Index

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2016
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:    0-7928
(Exact name of registrant as specified in its charter)
Delaware
 
11-2139466
(State or other jurisdiction of incorporation /organization)
 
(I.R.S. Employer Identification Number)
 
 
 
68 South Service Road, Suite 230,
Melville, NY
 
 
11747
(Address of principal executive offices)
 
(Zip Code)

(631) 962-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes               No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes               No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes               No

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of March 7, 2016, the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 16,162,140 shares.


Index

COMTECH TELECOMMUNICATIONS CORP.
INDEX
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 6.
 
 
 
 
 
 



1

Index

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
January 31, 2016
 
July 31, 2015
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
163,466,000

 
150,953,000

Accounts receivable, net
 
53,749,000

 
69,255,000

Inventories, net
 
58,424,000

 
62,068,000

Prepaid expenses and other current assets
 
5,940,000

 
7,396,000

Deferred tax asset, net (See Note 10)
 

 
11,084,000

Total current assets
 
281,579,000

 
300,756,000

 
 
 
 
 
Property, plant and equipment, net
 
13,839,000

 
15,370,000

Goodwill
 
137,354,000

 
137,354,000

Intangibles with finite lives, net
 
17,437,000

 
20,009,000

Deferred tax asset, net, non-current (See Note 10)
 
10,512,000

 

Deferred financing costs
 
759,000

 

Other assets, net
 
690,000

 
388,000

Total assets
 
$
462,170,000

 
473,877,000

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
18,270,000

 
15,708,000

Accrued expenses and other current liabilities
 
30,579,000

 
29,470,000

Dividends payable
 
4,848,000

 
4,839,000

Customer advances and deposits
 
6,268,000

 
14,320,000

Total current liabilities
 
59,965,000

 
64,337,000

 
 
 
 
 
Other liabilities
 
2,864,000

 
3,633,000

Income taxes payable
 
1,469,000

 
1,573,000

Deferred tax liability, net (See Note 10)
 

 
2,925,000

Total liabilities
 
64,298,000

 
72,468,000

Commitments and contingencies (See Note 17)
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000
 

 

Common stock, par value $.10 per share; authorized 100,000,000 shares; issued 31,195,457 shares and 31,165,401 shares at January 31, 2016 and July 31, 2015, respectively
 
3,120,000

 
3,117,000

Additional paid-in capital
 
429,361,000

 
427,083,000

Retained earnings
 
407,240,000

 
413,058,000

 
 
839,721,000

 
843,258,000

Less:
 
 

 
 

Treasury stock, at cost (15,033,317 shares at January 31, 2016 and July 31, 2015)
 
(441,849,000
)
 
(441,849,000
)
Total stockholders’ equity
 
397,872,000

 
401,409,000

Total liabilities and stockholders’ equity
 
$
462,170,000

 
473,877,000


See accompanying notes to condensed consolidated financial statements.

2


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
$
70,323,000

 
81,802,000

 
134,440,000

 
158,193,000

Cost of sales
 
40,885,000

 
43,927,000

 
76,800,000

 
84,993,000

Gross profit
 
29,438,000

 
37,875,000

 
57,640,000

 
73,200,000

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Selling, general and administrative
 
15,053,000

 
16,026,000

 
30,379,000

 
31,552,000

Research and development
 
7,663,000

 
9,666,000

 
15,603,000

 
19,685,000

Acquisition plan expenses
 
2,337,000

 

 
3,729,000

 

Amortization of intangibles
 
1,196,000

 
1,560,000

 
2,572,000

 
3,121,000

 
 
26,249,000

 
27,252,000

 
52,283,000

 
54,358,000

 
 
 
 
 
 
 
 
 
Operating income
 
3,189,000

 
10,623,000

 
5,357,000

 
18,842,000

 
 
 
 
 
 
 
 
 
Other expenses (income):
 
 

 
 

 
 

 
 

Interest expense
 
73,000

 
69,000

 
148,000

 
334,000

Interest income and other
 
(110,000
)
 
(90,000
)
 
(222,000
)
 
(174,000
)
 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
3,226,000

 
10,644,000

 
5,431,000

 
18,682,000

Provision for income taxes
 
750,000

 
3,059,000

 
1,516,000

 
5,872,000

 
 
 
 
 
 
 
 
 
Net income
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

Net income per share (See Note 4):
 
 

 
 

 
 

 
 

Basic
 
$
0.15

 
0.47

 
0.24

 
0.79

Diluted
 
$
0.15

 
0.46

 
0.24

 
0.78

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
16,186,000

 
16,241,000

 
16,178,000

 
16,229,000

 
 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding – diluted
 
16,205,000

 
16,505,000

 
16,201,000

 
16,510,000

 
 
 
 
 
 
 
 
 
Dividends declared per issued and outstanding common share as of the applicable dividend record date
 
$
0.30

 
0.30

 
0.60

 
0.60

 
See accompanying notes to condensed consolidated financial statements.


3


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 2016 AND 2015
(Unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Treasury Stock
 
Stockholders'
Equity
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
Balance as of July 31, 2014
 
31,016,469

 
$
3,102,000

 
$
421,240,000

 
$
409,443,000

 
14,857,582

 
$
(436,860,000
)
 
$
396,925,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity-classified stock award compensation
 

 

 
2,398,000

 

 

 

 
2,398,000

Proceeds from exercise of options
 
4,200

 

 
119,000

 

 

 

 
119,000

Proceeds from issuance of employee stock purchase plan shares
 
16,491

 
2,000

 
477,000

 

 

 

 
479,000

Common stock issued for net settlement of stock-based awards
 
58,577

 
6,000

 
(395,000
)
 

 

 

 
(389,000
)
Cash dividends declared
 

 

 

 
(9,732,000
)
 

 

 
(9,732,000
)
Accrual of dividend equivalents
 

 

 

 
(113,000
)
 

 

 
(113,000
)
Net income tax shortfall from settlement of stock-based awards
 

 

 
(149,000
)
 

 

 

 
(149,000
)
Reversal of deferred tax assets associated with expired and unexercised stock-based awards
 

 

 
(12,000
)
 

 

 

 
(12,000
)
Net income
 

 

 

 
12,810,000

 

 

 
12,810,000

Balance as of January 31, 2015
 
31,095,737

 
$
3,110,000

 
$
423,678,000

 
$
412,408,000

 
14,857,582

 
$
(436,860,000
)
 
$
402,336,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of July 31, 2015
 
31,165,401

 
$
3,117,000

 
$
427,083,000

 
$
413,058,000

 
15,033,317

 
$
(441,849,000
)
 
$
401,409,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity-classified stock award compensation
 

 

 
2,084,000

 

 

 

 
2,084,000

Proceeds from issuance of employee stock purchase plan shares
 
20,131

 
2,000

 
346,000

 

 

 

 
348,000

Common stock issued for net settlement of stock-based awards
 
9,925

 
1,000

 
(74,000
)
 

 

 

 
(73,000
)
Cash dividends declared
 

 

 

 
(9,692,000
)
 

 

 
(9,692,000
)
Accrual of dividend equivalents, net of reversal
 

 

 

 
(41,000
)
 

 

 
(41,000
)
Net income tax shortfall from settlement of stock-based awards
 

 

 
(43,000
)
 

 

 

 
(43,000
)
Reversal of deferred tax assets associated with expired and unexercised stock-based awards
 

 

 
(35,000
)
 

 

 

 
(35,000
)
Net income
 

 

 

 
3,915,000

 

 

 
3,915,000

Balance as of January 31, 2016
 
31,195,457

 
$
3,120,000

 
$
429,361,000

 
$
407,240,000

 
15,033,317

 
$
(441,849,000
)
 
$
397,872,000


See accompanying notes to condensed consolidated financial statements.

4


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six months ended January 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
3,915,000

 
12,810,000

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

 
 

Depreciation and amortization of property, plant and equipment
 
2,996,000

 
3,230,000

Amortization of intangible assets with finite lives
 
2,572,000

 
3,121,000

Amortization of stock-based compensation
 
2,125,000

 
2,398,000

Amortization of deferred financing costs
 

 
65,000

(Gain) loss on disposal of property, plant and equipment
 
(2,000
)
 
3,000

Provision for allowance for doubtful accounts
 
520,000

 
74,000

Provision for excess and obsolete inventory
 
1,294,000

 
1,324,000

Excess income tax benefit from stock-based award exercises
 
(5,000
)
 
(138,000
)
Deferred income tax benefit
 
(2,479,000
)
 
(548,000
)
Changes in assets and liabilities:
 
 

 
 

Accounts receivable
 
14,986,000

 
(14,083,000
)
Inventories
 
2,369,000

 
(7,391,000
)
Prepaid expenses and other current assets
 
1,836,000

 
475,000

Other assets
 
11,000

 
(37,000
)
Accounts payable
 
2,555,000

 
(1,006,000
)
Accrued expenses and other current liabilities
 
(484,000
)
 
(2,634,000
)
Customer advances and deposits
 
(8,112,000
)
 
(4,086,000
)
Other liabilities
 
(269,000
)
 
(290,000
)
Interest payable
 

 
(29,000
)
Income taxes payable
 
(436,000
)
 
(1,498,000
)
Net cash provided by (used in) operating activities
 
23,392,000

 
(8,240,000
)
 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(1,463,000
)
 
(2,145,000
)
Net cash used in investing activities
 
(1,463,000
)
 
(2,145,000
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Cash dividends paid
 
(9,691,000
)
 
(9,712,000
)
Payment of shelf registration costs
 
(78,000
)
 

Proceeds from exercises of stock options
 

 
119,000

Proceeds from issuance of employee stock purchase plan shares
 
348,000

 
479,000

Excess income tax benefit from stock-based award exercises
 
5,000

 
138,000

Net cash used in financing activities
 
(9,416,000
)
 
(8,976,000
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
12,513,000

 
(19,361,000
)
Cash and cash equivalents at beginning of period
 
150,953,000

 
154,500,000

Cash and cash equivalents at end of period
 
$
163,466,000

 
135,139,000

 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
(Continued)
 

5


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

 
 
Six months ended January 31,
 
 
2016
 
2015
Supplemental cash flow disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$

 
117,000

Income taxes
 
$
4,431,000

 
7,919,000

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Cash dividends declared but unpaid (including accrual of dividend equivalents)
 
$
5,206,000

 
5,093,000

Accrued deferred financing costs
 
$
759,000

 

Accrued shelf registration costs
 
$
235,000

 


See accompanying notes to condensed consolidated financial statements.


6


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(1)    General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and subsidiaries (“Comtech,” “we,” “us,” or “our”) as of and for the three and six months ended January 31, 2016 and for the three and six months ended January 31, 2015 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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 condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates.

Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission (“SEC”), for the fiscal year ended July 31, 2015 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

(2)    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. generally accepted accounting principles, which is commonly referred to as “GAAP.” The ASC is subject to updates by the FASB, which are known as Accounting Standards Updates (“ASUs”). During the six months ended January 31, 2016, we adopted:

FASB ASU No. 2014-08 which changed the definition of discontinued operations and related disclosure requirements. Only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results will be reported as discontinued operations. Continuing involvement will no longer prevent a disposal group from being presented as discontinued operations. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2014-16 which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-01 which eliminates the concept of extraordinary items from GAAP and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-02 which amends current consolidation guidance affecting the evaluation of whether certain legal entities should be consolidated. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-03 which requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Also, ASU No. 2015-15 was issued in August 2015 and indicates that Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs associated with a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.


7


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


FASB ASU No. 2015-05 which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Our adoption of this ASU did not have any material impact on our consolidated financial statements.

FASB ASU No. 2015-07 which removes the requirements to categorize within the fair value hierarchy, and make certain disclosures related to, investments for which fair value is measured using the net asset value per share practical expedient. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-17 which requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. As discussed further in Note (10) - "Income Taxes," we adopted this ASU prospectively on August 1, 2015 and reclassified our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted.

(3)    Fair Value Measurements and Financial Instruments

As of January 31, 2016 and July 31, 2015, we had approximately $3,132,000 and $3,130,000, respectively, consisting primarily of money market mutual funds which are classified as cash and cash equivalents in our Condensed Consolidated Balance Sheets. These money market mutual funds are recorded at their fair value. FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, using the fair value hierarchy described in FASB ASC 820, we valued our money market mutual funds using Level 1 inputs that were based on quoted market prices.

As of January 31, 2016 and July 31, 2015, other than our cash and cash equivalents, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value.
 
(4)    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. When calculating our diluted earnings per share, we consider (i) the amount an employee must pay upon assumed exercise of stock-based awards; (ii) the amount of stock-based compensation cost attributed to future services and not yet recognized; and (iii) the amount of excess tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of in-the-money stock-based awards. This excess tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial reporting purposes.

There were no repurchases of our common stock during the six months ended January 31, 2016 or 2015.

Weighted average stock options and RSUs outstanding to purchase 2,369,000 and 447,000 shares for the three months ended January 31, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Weighted average stock options and RSUs outstanding to purchase 2,367,000 and 287,000 shares for the six months ended January 31, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.


8


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


Our EPS calculations exclude 144,000 and 120,000 weighted average RSUs with performance measures (which we refer to as performance shares) outstanding for the three months ended January 31, 2016 and 2015, respectively, and 143,000 and 119,000 weighted average performance shares outstanding for the six months ended January 31, 2016 and 2015, respectively, as the respective performance conditions have not yet been satisfied. However, the compensation expense related to these awards is included in net income (the numerator) for EPS calculations for each respective period.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income for basic calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

Numerator for diluted calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Denominator for basic calculation
 
16,186,000

 
16,241,000

 
16,178,000

 
16,229,000

Effect of dilutive securities:
 
 
 
 

 
 
 
 
Stock-based awards
 
19,000

 
264,000

 
23,000

 
281,000

Denominator for diluted calculation
 
16,205,000

 
16,505,000

 
16,201,000

 
16,510,000

    
(5)    Accounts Receivable

Accounts receivable consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Billed receivables from commercial customers
 
$
27,677,000

 
39,062,000

Billed receivables from the U.S. government and its agencies
 
15,124,000

 
8,375,000

Unbilled receivables on contracts-in-progress
 
12,629,000

 
23,024,000

Total accounts receivable
 
55,430,000

 
70,461,000

Less allowance for doubtful accounts
 
1,681,000

 
1,206,000

Accounts receivable, net
 
$
53,749,000

 
69,255,000


Of the unbilled receivables at January 31, 2016 and July 31, 2015, $9,396,000 and $20,256,000, respectively, relates to our two large over-the-horizon microwave system contracts with our large U.S. prime contractor customer (all of which related to our North African country end-customer). The remaining unbilled receivables include $1,070,000 and $1,126,000 at January 31, 2016 and July 31, 2015, respectively, due from the U.S. government and its agencies. We had virtually no retainage included in unbilled receivables at both January 31, 2016 and July 31, 2015. In the opinion of management, a majority of the unbilled receivables at January 31, 2016 will be billed and collected within one year.

As of January 31, 2016 and July 31, 2015, 17.2% and 36.3%, respectively of total accounts receivable was due from one large U.S. prime contractor customer (the majority of which related to our North African country end-customer).


9


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(6)    Inventories

Inventories consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Raw materials and components
 
$
50,530,000

 
51,272,000

Work-in-process and finished goods
 
24,025,000

 
27,700,000

Total inventories
 
74,555,000

 
78,972,000

Less reserve for excess and obsolete inventories
 
16,131,000

 
16,904,000

Inventories, net
 
$
58,424,000

 
62,068,000


At January 31, 2016 and July 31, 2015, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $2,010,000 and $2,261,000, respectively.

At January 31, 2016 and July 31, 2015, $949,000 and $609,000, respectively, of the inventory balance above related to contracts from third party commercial customers who outsource their manufacturing to us.

(7)    Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Accrued wages and benefits
 
$
8,678,000

 
12,134,000

Accrued warranty obligations
 
8,624,000

 
8,638,000

Accrued commissions and royalties
 
3,031,000

 
2,398,000

Other
 
10,246,000

 
6,300,000

Accrued expenses and other current liabilities
 
$
30,579,000

 
29,470,000


Included in other accrued expenses and other current liabilities as of January 31, 2016 was $2,193,000 of accrued costs associated with our acquisition of TeleCommunication Systems, Inc. ("TCS"). See Note (18) - "Subsequent Events" for further information regarding the TCS acquisition.
  
Accrued Warranty Obligations
We provide warranty coverage for most of our products for a period of at least one year from the date of shipment. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our product warranty liability were as follows:
 
 
Six months ended January 31,
 
 
2016
 
2015
Balance at beginning of period
 
$
8,638,000

 
8,618,000

Provision for warranty obligations
 
2,096,000

 
1,992,000

Charges incurred
 
(2,110,000
)
 
(2,315,000
)
Balance at end of period
 
$
8,624,000

 
8,295,000


10


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(8)    Radyne Acquisition-Related Restructuring Plan

In connection with our August 1, 2008 acquisition of Radyne, we adopted a restructuring plan for which we recorded $2,713,000 of estimated restructuring costs. Of this amount, $613,000 related to severance for Radyne employees which was paid in fiscal 2009. The remaining estimated amounts relate to facility exit costs and were determined as follows:
 
At August 1, 2008
Total non-cancelable lease obligations
$
12,741,000

Less: Estimated sublease income
8,600,000

Total net estimated facility exit costs
4,141,000

Less: Interest expense to be accreted
2,041,000

Present value of estimated facility exit costs
$
2,100,000


Our total non-cancelable lease obligations were based on the actual lease term which runs from November 1, 2008 through October 31, 2018. We estimated sublease income based on (i) the terms of a fully executed sublease agreement that expired on October 31, 2015, and (ii) our assessment of future uncertainties relating to the commercial real estate market. Based on our assessment of commercial real estate market conditions, we currently believe that it is not probable that we will be able to sublease the facility for the remainder lease term. As such, in accordance with grandfathered accounting standards that were not incorporated into the FASB’s ASC, we recorded these costs, at fair value, as assumed liabilities as of August 1, 2008, with a corresponding increase to goodwill.

As of January 31, 2016, the amount of the acquisition-related restructuring reserve is as follows:
 
Cumulative
Activity Through
January 31, 2016
Present value of estimated facility exit costs at August 1, 2008
$
2,100,000

Cash payments made
(8,242,000
)
Cash payments received
8,600,000

Accreted interest recorded
1,510,000

Liability as of January 31, 2016
3,968,000

Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet
1,316,000

Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet
$
2,652,000

 
As of July 31, 2015, the present value of the estimated facility exit costs was $4,235,000. During the six months ended January 31, 2016, we made cash payments of $738,000 and we received cash payments of $323,000. Interest accreted for the three and six months ended January 31, 2016 and 2015 was $73,000 and $148,000, respectively, and $69,000 and $135,000, respectively, and is included in interest expense for each respective fiscal period.

Future cash payments associated with our restructuring plan are summarized below:
 
As of
 
January 31, 2016
Future lease payments to be made
$
3,968,000

Interest expense to be accreted in future periods
530,000

Total remaining payments
$
4,498,000


11


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(9)    Credit Facility

As of January 31, 2016, we had an uncommitted $15,000,000 secured credit facility (the "Credit Facility") with one bank that provides for the extension of credit to us in the form of revolving loans, including letters of credit and standby letters of credit, at any time and from time to time during its term, in an aggregate principal amount at any time outstanding not to exceed $15,000,000. Subject to covenant limitations, the Credit Facility may be used for working capital, capital expenditures and other general corporate purposes.

At January 31, 2016, we had $1,699,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

The Credit Facility was terminated on February 23, 2016, when, as discussed further in Note (18) - "Subsequent Events," in connection with our acquisition of TCS, we entered into a new $400,000,000 credit facility.

Interest expense, including amortization of deferred financing costs, recorded during the six months ended January 31, 2015 was $198,000, all of which related to our $100,000,000 committed revolving credit facility that expired on October 31, 2014. There was no interest expense recorded during the three months ended January 31, 2016 and 2015 or the six months ended January 31, 2016.

(10)    Income Taxes

At January 31, 2016 and July 31, 2015, total unrecognized tax benefits were $3,055,000 and $2,796,000, respectively, including interest of $84,000 and $68,000, respectively. At January 31, 2016 and July 31, 2015, $1,469,000 and $1,573,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable in our Condensed Consolidated Balance Sheets. At January 31, 2016 and July 31, 2015, the remaining unrecognized tax benefits of $1,586,000 and $1,223,000, respectively, were presented as an offset to the associated non-current deferred tax asset in our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits at January 31, 2016 and July 31, 2015, $2,339,000 and $2,138,000, respectively, net of the reversal of the federal benefit recognized as deferred tax assets relating to state reserves, excluding interest, would positively impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. Our policy is to recognize interest and penalties relating to uncertain tax positions in income tax expense.

On August 1, 2015, we adopted FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” on a prospective basis. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. Adoption of this ASU resulted in a reclassification of our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted.

In December 2015, we received notification from the Internal Revenue Service ("IRS") of its intent to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2012 and 2013 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition. Excluding the impact of the TCS acquisition and any discrete tax items, we expect our fiscal 2016 effective tax rate to approximate 33.5%. This rate reflects the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014.



12


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(11)    Stock Based Compensation

Overview
We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the “Plan”) and our 2001 Employee Stock Purchase Plan (the “ESPP”), as amended and restated, and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) RSUs, (iii) performance shares, (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, “share units”) and (vi) stock appreciation rights (“SARs”), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations. The aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 8,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a shareholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and ESPP with new shares.

As of January 31, 2016, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 7,718,350 shares (net of 3,124,811 expired and canceled awards), of which an aggregate of 5,143,687 have been exercised or converted into common stock, substantially all of which related to stock options.

