally providing for an annual salary, bonus award, sign-on bonus, equity incentive awards and, under certain termination of employment, severance payment.

Transition costs related to our former President and CEO, Mr.

Porcelain, pursuant to his separation agreement with the Company, were approximately $ 7.4 million, of which $ 3.8 million related to the acceleration of unamortized stock based compensation, with the remaining $ 3.6 million related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $3.6 million is expected to be paid to Mr.

Porcelain in October 2022.

Also, in connection with Mr.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $ 1.0 million expense related to a cash sign-on bonus.

CEO transition costs related to Mr.

Porcelain and Mr.

Peterman will be expensed in our Unallocated segment during the first quarter of fiscal 2023.

We have also entered into change of control agreements with certain of our executive officers and certain key employees.

All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or termination of the employee.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(13) Goodwill

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill as of July 31, 2022:

Commercial Solutions Government Solutions Total

Satellite and Space Communications Terrestrial and Wireless Networks Total

Balance as of July 31, 2021 $ 173,608,000 174,090,000 $ 347,698,000

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 ( 6,000 ) — ( 6,000 )

Balance as of July 31, 2022 $ 173,602,000 174,090,000 $ 347,692,000

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.

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however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

On August 1, 2021 (the first day of our fiscal 2022), we performed our annual quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

As discussed further in Note 11 - "Segment Information ", as a result of our segment restructuring in the fourth quarter of fiscal 2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our reporting units, both before and after the change, using a combination of the income and market approaches.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We performed our quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

In making this assessment, we considered, among other things, expectations of projected net sales and cash flows, assumptions impacting the weighted average cost of capital, trends in trading multiples of comparable companies, changes in our stock price and changes in the carrying values of our reporting units with goodwill.

We also considered overall business conditions.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches.

The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value.

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Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium.

Finally, we compared our estimates of fair values to our August 1, 2021 total public market capitalization and assessed implied control premiums based on our common stock price of $ 24.97 as of August 1, 2021.

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.

Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $ 11.62 as of the date of testing.

Ultimately, based on our quantitative evaluations, we determined that our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least 18.4 % and 11.6 %, 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.

Also, given its proximity to our next regularly scheduled annual goodwill impairment testing date, we utilized our July 29, 2022 interim quantitative assessment to conclude that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment as of August 1, 2022.

Additionally, the carrying value of goodwill of $ 347,692,000 was reallocated to our new reporting units based on their respective estimated relative fair value.

It is possible that, during fiscal 2023 or beyond, business conditions (both in the U.S.

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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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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 2023 or beyond.

If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our Commercial Solutions and Government Solutions reporting units could be at risk of failing the quantitative assessment and goodwill assigned to the respective reporting units could be impaired.

If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units could be at risk of failing the quantitative assessment and goodwill assigned to the respective reporting units could be impaired.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2023 (the start of our fiscal 2024).

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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

(14) Intangible Assets

30 unchanged sentences

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

(15) Convertible Preferred Stock

On October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $ 0.10 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of up to $ 125,000,000 , or $ 1,000 per share.

On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $ 100,000,000 .

The Investors have a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $ 25,000,000 .

This purchase option is commonly referred to as a “Green Shoe” and together with the Initial Issuance, is collectively referred to as the “Issuance.”

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

The adjusted conversion price for the shares issued in the Initial Issuance is $ 23.97 , and the adjusted conversion price for the Green Shoe is $ 31.21 , subject to certain adjustments set forth in the Certificate of Designations filed with the Secretary of the Stare of Delaware.

The Convertible Preferred Stock ranks senior to the shares of our common stock, with respect to the payment of dividends and the distribution of assets upon a liquidation, dissolution or winding up of the Company.

The Convertible Preferred Stock initially had a liquidation preference of $ 1,000 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 6.5 % per annum, compounding quarterly, paid-in-kind or paid in cash, at our election.

For any quarter in which we elect not to pay the Dividend in cash with respect to a share of Convertible Preferred Stock, such Dividend becomes part of the liquidation preference of such share.

In addition, no dividend or other distribution on our common stock in excess of our $ 0.10 per share per quarter will be declared or paid on the common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the shares of the Convertible Preferred Stock.

Such Participating Dividend results in the Convertible Preferred Stock meeting the definition of a "participating security" for purposes of our earnings per share calculations.

As of September 29, 2022, the Convertible Preferred Stock is convertible into shares of common stock at the option of the holders.

At any time after October 19, 2024, we have the right to mandate the conversion of the Convertible Preferred Stock, subject to certain restrictions, based on the price of the common stock in the preceding thirty trading days.

Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $ 0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders will have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99 % of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date.

In addition, each holder will have the right to cause the Company to repurchase its shares of Convertible Preferred Stock in connection with a Change of Control, at a price equal to the liquidation preference.

We determined that our obligation to issue the Green Shoe at any time on or prior to March 31, 2023 meets the definition of a freestanding financial instrument that should be accounted for as a liability.

As such, we established an initial convertible preferred stock purchase option liability of $ 1,005,000 and reduced the proceeds from the Initial Issuance by such amount.

The liability will be remeasured to its estimated fair value each reporting period until such instrument is exercised or expires.

Changes in its estimated fair value are recognized as a non-cash charge or benefit and presented on the consolidated statement of operations.

The estimated fair value of the convertible preferred stock purchase option liability was nominal as of July 31, 2022.

During fiscal 2022, we recorded a benefit $ 1,005,000 for the remeasurement of the convertible preferred stock purchase option liability.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

In accordance with ASC 480, " Distinguishing Liabilities from Equity ," specifically ASC 480-10-S99-3A(2), SEC Staff Announcement:

Classification and Measurement of Redeemable Securities , we have classified the Convertible Preferred Stock outside of permanent equity as temporary equity since the redemption of such shares is not solely within our control and we could be required by the holder to redeem the shares for cash or other assets, at their option.

Upon the Initial Issuance, we recorded the Convertible Preferred Stock, net of issuance costs of $ 4,007,000 and net of the portion of such proceeds allocated to the convertible preferred stock purchase option liability described above, which resulted in an initial carrying value of the Convertible Preferred Stock less than its initial redemption value of $ 100,000,000 .

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 105,204,000 , which includes $ 4,638,000 of dividends paid in kind and $ 566,000 of accumulated and unpaid dividends.

As such, an adjustment of $ 10,216,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during fiscal 2022.

(16) Stockholders’ Equity

Sale of Common Stock

In December 2018, we filed a $ 400,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt.

The shelf registration was declared effective by the SEC as of December 14, 2018.

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.

The shelf registration statement was declared effective by the SEC as of March 15, 2021.

On July 13, 2022, we filed a shelf registration statement with the SEC for the sale of 606,302 additional shares of our common stock by the selling stockholder of UHP.

The shelf registration statement was declared effective by the SEC as of July 25, 2022.

To-date, we have issued all 1,987,869 shares pursuant to these shelf registration statements to satisfy payment and escrow arrangements under the terms of the stock purchase agreement.

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

" for further information.

Stock Repurchase Program

On July 13, 2022, we filed a $ 200,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt.

The shelf registration was declared effective by the SEC as of July 25, 2022.

To-date, we have not issued any securities pursuant to our $ 200,000,000 shelf registration statement.

Common 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.

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There were no repurchases made during the fiscal years ended July 31, 2022 or 2021.

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

On September 29, 2020, 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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(16) Unaudited Quarterly Financial Data

The following is a summary of unaudited quarterly operating results:

Fiscal 2021 First Quarter Second Quarter Third Quarter Fourth Quarter Total

Net sales $ 135,218,000 161,292,000 139,376,000 145,809,000 $ 581,695,000

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 *

Fiscal 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Total

Net sales $ 160,844,000 164,133,000 170,448,000 176,372,000 $ 671,797,000

Gross profit 57,769,000 61,245,000 64,416,000 64,010,000 247,440,000

Net income 3,468,000 7,826,000 7,612,000 6,135,000 25,041,000

Diluted income per share 0.14 0.32 0.31 0.25 1.03 *

* 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.

Therefore, income per share information for the full fiscal year may not equal the total of the quarters within the year.

Dividends on Common Stock

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

On October 4, 2021, December 9, 2021, March 10, 2022 and June 9, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 12, 2021, February 18, 2022, May 20, 2022 and August 19, 2022, respectively.

On September 29, 2022, our Board of Directors declared a cash dividend of $ 0.10 per common share, payable on November 18, 2022 to stockholders of record at the close of business on October 19, 2022.

Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

COMTECH TELECOMMUNICATIONS CORP.

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Year ended July 31,

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

2022 $ 1,648,000 838,000 (A) — ( 149,000 ) (B) $ 2,337,000

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

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

Inventory reserves:

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

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

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

(A) Provision for doubtful accounts.

(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

(B) Write-off of uncollectible receivables.

2016-13, on a modified-retrospective basis, 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.

(D) Provision for excess and obsolete inventory.

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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