As of January 31, 2016, the following stock-based awards, by award type, were outstanding:

 
January 31, 2016
Stock options
2,350,258

Performance shares
174,665

RSUs and restricted stock
41,237

Share units
8,503

Total
2,574,663


Our ESPP provides for the issuance of shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. In December 2015, our shareholders approved an amendment to increase the number of shares authorized under the ESPP from 675,000 to 800,000. Through January 31, 2016, we have cumulatively issued 609,184 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Cost of sales
 
$
100,000

 
66,000

 
163,000

 
133,000

Selling, general and administrative expenses
 
881,000

 
856,000

 
1,755,000

 
1,958,000

Research and development expenses
 
93,000

 
139,000

 
207,000

 
307,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000



13


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At January 31, 2016, unrecognized stock-based compensation of $8,686,000, net of estimated forfeitures of $803,000, is expected to be recognized over a weighted average period of 3.0 years. Total stock-based compensation capitalized and included in ending inventory at January 31, 2016 and July 31, 2015 was $51,000 and $92,000, respectively.

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Stock options
 
$
609,000

 
731,000

 
1,212,000

 
1,489,000

Performance shares
 
390,000

 
167,000

 
724,000

 
575,000

ESPP
 
40,000

 
53,000

 
83,000

 
106,000

RSUs and restricted stock
 
35,000

 
96,000

 
106,000

 
200,000

Share units
 

 
14,000

 

 
28,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000


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

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such amount was recorded as a non-current deferred tax asset in our Condensed Consolidated Balance Sheet as of January 31, 2016. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

The following table reconciles the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards to the excess income tax benefit reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows:

 
 
Six months ended January 31,
 
 
2016
 
2015
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards
 
$
132,000

 
941,000

Less: Tax benefit initially recognized on settled stock-based awards vesting subsequent to the adoption of accounting standards that require us to expense stock-based awards
 
127,000

 
803,000

Excess income tax benefit recorded as an increase to additional paid-in capital
 
5,000

 
138,000

Less: Tax benefit initially disclosed but not previously recognized on settled equity-classified stock-based awards vesting prior to the adoption of accounting standards that require us to expense stock-based awards
 

 

Excess income tax benefit from settled equity-classified stock-based awards reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows
 
$
5,000

 
138,000



14


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


As of January 31, 2016 and July 31, 2015, the amount of hypothetical tax benefits related to stock-based awards, recorded as a component of additional paid-in capital, was $17,142,000 and $17,220,000, respectively. These amounts represent the initial hypothetical tax benefit of $8,593,000 determined upon adoption of ASC 718 (which reflects our estimate of cumulative actual tax deductions for awards issued and settled prior to August 1, 2005), adjusted for actual excess income tax benefits or shortfalls since that date. During the six months ended January 31, 2016, we recorded a $78,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which represents net income tax shortfalls recognized from the settlement of stock-based awards and the reversal of unrealized deferred tax assets associated with certain vested equity-classified stock-based awards that expired during the respective period. During the six months ended January 31, 2015, we recorded a $161,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which primarily represents net income tax shortfalls recognized from the settlement of stock-based awards during the respective period.

Stock Options

The following table summarizes the Plan's activity during the six months ended January 31, 2016:

 
 
Awards
(in Shares)
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
2,119,683

 
$
29.33

 
 
 
 
Granted
 
480,265

 
28.00

 
 
 
 
Expired/canceled
 
(182,250
)
 
29.84

 
 
 
 
Exercised
 
(19,200
)
 
27.24

 
 
 
 
Outstanding at October 31, 2015
 
2,398,498

 
29.04

 
 
 
 
Granted
 
10,000

 
20.90

 
 
 
 
Expired/canceled
 
(58,240
)
 
28.84

 
 
 
 
Outstanding at January 31, 2016
 
2,350,258

 
$
29.01

 
6.89
 
$

 
 
 
 
 
 
 
 
 
Exercisable at January 31, 2016
 
1,050,880

 
$
28.59

 
5.42
 
$

 
 
 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
2,259,510

 
$
28.99

 
6.84
 
$


Stock options outstanding as of January 31, 2016 have exercise prices ranging between $20.90 - $33.94. There were no stock options exercised during the three months ended January 31, 2016. The total intrinsic value relating to stock options exercised during the three months ended January 31, 2015 was $806,000. The total intrinsic value relating to stock options exercised during the six months ended January 31, 2016 and 2015 was $32,000 and $1,959,000, respectively. Stock options granted during the six months ended January 31, 2016 and 2015 had exercise prices equal to the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years.

During the six months ended January 31, 2016 and 2015, at the election of certain holders of vested stock options, 19,200 and 280,288 stock options, respectively, were net settled upon exercise. As a result, 706 and 45,989 net shares of our common stock were issued after reduction of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements during the six months ended January 31, 2016 and 2015, respectively.

15


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)



The estimated per-share weighted average grant-date fair value of stock options granted during the three and six months ended January 31, 2016 was $3.69 and $5.69, respectively, and $6.46 and $6.14, respectively, during the three and six months ended January 31, 2015, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Expected dividend yield
 
5.74
%
 
3.55
%
 
4.32
%
 
3.54
%
Expected volatility
 
34.76
%
 
29.98
%
 
34.27
%
 
28.13
%
Risk-free interest rate
 
1.64
%
 
1.36
%
 
1.54
%
 
1.61
%
Expected life (years)
 
5.04

 
5.48

 
5.16

 
5.45


Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant, which was $1.20 per share for grants in the six months ended January 31, 2016 and 2015. We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term. The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns. Assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock-based awards.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
 
 
Awards
(in Shares)
 
Weighted Average
Grant Date
Fair Value
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
224,165

 
$
28.26

 
 
Granted
 
62,440

 
28.35

 
 
Converted to common stock
 
(6,988
)
 
25.28

 
 
Forfeited
 
(45,154
)
 
28.14

 
 
Outstanding at October 31, 2015
 
234,463

 
28.39

 
 
Converted to common stock
 
(4,725
)
 
26.77

 
 
Forfeited
 
(5,333
)
 
29.07

 
 
Outstanding at January 31, 2016
 
224,405

 
$
28.41

 
$
4,380,000

 
 
 
 
 
 
 
Vested at January 31, 2016
 
31,181

 
$
27.15

 
$
609,000

 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
214,373

 
$
28.40

 
$
4,185,000


The total intrinsic value relating to fully-vested awards converted into our common stock during the six months ended January 31, 2016 and 2015 was $275,000 and $504,000, respectively. Performance shares granted to employees prior to fiscal 2014 vest over a 5.3 year period, beginning on the date of grant if pre-established performance goals are attained, 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. The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained or as specified pursuant to the Plan and related agreements. As of January 31, 2016, 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.

16


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)



RSUs and restricted stock granted to non-employee directors 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 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.

Share units are 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. No share units granted to date have been converted into common stock.

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. RSUs and performance shares granted in fiscal 2012 are not entitled to dividend equivalents. RSUs, performance shares and restricted stock granted in fiscal 2013 through 2016 are entitled to dividend equivalents unless forfeited before vesting occurs; however, performance shares granted in fiscal 2013 were not entitled to such dividend equivalents until our Board of Directors determined that the pre-established performance goals were met. Share units granted prior to fiscal 2014 are not entitled to dividend equivalents. Share units granted in fiscal 2014 and thereafter are entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of conversion of the underlying shares into our common stock. During the six months ended January 31, 2016, we accrued $41,000 of dividend equivalents and paid out $8,000 when certain awards were converted to common stock. As of January 31, 2016 and July 31, 2015, accrued dividend equivalents were $358,000 and $325,000, respectively, of which $214,000 and $306,000, respectively, were included in other liabilities with the remainder included in accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets for the respective periods. Such amounts were recorded as a reduction to retained earnings.

Cash payments to remit employees' minimum statutory tax withholding requirements related to the net settlement of stock-based awards for the six months ended January 31, 2016 and 2015 were $73,000 and $389,000, respectively, which is reported as a cash outflow from operating activities in our Condensed Consolidated Statements of Cash Flows for each respective period.

(12)    Customer and Geographic Information

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
United States
 
 
 
 
 
 
 
 
U.S. government
 
42.0
%
 
27.5
%
 
41.7
%
 
26.2
%
Commercial
 
20.0
%
 
11.7
%
 
17.4
%
 
12.8
%
Total United States
 
62.0
%
 
39.2
%
 
59.1
%
 
39.0
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
North African country
 
2.4
%
 
15.0
%
 
4.2
%
 
14.8
%
Other international
 
35.6
%
 
45.8
%
 
36.7
%
 
46.2
%
Total International
 
38.0
%
 
60.8
%
 
40.9
%
 
61.0
%

Sales to U.S. government customers include the Department of Defense ("DoD") and intelligence and civilian agencies, as well as sales directly to or through prime contractors.


17


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


International sales for the three months ended January 31, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $26,731,000 and $49,768,000, respectively. International sales for the six months ended January 31, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $54,983,000 and $96,524,000, respectively.

Sales to a U.S. prime contractor customer represented approximately 14.4% of consolidated net sales for both three and six months ended January 31, 2015. Almost all of these sales related to our North African country end-customer. For the three and six months ended January 31, 2016, except for the U.S. government, no other customer or individual country (including sales to U.S. domestic companies for inclusion in products that will be sold to a foreign country) represented more than 10% of consolidated net sales.

(13)    Segment Information

Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280, “Segment Reporting,” is based on the way that the chief operating decision maker organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. As of January 31, 2016, our chief operating decision maker function, for purposes of FASB ASC 280, consisted of our President and Chief Executive Officer ("CEO").

While our results of operations are primarily reviewed on a consolidated basis, during the three and six months ended January 31, 2016, our chief operating decision maker managed the enterprise in three operating segments: (i) telecommunications transmission, (ii) RF microwave amplifiers, and (iii) mobile data communications, which are the same as our reportable operating segments.

Telecommunications transmission products include satellite earth station products (such as analog and digital modems, frequency converters, power amplifiers, transceivers and voice gateways) and over-the-horizon microwave communications products and systems (such as digital troposcatter modems).

RF microwave amplifier products include traveling wave tube amplifiers and solid-state, high-power narrow and broadband amplifier products that use the microwave and radio frequency spectrums.

Mobile data communications products and services substantially relate to our support of the U.S. Army's BFT-1 program, which is currently in a sustainment mode. We currently perform engineering services and satellite network operations on a cost-plus-fixed fee basis and program management services on a firm-fixed-price basis and we license certain of our intellectual property to the U.S. Army.

Segment information is presented in the tables below:

 
 
Three months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
38,544,000

 
24,933,000

 
6,846,000

 

 
$
70,323,000

Operating income (loss)
 
4,803,000

 
1,382,000

 
3,735,000

 
(6,731,000
)
 
3,189,000

Interest income and other (expense)
 
(15,000
)
 
(7,000
)
 
2,000

 
130,000

 
110,000

Interest expense
 
73,000

 

 

 

 
73,000

Depreciation and amortization
 
1,715,000

 
860,000

 
79,000

 
1,082,000

 
3,736,000

Expenditure for long-lived assets, including intangibles
 
777,000

 
29,000

 
8,000

 
13,000

 
827,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000


18


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)



 
 
Three months ended January 31, 2015
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
53,867,000

 
21,646,000

 
6,289,000

 

 
$
81,802,000

Operating income (loss)
 
11,049,000

 
969,000

 
2,709,000

 
(4,104,000
)
 
10,623,000

Interest income and other (expense)
 
(26,000
)
 
(7,000
)
 
3,000

 
120,000

 
90,000

Interest expense
 
69,000

 

 

 

 
69,000

Depreciation and amortization
 
2,196,000

 
906,000

 
72,000

 
1,069,000

 
4,243,000

Expenditure for long-lived assets, including intangibles
 
742,000

 
582,000

 
60,000

 
14,000

 
1,398,000

Total assets at January 31, 2015
 
240,413,000

 
92,918,000

 
6,002,000

 
132,154,000

 
471,487,000


 
 
Six months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
73,793,000

 
47,587,000

 
13,060,000

 

 
$
134,440,000

Operating income (loss)
 
7,164,000

 
3,350,000

 
6,734,000

 
(11,891,000
)
 
5,357,000

Interest income and other (expense)
 
(32,000
)
 
(7,000
)
 
5,000

 
256,000

 
222,000

Interest expense
 
148,000

 

 

 

 
148,000

Depreciation and amortization
 
3,658,000

 
1,734,000

 
160,000

 
2,141,000

 
7,693,000

Expenditure for long-lived assets, including intangibles
 
1,247,000

 
171,000

 
30,000

 
15,000

 
1,463,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000


 
 
Six months ended January 31, 2015
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
105,223,000

 
40,410,000

 
12,560,000

 

 
$
158,193,000

Operating income (loss)
 
19,215,000

 
2,032,000

 
5,576,000

 
(7,981,000
)
 
18,842,000

Interest income and other (expense)
 
(55,000
)
 
(25,000
)
 
6,000

 
248,000

 
174,000

Interest expense
 
136,000

 

 

 
198,000

 
334,000

Depreciation and amortization
 
4,409,000

 
1,785,000

 
142,000

 
2,413,000

 
8,749,000

Expenditure for long-lived assets, including intangibles
 
1,280,000

 
674,000

 
144,000

 
47,000

 
2,145,000

Total assets at January 31, 2015
 
240,413,000

 
92,918,000

 
6,002,000

 
132,154,000

 
471,487,000



19


Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs. In addition, unallocated expenses include amortization of stock-based compensation of $1,074,000, and $2,125,000, respectively, for the three and six months ended January 31, 2016 and $1,061,000 and $2,398,000, respectively, for the three and six months ended January 31, 2015. Interest expense for the six months ended January 31, 2015 includes interest on a committed $100,000,000 secured revolving credit facility that expired on October 31, 2014 and amortization of deferred financing costs, neither of which is allocated to the operating segments. Unallocated expenses for the three and six months ended January 31, 2016 include $2,337,000 and $3,729,000, respectively, of transaction costs primarily related to our acquisition of TCS. Unallocated expenses for the six months ended January 31, 2015 include $585,000 of expenses related to our strategic alternatives analysis which we concluded in December 2014. There were no such expenses during the three months ended January 31, 2015. Unallocated assets at January 31, 2016 consist principally of cash and deferred tax assets.

Intersegment sales for the three months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the RF microwave amplifiers segment were $652,000 and $720,000, respectively. Intersegment sales for the six months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the RF microwave amplifiers segment were $1,305,000 and $1,009,000, respectively.

Intersegment sales for the three months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the mobile data communications segment were $87,000 and $141,000, respectively. Intersegment sales for the six months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the mobile data communications segment were $108,000 and $337,000, respectively.

Intersegment sales for the three and six months ended January 31, 2016 by the RF microwave amplifiers segment to the telecommunications transmission segment were $13,000 and $32,000, respectively. There were no intersegment sales for the three and six months ended January 31, 2015 by the RF microwave amplifiers segment to the telecommunications transmission segment.

Substantially all of our long-lived assets are located in the U.S. and all intersegment sales are eliminated in consolidation and are excluded from the tables above.

As discussed further in Note (18) - "Subsequent Events," in connection with the TCS acquisition, which closed on February 23, 2016 (the first month of our third quarter of fiscal 2016), we announced a new organizational structure in which our chief operating decision maker will manage the enterprise in two operating segments: commercial solutions and government solutions. As a result of these changes, effective with our third quarter ending April 30, 2016, we anticipate no longer reporting our financial results in three operating segments but rather our two new operating segments. We anticipate that historical operating segment financial information will be retrospectively reported for certain periods in a future SEC filing.

(14)    Goodwill

The carrying amount of goodwill by segment as of January 31, 2016 and July 31, 2015 are as follows:
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Total
Goodwill
 
$
107,779,000

 
29,575,000

 
13,249,000

 
$
150,603,000

Accumulated impairment
 

 

 
(13,249,000
)
 
(13,249,000
)
Balance
 
$
107,779,000

 
29,575,000

 

 
$
137,354,000


In accordance with FASB ASC 350, “Intangibles - Goodwill and Other,” 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. If we fail Step One (described below), we would do a Step Two test which compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.


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Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


On August 1, 2015 (the first day of our fiscal 2016), we performed a quantitative assessment (commonly referred to as a Step One test) using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value. Based on our quantitative evaluation performed on August 1, 2015, we determined that our telecommunications transmission and RF microwave amplifiers reporting units had estimated fair values in excess of their carrying values of at least 14.0% and 14.2%, respectively, and concluded that our goodwill was not impaired. As such, we did not perform a Step Two assessment.
 
As discussed further in Note (18) - "Subsequent Events," in connection with the TCS acquisition, which closed on February 23, 2016 (the first month of our third quarter of fiscal 2016), we announced a new organizational structure in which our chief operating decision maker will manage the enterprise in two operating segments: commercial solutions and government solutions. In connection with this reporting change, we intend to perform a “Before Reorganization” and an “After Reorganization” interim goodwill impairment test during our three months ending April 30, 2016. Although these tests have not yet been finalized, we believe that no impairment of goodwill will result from our change to a new segment organizational structure.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2016 (the start of our fiscal 2017). This test will include an evaluation of the substantial goodwill that is expected to result from the TCS acquisition. During the interim periods, if our expected financial results materially decline below our initial expectations
or if other events and circumstances change which indicate the potential for impairment (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record interim impairment charges if we perform and fail an interim test. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

(15)    Intangible Assets

Intangible assets with finite lives as of January 31, 2016 and July 31, 2015 are as follows:
 
 
January 31, 2016
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
13.0
 
$
47,370,000

 
40,245,000

 
$
7,125,000

Customer relationships
 
10.0
 
29,831,000

 
22,456,000

 
7,375,000

Trademarks and other
 
20.0
 
5,794,000

 
2,857,000

 
2,937,000

Total
 
 
 
$
82,995,000

 
65,558,000

 
$
17,437,000


 
 
July 31, 2015
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
12.1
 
$
47,370,000

 
39,266,000

 
$
8,104,000

Customer relationships
 
10.0
 
29,831,000

 
20,981,000

 
8,850,000

Trademarks and other
 
20.0
 
5,794,000

 
2,739,000

 
3,055,000

Total
 
 
 
$
82,995,000

 
62,986,000

 
$
20,009,000


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

Amortization expense for the three months ended January 31, 2016 and 2015 was $1,196,000 and $1,560,000, respectively. Amortization expense for the six months ended January 31, 2016 and 2015 was $2,572,000 and $3,121,000, respectively.

Excluding the impact of the TCS acquisition which closed on February 23, 2016 and which is further discussed in Note (18) - "Subsequent Events," the estimated amortization expense for the fiscal years ending July 31, 2016, 2017, 2018, 2019, and 2020 is $4,962,000, $4,782,000, $4,782,000, $862,000 and $862,000, respectively.



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Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(16)    Stockholders’ Equity

Stock Repurchase Program
As of January 31, 2016 and March 9, 2016, we were authorized to repurchase up to an additional $8,664,000 of our common stock, pursuant to our current $100,000,000 stock repurchase program. Our stock repurchase program has no time restrictions and repurchases may be made in open-market or privately negotiated transactions and may be made pursuant to SEC Rule 10b5-1 trading plans.

There were no repurchases of our common stock during the six months ended January 31, 2016 and 2015.

Dividends
The current targeted dividend amount that was established by our Board of Directors for fiscal 2016 is $1.20 per common share.

During the six months ended January 31, 2016, our Board of Directors declared quarterly dividends of $0.30 per common share on September 28, 2015 and December 9, 2015, which were paid to shareholders on November 20, 2015 and February 17, 2016, respectively.

On March 10, 2016, our Board of Directors declared a dividend of $0.30 per common share, payable on May 20, 2016, to shareholders of record at the close of business on April 20, 2016.

(17)    Legal Proceedings and Other Matters

Licensed Technology Dispute
In May 2015, we notified a third party that we were terminating their rights to use certain of our technology because they failed to remit payments owed to us pursuant to a written agreement. The technology relates to certain mobile data communications products that we no longer sell. In response, the third party informed us that they believed we were in breach of a written agreement and demanded a return of royalties paid. During the three months ended January 31, 2016, this matter was settled in our favor and we received payments owed to us.

TCS Legal Proceedings
Infringement Matters
As discussed further in Note (18) - "Subsequent Events," on February 23, 2016, we acquired TCS which is a party to a number of legal proceedings relating to customers seeking indemnification under contractual arrangements for claims and other costs associated with defending lawsuits alleging infringement of patents through their use of TCS’s products and services, including in combination with products and services of other vendors. In some cases, TCS has agreed to assume the defense of lawsuits and in other situations, TCS did not believe that its technology was infringing or that certain customers were entitled to indemnification. Due to the inherent difficulty of predicting the outcome of the TCS legal proceedings, it may be difficult to estimate the amount or range of reasonably possible loss in excess of amounts that TCS accrued as of the date of the acquisition. Resolution of any particular legal proceeding could have a material adverse effect on our future consolidated results of operations, financial position, or cash flows.


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Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


Acquisition-Related Lawsuits
On December 9, 2015, a putative class action, Stanley Magee v. TeleCommunication Systems, Inc., was commenced by the filing of a complaint in Maryland state court, in the Circuit Court for Anne Arundel County, against TCS, members of the TCS Board of Directors, Comtech and a wholly owned subsidiary of Comtech formed to effect the acquisition, Typhoon Acquisition Corp. (“Acquisition Corp.”). Three other complaints were filed on December 15, 2015: James Morakis v. TeleCommunication Systems, Inc., in the same Circuit Court; and Rafal Sawicz v. TeleCommunication Systems, Inc., and Wesley Shaffron v. TeleCommunication Systems, Inc., both filed in Maryland state court in the Circuit Court for Baltimore County. All of the complaints raise similar putative class claims against TCS, members of the TCS Board, Comtech and Acquisition Corp., in challenging (i) the process undertaken by TCS leading up to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 22, 2015, among TCS, the Company and Acquisition Corp., (ii) the consideration to be received by TCS stockholders and (iii) the disclosures made in connection with the tender offer made pursuant to the Merger Agreement. The complaints generally allege breaches of fiduciary duty by members of the TCS Board in connection with the Merger Agreement, and allege that some or all of TCS, Comtech and Acquisition Corp. aided and abetted the purported breaches of fiduciary duty. The complaints seek equitable and injunctive relief, including an order enjoining the defendants from having completed the Acquisition, rescission of any consummated transaction, unspecified damages and attorneys’ fees. In the actions pending in Baltimore City, the defendants moved to dismiss the complaints and the plaintiffs moved for a preliminary injunction against completion of the acquisition. A hearing on these motions was held on January 18, 2016. The court in Baltimore City, however, did not rule on the preliminary injunction motion prior to the expiration of the tender offer or the closing of the acquisition which actually occurred on February 23, 2016.

On February 29, 2016, the court in Baltimore City issued a “Memorandum to Counsel” stating that the court had determined to grant defendants’ motion to dismiss the complaints in the actions pending in that court and would issue a decision within seven to ten days. With respect to the two actions pending in Anne Arundel County, on February 10, 2016, the court consolidated the two actions. There has been no further activity in that court with respect to those actions. The Company intends to seek dismissal of the Anne Arundel County actions following receipt of the decision by the Baltimore City court dismissing the actions pending there.

Other Proceedings
There are certain other pending and threatened legal actions which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

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Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


(18)    Subsequent Events

On February 23, 2016, we completed our acquisition of TCS, pursuant to the Agreement and Plan of Merger, dated as of November 22, 2015 (the “Merger Agreement”), among Comtech, TCS and Typhoon Acquisition Corp., a Maryland corporation and a direct, wholly owned subsidiary of Comtech (“Merger Sub”).

TCS is a leading provider of commercial solutions such as public safety systems and enterprise application technologies and government solutions such as command control (also known as Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (“C4ISR”) applications). The TCS acquisition was a significant step in our strategy of entering complementary markets and expanding our domestic and international commercial offerings. TCS is now a wholly-owned legal subsidiary.

A total of approximately 55,871,832 shares of Class A common stock, par value $0.01 per share (the “Class A Shares”), and Class B common stock, par value $0.01 per share (the “Class B Shares”, together with the Class A Shares, the “Shares”) (including Shares delivered through notices of guaranteed delivery), were validly tendered and not validly withdrawn in the tender offer (the “Offer”) to acquire all of the issued and outstanding Shares at a price of $5.00 per share (the “Offer Price”), representing approximately 88.32% of the issued and outstanding Shares as of the expiration of the Offer. The Offer expired at 5:00 P.M., New York City time, on Thursday, February 18, 2016. The number of Shares tendered in the Offer were accepted for payment and constituted a majority of all outstanding Shares satisfying the Minimum Condition (as defined in the Merger Agreement).

Following the completion of the Offer, all conditions to the Merger set forth in the Merger Agreement were satisfied, and on February 23, 2016, we completed our acquisition of TCS by effecting a merger in accordance with Section 3-106.1 of the Maryland General Corporation Law, pursuant to which Merger Sub was merged with and into TCS, with TCS surviving the merger as a wholly owned subsidiary of Comtech (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding Share, other than any Shares owned by Comtech, Merger Sub or any subsidiary of Comtech, Merger Sub or TCS immediately prior to the Effective Time, was automatically converted into the right to receive an amount in cash, without interest and subject to applicable withholding taxes, equal to the Offer Price.
 
At the Effective Time, each option to purchase Shares outstanding immediately prior to the Effective Time, by virtue of the Merger, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (i) the number of Shares underlying such option and (ii) an amount equal to (x) the Offer Price less (y) the per share exercise price of such option. In addition, at the Effective Time, each Share subject to forfeiture or other restrictions outstanding immediately prior to the Effective Time, by virtue of the Merger, was cancelled and converted into the right to receive an amount in cash, without interest and less the amount of any withholding taxes, equal to the product of (i) the number of Shares underlying such restricted share and (ii) the Offer Price; provided that any payments in respect of such restricted shares to which a former holder thereof may be eligible to receive will be earned subject to the same vesting schedule and other vesting terms and conditions which applied to such restricted shares prior to the Effective Time, and such payment shall become payable on the date or dates that such restricted shares would have become vested under the vesting schedule in place immediately prior to the Effective Time.

During the twelve months ended December 31, 2015, based on unaudited financial results, TCS generated revenue of approximately $360,000,000. On February 23, 2016, based on unaudited financial results, TCS had $61,405,000 of cash and cash equivalents and debt (including accrued interest) of approximately $144,124,000.

The acquisition has a preliminary aggregate purchase price for accounting purposes of approximately $340,432,000 (also referred to as the transaction equity value) and an enterprise value of approximately $423,151,000. We have funded and expect to fully fund the acquisition (including $48,000,000 of transaction and merger related expenditures) and repay the large majority of TCS debt by redeploying a significant amount of our combined cash and cash equivalents, with the remaining funds coming from a new $400,000,000 credit facility (the "New Credit Facility"). On the closing date, on a pro-forma combined basis, and assuming all transaction costs and TCS outstanding debt have been paid or assumed, the combined companies had more than $50,000,000 of cash and cash equivalents and outstanding debt of approximately $361,604,000.


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Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)


Our New Credit Facility contains customary negative covenants, subject to negotiated exceptions, on (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The New Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of the Company’s business. The obligations under our New Credit Facility are guaranteed by certain of the Company’s domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security under the New Credit Facility and the guarantees thereof, the Company and the Subsidiary 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 their tangible and intangible assets. The agreements for our New Credit Facility were filed in a separate Current Report on Form 8-K dated February 29, 2016, with the SEC. In addition, under certain circumstances, we may be required to enter into amendments to the agreements in connection with the further syndication of our New Credit Facility. Any such material amendment will be disclosed in a future SEC filing.

We expect to incur transaction and merger related expenditures of approximately $48,000,000, which includes significant amounts for: (i) change-in-control payments, (ii) severance, (iii) costs associated with establishing our New Credit Facility, and (iv) professional fees for financial and legal advisors for both Comtech and TCS. Given that the TCS transaction closed on February 23, 2016, it was not practicable to perform and complete an analysis and assessment of the fair values of assets acquired and liabilities assumed as well as the accounting treatment related to expected transaction and merger related expenditures. Some of these expenditures are expected to be immediately expensed, some expensed during the first year following the closing and some capitalized in accordance with purchase accounting rules. The acquisition is expected to result in a material increase to Comtech’s annual amortization expense related to intangible assets as well as a material increase in annual interest expense.

In connection with the TCS acquisition, and beginning with our third quarter of fiscal 2016, we began managing our business in two operating segments: commercial solutions and government solutions. Our commercial solutions segment serves commercial customers (including smaller governments such as state and local governments) who require advanced technologies to meet their needs. We believe this segment has leadership positions in the areas of satellite communications, public safety systems and enterprise application technologies. Our government solutions segment serves large government end-users (including those of foreign countries) who require mission critical technologies and systems. We believe this segment has leadership positions in the areas of command and control applications, troposcatter communications and RF power and switching technologies.

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Index

ITEM 2. 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this Quarterly Report on Form 10-Q contains forward-looking statements, including but not limited to, information relating to our future performance and financial condition, plans and objectives of our management and our assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under our control which may cause our actual results, future performance and financial condition, and achievement of our plans and objectives to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, among other things: the possibility that the expected synergies from the acquisition of TeleCommunication Systems, Inc. ("TCS") will not be fully realized, or will not be realized within the anticipated time period; the risk that Comtech’s and TCS’s businesses will not be integrated successfully; the possibility of disruption from the merger, making it more difficult to maintain business and operational relationships or retain key personnel; the nature and timing of receipt of, and our performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements; changing customer demands; changes in prevailing economic and political conditions; changes in the price of oil in global markets; changes in foreign currency exchange rates; risks associated with our legal proceedings, customer claims for indemnification, and other similar matters; risks associated with our obligations under our revolving credit facility and acquisition debt; risks associated with our large contracts; and other factors described in this and our other filings with the Securities and Exchange Commission (“SEC”).

OVERVIEW

We design, develop, produce and market innovative products, systems and services for advanced communications solutions. We sell our products to a diverse customer base in the global commercial and government communications markets. We believe we are a leader in most of the market segments that we serve.

In connection with the TCS acquisition, which closed on February 23, 2016 (the first month of our third quarter of fiscal 2016), we have announced that we will manage our combined business in two operating segments: commercial solutions and government solutions. The TCS acquisition is further discussed in the below section, entitled “Business Outlook for Fiscal 2016.”

As of January 31, 2016, we operated our business in three segments: (i) telecommunications transmission, (ii) RF microwave amplifiers and (iii) mobile data communications. As such, the below sections entitled “Comparison of the Results of Operations for the Three Months Ended January 31, 2016 and January 31, 2015” and “Comparison of the Results of Operations for the Six Months Ended January 31, 2016 and January 31, 2015,” have been presented in the same manner as we operated our business.

Our telecommunications transmission segment provides sophisticated equipment and systems that are used to enhance satellite transmission efficiency and that enable wireless communications in environments where terrestrial communications are unavailable, inefficient or too expensive. Our RF microwave amplifiers segment designs, develops, manufactures and markets traveling wave tube amplifiers ("TWTA's") and solid-state power amplifiers ("SSPA's"), including high-power, narrow and broadband RF microwave amplifier products. Our mobile data communications segment's products and services substantially relate to our support of the U.S. Army's Blue Force Tracking (“BFT-1”) program, which is currently in a sustainment mode.

Quarterly and period-to-period sales and operating results may be significantly affected by either short-term or long-term contracts with our customers. In addition, our gross profit is affected by a variety of factors, including the mix of products, systems and services sold, production efficiencies, estimates of warranty expense, price competition and general economic conditions. Our gross profit may also be affected by the impact of any cumulative adjustments to contracts that are accounted for under the percentage-of-completion method.

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Index

Our contracts with the U.S. government can be terminated for convenience by the U.S. government at any time and orders are subject to unpredictable funding, deployment and technology decisions by the U.S. government. Some of these contracts are indefinite delivery/indefinite quantity ("IDIQ") contracts and, as such, the U.S. government is not obligated to purchase any equipment or services under these contracts. We have, in the past, experienced and we continue to expect significant fluctuations in sales and operating results from quarter-to-quarter and period-to-period. As such, comparisons between periods and our current results may not be indicative of a trend or future performance.

As further discussed below, under “Critical Accounting Policies,” revenue from the sale of our products is generally recognized when the earnings process is complete, upon shipment or customer acceptance. Revenue from contracts relating to the design, development or manufacture of complex electronic equipment to a buyer’s specification or to provide services relating to the performance of such contracts are generally recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts” (“ASC 605-35”). Revenue from contracts that contain multiple elements that are not accounted for under FASB ASC 605-35 is generally accounted for in accordance with FASB ASC 605-25, “Revenue Recognition - Multiple Element Arrangements,” which, among other things, requires revenue associated with multiple element arrangements to be allocated to each element based on the relative selling price method.

CRITICAL ACCOUNTING POLICIES

We consider certain accounting policies to be critical due to the estimation process involved in each.

Revenue Recognition on Long-Term Contracts.  Revenues and related costs from long-term contracts relating to the design, development or manufacture of complex electronic equipment to a buyer’s specification or to provide services relating to the performance of such contracts are recognized in accordance with FASB ASC 605, “Revenue Recognition - Construction-Type and Production-Type Contracts” (“ASC 605-35”). We primarily apply the percentage-of-completion accounting method and generally recognize revenue based on the relationship of total costs incurred to total projected costs, or, alternatively, based on output measures, such as units delivered or produced. Profits expected to be realized on such contracts are based on total estimated sales for the contract compared to total estimated costs, including warranty costs, at completion of the contract.

Direct costs which include materials, labor and overhead are charged to work-in-progress (including our contracts-in-progress) inventory or cost of sales. Indirect costs relating to long-term contracts, which include expenses such as general and administrative, are charged to expense as incurred and are not included in our work-in-process (including our contracts-in-progress) inventory or cost of sales. Total estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Estimated losses on long-term contracts are recorded in the period in which the losses become evident. Long-term U.S. government cost-reimbursable type contracts are also specifically covered by FASB ASC 605-35.

We have been engaged in the production and delivery of goods and services on a continual basis under contractual arrangements for many years. Historically, we have demonstrated an ability to accurately estimate total revenues and total expenses relating to our long-term contracts. However, there exist inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. If we do not accurately estimate the total sales, related costs and progress towards completion on such contracts, the estimated gross margins may be significantly impacted or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.

In addition, most government contracts have termination for convenience clauses that provide the customer with the right to terminate the contract at any time. Such terminations could impact the assumptions regarding total contract revenues and expenses utilized in recognizing profit under the percentage-of-completion method of accounting. Changes to these assumptions could materially impact our results of operations and financial condition. Historically, we have not experienced material terminations of our long-term contracts. We also address customer acceptance provisions in assessing our ability to perform our contractual obligations under long-term contracts. Our inability to perform on our long-term contracts could materially impact our results of operations and financial condition. Historically, we have been able to perform on our long-term contracts.

Accounting for Stock-Based Compensation.  As discussed further in “Notes to Condensed Consolidated Financial Statements – Note (11) Stock-Based Compensation,” we issue stock-based awards to certain of our employees and our Board of Directors and we recognize related stock-based compensation for both equity and liability-classified stock-based awards in our condensed consolidated financial statements.


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We have used and expect to continue to use the Black-Scholes option pricing model to compute the estimated fair value of stock options. The Black-Scholes option pricing model includes assumptions regarding dividend yield, expected volatility, expected option term and risk-free interest rates. The expected dividend yield is the expected annual dividend as a percentage of the fair market value of the stock on the date of grant. We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term. The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns.

The assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the recipients of stock-based awards. As a result, if other assumptions or estimates had been used, stock-based compensation expense that was recorded could have been materially different. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.

Impairment of Goodwill and Other Intangible AssetsAs of January 31, 2016, goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $137.4 million (of which $107.8 million relates to our telecommunications transmission segment and $29.6 million relates to our RF microwave amplifiers segment). Additionally, as of January 31, 2016, intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $17.4 million (of which $9.3 million relates to our telecommunications transmission segment and $8.1 million relates to our RF microwave amplifiers segment). Our mobile data communications segment has no goodwill or intangible assets. Each of our three operating segments constitutes a reporting unit and we must make various assumptions in determining their estimated fair values.

In accordance with FASB ASC 350, “Intangibles - Goodwill and Other,” 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. If we fail Step One (discussed below), we would do a Step Two test which compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

On August 1, 2015 (the first day of our fiscal 2016), we performed a quantitative assessment (commonly referred to as a Step One test) using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value. Based on our quantitative evaluation performed on August 1, 2015, we determined that our telecommunications transmission and RF microwave amplifiers reporting units had estimated fair values in excess of their carrying values of at least 14.0% and 14.2%, respectively, and concluded that our goodwill was not impaired. As such, we did not perform a Step Two assessment.
 
As discussed further in “Notes to Condensed Consolidated Financial Statements - Note (18) - Subsequent Events,” in anticipation of closing the TCS acquisition, we announced a new organizational structure in which our chief operating decision maker will manage the enterprise in two operating segments: commercial solutions and government solutions. In connection with this reporting change, we intend to perform a “Before Reorganization” and an “After Reorganization” interim goodwill impairment test during our three months ending April 30, 2016. Although these tests have not yet been finalized, we believe that no impairment of goodwill will result from our change to a new segment organizational structure.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2016 (the start of our fiscal 2017). This test will include an evaluation of the substantial goodwill that is expected to result from the TCS acquisition. During the interim periods, if our expected financial results materially decline below our expectations or if other events and circumstances change which indicate the potential for impairment (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record interim impairment charges if we perform and fail an interim test. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.



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Provision for Warranty Obligations.  We provide warranty coverage for most of our products, including products under long-term contracts, for a period of at least one year from the date of shipment. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Costs associated with some of our warranties that are provided under long-term contracts are incorporated into our estimates of total contract costs.

There exist inherent risks and uncertainties in estimating warranty expenses, particularly on larger or longer-term contracts. As such, if we do not accurately estimate our warranty costs, any changes to our original estimates could be material to our results of operations and financial condition.

Accounting for Income Taxes.  Our deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, and applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Our provision for income taxes is based on domestic (including federal and state) and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting and available credits and incentives. We recognize interest and penalties related to uncertain tax positions in income tax expense. The U.S. federal government is our most significant income tax jurisdiction.

Significant judgment is required in determining income tax provisions and tax positions. We may be challenged upon review by the applicable taxing authority and positions taken by us may not be sustained. We recognize all or a portion of the benefit of income tax positions only when we have made a determination that it is more-likely-than-not that the tax position will be sustained upon examination, based upon the technical merits of the position and other factors. For tax positions that are determined as more-likely-than-not to be sustained upon examination, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The development of valuation allowances for deferred tax assets and reserves for income tax positions requires consideration of timing and judgments about future taxable income, tax issues and potential outcomes, and are subjective critical estimates. In certain circumstances, the ultimate outcome of exposures and risks involves significant uncertainties. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations and financial condition. As a result of our adoption of FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” for periods presented after July 31, 2015, all of our deferred income taxes are now classified as non-current.

In December 2015, we received notification from the Internal Revenue Service ("IRS") of its intent to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2012 and 2013 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Provisions for Excess and Obsolete Inventory.  We record a provision for excess and obsolete inventory based on historical and future usage trends. Other factors may also influence our provision, including decisions to exit a product line, technological change and new product development. These factors could result in a change in the amount of excess and obsolete inventory on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory was overvalued, we would be required to recognize such costs in our financial statements at the time of such determination. Any such charge could be material to our results of operations and financial condition.

Allowance for Doubtful Accounts.  We perform credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness, as determined by our review of our customers’ current credit information. Generally, we will require cash in advance or payment secured by irrevocable letters of credit before an order is accepted from an international customer that we do not do business with regularly. In addition, we seek to obtain insurance for certain domestic and international customers.

We monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. In light of ongoing tight credit market conditions, we continue to see requests from our customers for higher credit limits and longer payment terms. We have, on a limited basis, approved certain customer requests.

We continue to monitor our accounts receivable credit portfolio. Except for an increase in bad debt expense in fiscal 2015 related to one international customer, our overall credit losses have historically been within our expectations of the allowances established. In light of the current global economic conditions, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

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Business Outlook for Fiscal 2016

During the three months ended January 31, 2016, we continued to operate our legacy business (which excludes the TCS acquisition) in a challenging environment. In particular, the end markets for certain of our products, primarily our satellite earth station product line, continue to be significantly impacted. Global oil and natural gas prices have further declined since we reported our first quarter fiscal 2016 results. As such, our customers in energy dependent countries including Russia and Brazil, among others, continue to be adversely impacted. Additionally, many of our international customers (including those in emerging markets and developing countries) have experienced lower purchasing power for our products given the relative strength of the U.S. dollar (the currency in which virtually all of our sales are denominated). In response to all of the aforementioned, many of our international customers have cut their spending budgets for our products or have delayed purchases. As such, our legacy business is not expected to achieve the same level of annual revenues or operating income in fiscal 2016 that it achieved in fiscal 2015. Nevertheless, as a result of the TCS acquisition, our consolidated Business Outlook for Fiscal 2016 is expected to improve as compared to fiscal 2015. We also believe that our fiscal 2017 financial results will be significantly higher than the amounts we anticipate to achieve in fiscal 2016.

As discussed in detail in “Notes to Condensed Consolidated Financial Statements - Note (18) - Subsequent Events,” pursuant to the terms of a merger agreement, we completed the acquisition of TCS on February 23, 2016. TCS is a leading provider of commercial solutions (such as public safety systems and enterprise application technologies), and government solutions (such as command and control (also known as Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (“C4ISR”))) applications. The acquisition was a significant step in our strategy of entering complementary markets and expanding our domestic and international commercial offerings. We believe that the acquisition of TCS provides the following strategic benefits which will have a positive impact to our Business Outlook for Fiscal 2016:

The creation of scale and more diversified earnings, reducing volatility associated with challenging international (including emerging markets) business conditions;

Entry into new commercial markets, including the public safety market which has a growing need for next generation emergency 911 systems;

An enhanced position with existing customers, including the U.S. government, for which Comtech will now be a prime contractor, including for sales of our over-the-horizon microwave systems (troposcatter) products; and

The ability to obtain meaningful cost synergies.

In connection with the TCS acquisition, and beginning with our third quarter of fiscal 2016, we reorganized our business into two operating segments: commercial solutions and government solutions. Our commercial solutions segment serves commercial customers (including smaller governments such as state and local governments) which require advanced technologies to meet their needs. We believe this segment has leadership positions in the areas of satellite communications, public safety systems and enterprise application technologies. Our government solutions segment serves large government end-users (including those of foreign countries) which require mission critical technologies and systems. We believe this segment has leadership positions in the areas of C4ISR applications, troposcatter communications and RF power and switching technologies.

Although the TCS business previously operated on a calendar year basis, as a result of the acquisition, TCS will conform to Comtech’s fiscal year which ends on July 31st. During the twelve months ended December 31, 2015, based on unaudited financial results, TCS generated net sales of approximately $360.0 million, of which approximately 47.2% or $169.8 million was generated during the first half of its calendar year 2015 (which was the six-month period ended June 30, 2015).

Our consolidated Business Outlook for Fiscal 2016 will benefit from incremental net sales and operating income contributions from TCS that will be generated from February 23, 2016 (the acquisition closing date) through July 31, 2016 (the end of our current fiscal year). Our third quarter of fiscal 2016 will reflect approximately two months of TCS operations while our fourth quarter of fiscal 2016 will reflect a full three months of TCS operations. The approximately five months of TCS net sales contributions to our fiscal 2016 is expected to be less than the $169.8 million of net sales that TCS generated in the first half of its calendar year 2015. At the same time, the results for the second half of our fiscal 2016, particularly the third quarter of our fiscal 2016, will reflect significant transaction and merger related expenses, duplicate spending, severance costs and certain inefficiencies as we combine our business operations.


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Excluding transaction and merger related expenditures, on a cash basis, the acquisition is expected to be accretive. We are on track to deliver meaningful cost synergies, which are expected to approximate an annual run-rate of $8.0 million over the next several quarters, with $12.0 million of synergies in the second year after completing the acquisition. Synergies are expected to be achieved by reductions in duplicate public company costs, reduced spending on maintaining multiple information technology systems and obtaining increased operating efficiencies throughout the combined company.

The total amount of transaction and merger related expenditures is expected to approximate $48.0 million, which includes significant amounts for: (i) change-in-control payments, (ii) severance, (iii) costs associated with establishing a new $400.0 million credit facility (the "New Credit Facility"), described below in "Liquidity and Capital Resources," and (iv) professional fees for financial and legal advisors for both Comtech and TCS. Given that the TCS transaction closed on February 23, 2016, it is not practicable, as of the date of this SEC filing, to perform and complete an analysis and assessment of the fair values of assets and liabilities acquired as well as the accounting treatment related to expected transaction and merger related expenditures. Some of these expenditures are expected to be immediately expensed, some expensed during the first year following the closing of the acquisition and some capitalized in accordance with purchase accounting rules. In addition to the impact of transaction and merger related expenditures, our financial results in our second half of fiscal 2016 are expected to reflect a material increase in Comtech’s annual amortization expense related to intangible assets as well as a material increase in annual interest expense associated with our New Credit Facility.

The TCS acquisition has a preliminary aggregate purchase price for accounting purposes of approximately $340.4 million (also referred to as the "transaction equity value"). As of February 23, 2016, the date we closed the acquisition, based on unaudited financial information, TCS had $61.4 million of cash and cash equivalents and debt (including accrued interest) of approximately $144.1 million. As such, the transaction had an enterprise value of approximately $423.2 million. We expect to fully fund the acquisition (including $48.0 million of transaction and merger related expenditures) and to repay the large majority of TCS's debt by redeploying a significant amount of our combined cash and cash equivalents, with the remaining funds coming from our New Credit Facility. On the closing date, on a pro-forma combined basis and assuming all transaction costs and TCS's outstanding debt were paid or assumed, the combined companies had more than $50.0 million of cash and cash equivalents and outstanding debt of approximately $361.6 million.

As we continue to evaluate the anticipated impact of the TCS acquisition on our Business Outlook for Fiscal 2016, including with respect to finalizing required purchase accounting and fair value estimates of assets acquired and liabilities assumed, we anticipate being in a position to provide more specifics concerning our Fiscal 2016 Business Outlook in a future announcement during our third fiscal quarter.

Additional information related to our Business Outlook for Fiscal 2016 is included in the below sections entitled “Comparison of the Results of Operations for the Three Months Ended January 31, 2016 and January 31, 2015” and “Comparison of the Results of Operations for the Six Months Ended January 31, 2016 and January 31, 2015.”

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2016 AND JANUARY 31, 2015

Except to the extent expressly stated, the following discussion gives no effect to our acquisition of TCS which closed on February 23, 2016.

Net Sales. Consolidated net sales were $70.3 million and $81.8 million for the three months ended January 31, 2016 and 2015, respectively, representing a decrease of $11.5 million, or 14.1%. As further discussed below, the period-over-period decrease primarily reflects significantly lower net sales in our telecommunications transmission segment, partially offset by higher net sales in our RF microwave amplifiers and mobile data communications segments.

Telecommunications Transmission
Net sales in our telecommunications transmission segment were $38.6 million and $53.9 million for the three months ended January 31, 2016 and 2015, respectively, a significant decrease of $15.3 million, or 28.4%. This decrease reflects lower comparative net sales in both our satellite earth station and over-the-horizon microwave systems product lines, as further discussed below.

Both net sales and bookings for our satellite earth station products were lower during the three months ended January 31, 2016 as compared to the three months ended January 31, 2015 as our international customers continue to face significant economic challenges. As end markets for our satellite earth station products have been and continue to be significantly impacted by adverse global business conditions, we are now expecting annual satellite earth station product sales to decrease in fiscal 2016 as compared to fiscal 2015. The fourth quarter of fiscal 2016 is expected to be the peak quarter of sales for this product line in fiscal 2016.


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Net sales of our over-the-horizon microwave systems were significantly lower during the three months ended January 31, 2016 as compared to the three months ended January 31, 2015. Annual and quarterly sales of our over-the-horizon microwave systems and products tend to fluctuate, based on the timing of, and our related performance on large customer contracts. In this regard, although we continued performance on our two large multi-year contracts to design and supply over-the-horizon microwave systems and equipment for a North African government, both of these contracts are nearing completion. Sales generated from these contracts during the three months ended January 31, 2016 were significantly lower than sales generated during the three months ended January 31, 2015 and these sales are not expected to increase during the remainder of our contract performance. Although lower sales from the two large contracts are expected to result in lower annual over-the-horizon microwave systems sales in fiscal 2016 as compared to fiscal 2015, we are expecting strong bookings during the second half of fiscal 2016. We anticipate receiving and starting shipment of large new orders from one or more international customers who have expressed strong interest in our products. The fourth quarter of fiscal 2016 is expected to be the peak quarter of sales for this product line in fiscal 2016.

In the aggregate, sales in our telecommunications transmission segment are expected to decline in fiscal 2016 as compared to fiscal 2015. Bookings, sales and profitability in our telecommunications transmission segment can fluctuate from period-to-period due to many factors, including the book and ship nature of our satellite earth station products, the current volatile and adverse conditions in the global economy, and the timing of, and our related performance on, contracts from the U.S. government (including prime contractors to the U.S. government) and from both existing and new international customers.

Our telecommunications transmission segment represented 54.8% of consolidated net sales for the three months ended January 31, 2016, as compared to 65.9% for the three months ended January 31, 2015.

RF Microwave Amplifiers
Net sales in our RF microwave amplifiers segment were $24.9 million for the three months ended January 31, 2016, as compared to $21.6 million for the three months ended January 31, 2015, an increase of $3.3 million, or 15.3%. This increase reflects higher sales in both our traveling wave tube amplifier and solid-state high-power amplifier product lines.

To date, adverse global business conditions that have impacted our satellite earth station product line have not significantly impacted our RF microwave amplifiers segment. While we have seen a delay in some orders, we continue to expect that fiscal 2016 will be another year of sales and bookings growth for this segment.

Customer reaction to our new SuperPowerTM traveling wave tube amplifiers has been extremely positive. We received our first order for this new product in fiscal 2015, received orders for this product in the first and second quarters of fiscal 2016 and we are expecting significant additional orders during the balance of fiscal 2016. In addition, we are expanding our presence in the fast-growing in-flight connectivity market. We believe we are a leader in this market and expect strong sales into this market during fiscal 2016 and beyond.

Bookings, sales and profitability in our RF microwave amplifiers segment can fluctuate from period-to-period due to many factors, including the challenging business conditions and U.S. and international military budget constraints that currently exist, and the timing of, and our related performance on, contracts from the U.S. government (including prime contractors to the U.S. government) and international customers.

Our RF microwave amplifiers segment represented 35.5% of consolidated net sales for the three months ended January 31, 2016 as compared to 26.4% for the three months ended January 31, 2015.

Mobile Data Communications
Net sales in our mobile data communications segment were $6.8 million for the three months ended January 31, 2016 as compared to $6.3 million for the three months ended January 31, 2015, an increase of $0.5 million, or 7.9%. Sales in both periods primarily reflect our efforts in providing BFT-1 sustainment support services to the U.S. Army (including $2.5 million of net sales related to our annual $10.0 million BFT-1 intellectual property license fee) and are expected to continue at the same levels for each of the remaining fiscal 2016 quarters.

Bookings, sales and profitability in our mobile data communications segment can fluctuate dramatically from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by the U.S. government. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Our mobile data communications segment represented 9.7% of consolidated net sales for the three months ended January 31, 2016, as compared to 7.7% for the three months ended January 31, 2015.


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Geography and Customer Type
Sales to U.S. government customers (which include sales to the U.S. Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors) approximated 42.0% and 27.5% of consolidated net sales for the three months ended January 31, 2016 and 2015, respectively.

International sales (which include sales to U.S. companies for inclusion in products that are sold to international customers) approximated 38.0% and 60.8% of consolidated net sales for the three months ended January 31, 2016 and 2015, respectively.

Domestic commercial sales approximated 20.0% and 11.7% of consolidated net sales for the three months ended January 31, 2016 and 2015, respectively.

Gross Profit. Gross profit was $29.4 million and $37.9 million for the three months ended January 31, 2016 and 2015, respectively, representing a decrease of $8.5 million. This decrease was driven by lower consolidated net sales and an overall lower gross profit percentage. Gross profit, as a percentage of consolidated net sales was 41.8% for the three months ended January 31, 2016 as compared to 46.3% for the three months ended January 31, 2015. Gross profit, as a percentage of related segment sales is further discussed below.

Our telecommunications transmission segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2016, was significantly lower than the percentage we achieved for the three months ended January 31, 2015. This decrease was primarily attributable to significantly lower sales and changes in product sales mix in our satellite earth station product line (both of which resulted in significantly lower gross profit margins).

Our RF microwave amplifiers segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2016, was lower as compared to the three months ended January 31, 2015. This decrease is primarily the result of changes in overall segment sales mix.

Our mobile data communications segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2016, was higher as compared to the three months ended January 31, 2015. The increase is primarily the result of changes in overall segment sales mix. Gross profit in both periods includes $2.5 million related to our annual $10.0 million BFT-1 intellectual property license.

Included in consolidated cost of sales for the three months ended January 31, 2016 and 2015 are provisions for excess and obsolete inventory of $0.6 million and $0.7 million, respectively. As discussed in our “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory,” we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage assumptions.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $15.0 million and $16.0 million for the three months ended January 31, 2016 and 2015, respectively, representing a decrease of $1.0 million.

As a percentage of consolidated net sales, selling, general and administrative expenses were 21.3% and 19.6% for the three months ended January 31, 2016 and 2015, respectively. The increase in percentage is primarily due to lower overall consolidated net sales during the three months ended January 31, 2016.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $0.9 million in both three month periods ended January 31, 2016 and 2015.

Research and Development Expenses. Research and development expenses were $7.7 million and $9.7 million for the three months ended January 31, 2016 and 2015, respectively, representing a decrease of $2.0 million, or 20.6%. As a percentage of consolidated net sales, research and development expenses were 11.0% and 11.9% for the three months ended January 31, 2016 and 2015, respectively. These decreases were driven by cost reduction activities and the completion of several research and development projects.


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For the three months ended January 31, 2016 and 2015, research and development expenses of $5.4 million and $6.8 million, respectively, related to our telecommunications transmission segment, $2.1 million and $2.4 million, respectively, related to our RF microwave amplifiers segment, and $0.1 million and $0.4 million, respectively, related to our mobile data communications segment. The remaining research and development expenses of $0.1 million for both the three months ended January 31, 2016 and 2015 related to the amortization of stock-based compensation expense, which is not allocated to our three reportable operating segments.

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During the three months ended January 31, 2016 and 2015, customers reimbursed us $2.3 million and $2.0 million, respectively, which is not reflected in the reported research and development expenses, but is included in net sales with the related costs included in cost of sales.

Acquisition Plan Expenses. As discussed in prior SEC filings, our President and CEO initiated an assessment of our operations and embarked on a focused acquisition plan. In this regard, during the three months ended January 31, 2016, we incurred approximately $2.3 million of expenses related to our focused acquisition plan, the large majority of which related to our activities which resulted in the signing of a definitive merger agreement to acquire TCS (which is discussed further in “Notes to Condensed Consolidated Financial Statements - Note (18) - Subsequent Events” and the section above entitled “Business Outlook for Fiscal 2016"). There were no comparable expenses during the three months ended January 31, 2015.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $1.2 million and $1.6 million for the three months ended January 31, 2016 and 2015, respectively. We expect amortization of intangible assets to materially increase as a result of our acquisition of TCS.

Operating Income. Operating income for the three months ended January 31, 2016 was $3.2 million, or 4.6% of consolidated net sales as compared to $10.6 million, or 13.0% of consolidated net sales, for the three months ended January 31, 2015. Excluding $2.3 million of expenses related to our acquisition plan, operating income for the three months ended January 31, 2016 would have been $5.5 million, or 7.8% of consolidated net sales. Operating income (both in dollars and as a percentage of consolidated net sales) is discussed below, by segment.

Our telecommunications transmission segment generated operating income of $4.8 million, or 12.4% of related segment net sales, for the three months ended January 31, 2016, as compared to $11.0 million, or 20.4% of related segment net sales for the three months ended January 31, 2015. The decrease in operating income, both in dollars and as a percentage of related segment net sales, is primarily due to significantly lower net sales activity and a lower gross profit, as a percentage of related net sales, as discussed above.

Our RF microwave amplifiers segment generated operating income of $1.4 million, or 5.6% of related segment net sales, for the three months ended January 31, 2016 as compared to $1.0 million, or 4.6% of related segment net sales, for the three months ended January 31, 2015. Operating income both in dollars and as a percentage of related segment net sales benefited from overall higher segment net sales.

Our mobile data communications segment generated operating income of $3.7 million, or 54.4% of related segment net sales, for the three months ended January 31, 2016 as compared to $2.7 million, or 42.9% of related segment net sales, for the three months ended January 31, 2015. Operating income both in dollars and as a percentage of related segment net sales benefited from a more favorable sales mix and lower research and development expenses, as discussed above.

Unallocated operating expenses were $6.7 million and $4.1 million for the three months ended January 31, 2016 and 2015, respectively. The increase is primarily due to the $2.3 million of expense related to our focused acquisition plan, the large majority of which related to our activities which resulted in our acquisition of TCS on February 23, 2016.

Amortization of stock-based compensation expense, which is included in unallocated operating expenses, was $1.1 million for both three month periods ended January 31, 2016 and 2015.

Interest Expense. Interest expense was $0.1 million for both three month periods ended January 31, 2016 and 2015. As a result of the TCS acquisition and our New Credit Facility, interest expense is expected to materially increase for the remainder of fiscal 2016.


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Interest Income and Other. Interest income and other for both three month periods ended January 31, 2016 and 2015 was $0.1 million. Interest income and other for both periods is primarily generated from interest earned on our cash and cash equivalents. All of our available cash and cash equivalents are currently invested in bank deposits, money market mutual funds, certificates of deposit, and short-term U.S. Treasury securities which, at this time, are currently yielding a blended annual interest rate of approximately 0.44%.

Provision for Income Taxes. The provision for income taxes was $0.8 million and $3.1 million for the three months ended January 31, 2016 and 2015, respectively. Our effective tax rate was 23.2% for the three months ended January 31, 2016, as compared to 28.7% for the three months ended January 31, 2015.

Our effective tax rate for the three months ended January 31, 2016 reflects a discrete tax benefit of approximately $0.3 million, primarily related to the passage of legislation that included the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014.

Our effective tax rate for the three months ended January 31, 2015 reflects a discrete tax benefit of approximately $0.6 million, primarily related to the passage of legislation that included the retroactive extension of the research and experimentation credit from December 31, 2013 to December 31, 2014 and the finalization of certain tax deductions in connection with the filing of certain foreign fiscal 2014 income tax returns.

Excluding discrete tax items in both periods, our effective tax rate for the three months ended January 31, 2016 would have been 33.5% as compared to 34.75% for the three months ended January 31, 2015. The decrease from 34.75% to 33.5% is principally attributable to the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014, and expected product and geographical mix changes reflected in our fiscal 2016 business outlook.

In December 2015, we received notification from the Internal Revenue Service ("IRS") of its intent to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2012 and 2013 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 2016 AND JANUARY 31, 2015

Except to the extent expressly stated, the following discussion gives no effect to our acquisition of TCS which closed on February 23, 2016.

Net Sales. Consolidated net sales were $134.4 million and $158.2 million for the six months ended January 31, 2016 and 2015, respectively, representing a decrease of $23.8 million, or 15.0%. As further discussed below, the period-over-period decrease primarily reflects significantly lower net sales in our telecommunications transmission segment, partially offset by higher net sales in our RF microwave amplifiers and mobile data communications segments.

Telecommunications Transmission
Net sales in our telecommunications transmission segment were $73.8 million and $105.2 million for the six months ended January 31, 2016 and 2015, respectively, a significant decrease of $31.4 million, or 29.8%. This decrease reflects lower comparative net sales in both our satellite earth station and over-the-horizon microwave systems product lines, as further discussed below.
 
Both net sales and bookings for our satellite earth station products were significantly lower during the six months ended January 31, 2016 as compared to the six months ended January 31, 2015 as our international customers continue to face significant economic challenges. As end-markets for our satellite earth station products have been and continue to be significantly impacted by adverse global business conditions, we are now expecting annual satellite earth station product sales to decrease in fiscal 2016 as compared to fiscal 2015. The fourth quarter of fiscal 2016 is expected to be the peak quarter of sales for this product line in fiscal 2016.


35


Index

Net sales of our over-the-horizon microwave systems were significantly lower during the six months ended January 31, 2016 as compared to the six months ended January 31, 2015. Annual and quarterly sales of our over-the-horizon microwave systems and products tend to fluctuate, based on the timing of, and our related performance on large customer contacts. In this regard, although we continued performance during the six months ended January 31, 2016 on our two large multi-year contracts to design and supply over-the-horizon microwave systems and equipment for a North African government, both of these contracts are nearing completion. Sales generated from this contract during six months ended January 31, 2016 were significantly lower than sales generated during the six months ended January 31, 2015 and these sales are not expected to increase during the remainder of our contract performance. Although lower sales from the two large contracts are expected to result in lower annual over-the-horizon microwave systems sales in fiscal 2016 as compared to fiscal 2015, we are expecting strong bookings during the second half of fiscal 2016. We anticipate receiving and starting shipment of large new orders from one or more international customers who have expressed strong interest in our products. The fourth quarter of fiscal 2016 is expected to be the peak quarter of sales for this product line in fiscal 2016.

In the aggregate, sales in our telecommunications transmission segment are expected to decline in fiscal 2016 as compared to fiscal 2015. Bookings, sales and profitability in our telecommunications transmission segment can fluctuate from period-to-period due to many factors, including the book and ship nature of our satellite earth station products, the current volatile and adverse conditions in the global economy, and the timing of, and our related performance on, contracts from the U.S. government (including prime contractors to the U.S. government) and from both existing and new international customers.

Our telecommunications transmission segment represented 54.9% of consolidated net sales for the six months ended January 31, 2016, as compared to 66.5% for the six months ended January 31, 2015.

RF Microwave Amplifiers
Net sales in our RF microwave amplifiers segment were $47.6 million for the six months ended January 31, 2016, as compared to $40.4 million for the six months ended January 31, 2015, an increase of $7.2 million, or 17.8%. This increase reflects higher sales in both our traveling wave tube amplifier and solid-state high-power amplifier product lines.

To date, adverse global business conditions that have impacted our satellite earth station product line have not significantly impacted our RF microwave amplifiers segment. While we have seen a delay in some orders, we continue to expect that fiscal 2016 will be another year of sales and bookings growth for this segment.

Customer reaction to our new SuperPowerTM traveling wave tube amplifiers has been extremely positive. We received our first order for this new product in fiscal 2015, received orders for this product in the first and second quarters of fiscal 2016 and we are expecting significant additional orders during the balance of fiscal 2016. In addition, we are expanding our presence in the fast-growing in-flight connectivity market. We believe we are a leader in this market and expect strong sales into this market during fiscal 2016 and beyond.

Bookings, sales and profitability in our RF microwave amplifiers segment can fluctuate from period-to-period due to many factors, including the challenging business conditions and U.S. and international military budget constraints that currently exist, and the timing of, and our related performance on, contracts from the U.S. government (including prime contractors to the U.S. government) and international customers.

Our RF microwave amplifiers segment represented 35.4% of consolidated net sales for the six months ended January 31, 2016 as compared to 25.5% for the six months ended January 31, 2015.

Mobile Data Communications
Net sales in our mobile data communications segment were $13.1 million for the six months ended January 31, 2016 as compared to $12.6 million for the six months ended January 31, 2015, an increase of $0.5 million, or 4.0%. Sales in both periods primarily reflect our efforts in providing BFT-1 sustainment support services to the U.S. Army (including $5.0 million of net sales related to our annual $10.0 million BFT-1 intellectual property license fee) and are expected to continue at the same levels for the balance of fiscal 2016.

Bookings, sales and profitability in our mobile data communications segment can fluctuate dramatically from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by the U.S. government. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Our mobile data communications segment represented 9.7% of consolidated net sales for the six months ended January 31, 2016, as compared to 8.0% for the six months ended January 31, 2015.


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Index

Geography and Customer Type
Sales to U.S. government customers (which include sales to the DoD, intelligence and civilian agencies, as well as sales directly to or through prime contractors) approximated 41.7% and 26.2% of consolidated net sales for the six months ended January 31, 2016 and 2015, respectively.

International sales (which include sales to U.S. companies for inclusion in products that are sold to international customers) approximated 40.9% and 61.0% of consolidated net sales for the six months ended January 31, 2016 and 2015, respectively.

Domestic commercial sales approximated 17.4% and 12.8% of consolidated net sales for the six months ended January 31, 2016 and 2015, respectively.

Gross Profit. Gross profit was $57.6 million and $73.2 million for the six months ended January 31, 2016 and 2015, respectively, representing a decrease of $15.6 million. This decrease was driven by lower consolidated net sales and an overall lower gross profit percentage. Gross profit, as a percentage of consolidated net sales was 42.9% for the six months ended January 31, 2016 as compared to 46.3% for the six months ended January 31, 2015. Gross profit, as a percentage of related segment sales is further discussed below.

Our telecommunications transmission segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2016, was lower than the percentage we achieved for the six months ended January 31, 2015. This decrease was primarily attributable to significantly lower sales and changes in product sales mix in our satellite earth station product line (both of which resulted in significantly lower gross profit margins), offset in part by better than expected performance on our over-the-horizon microwave systems contracts.

Our RF microwave amplifiers segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2016 was slightly lower as compared to the six months ended January 31, 2015. This decrease is primarily the result of changes in overall segment sales mix.

Our mobile data communications segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2016, was higher as compared to the six months ended January 31, 2015. The increase is primarily the result of changes in overall segment sales mix. Gross profit in both periods includes $5.0 million related to our annual $10.0 million BFT-1 intellectual property license.

Included in consolidated cost of sales for both the six months ended January 31, 2016 and 2015 are provisions for excess and obsolete inventory of $1.3 million. As discussed in our “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory,” we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage assumptions.
 
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $30.4 million and $31.6 million for the six months ended January 31, 2016 and 2015, respectively, representing a decrease of $1.2 million.

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.6% and 20.0% for the six months ended January 31, 2016 and 2015, respectively. The increase in percentage is primarily due to lower overall consolidated net sales during the six months ended January 31, 2016.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $1.8 million in the six months ended January 31, 2016 as compared to $2.0 million in the six months ended January 31, 2015. This decrease is primarily related to changes in the timing of grants for certain stock-based awards.

Research and Development Expenses. Research and development expenses were $15.6 million and $19.7 million for the six months ended January 31, 2016 and 2015, respectively, representing a decrease of $4.1 million, or 20.8%. As a percentage of consolidated net sales, research and development expenses were 11.6% and 12.5% for the six months ended January 31, 2016 and 2015, respectively. These decreases were driven by cost reduction activities and the completion of several research and development projects.


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For the six months ended January 31, 2016 and 2015, research and development expenses of $10.9 million and $14.1 million, respectively, related to our telecommunications transmission segment, $4.3 million and $4.6 million, respectively, related to our RF microwave amplifiers segment, and $0.2 million and $0.7 million, respectively, related to our mobile data communications segment. The remaining research and development expenses of $0.2 million and $0.3 million for the six months ended January 31, 2016 and 2015, respectively, related to the amortization of stock-based compensation expense, which is not allocated to our three reportable operating segments.

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During the six months ended January 31, 2016 and 2015, customers reimbursed us $4.8 million and $4.3 million, respectively, which is not reflected in the reported research and development expenses, but is included in net sales with the related costs included in cost of sales.

Acquisition Plan Expenses. As discussed in prior SEC filings, our President and CEO initiated an assessment of our operations and embarked on a focused acquisition plan. In this regard, during the six months ended January 31, 2016, we incurred approximately $3.7 million of expenses related to our focused acquisition plan, the large majority of which related to our activities which resulted in the signing of a definitive merger agreement to acquire TCS (which is discussed further in “Notes to Condensed Consolidated Financial Statements - Note (18) - Subsequent Events” and the section above entitled “Business Outlook for Fiscal 2016"). There were no comparable expenses during the six months ended January 31, 2015.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $2.6 million and $3.1 million for the six months ended January 31, 2016 and 2015, respectively. We expect amortization of intangible assets to materially increase as a result of our acquisition of TCS.

Operating Income. Operating income for the six months ended January 31, 2016 was $5.4 million, or 4.0% of consolidated net sales as compared to $18.8 million, or 11.9% of consolidated net sales, for the six months ended January 31, 2015. Excluding $3.7 million of expenses related to our focused acquisition plan, operating income for the six months ended January 31, 2016 would have been $9.1 million, or 6.8% of consolidated net sales. Operating income (both in dollars and as a percentage of consolidated net sales) is discussed below, by segment.

Our telecommunications transmission segment generated operating income of $7.2 million, or 9.8% of related segment net sales, for the six months ended January 31, 2016, as compared to $19.2 million, or 18.3% of related segment net sales for the six months ended January 31, 2015. The decrease in operating income, both in dollars and as a percentage of related segment net sales, is primarily due to significantly lower net sales activity and a lower gross profit, as a percentage of related net sales, as discussed above.

Our RF microwave amplifiers segment generated operating income of $3.4 million, or 7.1% of related segment net sales, for the six months ended January 31, 2016 as compared to $2.0 million, or 5.0% of related segment net sales, for the six months ended January 31, 2015. Operating income both in dollars and as a percentage of related segment net sales benefited from overall higher segment net sales.

Our mobile data communications segment generated operating income of $6.7 million, or 51.1% of related segment net sales, for the six months ended January 31, 2016 as compared to $5.6 million, or 44.4% of related segment net sales, for the six months ended January 31, 2015. Operating income both in dollars and as a percentage of related segment net sales benefited from lower research and development expenses, as discussed above.

Unallocated operating expenses were $11.9 million and $8.0 million for the six months ended January 31, 2016 and 2015, respectively. The increase is primarily due to the $3.7 million of expense related to our focused acquisition plan, the large majority of which related to our activities which resulted in our acquisition of TCS on February 23, 2016. Unallocated operating expenses during the six months ended January 31, 2015 include $0.6 million of expenses related to our strategic alternatives analysis which was completed in December 2014.

Amortization of stock-based compensation expense, which is included in unallocated operating expenses, was $2.1 million and $2.4 million for the six months ended January 31, 2016 and 2015, respectively.

Interest Expense. Interest expense was $0.1 million and $0.3 million for the six months ended January 31, 2016 and 2015, respectively. As a result of the TCS acquisition and our New Credit Facility, interest expense is expected to materially increase for the remainder of fiscal 2016.


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Index

Interest Income and Other. Interest income and other for both six month periods ended January 31, 2016 and 2015 was $0.2 million. Interest income and other for both periods is primarily generated from interest earned on our cash and cash equivalents. All of our available cash and cash equivalents are currently invested in bank deposits, money market mutual funds, certificates of deposit, and short-term U.S. Treasury securities which, at this time, are currently yielding a blended annual interest rate of approximately 0.44%.

Provision for Income Taxes. The provision for income taxes was $1.5 million and $5.9 million for the six months ended January 31, 2016 and 2015, respectively. Our effective tax rate was 27.9% for the six months ended January 31, 2016, as compared to 31.4% for the six months ended January 31, 2015.

Our effective tax rate for the six months ended January 31, 2016 reflects a discrete tax benefit of approximately $0.3 million, primarily related to the passage of legislation that included the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014.

Our effective tax rate for the six months ended January 31, 2015 reflects a discrete tax benefit of approximately $0.6 million, primarily related to the passage of legislation that included the retroactive extension of the research and experimentation credit from December 31, 2013 to December 31, 2014 and the finalization of certain tax deductions in connection with the filing of certain foreign fiscal 2014 income tax returns.

Excluding discrete tax items in both periods, our effective tax rate for the six months ended January 31, 2016 would have been 33.5% as compared to 34.75% for the six months ended January 31, 2015. The decrease from 34.75% to 33.5% is principally attributable to the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014, and expected product and geographical mix changes reflected in our fiscal 2016 business outlook.

In December 2015, we received notification from the Internal Revenue Service ("IRS") of its intent to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2012 and 2013 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

LIQUIDITY AND CAPITAL RESOURCES

Except to the extent expressly stated, the following discussion gives no effect to our acquisition of TCS which closed on February 23, 2016.

Our cash and cash equivalents increased to $163.5 million at January 31, 2016 from $151.0 million at July 31, 2015, an increase of $12.5 million. The increase in cash and cash equivalents during the six months ended January 31, 2016 was driven by the following:

Net cash provided by operating activities was $23.4 million for the six months ended January 31, 2016 as compared to net cash used of $8.2 million for the six months ended January 31, 2015. The significant period-over-period increase in cash flow from operating activities is attributable to overall changes in net working capital requirements, most notably the timing of billings and payments related to our large over-the-horizon microwave system contracts.

Net cash used in investing activities for the six months ended January 31, 2016 was $1.5 million as compared to $2.1 million for the six months ended January 31, 2015. Both of these amounts primarily represent expenditures relating to ongoing equipment upgrades and enhancements.

Net cash used in financing activities was $9.4 million for the six months ended January 31, 2016 as compared to $9.0 million for the six months ended January 31, 2015. During both the six months ended January 31, 2016 and 2015, we paid $9.7 million in cash dividends to our shareholders.


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Index

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk. To minimize risk, we generally invest our cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S. Treasury securities. Many of our money market mutual funds invest in direct obligations of the U.S. government, bank securities guaranteed by the Federal Deposit Insurance Corporation, certificates of deposit and commercial paper and other securities issued by other companies. While we cannot predict future market conditions or market liquidity, we believe our investment policies are appropriate in the current environment. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

As discussed further in “Notes to Condensed Consolidated Financial Statements - Note (9) - “Credit Facility and the section above entitled “Business Outlook for Fiscal 2016,” we acquired TCS on February 23, 2016 and entered into a five-year New Credit Facility pursuant to a Credit Agreement with a syndicate of lenders. The New Credit Facility and the related Credit Agreement are described in further detail in "Liquidity and Capital Resources - Financing Arrangements - $400.0 Million New Credit Facility."

Our material short-term cash requirements primarily consist of: (i) quarterly interest payments and principal repayments associated with the New Credit Facility, (ii) our ongoing working capital needs, including income tax payments and (iii) accrued quarterly dividends.
 
As of January 31, 2016 and March 9, 2016, we were authorized to repurchase up to an additional $8.7 million of our common stock, pursuant to our current $100.0 million stock repurchase program. Our stock repurchase program has no time restrictions and repurchases may be made in open-market or privately negotiated transactions and may be made pursuant to SEC Rule 10b5-1 trading plans. There were no repurchases of our common stock during the three or six months ended January 31, 2016 and 2015. As a result of the acquisition of TCS, we do not currently anticipate purchasing additional shares of our common stock for the foreseeable future.

During the six months ended January 31, 2016, our Board of Directors declared quarterly dividends of $0.30 per common share aggregating $9.7 million of which $4.8 million was paid during the six months ended January 31, 2016 with the remainder paid on February 17, 2016. On March 10, 2016, our Board of Directors declared a quarterly dividend of $0.30 per common share, payable on May 20, 2016 to stockholders of record at the close of business on April 20, 2016. This latest dividend declaration represents our twenty-third consecutive quarterly dividend. Future dividends are subject to Board approval and compliance with financial covenants under our New Credit Facility.

Our material long-term cash requirements primarily consist of mandatory interest payments and principal repayments pursuant to our New Credit Facility and payments relating to our operating leases. In addition, we expect to make future cash payments of approximately $4.5 million related to our 2009 Radyne-related restructuring plan, including accreted interest. For further information regarding our Radyne restructuring plan, see “Notes to Condensed Consolidated Financial Statements – Note (8) - Radyne Acquisition-Related Restructuring Plan.”

We have historically met both our short-term and long-term cash requirements with funds provided by a combination of cash and cash equivalent balances, cash generated from operating activities and cash generated from financing transactions.

In light of ongoing tight credit market conditions and overall adverse business conditions, we continue to receive requests from our customers for higher credit limits and longer payment terms. We have, on a limited basis, approved certain customer requests and have experienced an increase in bad debt expense in recent periods attributable to one international customer located in South America. We continue to monitor our accounts receivable credit portfolio and, except for this one international customer, we have not had any material negative customer credit experiences.

Based on our anticipated level of future sales and operating income, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and our New Credit Facility will be sufficient to meet both our currently anticipated short-term and long-term operating cash requirements. Although it is difficult in the current economic and credit environment to predict the terms and conditions of financing that may be available in the future, should our short-term or long-term cash requirements increase beyond our current expectations, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.


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FINANCING ARRANGEMENTS

$400.0 Million New Credit Facility
In connection with our acquisition of TCS, discussed further in Note (18) - "Subsequent Events," on February 23, 2016 we entered into a five-year $400.0 million secured credit facility with a syndicate of lenders. The New Credit Facility currently provides a senior secured term A loan facility of $250.0 million (the “Term Loan Facility”) and a senior secured revolving loan facility of up to $150.0 million, including a $25.0 million letter of credit sublimit (the “Revolving Loan Facility” and, together, with the Term Loan Facility, the “New Credit Facility”), each of which mature in five years, on February 23, 2021. The New Credit Facility was used to finance, in part, the acquisition of TCS, a Maryland corporation, and its subsidiaries and is intended to be used to pay related transaction and merger-related expenditures. The proceeds of the Revolving Loan Facility will be used for working capital and other general corporate purposes of the Company and its subsidiaries, including the issuance of letters of credit and the repayment of certain existing indebtedness. Borrowings under the New Credit Facility shall be either: (i) ABR borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined in the New Credit Facility) in effect on such day, (b) the Federal Funds Effective Rate (as defined in the New Credit Facility) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined in the New Credit Facility) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum, plus (y) the Applicable Rate (as defined in the New Credit Facility), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate. The Applicable Rate is determined based on a pricing grid that is dependent upon the Company’s leverage ratio as of the end of the fiscal quarter of the Company for which financial statements have most recently been delivered. The New Credit Facility contains customary representations, warranties and affirmative covenants. The New Credit Facility also contains customary negative covenants, subject to negotiated exceptions, on (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The New Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendment to the New Credit Facility in connection with the further syndication of the New Credit Facility. Any such material amendment will be disclosed in a future SEC filing.

The obligations under the New Credit Facility are guaranteed by certain of the Company’s domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security under the New Credit Facility and the guarantees thereof, the Company and the Subsidiary 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 their tangible and intangible assets.

OFF-BALANCE SHEET ARRANGEMENTS

As of January 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

COMMITMENTS
In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as of January 31, 2016, will materially adversely affect our liquidity. At January 31, 2016, cash payments due under long-term obligations, excluding purchase orders that we entered into in our normal course of business are as follows:
 
 
Obligations Due by Fiscal Years or Maturity Date (in thousands)
 
 
 
Total
 
Remainder
of
2016
 
2017
and
2018
 
2019
and
2020
 
After
2020
Operating lease commitments
 
$
32,103,000

 
3,285,000

 
11,281,000

 
7,412,000

 
10,125,000


In fiscal 2015, we entered into a multi-year purchase agreement in the amount of $12.9 million for certain inventory items. Such amount is not included in the above table because the purchase agreement is cancellable at our option. As of January 31, 2016, our maximum liability under this purchase commitment was approximately $2.5 million. Additionally, the above table does not reflect any obligations associated with the acquisition of TCS, including any principal or interest payments in connection with our New Credit Facility.


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Index

As discussed further in “Notes to Condensed Consolidated Financial Statements – Note (16) - Stockholders’ Equity,” on March 10, 2016, our Board of Directors declared a quarterly dividend of $0.30 per common share, payable on May 20, 2016 to our shareholders of record at the close of business on April 20, 2016. No future dividend amounts are included in the above table.

At January 31, 2016, we have approximately $1.7 million of standby letters of credit outstanding under our old Credit Facility related to our guarantees of future performance on certain customer contracts. Such amounts are not included in the above table.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts. Pursuant to these agreements, we have agreed to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims. It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims and the unique facts and circumstances involved in each particular agreement. To date, there have not been any material costs or expenses incurred in connection with such indemnification clauses.

Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification. As a result, if a claim were asserted against us by any party that we have agreed to indemnify, we could incur future legal costs and damages.

We have change in control agreements, severance agreements and indemnification 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 an involuntary termination of employment without cause.

Our Condensed Consolidated Balance Sheet at January 31, 2016 includes total liabilities of $3.1 million for uncertain tax positions, including interest, any or all of which may result in cash payment. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of any potential cash settlement with the taxing authorities.

RECENT ACCOUNTING PRONOUNCEMENTS

We are required to prepare our consolidated financial statements in accordance with the Financial Accounting Standards Board's (“FASB”) Accounting Standards Codification (“ASC”) which is the source for all authoritative U.S. generally accepted accounting principles, which is commonly referred to as “GAAP.” The ASC is subject to updates by the FASB, which are known as Accounting Standards Updates (“ASUs”).

As further discussed in “Note (2) - Adoption of Accounting Standards and Updates” included in “Part I — Item 1. — Notes to Condensed Consolidated Financial Statements,” during the six months ended January 31, 2016, we adopted:

FASB ASU No. 2014-08 which changed the definition of discontinued operations and related disclosure requirements. Only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results will be reported as discontinued operations. Continuing involvement will no longer prevent a disposal group from being presented as discontinued operations. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2014-16 which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-01 which eliminates the concept of extraordinary items from GAAP and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-02 which amends current consolidation guidance affecting the evaluation of whether certain legal entities should be consolidated. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.


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FASB ASU No. 2015-03 which requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Also, ASU No. 2015-15 was issued in August 2015 and indicates that Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs associated with a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-05 which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Our adoption of this ASU did not have any material impact on our consolidated financial statements.

FASB ASU No. 2015-07 which removes the requirements to categorize within the fair value hierarchy, and make certain disclosures related to, investments for which fair value is measured using the net asset value per share practical expedient. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-17 which requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. As discussed further in Note (10) - "Income Taxes" included in “Part I — Item 1. — Notes to Condensed Consolidated Financial Statements,” we adopted this ASU prospectively on August 1, 2015 and reclassified our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted.

In addition, the following FASB ASUs have been issued and incorporated into the ASC and have not yet been adopted by us as of January 31, 2016:

FASB ASU No. 2014-09, issued in May 2014, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides a single revenue recognition model for contracts with customers. The core principle of the new standard is that a company should record revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, ASU No. 2015-14 was issued to defer the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period (our fiscal year beginning on August 1, 2018), and can be adopted either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period (our fiscal year beginning on August 1, 2017). We are evaluating which transition approach to use and the impact of this ASU on our consolidated financial statements, including financial reporting and disclosures.

FASB ASU No. 2014-12, issued in June 2014, which requires that a performance target which affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award at the grant date. This ASU is effective in our first quarter of fiscal 2017, and can be adopted either (a) prospectively to all awards granted or modified after the effective date, or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As we currently do not have share-based awards outstanding with a performance target that could be achieved after the requisite service period, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption.

FASB ASU No. 2014-15, issued in August 2014, which provides guidance about management's responsibility to evaluate whether there is a substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016 (our fiscal year ending on July 31, 2017). Early adoption is permitted. As we currently do not believe that there is a substantial doubt about our ability to continue as a going concern, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption.


43


Index

FASB ASU No. 2015-11, issued in July 2015, which simplifies the guidance on the subsequent measurement of inventory other than inventory measured using the last-in, first out or the retail inventory method. This ASU requires in-scope inventory to be subsequently measured at the lower of cost and net realizable value, the latter of which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years (our fiscal year beginning on August 1, 2017), and should be applied prospectively with earlier adoption permitted as of the beginning of an interim or annual reporting period. We are evaluating the impact of this ASU on our consolidated financial statements.
 
FASB ASU No. 2015-16, issued in September 2015, which requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Acquirers must recognize, in the same reporting period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This ASU also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments to the provisional amount had been recorded as of the acquisition date. We adopted this ASU as of February 1, 2016 and will apply it to the accounting for our February 23, 2016 acquisition of TCS.

FASB ASU No. 2016-01, issued January 2016, is an update to ASC 825 "Financial Instruments" and changes the treatment for available for sale equity investments by recognizing unrealized fair value changes directly in net income, and no longer in other comprehensive income. In addition, the impairment assessment of equity securities without readily determinable fair values is simplified by allowing a qualitative assessment. The ASU eliminates the disclosure requirement of methods and assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet. Additional disclosure of financial assets and financial liabilities by measurement category and form is also required. This ASU is effective for fiscal years beginning after December 15, 2017 (our fiscal year beginning on August 1, 2018), including interim periods within those fiscal years and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Early adoption of the provisions affecting us is not permitted. As we currently do not hold investments in available for sale securities, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption.

FASB ASU No. 2016-02, issued in February 2016, which requires lessees to recognize the following for all leases (with the exception of short-term leases): (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, initially measured at the present value of the lease payments; and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (our fiscal year beginning in August 1, 2019) and should be applied with a modified retrospective approach with early adoption permitted. We are evaluating the impact of this ASU on our consolidated financial statements and or disclosures.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from our investment of available cash balances. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We may in the future, in connection with our New Credit Facility, revise this policy.

As of January 31, 2016, we had cash and cash equivalents of $163.5 million, which consisted of cash and highly-liquid money market mutual funds, certificates of deposit, bank deposits and U.S. Treasury securities. Many of these investments are subject to fluctuations in interest rates, which could impact our results. Based on our investment portfolio balance as of January 31, 2016, a hypothetical change in interest rates of 10% would have a nominal impact on interest income over a one-year period. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.


44


Index

Item 4.     Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), was carried out by us under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer 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.

There have been no changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

The certifications of our Chief Executive Officer and Chief Financial Officer, that are Exhibits 31.1 and 31.2, respectively, should be read in conjunction with the foregoing information for a more complete understanding of the references in those Exhibits to disclosure controls and procedures and internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1.     Legal Proceedings

See “Notes to Condensed Consolidated Financial Statements - Note (17) - Legal Proceedings and Other Matters,” in Part I, Item 1. of this Form 10-Q for information regarding legal proceedings and other matters.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended July 31, 2015, except as follows:

Our acquisition of TCS may not be successful and we may not realize the anticipated benefits from this acquisition. The TCS acquisition may divert our resources and management attention, and our operating results may fall short of expectations.

On February 23, 2016, we completed the acquisition of TCS, a Maryland corporation, pursuant to a definitive merger agreement ("Merger Agreement") dated as of November 22, 2015, among Comtech, TCS and Typhoon Acquisition Corp., a Maryland corporation and a direct, wholly owned subsidiary of Comtech ("Merger Sub"). Following the completion of the Merger and pursuant to the Merger Agreement, on February 23, 2016, Merger Sub was merged with and into TCS, with TCS surviving the merger as a wholly owned subsidiary of Comtech (the “Merger”).

Our acquisition of TCS may pose certain risks to our business. The acquisition of TCS is a large acquisition, expected to double the size of the company’s annual revenues and employee base. Although we expect to realize strategic, operational and financial benefits as a result of the TCS acquisition, we cannot ensure that such benefits will be achieved at all or, if achieved, to what extent. In particular, the success of the TCS acquisition will depend, in part, on our ability to realize anticipated efficiencies and cost savings, primarily through the elimination of redundant functions and the integration of certain operations. No assurances can be given that we will be able to achieve these efficiencies and cost savings.

We will face operational and administrative challenges as we work to integrate TCS’s operations into our business. In particular, the TCS acquisition will significantly expand the types of products and services that we will sell, expand the businesses in which we will be engaged, as well as increase the number of facilities we will operate, thereby presenting us with significant challenges as we will need to manage the substantial increase in scale resulting from the acquisition. We must integrate a large number of systems, both operational and administrative. Delays in the process could have a material adverse impact on our business, results of operation and financial conditions. Ultimately, we may not be successful.

The diversion of our management’s attention to these matters and away from other business concerns could have an adverse effect on our business and operating results may fall short of expectations.

45


Index

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 6.    Exhibits

(a)
Exhibits

Exhibit 10.1 - 2000 Stock Incentive Plan, Amended and Restated, Effective December 10, 2015

Exhibit 10.2 - Credit Agreement dated as of February 23, 2016, among Comtech Telecommunications Corp., the lenders party thereto and Citibank N.A., as administrative agent and issuing bank (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on February 29, 2016)

Exhibit 10.3 - Agreement and Plan of Merger, dated as of November 22, 2015 among Comtech Telecommunications Corp., Typhoon Acquisition Corp. and TeleCommunication Systems, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on November 23, 2015)

Exhibit 31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101.INS - XBRL Instance Document

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.LAB - XBRL Taxonomy Extension Labels Linkbase Document

Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document







46


Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





COMTECH TELECOMMUNICATIONS CORP.
(Registrant)





 
 
 
Date:
March 10, 2016
By:  /s/ Dr. Stanton D. Sloane
 
 
Dr. Stanton D. Sloane
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
Date:
March 10, 2016
By:  /s/ Michael D. Porcelain
 
 
Michael D. Porcelain
 
 
Senior Vice President and
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)







47


Exhibit


Exhibit 10.1


THE COMTECH TELECOMMUNICATIONS CORP.

2000 STOCK INCENTIVE PLAN


AMENDED AND RESTATED


EFFECTIVE DECEMBER 10, 2015






        



    



TABLE OF CONTENTS
 
 
Page
 
 
 
ARTICLE I PURPOSE
1
ARTICLE II DEFINITIONS
1
2.1
"Acquisition Event"
1
2.2
"Affiliate"
1
2.3
"Award"
1
2.4
"Board"
2
2.5
"Cause"
2
2.6
"Change in Control"
2
2.7
"Code"
2
2.8
"Committee"
2
2.9
"Common Stock"
3
2.10
"Company"
3
2.11
"Consultant"
3
2.12
"Detrimental Activity"
3
2.13
"Disparagement"
4
2.14
"Disability"
4
2.15
"Effective Date"
4
2.16
"Eligible Employee"
4
2.17
"Exchange Act"
4
2.18
"Family Member"
4
2.19
"Fair Market Value"
4
2.20
"Foreign Jurisdiction"
5
2.21
"Incentive Stock Option"
5
2.22
"Limited Stock Appreciation Right"
5
2.23
"Non-Employee Director"
5
2.24
"Non-Qualified Stock Option"
5
2.25
"Non-Tandem Stock Appreciation Right"
5
2.26
"Other Stock-Based Award"
5
2.27
"Ownership Guidelines"
6
2.28
"Parent"
6
2.29
"Participant"
6
2.30
"Performance Criteria"
6
2.31
"Performance Cycle"
6
2.32
"Performance Goal"
6
2.33
"Performance Period"
6
2.34
"Performance Share"
6
2.35
"Performance Unit"
6
2.36
"Performance Unit Cycle"
6
2.37
"Plan"
6
2.38
"Reference Stock Option"
6


i

    



2.39
"Restricted Stock"
6
2.40
"Restricted Stock Unit" or “RSU”
7
2.41
"Restriction Period"
7
2.42
"Retirement"
7
2.43
"Rule 16b-3"
7
2.44
"Section 162(m) of the Code"
7
2.45
"Section 409A of the Code"
7
2.46
"Securities Act"
7
2.47
"Stock Appreciation Right" or "SAR"
7
2.48
"Stock Option" or "Option"
7
2.49
"Stock Unit"
7
2.50
"Subsidiary"
8
2.51
"Tandem Stock Appreciation Right"
8
2.52
"Ten Percent Stockholder"
8
2.53
"Termination"
8
2.54
"Termination of Consultancy"
8
2.55
"Termination of Directorship"
8
2.56
"Termination of Employment"
8
2.57
"Transfer"
9
2.58
"Treasury Rate"
9
ARTICLE III ADMINISTRATION
9
3.1
The Committee
9
3.2
Grants of Awards
9
3.3
Guidelines
10
3.4
Decisions Final
11
3.5
Reliance on Counsel
11
3.6
Procedures
11
3.7
Designation of Consultants/Liability.
11
ARTICLE IV SHARE AND OTHER LIMITATIONS
12
4.1
Shares
12
4.2
Changes
14
4.3
Minimum Purchase Price
16
4.4
Assumption of Awards
16
4.5
Minimum Restriction and Vesting Period
16
4.6
Dividends and Dividend Equivalents
16
ARTICLE V ELIGIBILITY
17
5.1
General Eligibility
17
5.2
Incentive Stock Options
17
5.3
Non-Employee Directors
17
5.4
Service Recipient Stock
17
ARTICLE VI STOCK OPTIONS
18
6.1
Stock Options
18
6.2
Grants
18
6.3
Terms of Stock Options
18
ARTICLE VII STOCK APPRECIATION RIGHTS
21
7.1
Tandem Stock Appreciation Rights
21


ii

    



7.2
Terms and Conditions of Tandem Stock Appreciation Rights
21
7.3
Non-Tandem Stock Appreciation Rights
22
7.4
Terms and Conditions of Non-Tandem Stock Appreciation Rights
22
7.5
Limited Stock Appreciation Rights
23
ARTICLE VIII RESTRICTED STOCK
24
8.1
Awards of Restricted Stock
24
8.2
Awards and Certificates
24
8.3
Restrictions and Conditions on Restricted Stock Awards
25
ARTICLE IX PERFORMANCE SHARES
26
9.1
Award of Performance Shares
26
9.2
Terms and Conditions
26
ARTICLE X CASH INCENTIVE AWARDS AND PERFORMANCE UNITS
28
10.1
Cash Incentive Awards
28
10.2
Awards of Performance Units
28
10.3
Terms and Conditions
29
ARTICLE XI OTHER STOCK-BASED AWARDS
31
11.1
Other Awards
31
11.2
Terms and Conditions
31
ARTICLE XII NON-TRANSFERABILITY AND TERMINATION OF EMPLOYMENT/CONSULTANCY
32
12.1
Non-Transferability
32
12.2
Termination of Employment or Termination of Consultancy
33
ARTICLE XIII NON-EMPLOYEE DIRECTOR GRANTS
35
13.1
Awards
35
13.2
Stock Option Grants
35
13.3
Non-Qualified Stock Option
35
13.4
Terms of Stock Options
36
13.5
Terms of Restricted Stock Units
39
13.6
Terms of Restricted Stock Awards
42
13.7
Terms of Stock Units
45
13.8
Changes
47
ARTICLE XIV CHANGE IN CONTROL PROVISIONS
48
14.1
Benefits
48
14.2
Change in Control
49
ARTICLE XV TERMINATION OR AMENDMENT OF PLAN
50
ARTICLE XVI UNFUNDED PLAN
51
16.1
Unfunded Status of Plan
51
ARTICLE XVII GENERAL PROVISIONS
51
17.1
Legend
51
17.2
Other Plans
52
17.3
Right to Employment/Directorship/Consultancy
52
17.4
Withholding of Taxes
52
17.5
Listing and Other Conditions.
52
17.6
Governing Law
53
17.7
Construction
53
17.8
Other Benefits
53


iii

    



17.9
Costs
53
17.10
No Right to Same Benefits
54
17.11
Death/Disability
54
17.12
Section 16(b) of the Exchange Act
54
17.13
Section 409A of the Code
54
17.14
Severability of Provisions
55
17.15
Headings and Captions
55
17.16
Electronic Communications
55
ARTICLE XVIII EFFECTIVE DATE OF PLAN
55
ARTICLE XIX TERM OF PLAN
57



iv

    



THE COMTECH TELECOMMUNICATIONS CORP.
2000 STOCK INCENTIVE PLAN
AMENDED AND RESTATED

EFFECTIVE DECEMBER 10, 2015
ARTICLE I

PURPOSE

The purpose of The Comtech Telecommunications Corp. 2000 Stock Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company: (i) to offer employees of, and Consultants to, the Company and its Affiliates stock-based incentives and other equity interests in the Company and cash-based incentive Awards, thereby creating a means to attract, retain, motivate and reward such individuals and, through awards with a value based on the value of Company stock, to strengthen the mutuality of interests between such individuals and the Company's stockholders; and (ii) to make equity based awards to Non-Employee Directors, thereby creating a means to attract, retain and reward such Non-Employee Directors and strengthen the mutuality of interests between Non-Employee Directors and the Company's stockholders.
ARTICLE II

DEFINITIONS

For purposes of this Plan, the following terms shall have the following meanings:

2.1    "Acquisition Event" has the meaning set forth in Section 4.2(d).
2.2    "Affiliate" means each of the following: (i) any Subsidiary; (ii) any Parent; (iii) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; and (iv) any other entity in which the Company or any of its Affiliates has a material equity interest and which is designated as an "Affiliate" by resolution of the Committee.
2.3    "Award" means any award under this Plan of any: (i) Stock Option; (ii) Stock Appreciation Right; (iii) Restricted Stock; (iv) Performance Share;

1
    



(v) Performance Unit; (vi) Restricted Stock Unit; (vii), Stock Unit, (viii) Other Stock-Based Award; (ix) other award providing benefits similar to (i) through (viii) designed to meet the requirements of a Foreign Jurisdiction; or (x) cash incentive Award awarded under Section 10.1. An Award other than a cash incentive Award is referred to as an “Equity Award.”
2.4    "Board" means the Board of Directors of the Company.
2.5    "Cause" means, with respect to a Participant's Termination of Employment or Termination of Consultancy: (i) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award (or where there is such an agreement but it does not define "cause" (or words of like import)), termination due to a Participant's commission of a fraud or a felony in connection with his or her duties as an employee of the Company or an Affiliate, willful misconduct or any act of disloyalty, dishonesty, fraud, breach of trust or confidentiality as to the Company or an Affiliate or any other act which is intended to cause or may reasonably be expected to cause economic or reputational injury to the Company or an Affiliate; or (ii) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines "cause" (or words of like import), as defined under such agreement; provided, however, that with regard to any agreement that conditions "cause" on occurrence of a change in control, such definition of "cause" shall not apply until a change in control actually takes place and then only with regard to a termination thereafter. With respect to a Participant's Termination of Directorship, "cause" shall mean an act or failure to act that constitutes cause for removal of a director under applicable Delaware law.
2.6    "Change in Control" has the meaning set forth in Article XIV.
2.7    "Code" means the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision.
2.8    "Committee" means: (a) with respect to the application of this Plan to Eligible Employees and Consultants, a committee or subcommittee of the Board appointed from time to time by the Board, which committee or subcommittee shall consist of two or more Non-Employee Directors, each of whom is intended to be, (i) to the extent required by Rule 16b-3, a "non-employee director" as defined in Rule 16b-3, (ii) to the extent required by Section 162(m) of the Code and any regulations thereunder, an "outside director" as defined under Section 162(m) of the Code, (iii) an “independent director” under applicable stock exchange rules, and (iv) as may be applicable, “independent” as provided pursuant to the rules promulgated by the Securities and Exchange Commission under The Dodd-Frank Wall Street Reform and Consumer Protection Act; provided, however, that if and to the extent that no Committee exists which has the authority to administer this Plan, the functions of the Committee shall be

2
    



exercised by the Board and all references herein to the Committee shall be deemed to be references to the Board; and (b) with respect to the application of this Plan to Non-Employee Directors, the Board. If for any reason the appointed Committee does not meet any of the requirements of clauses (a)(i) – (iv) above, such noncompliance shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.
2.9    "Common Stock" means the common stock, $.10 par value per share, of the Company.
2.10    "Company" means Comtech Telecommunications Corp., a Delaware corporation, and its successors by operation of law.
2.11    "Consultant" means any advisor or consultant to the Company or its Affiliates.
2.12    "Detrimental Activity" means (a) the disclosure to anyone outside the Company or its Affiliates, or the use in any manner other than in the furtherance of the Company's or its Affiliate's business, without written authorization from the Company, of any confidential information or proprietary information, relating to the business of the Company or its Affiliates, acquired by a Participant prior to the Participant's Termination; (b) activity while employed by, or otherwise providing services to, the Company or its Affiliates that results, or if known could result, in the Participant's Termination that is classified by the Company as a Termination for Cause; (c) any attempt, directly or indirectly, to solicit, induce or hire (or the identification for solicitation, inducement or hire of) any non-clerical employee of the Company or its Affiliates to be employed by, or to perform services for, the Participant or any person or entity with which the Participant is associated (including, but not limited to, due to the Participant's employment by, consultancy for, directorship with, equity interest in, or creditor relationship with such person or entity) or any person or entity from which the Participant receives direct or indirect compensation or fees as a result of such solicitation, inducement or hire (or the identification for solicitation, inducement or hire) without, in all cases, written authorization from the Company; (d) any attempt, directly or indirectly, to solicit in a competitive manner any current or prospective customer of the Company or its Affiliates without, in all cases, written authorization from the Company; (e) the Participant's Disparagement, or inducement of others to do so, of the Company or its Affiliates or their past and present officers, directors, employees or products; (f) without written authorization from the Company, the rendering of services for any organization, or engaging, directly or indirectly, in any business, which is competitive with the Company or its Affiliates, or which organization or business, or the rendering of services to such organization or business, is otherwise prejudicial to or in conflict with the interests of the Company or its Affiliates, (g) breach of any agreement between the Participant and the Company or an Affiliate (including, without limitation, any employment agreement or non-competition or non-solicitation agreement), or (h) for Awards granted on or after September 21, 2011, a violation of the Company’s Standards of Business Conduct as adopted by the Company from time to time and as in effect on the date the Award is granted. Unless otherwise determined by the Committee at grant, Detrimental Activity shall not be deemed to occur after the end of the one-year period

3
    



following the Participant's Termination. For purposes of subsections (a), (c), (d) and (f) above, the Chief Executive Officer and the General Counsel of the Company shall each have authority to provide the Participant with written authorization to engage in the activities contemplated thereby and no other person shall have authority to provide the Participant with such authorization.
2.13    "Disparagement" means making comments or statements to the press, the Company's or its Affiliates' employees, consultants or any individual or entity with whom the Company or its Affiliates has a business relationship which would adversely affect in any manner: the conduct of the business of the Company or its Affiliates (including, without limitation, any products or business plans or prospects), or the business reputation of the Company or its Affiliates, or any of their products, or their past or present officers, directors or employees.
2.14    "Disability" means, with respect to an Eligible Employee, Consultant or Non-Employee Director, a permanent and total disability, as determined by the Committee in its sole discretion, provided that in no event shall any disability that is not a permanent and total disability, as defined in Section 22(e)(3) of the Code, shall be treated as a Disability. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. Notwithstanding the foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under Section 409A(a)(2)(C)(i) of the Code.
2.15    "Effective Date" means the effective date of this Plan as defined in Article XVIII.
2.16    "Eligible Employee" means each employee of the Company or an Affiliate.
2.17    "Exchange Act" means the Securities Exchange Act of 1934, as amended. Any references to any section of the Exchange Act shall also be a reference to any successor provision.
2.18    "Family Member" shall mean "family member" as defined in Section A1(a)(5) of the general instructions of Form S-8.
2.19    "Fair Market Value" means, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales price for the Common Stock or the average of trading prices for Common Stock on the applicable date, as specified by the Committee: (i) as reported on the principal national securities exchange on which it is then traded or The Nasdaq Stock Market LLC or (ii) if not traded on any such national securities exchange or The Nasdaq Stock Market LLC as quoted on an automated quotation system sponsored by the Financial Industry Regulatory Authority. If the Common Stock is not readily tradable on a national securities exchange, The Nasdaq Stock Market LLC or any automated quotation system sponsored by the Financial Industry Regulatory Authority, its Fair Market Value shall be set in good faith by the Committee. Notwithstanding anything herein to the contrary,

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"Fair Market Value" means the price for Common Stock set by the Committee in good faith based on reasonable methods set forth under Section 422 of the Code or Section 409A of the Code, as applicable, and the regulations thereunder including, without limitation, a method utilizing the average of prices of the Common Stock reported on the principal national securities exchange on which it is then traded during a reasonable period designated by the Committee. For purposes of the grant of any Stock Option or Stock Appreciation Right, the applicable date shall be the date of grant of the Stock Option or Stock Appreciation Right (which must be at or after the date on which such grant is duly authorized) or, if so specified by the Committee, the latest trading date for which the last sales price or average trading price is available at the time of grant, provided that for purposes of the exercise of any Stock Option or Stock Appreciation Right, the applicable date shall be the date a notice of exercise is received by the Secretary of the Company or, if not a day on which the applicable market is open, the next day that it is open. For purposes of the conversion of a Performance Unit to shares of Common Stock for reference purposes, the applicable date shall be the date determined by the Committee in accordance with Section 10.2.
2.20    "Foreign Jurisdiction" means any jurisdiction outside of the United States including, without limitation, countries, states, provinces and localities.
2.21    "Incentive Stock Option" means any Stock Option awarded to an Eligible Employee under this Plan intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code.
2.22    "Limited Stock Appreciation Right" means an Award of a limited Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right made pursuant to Section 7.5 of this Plan.
2.23    "Non-Employee Director" means a director of the Company who is not an active employee of the Company or an Affiliate and who is not an officer, director or employee of the Company or any Affiliate.
2.24    "Non-Qualified Stock Option" means any Stock Option awarded under this Plan that is not an Incentive Stock Option.
2.25    "Non-Tandem Stock Appreciation Right" means a Stock Appreciation Right entitling a Participant to receive an amount in cash or Common Stock (as determined by the Committee in its sole discretion) equal to the excess of: (i) the Fair Market Value of a share of Common Stock as of the date such right is exercised, over (ii) the aggregate exercise price of such right.
2.26    "Other Stock-Based Award" means an Award of Common Stock and other Awards made pursuant to Article XI that are valued in whole or in part by reference to, or are payable in or otherwise based on, Common Stock, including, without limitation, an Award valued by reference to performance of an Affiliate.

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2.27    "Ownership Guidelines" means the guidelines adopted by the Board from time to time setting forth the minimum amount of Company stock that Non-Employee Directors are required to own.
2.28    "Parent" means any parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.29    "Participant" means any Eligible Employee or Consultant to whom an Award has been made under this Plan and each Non-Employee Director of the Company; provided, however, that a Non-Employee Director shall be a Participant for purposes of the Plan solely with respect to awards of Stock Options, Restricted Stock, Stock Units or Restricted Stock Units pursuant to Article XIII.
2.30    "Performance Criteria" has the meaning set forth in Exhibit A.
2.31    "Performance Cycle" has the meaning set forth in Section 10.1.
2.32    "Performance Goal" means the objective performance goals established by the Committee in accordance with Section 162(m) of the Code and based on one or more Performance Criteria.
2.33    "Performance Period" has the meaning set forth in Section 9.1.
2.34    "Performance Share" means an Award made pursuant to Article IX of this Plan of the right to receive Common Stock or, as determined by the Committee in its sole discretion, cash of an equivalent value at the end of the Performance Period or thereafter.
2.35    "Performance Unit" means an Award made pursuant to Article X of this Plan of the right to receive a fixed dollar amount, payable in cash or Common Stock (or a combination of both) as determined by the Committee in its sole discretion, at the end of a specified Performance Unit Cycle or thereafter.
2.36    "Performance Unit Cycle" has the meaning set forth in Section 10.2.
2.37    "Plan" means The Comtech Telecommunications Corp. 2000 Stock Incentive Plan.
2.38    "Reference Stock Option" has the meaning set forth in Section 7.1.
2.39    "Restricted Stock" means an Award of shares of Common Stock under this Plan that is subject to restrictions under Article VIII or Article XIII.

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2.40    "Restricted Stock Unit" or “RSU” means an Award of a restricted stock unit under this Plan that is granted in accordance with and subject to restrictions under Article XI with respect to Eligible Employees and Consultants, and Article XIII with respect to Non-Employee Directors, which is a unit of measurement equivalent to one share of Common Stock but with none of the attendant rights of a holder of a share of Common Stock until a share of Common Stock is ultimately distributed in payment of the obligation (other than a right to receive dividend equivalent amounts as determined by the Committee).
2.41    "Restriction Period" has the meaning set forth in Section 8.3(a) with respect to Restricted Stock.
2.42    "Retirement" means a Termination of Employment or Termination of Consultancy other than a termination for Cause or due to death or Disability by a Participant at or after age 65 or such earlier date after age 50 as may be approved by the Committee with regard to such Participant. With respect to a Participant's Termination of Directorship, Retirement shall mean the failure to stand for reelection or the failure to be reelected at or after a Participant has attained age 65 or, with the consent of the Board, before age 65 but after age 50.
2.43    "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provisions.
2.44    "Section 162(m) of the Code" means Section 162(m) of the Code and any Treasury regulations thereunder.
2.45    "Section 409A of the Code" means Section 409A of the Code and any Treasury regulations thereunder.
2.46    "Securities Act" means the Securities Act of 1933, as amended. Any reference to any section of the Securities Act shall also be a reference to any successor provision.
2.47    "Stock Appreciation Right" or "SAR" means the right pursuant to an Award granted under Article VII.
2.48    "Stock Option" or "Option" means any option to purchase shares of Common Stock granted to Eligible Employees or Consultants under Article VI or to Non-Employee Directors under Article XIII.
2.49    "Stock Unit"means an Award of a stock unit under this Plan that is granted in accordance with and subject to restrictions under Article XI with respect to Eligible Employees and Consultants, and Article XIII with respect to Non-Employee Directors, which is a unit of measurement equivalent to one share of Common Stock but with none of the attendant rights of a holder of a share of Common Stock until a share of Common Stock is ultimately distributed in payment of the obligation (other than a right to receive dividend equivalent amounts as determined by the Committee).

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2.50    "Subsidiary" means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.
2.51    "Tandem Stock Appreciation Right" means a Stock Appreciation Right entitling the holder to surrender to the Company all (or a portion) of a Stock Option in exchange for an amount in cash or Common Stock (as determined by the Committee in its sole discretion) equal to the excess of: (i) the Fair Market Value, on the date such Stock Option (or such portion thereof) is surrendered, of the Common Stock covered by such Stock Option (or such portion thereof), over (ii) the aggregate exercise price of such Stock Option (or such portion thereof).
2.52    "Ten Percent Stockholder" means a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, its Subsidiaries or its Parent.
2.53    "Termination" means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.
2.54    "Termination of Consultancy" means, with respect to a Consultant, that the Consultant is no longer acting as a consultant to the Company or an Affiliate. In the event an entity shall cease to be an Affiliate, there shall be deemed a Termination of Consultancy of any individual who is not otherwise a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the termination of his consultancy, the Committee, in its sole and absolute discretion, may determine that no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer a Consultant or an Eligible Employee.
2.55    "Termination of Directorship" means, with respect to a Non-Employee Director, that the Non-Employee Director has ceased to be a director of the Company. In the event that a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of his directorship, the Committee, in its sole and absolute discretion, may determine that no Termination of Directorship shall be deemed to occur until such time as such Non-Employee Director is no longer an Eligible Employee or Consultant.
2.56    "Termination of Employment" means: (i) a termination of employment (for reasons other than a military or personal leave of absence granted by the Company) of a Participant from the Company and its Affiliates; or (ii) when an entity which is employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate. In the event that an Eligible Employee becomes a Consultant or Non-Employee Director upon the termination of his employment, the Committee, in its sole and absolute discretion, may determine that no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer an Eligible Employee or a Consultant.

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2.57    "Transfer" means anticipate, alienate, attach, sell, assign, pledge, encumber, charge, hypothecate or otherwise transfer and “Transferred” has a correlative meaning.
2.58    "Treasury Rate" means the interest rate payable on three-year notes issued by the United States Treasury with an issuance date that is closest to the first day of the relevant fiscal year, as reported by the U.S. Department of the Treasury on its website, http://www.treasurydirect.gov or such other official website maintained by the U.S. Department of the Treasury at such time.
ARTICLE III

ADMINISTRATION

3.1    The Committee. The Plan shall be administered and interpreted by the Committee. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such noncompliance with the requirements of Rule 16b-3 and Section 162(m) of the Code shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.
3.2    Grants of Awards. The Committee shall have full authority to grant to Eligible Employees and Consultants, pursuant to the terms of this Plan: (i) Stock Options; (ii) Tandem Stock Appreciation Rights and Non-Tandem Stock Appreciation Rights; (iii) Restricted Stock; (iv) Performance Shares; (v) Performance Units; (vi) Restricted Stock Units; (vii) Stock Units; (viii) Other Stock-Based Awards; (ix) other awards providing benefits similar to (i) through (viii) designed to meet the requirements of Foreign Jurisdictions; and (x) cash incentive Awards under Section 10.1. All Equity Awards shall be granted by, confirmed by, and subject to the terms of, a written agreement executed by the Company and the Participant. In particular, the Committee shall have the authority:
(a)    to select the Eligible Employees and Consultants to whom Awards may from time to time be granted hereunder;
(b)    to determine whether and to what extent Awards, including any combination of two or more Awards, are to be granted hereunder to one or more Eligible Employees or Consultants;
(c)    to determine, in accordance with the terms of this Plan, the number of shares of Common Stock to be covered by each Equity Award granted hereunder;
(d)    to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof and any forfeiture restrictions or waiver thereof,

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regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);
(e)    to determine whether and under what circumstances a Stock Option may be settled in cash, Common Stock and/or Restricted Stock under Section 6.3(d) or, with respect to Stock Options granted to Non-Employee Directors, Section 13.4(d);
(f)    to the extent permitted by law, to determine whether, to what extent and under what circumstances to provide loans (which shall bear interest at the rate the Committee shall provide) to Eligible Employees and Consultants in order to exercise Stock Options under this Plan or to purchase Awards under this Plan (including shares of Common Stock);
(g)    to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option, whether a Stock Appreciation Right is a Tandem Stock Appreciation Right or Non-Tandem Stock Appreciation Right or whether an Award is intended to satisfy Section 162(m) of the Code;
(h)    to determine whether to require an Eligible Employee or Consultant, as a condition of the granting of any Award, not to sell or otherwise dispose of shares of Common Stock acquired pursuant to the exercise of an Option or an Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Option or Award;
(i)    to modify, extend or renew an Award, subject to Article XV herein, provided, however, that if an Award is modified, extended or renewed and thereby deemed to be the issuance of a new Award under the Code or the applicable accounting rules, the exercise price of an Award may continue to be the original exercise price even if less than the Fair Market Value of the Common Stock at the time of such modification, extension or renewal; provided further, however, that such Award may be restructured to comply with Section 409A of the Code to avoid any adverse tax consequences, to the extent applicable;
(j)    to determine the form of any Award agreement or other document or notice related to this Plan, and whether that document, including signatures, may be in electronic form in accordance with Section 17.16 herein; and
(k)    to determine, subject to Sections 12.1 and 17.11, whether and under what circumstances (consistent with the terms of the Plan) a Participant shall be entitled to designate a beneficiary to receive the Participant’s outstanding Award(s) or exercise the Participant’s rights under the Participant’s outstanding Award(s) following the death of the Participant.
3.3    Guidelines. Subject to Article XV hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its administrative responsibilities, as it shall, from time to time, deem advisable; to construe

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and interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of this Plan. The Committee may adopt special guidelines and provisions for persons who are residing in, or subject to, the taxes of, Foreign Jurisdictions to comply with applicable tax and securities laws and may impose any limitations and restrictions that it deems necessary to comply with the applicable tax and securities laws of such Foreign Jurisdictions. To the extent applicable, this Plan is intended to comply with Section 162(m) of the Code and the applicable requirements of Rule 16b-3 and shall be limited, construed and interpreted in a manner so as to comply therewith.
3.4    Decisions Final. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with this Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.
3.5    Reliance on Counsel. The Company, the Board or the Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel.
3.6    Procedures. If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all the Committee members in accordance with the By-Laws of the Company, shall be fully as effective as if it had been made by a vote at a meeting duly called and held. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
3.7    Designation of Consultants/Liability.
(a)    The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of this Plan and may grant authority to officers to execute agreements or other documents on behalf of the Committee.
(b)    The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any

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computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any employee of the Company designated pursuant to paragraph (a) above shall not be liable for any action or determination made in good faith with respect to this Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any Award granted under it. To the maximum extent permitted by applicable law or the Certificate of Incorporation or By-Laws of the Company and to the extent not covered by insurance, each officer and member or former member of the Committee shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with this Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or any Affiliate. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her under this Plan.
ARTICLE IV

SHARE AND OTHER LIMITATIONS

4.1    Shares.
(a)    General Limitation. The aggregate number of shares of Common Stock which may be issued or used for reference purposes under this Plan or with respect to which Equity Awards may be granted shall not exceed 8,962,500 shares of Common Stock (subject to any increase or decrease pursuant to Section 4.2) with respect to all types of Equity Awards (such aggregate number of shares includes shares already issued pursuant to Equity Awards granted under the Plan since its original inception). The shares of Common Stock available under this Plan may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company. If any Stock Option or Stock Appreciation Right granted under this Plan expires, terminates or is canceled for any reason without having been exercised in full or, with respect to Stock Options, the Company repurchases any Stock Option, the number of shares of Common Stock underlying such unexercised or repurchased Stock Option or any unexercised Stock Appreciation Right shall again be available for the purposes of Equity Awards under this Plan. If any shares of Restricted Stock, Performance

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Shares, Performance Units, Restricted Stock Units or Stock Units awarded under this Plan to a Participant are forfeited or repurchased by the Company for any reason, the number of forfeited or repurchased shares of Restricted Stock, or shares of Common Stock underlying any Performance Share, Performance Unit, Restricted Stock Unit or Stock Unit Awards shall again be available for the purposes of Equity Awards under this Plan. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, such grant shall only apply once against the maximum number of shares of Common Stock which may be issued under this Plan. The number of shares of Common Stock available for the purpose of Equity Awards under the Plan shall be reduced by (i) the total number of Stock Options, Stock Appreciation Rights or Other Stock-Based Awards (subject to exercise) that have been exercised, regardless of whether any of the shares of Common Stock underlying such Awards are not actually issued to the Participant as the result of a net settlement, and (ii) any shares of Common Stock used to pay any exercise price or tax withholding obligation with respect to any Award.
(b)    Individual Participant Limitations. (i) The maximum number of shares of Common Stock subject to any Award of Stock Options, Stock Appreciation Rights, Performance Shares or shares of Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is subject to the attainment of Performance Goals in accordance with Section 8.3(a)(ii) herein which may be granted under this Plan during any fiscal year of the Company to each Eligible Employee or Consultant shall be 225,000 shares per type of Award (which shall be subject to any increase or decrease pursuant to Section 4.2), provided that the maximum number of shares of Common Stock for all types of Equity Awards does not exceed 225,000 (which shall be subject to any increase or decrease pursuant to Section 4.2) during any fiscal year of the Company. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Eligible Employee's or Consultant's individual share limitations for both Stock Appreciation Rights and Stock Options.
(ii)    There are no annual individual Eligible Employee or Consultant share limitations on Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is not subject to attainment of Performance Goals in accordance with Section 8.3(a)(ii) hereof.
(iii)    Performance Units payable solely in cash shall be deemed to be cash incentive awards subject to the limitation in Section 4.1(b)(v), and Performance Units payable in cash or in shares of Common Stock shall be subject to the limitation in Section 4.1(b)(i) unless the Committee has, no later than the time performance goals are specified for the Performance Units, designated such Performance Units as cash incentive awards potentially settleable in shares, in which case the Performance Units shall be subject to the limitation in Section 4.1(b)(v).

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(iv)    The individual Participant limitations set forth in this Section 4.1(b)(i) – (iv) shall be cumulative; that is, to the extent that shares of Common Stock for which Equity Awards are permitted to be granted to an Eligible Employee or a Consultant during a fiscal year are not covered by an Award to such Eligible Employee or Consultant in a fiscal year, the number of shares of Common Stock available for Equity Awards to such Eligible Employee or Consultant shall automatically increase in the subsequent fiscal years during the term of the Plan until used.
(v)    The maximum potential amount earnable under all cash incentive Awards granted under this Plan for any fiscal year of the Company to each Eligible Employee shall be such Eligible Employee’s “Annual Limit,” which in each fiscal year shall be $4 million plus the amount of the Eligible Person's unused Annual Limit as of the close of the previous fiscal year. This limitation is separate and not affected by the number of Awards granted during such fiscal year subject to the limitations under Section 4.1(b)(i) – (iv). For this purpose, (i) the potential amount earnable means the maximum amount potentially payable, without regard to whether it is to be paid currently or on a deferred basis or continues to be subject to any service requirement or other non-performance condition, (ii) a Participant's Annual Limit is used to the extent an amount may be potentially earned or paid under a cash incentive Award, regardless of whether such amount is in fact earned or paid, and (iii) a cash incentive Award is “granted” for the earliest fiscal year included in the Performance Cycle for that Award, regardless of whether the terms of the Award do or do not create a legal right on the part of the Participant ultimately to receive a payment with respect to such Award.
 
4.2    Changes.
(a)    The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company or any Affiliate, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting Common Stock, the dissolution or liquidation of the Company or any Affiliate, any sale or transfer of all or part of the assets or business of the Company or any Affiliate or any other corporate act or proceeding.
(b)    Subject to the provisions of Section 4.2(d), in the event of any such change in the capital structure or business of the Company by reason of any stock split, reverse stock split, stock dividend, combination or reclassification of shares, recapitalization, or other change in the capital structure of the Company, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase any Common Stock or securities convertible into

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Common Stock, or any other corporate transaction or event having an effect similar to any of the foregoing and effected without receipt of consideration by the Company, then the aggregate number and kind of shares which thereafter may be issued under this Plan, the number and kind of shares or other property (including cash) to be issued upon exercise of an outstanding Stock Option or other Awards granted under this Plan and the purchase price thereof, the per share performance goals established under any Award, the number and kind of shares to be issued to Non-Employee Directors pursuant to Article XIII, and the individual participation limits set forth in Section 4.1(b) (other than those based on cash limitations) shall be appropriately adjusted consistent with such change in such manner as the Committee deems equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under this Plan, and any such adjustment shall be final, binding and conclusive on the Company and all Participants and employees and their respective heirs, executors, administrators, successors and assigns. In furtherance of the foregoing, each outstanding Award shall confer on the Participant a legal right to an appropriate adjustment of the Award in the event of an “equity restructuring” within the meaning of FASB ASC Topic 718. Notwithstanding the foregoing, the Committee shall not make any adjustments pursuant to this Section 4.2 that would subject a Participant to additional tax or penalties under Section 409A of the Code, without the Participant’s consent.
(c)    Fractional shares of Common Stock resulting from any adjustment in Options or Awards pursuant to Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan.
(d)    In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Committee may, in its sole discretion, terminate all outstanding Stock Options and Stock Appreciation Rights, effective as of the date of the Acquisition Event, by delivering notice of termination to each Participant at least 30 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her Stock Options and Stock Appreciation Rights that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Stock Option or Award Agreements), but any such exercise shall be contingent upon and subject to the occurrence of the Acquisition

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Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void.
If an Acquisition Event occurs but the Committee does not terminate the outstanding Stock Options and Stock Appreciation Rights pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) shall apply.
4.3    Minimum Purchase Price. Notwithstanding any provision of this Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under this Plan, such shares shall not be issued for a consideration which is less than as permitted under applicable law.
4.4    Assumption of Awards. Awards that were granted prior to the Effective Date under the (i) Comtech Telecommunications Corp. 1982 Incentive Stock Option Plan (the "1982 Plan"), and (ii) the Comtech Telecommunications Corp. 1993 Incentive Stock Option Plan, as amended, shall be transferred and assumed by this Plan as of the Effective Date. Notwithstanding the foregoing, such Awards shall continue to be governed by the terms of the applicable agreement in effect prior to the Effective Date.
4.5    Minimum Restriction and Vesting Period. Notwithstanding any other provision of the Plan to the contrary, effective September 21, 2011, with respect to any Award of Restricted Stock, Performance Shares, Performance Units, Restricted Stock Units, or Other Stock-Based Award which by its terms does not require the recipient of the Award to pay a per share exercise price or purchase price equal to the Fair Market Value of the underlying Common Stock at the grant date (collectively, “Full-Value Awards”), (i) the Restriction Period with respect to any such Award of Restricted Stock, (ii) the Performance Period with respect to any such Award of Performance Shares, (iii) the Performance Unit Cycle with respect to any such Award of Performance Units and (iv) the vesting period with respect to any such Restricted Stock Unit or any such Other Stock-Based Award that is payable in shares of Common Stock granted on or after such date shall be no less than (A) one year, if the lapsing of restrictions or vesting of the Full-Value Award is based (in whole or in part) on the attainment of one or more Performance Goals, and (B) three years, if the lapsing of restrictions or vesting of the Full-Value Award is based solely on the continued performance of services by the Participant (with the restrictions thereto lapsing or the Full-Value Award becoming vested as to no more than one-third (1/3rd) of the Common Stock subject thereto on each of the first and second anniversaries of the date of grant); provided, that, subject to the terms of the Plan, the Committee may (at the time of grant or thereafter) provide for the earlier lapsing of restrictions or the vesting of the Full-Value Award in the event of a Change of Control or a Participant’s Retirement, death or Disability; and provided further, that, subject to the limitations set forth in Section 4.1(a), Full-Value Awards with respect to up to ten percent (10%) of the total number of Shares reserved for Awards under the Plan may be granted that are not subject to the foregoing limitations.
4.6    Dividends and Dividend Equivalents. Notwithstanding any other provision of the Plan to the contrary, any rights granted hereunder to a Participant under

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an Award granted on or after September 21, 2011 to receive or retain dividends or dividend equivalents with respect to the shares of Common Stock underlying any Full-Value Award (with respect to which the lapsing of the restrictions subject thereto or the vesting thereof is based (in whole or in part) on the attainment of one or more Performance Goals), shall be subject to the same vesting and/or forfeiture conditions (performance-based, service-based or otherwise) as are applicable to such Full-Value Award.
ARTICLE V

ELIGIBILITY

5.1    General Eligibility. All Eligible Employees and Consultants and prospective employees of and Consultants to the Company and its Affiliates are eligible to be granted Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units, Restricted Stock Units, Stock Units, Other Stock-Based Awards, awards providing benefits similar to each of the foregoing designed to meet the requirements of Foreign Jurisdictions under this Plan, and cash incentive Awards. Eligibility for the grant of an Award and actual participation in this Plan shall be determined by the Committee in its sole discretion. The vesting and exercise of Awards granted to a prospective employee or Consultant are conditioned upon such individual actually becoming an Eligible Employee or Consultant.
5.2    Incentive Stock Options. All Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock Options under this Plan. Eligibility for the grant of an Award and actual participation in this Plan shall be determined by the Committee in its sole discretion.
5.3    Non-Employee Directors. Non-Employee Directors are only eligible to receive an Award of Stock Options, Restricted Stock, Restricted Stock Units and Stock Units in accordance with Article XIII of the Plan.
5.4    Service Recipient Stock. Notwithstanding anything herein to the contrary, no Option or SAR under which a Participant may receive Common Stock may be granted under the Plan to an Eligible Employee, prospective employee, Consultant or Non-Employee Director of the Company or any of its Affiliates if such Common Stock does not constitute “service recipient stock” for purposes of Section 409A of the Code with respect to such Eligible Employee, prospective employee, Consultant or Non-Employee Director, unless such Option or SAR is structured in a manner intended to comply with, or be exempt from, Section 409A of the Code.


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ARTICLE VI

STOCK OPTIONS

6.1    Stock Options. Each Stock Option granted hereunder shall be one of two types: (i) an Incentive Stock Option intended to satisfy the requirements of Section 422 of the Code; or (ii) a Non-Qualified Stock Option.
6.2    Grants. The Committee shall have the authority to grant to any Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not qualify, shall constitute a separate Non-Qualified Stock Option. The Committee shall have the authority to grant any Consultant one or more Non-Qualified Stock Options (with or without Stock Appreciation Rights). Notwithstanding any other provision of this Plan to the contrary or any provision in an agreement evidencing the grant of a Stock Option to the contrary, any Stock Option granted to an Eligible Employee of an Affiliate (other than an Affiliate which is a Parent or a Subsidiary) shall be a Non-Qualified Stock Option.
6.3    Terms of Stock Options. Stock Options granted under this Plan shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable:
(a)    Exercise Price. The exercise price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value of the share of Common Stock at the time of grant; provided, however, that if an Incentive Stock Option is granted to a Ten Percent Stockholder, the exercise price shall be no less than 110% of the Fair Market Value of the Common Stock.
(b)    Stock Option Term. The term of each Stock Option shall be fixed by the Committee; provided, however, that no Stock Option shall be exercisable more than 10 years after the date such Stock Option is granted; and further provided that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed 5 years.
(c)    Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant. If the Committee provides, in its discretion, that any Stock Option is exercisable subject to certain limitations (including, without limitation, that such Stock Option is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Stock

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Option may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.
(d)    Method of Exercise. Subject to whatever installment exercise and waiting period provisions apply under subsection (c) above, Stock Options may be exercised in whole or in part at any time and from time to time during the Stock Option term by giving written notice of exercise to the Secretary of the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order of the Company; (ii) to the extent permitted by law, if the Common Stock is traded on a national securities exchange, The Nasdaq Stock Market LLC or quoted on a national quotation system sponsored by the Financial Industry Regulatory Authority, through a "cashless exercise" procedure whereby the Participant delivers irrevocable instructions to a broker satisfactory to the Company to deliver promptly to the Company an amount equal to the purchase price; or (iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, the relinquishment of Stock Options or by payment in full or in part in the form of Common Stock owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances) based on the Fair Market Value of the Common Stock on the payment date as determined by the Committee). No shares of Common Stock shall be issued until payment therefore, as provided herein, has been made or provided for.
(e)    Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under this Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. In addition, if an Eligible Employee does not remain employed by the Company, any Subsidiary or any Parent at all times from the time an Incentive Stock Option is granted until 3 months prior to the date of exercise thereof (or such other period as required by applicable law), such Stock Option shall be treated as a Non-Qualified Stock Option. Should any provision of this Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend this Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.
(f)    Form, Modification, Extension and Renewal of Stock Options. Subject to the terms and conditions and within the limitations of this Plan, Stock Options shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may (i) modify, extend or renew outstanding Stock Options granted under this Plan; provided that the rights of a Participant are not reduced without his consent; provided further, that any such modification, extension or renewal is intended to be structured to comply with Section 409A of

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the Code, to the extent applicable, and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, unless approved by stockholders of the Company, (i) an outstanding Option or SAR may not be modified to reduce the exercise price thereof, (ii) no new Option or SAR at a lower exercise price or base price may be substituted for a surrendered Option or SAR, and (iii) no other Award may be issued or cash may be paid in exchange for the surrender of an Option or SAR at a time that the exercise or base price of such Option or SAR exceeds the current Fair Market Value of a share of Common Stock or if such new Award or cash has a value in excess of the then in-the-money value of the surrendered Option or SAR, provided that adjustments or substitutions in accordance with Section 4.2 are not subject to this stockholder approval requirement.
(g)    Other Terms and Conditions. Stock Options may contain such other provisions, which shall not be inconsistent with any of the terms of this Plan, as the Committee shall deem appropriate; provided, however, that Stock Options shall not provide for the automatic grant of the same number of Stock Options as the number of shares of Common Stock used to pay for the exercise price of Stock Options or shares of Common Stock used to pay withholding taxes (i.e., “reloads”).
(h)    Detrimental Activity. Unless otherwise determined by the Committee at grant, (i) in the event the Participant engages in Detrimental Activity prior to any exercise of the Stock Option, all Stock Options (whether vested or unvested) held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Stock Option, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event the Participant engages in Detrimental Activity during the one year period following the later of (x) Participant's Termination of Employment or (y) the date the Stock Option is exercised, that any Stock Options shall be immediately forfeited (whether or not then vested) and the Company shall be entitled to recover from the Participant at any time within one year after the later of (x) or (y), and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise of any Stock Options (whether at the time of exercise or thereafter).


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ARTICLE VII

STOCK APPRECIATION RIGHTS

7.1    Tandem Stock Appreciation Rights. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (a "Reference Stock Option") granted under this Plan ("Tandem Stock Appreciation Rights"). In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option. Consultants shall not be eligible for a grant of Tandem Stock Appreciation Rights granted in conjunction with all or part of an Incentive Stock Option.
7.2    Terms and Conditions of Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including Article XII and the following:
(a)    Term. A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be reduced until and then only to the extent the exercise or termination of the Reference Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.
(b)    Exercisability. Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI and this Article VII.
(c)    Method of Exercise. A Tandem Stock Appreciation Right may be exercised by a Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Tandem Stock Appreciation Rights have been exercised.
(d)    Payment. Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock over the option price per share specified in the Reference

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Stock Option, multiplied by the number of shares in respect of which the Tandem Stock Appreciation Right shall have been exercised.
(e)    Deemed Exercise of Reference Stock Option. Upon the exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of this Plan on the number of shares of Common Stock to be issued under this Plan.
(f)    Detrimental Activity. Unless otherwise determined by the Committee at grant, (i) in the event the Participant engages in Detrimental Activity prior to any exercise of Tandem Stock Appreciation Rights, all Tandem Stock Appreciation Rights (whether vested or unvested) held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Tandem Stock Appreciation Right, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event the Participant engages in Detrimental Activity during the one year period following the later of (x) Participant's Termination of Employment or (y) the date the Tandem Stock Appreciation Right is exercised, that any Tandem Stock Appreciation Rights shall be immediately forfeited (whether or not then vested) and the Company shall be entitled to recover from the Participant at any time within one year after the later of (x) or (y), and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).
7.3    Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation Rights may also be granted without reference to any Stock Option granted under this Plan.
7.4    Terms and Conditions of Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including Article XII and the following:
(a)    Term. The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than ten (10) years after the date the right is granted.
(b)    Exercisability. Non-Tandem Stock Appreciation Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant. If the Committee provides, in its discretion, that any such right is exercisable subject to certain limitations (including, without limitation, that it is exercisable only in installments or within certain time periods), the Committee may waive such limitation on the

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exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which rights may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.
(c)    Method of Exercise. Subject to whatever installment exercise and waiting period provisions apply under subsection (b) above, Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time and from time to time during the term, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.
(d)    Payment. Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash and/or Common Stock (as chosen by the Committee in its sole discretion at grant, or thereafter if no rights of a Participant are reduced) equal in value to the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised over the Fair Market Value of one share of Common Stock on the date the right was awarded to the Participant; provided, that if payment is made in cash such payment shall be structured to comply with Section 409A of the Code, to the extent applicable.
(e)    Detrimental Activity. Unless otherwise determined by the Committee at grant, (i) in the event the Participant engages in Detrimental Activity prior to any exercise of Non-Tandem Stock Appreciation Rights, all Non-Tandem Stock Appreciation Rights (whether vested or unvested) held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Tandem Stock Appreciation Right, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event the Participant engages in Detrimental Activity during the one year period following the later of (x) Participant's Termination of Employment or (y) the date the Non-Tandem Stock Appreciation Right is exercised, that any Non-Tandem Stock Appreciation Rights shall be immediately forfeited (whether or not then vested) and the Company shall be entitled to recover from the Participant at any time within one year after the later of (x) or (y), and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).
7.5    Limited Stock Appreciation Rights. The Committee may, in its sole discretion, grant a Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only upon the occurrence of a Change in Control or such other event as the Committee may, in its sole discretion, designate at the time of grant or thereafter. Upon the exercise of limited Stock Appreciation Rights, except as otherwise provided in an Award agreement, the Participant shall receive in cash or Common Stock,

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as determined by the Committee, an amount equal to the amount (i) set forth in Section 7.2(d) with respect to Tandem Stock Appreciation Rights, or (ii) set forth in Section 7.4(d) with respect to Non-Tandem Stock Appreciation Rights, as applicable.
ARTICLE VIII

RESTRICTED STOCK

8.1    Awards of Restricted Stock. Shares of Restricted Stock may be issued to Eligible Employees or Consultants either alone or in addition to other Awards granted under this Plan. The Committee shall determine the eligible persons to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the price (if any) to be paid by the recipient (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards. The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance goals, including established Performance Goals in accordance with Section 162(m) of the Code, or such other factors as the Committee may determine, in its sole discretion.
8.2    Awards and Certificates. An Eligible Employee or Consultant selected to receive Restricted Stock shall not have any rights with respect to such Award, unless and until such Participant has delivered to the Company a fully executed copy of the applicable Award agreement relating thereto and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:
(a)    Purchase Price. The purchase price of Restricted Stock shall be fixed by the Committee. Subject to Section 4.3, the purchase price for shares of Restricted Stock may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value.
(b)    Acceptance. Awards of Restricted Stock must be accepted within a period of 90 days (or such shorter period as the Committee may specify at grant) after the Award date by executing a Restricted Stock Award agreement and by paying whatever price (if any) the Committee has designated thereunder.
(c)    Legend. Each Participant receiving shares of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are

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subject to the terms and conditions (including forfeiture) of The Comtech Telecommunications Corp. 2000 Stock Incentive Plan (the "Plan") and an Agreement entered into between the registered owner and the Company dated _______. Copies of such Plan and Agreement are on file at the principal office of the Company."
(d)    Custody. The Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition to the grant of such Award of Restricted Stock, the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award.
8.3    Restrictions and Conditions on Restricted Stock Awards. Subject to Section 4.5, shares of Restricted Stock awarded pursuant to this Plan shall be subject to Article XII and the following restrictions and conditions:
(a)    Restriction Period; Vesting and Acceleration of Vesting. (i) The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under this Plan during the period or periods set by the Committee (the "Restriction Period") commencing on the date of such Award, as set forth in the Restricted Stock Award agreement and such agreement shall set forth a vesting schedule and any events which would accelerate vesting of the shares of Restricted Stock. Within these limits, based on service, attainment of Performance Goals pursuant to Section 8.3(a)(ii) below and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may provide for the lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Restricted Stock Award and/or waive the deferral limitations for all or any part of any Restricted Stock Award.
(ii)    Objective Performance Goals, Formulae or Standards. If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of Performance Goals, the Committee shall establish the Performance Goals and the applicable vesting percentage of the Restricted Stock Award applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. With regard to a Restricted Stock Award that is intended to comply with Section 162(m) of the Code, to the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the Performance Criteria set forth in Exhibit A hereto.

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(b)    Rights as Stockholder. Except as provided in this subsection (b) and subsection (a) above and as otherwise determined by the Committee, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period.
(c)    Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, the certificates for such shares shall be delivered to the Participant. All legends shall be removed from said certificates at the time of delivery to the Participant except as otherwise required by applicable law.
(d)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of Restricted Stock shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Employment or any vesting of Restricted Stock, the Committee may direct (at any time within one year thereafter) that all unvested Restricted Stock shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to the gain realized at the time of vesting of any Restricted Stock.
ARTICLE IX

PERFORMANCE SHARES

9.1    Award of Performance Shares. Performance Shares may be awarded either alone or in addition to other Awards granted under this Plan. Subject to Section 4.5, the Committee shall, in its sole discretion, determine the Eligible Employees and Consultants to whom and the time or times at which such Performance Shares shall be awarded, the duration of the period (the "Performance Period") during which, and the conditions under which, a Participant's right to Performance Shares will be vested and the other terms and conditions of the Award in addition to those set forth in Section 9.2.
Each Performance Share awarded shall be referenced to one share of Common Stock. Except as otherwise provided herein, the Committee shall condition the right to payment of any Performance Share Award upon the attainment of objective Performance Goals established pursuant to Section 9.2(c) below and such other non-performance based factors or criteria as the Committee may determine in its sole discretion.
9.2    Terms and Conditions. A Participant selected to receive Performance Shares shall not have any rights with respect to such Awards, unless and until such Participant has delivered a fully executed copy of a Performance Share Award

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agreement evidencing the Award to the Company and has otherwise complied with the following terms and conditions:
(a)    Earning of Performance Share Award. At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the Performance Goals established pursuant to Section 9.2(c) are achieved and the percentage of each Performance Share Award that has been earned.
(b)    Payment. Following the Committee's determination in accordance with subsection (a) above, shares of Common Stock or, as determined by the Committee in its sole discretion, the cash equivalent of such shares shall be delivered to the Participant, in an amount equal to such Participant's earned Performance Share Award. Notwithstanding the foregoing, except as may be set forth in the agreement covering the Award, the Committee may, in its sole discretion and in accordance with Section 162(m) of the Code, award an amount less than the earned Performance Share Award and/or subject the payment of all or part of any Performance Share Award to additional vesting and forfeiture conditions as it deems appropriate.
(c)    Objective Performance Goals, Formulae or Standards. The Committee shall establish the objective Performance Goals for the earning of Performance Shares based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the Performance Criteria set forth in Exhibit A hereto.
(d)    Dividends and Other Distributions. At the time of any Award of Performance Shares, the Committee may, in its sole discretion, award an Eligible Employee or Consultant the right to receive the cash value of any dividends and other distributions that would have been received as though the Eligible Employee or Consultant had held each share of Common Stock referenced by the earned Performance Share Award from such date as the Committee may specify (but not earlier than the beginning of the Performance Period) until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded, shall be paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant and, at the discretion of the Committee, may be paid with interest from the applicable dividend payment date until such amounts and any earnings

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thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not be greater than the Treasury Rate. Alternatively, the Committee may provide that any cash dividend equivalents shall be converted to additional Performance Shares as of the applicable dividend payment date, to be settled by delivery of shares of Common Stock or cash value thereof.
(e)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of Performance Shares shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Employment or any vesting of Performance Shares, the Committee may direct (at any time within one year thereafter) that all unvested Performance Shares shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to the gain realized at the time of vesting of any Performance Shares.
ARTICLE X

CASH INCENTIVE AWARDS AND PERFORMANCE UNITS

10.1    Cash Incentive Awards. Cash incentive Awards may be awarded either alone or in addition to other Awards granted under this Plan. The Committee shall, in its sole discretion, determine the Eligible Employees and Consultants to whom and the time or times at which such cash incentive Awards shall be awarded, the duration of the period (the "Performance Cycle") during which, and the conditions under which, a Participant shall earn the cash incentive Award and the other terms and conditions of the Award in addition to those set forth in Section 10.3. Cash incentive Awards granted with a Performance Cycle of one year shall be designated as “Annual Incentive Awards.”
Cash incentive Awards shall be awarded in a dollar amount or a formula that will ultimately yield a dollar amount, as determined by the Committee. Except as otherwise provided herein, the Committee shall condition the right to payment of any cash incentive Award upon the attainment of at least one objective Performance Goal established pursuant to Section 10.3(a) and such other factors or criteria as the Committee may determine in its sole discretion.
Cash incentive Awards under this Section 10.1 may be settled and paid only if stockholders of the Company previously have approved the amendment and restatement of the Plan containing the authorization of cash incentive Awards in this Section 10.1.
10.2    Awards of Performance Units. Performance Units may be awarded either alone or in addition to other Awards granted under this Plan. Subject to Section 4.5, the Committee shall, in its sole discretion, determine the Eligible Employees and Consultants to whom and the time or times at which such Performance Units shall be awarded, the duration of the period (the "Performance Unit Cycle") during which, and the

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conditions under which, a Participant's right to Performance Units will be vested and the other terms and conditions of the Award in addition to those set forth in Section 10.3.
Performance Units shall be awarded in a dollar amount determined by the Committee and shall be converted to a referenced number of shares of Common Stock based on the Fair Market Value of shares of Common Stock at the conversion date designated by the Committee (such designation may occur at any time, but no conversion may reference a market price from a date preceding the designation date).
Upon conversion, each Performance Unit shall be referenced to one share of Common Stock. Except as otherwise provided herein, the Committee shall condition the right to payment of any Performance Unit Award upon the attainment of objective Performance Goals established pursuant to Section 10.3(a) and such other non-performance based factors or criteria as the Committee may determine in its sole discretion. The cash value of any fractional Performance Unit Award subsequent to conversion to shares of Common Stock shall be treated as a dividend or other distribution under Section 10.3(e) to the extent any portion of the Performance Unit Award is earned.
10.3    Terms and Conditions. The cash incentive Awards or Performance Units awarded pursuant to this Article X shall be subject to the following terms and conditions:
(a)    Performance Goals. The Committee shall establish the objective Performance Goal or Goals for the earning of cash incentive Awards or Performance Units based on a Performance Cycle or Performance Unit Cycle applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Cycle or Performance Unit Cycle or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goal or Goals is substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect. The applicable Performance Goals shall be based on one or more of the Performance Criteria set forth in Exhibit A hereto.
(b)    Vesting. At the expiration of the Performance Cycle or Performance Unit Cycle, the Committee shall determine and certify in writing the extent to which the Performance Goals have been achieved, and the corresponding extent to which a cash incentive Award or a Performance Unit has been earned in respect of each Participant.
(c)    Payment. Subject to the applicable provisions of the Award agreement and this Plan, at the expiration of the Performance Cycle or Performance Unit Cycle or any vesting period extending beyond the Performance

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Cycle or Performance Unit Cycle, cash or, with respect to Performance Units, shares of Common Stock (as the Committee may determine in its sole discretion at grant, or thereafter if no rights of a Participant are reduced), shall be delivered to the Participant in payment of any earned and vested cash incentive Award or any earned and vested Performance Units covered by the Performance Unit Award. Notwithstanding the foregoing, except as may be set forth in the agreement covering the Award, the Committee may, in its sole discretion, and to the extent applicable and permitted under Section 162(m) of the Code, award an amount less than the earned cash incentive Award or earned Performance Unit Award and/or subject the payment of all or part of any such Award to additional vesting and forfeiture conditions or conditions mandating the deferral of settlement of the Award as it deems appropriate. If an Award is deferred such Award shall not increase (between the date on which the Award is credited to any deferred compensation program applicable to such Participant and the payment date) by an amount that would result in such deferral being deemed as an “increase in the amount of compensation” under Section 162(m) of the Code.
(d)    Accelerated Vesting. Subject to Section 4.5, based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, at or after grant, accelerate the date of earning or vesting of all or any part of any cash incentive Award or Performance Unit Award and/or waive the deferral limitations for all or any part of such Award, except that no acceleration or waiver may affect the time of settlement of an Award that constitutes a deferral of compensation under Section 409A of the Code except as permitted under applicable regulations and guidance under Section 409A.
(e)    Dividends and Other Distributions. At the time of any Award of Performance Units, the Committee may, in its sole discretion, award an Eligible Employee or Consultant the right to receive the cash value of any dividends and other distributions that would have been received as though the Eligible Employee or Consultant had held each share of Common Stock referenced by the earned Performance Unit Award from such date as the Committee may specify (but not earlier than the beginning of the Performance Cycle or Performance Unit Cycle) until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded, shall be paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant and, at the discretion of the Committee, may be paid with interest from the applicable dividend payment date until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not be greater than the Treasury Rate.
(f)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of Performance Units shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Employment or any vesting of

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Performance Units, the Committee may direct (at any time within one year thereafter) that all unvested Performance Units shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to the gain realized at the time of vesting of any Performance Units which had vested in the period referred to above.
ARTICLE XI

OTHER STOCK-BASED AWARDS

11.1    Other Awards. Other Stock-Based Awards (including, without limitation, Restricted Stock Units and Stock Units) may be granted either alone or in addition to or in tandem with Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
Subject to the provisions of this Plan, the Committee shall have authority to determine the persons to whom and the time or times at which such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all other conditions of the Awards. The Committee may also provide for the grant of Common Stock under such Awards upon the completion of a specified performance period.
11.2    Terms and Conditions. Subject to Section 4.5, Other Stock-Based Awards made pursuant to this Article XI shall be subject to the following terms and conditions:
(a)    Non-Transferability. Subject to the applicable provisions of the Award agreement and this Plan, shares of Common Stock subject to Awards made under this Article XI may not be Transferred prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.
(b)    Dividends. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and this Plan, the recipient of an Award under this Article XI shall be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion. Dividend equivalents shall confer upon the recipient the right to be credited, as of dividend payment dates, with the equivalent value (in cash or shares) of any dividends and other distributions that would have been received as though the Eligible Employee or Consultant had held each share of Common Stock referenced by the Award under this Article XI from such date as the Committee may specify (but not earlier than the Grant Date of the Award) until the date such Award vests, is distributed or expires. Dividend equivalents accrued as a cash obligation and to be paid to the Participant after the dividend payment date may, at the discretion of

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the Committee, be paid with interest from the applicable dividend payment date until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not be greater than the Treasury Rate. Alternatively, the Committee may provide any cash dividend equivalents shall be converted to additional Other Stock-Based Awards as of the applicable dividend payment date, to be settled by delivery of shares of Common Stock or cash value thereof.
(c)    Vesting. Any Award under this Article XI and any Common Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award agreement, as determined by the Committee, in its sole discretion.
(d)    Waiver of Limitation. The Committee may, in its sole discretion, waive in whole or in part any or all of the limitations imposed hereunder (if any) with respect to any or all of an Award under this Article XI.
(e)    Price. Common Stock or Other Stock-Based Awards issued on a bonus basis under this Article XI may be issued for no cash consideration; Common Stock or Other Stock-Based Awards purchased pursuant to a purchase right awarded under this Article XI shall be priced as determined by the Committee. Subject to Section 4.3, the purchase price of shares of Common Stock or Other Stock-Based Awards may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value. The purchase of shares of Common Stock or Other Stock-Based Awards may be made on either an after-tax or pre-tax basis, as determined by the Committee; provided, however, that if the purchase is made on a pre-tax basis, such purchase shall be made pursuant to a deferred compensation program established by the Committee, which will be deemed a part of this Plan.
(f)    Detrimental Activity. Other Stock-Based Awards under this Article XI and any Common Stock covered by any such Award shall be forfeited in the event the Participant engages in Detrimental Activity under such conditions set forth by the Committee in the Award agreement.
ARTICLE XII

NON-TRANSFERABILITY AND TERMINATION
OF EMPLOYMENT/CONSULTANCY

12.1    Non-Transferability. No Stock Option, Stock Appreciation Right, Performance Unit, Performance Share or Other Stock-Based Award shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution or following death of the Participant pursuant to a beneficiary designation authorized by the Committee. All Stock Options and all Stock Appreciation Rights shall be exercisable, during the Participant's lifetime, only by the Participant. Tandem Stock Appreciation

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Rights shall be Transferable, to the extent permitted above, only with the underlying Stock Option. Shares of Restricted Stock under Article VIII may not be Transferred prior to the date on which shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses. No Award shall, except as otherwise specifically provided by law or herein, be Transferable in any manner, and any attempt to Transfer any such Award shall be void, and no such Award shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Award, nor shall it be subject to attachment or legal process for or against such person. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter, that a Non-Qualified Stock Option that is otherwise not transferable pursuant to this Section 12.1 is transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as specified by the Committee, except no transfer or other disposition for value shall be permitted. A Non-Qualified Stock Option that is transferred to a Family Member pursuant to the preceding sentence may not be subsequently transferred otherwise than by will or by the laws of descent and distribution.
12.2    Termination of Employment or Termination of Consultancy. The following rules apply with regard to the Termination of Employment or Termination of Consultancy of a Participant:
(a)    Rules Applicable to Stock Options and Stock Appreciation Rights. Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter:
(i)    Termination by Reason of Death, Disability or Retirement. If a Participant's Termination of Employment or Termination of Consultancy is by reason of death, Disability or Retirement, all Stock Options and Stock Appreciation Rights held by such Participant may be exercised, to the extent exercisable at the Participant's Termination of Employment or Termination of Consultancy, by the Participant (or, in the case of death, by the legal representative of the Participant's estate) at any time within a period of one year from the date of such Termination of Employment or Termination of Consultancy, but in no event beyond the expiration of the stated terms of such Stock Options and Stock Appreciation Rights; provided, however, that, in the case of Retirement, if the Participant dies within such exercise period, all unexercised Stock Options and Non-Tandem Stock Appreciation Rights held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Options and Non-Tandem Stock Appreciation Rights.
(ii)    Involuntary Termination Without Cause. If a Participant's Termination of Employment or Termination of Consultancy is by involuntary termination without Cause, all Stock Options and Stock Appreciation Rights held by such Participant may be exercised, to the extent exercisable at Termination of Employment or Termination of Consultancy, by the Participant at any time within

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a period of 90 days from the date of such Termination of Employment or Termination of Consultancy, but in no event beyond the expiration of the stated term of such Stock Options and Stock Appreciation Rights.
(iii)    Voluntary Termination. If a Participant's Termination of Employment or Termination of Consultancy is voluntary (other than a voluntary termination described in Section 12.2(a)(iv)(B) below), all Stock Options and Stock Appreciation Rights held by such Participant may be exercised, to the extent exercisable at Termination of Employment or Termination of Consultancy, by the Participant at any time within a period of 30 days from the date of such Termination of Employment or Termination of Consultancy, but in no event beyond the expiration of the stated terms of such Stock Options and Stock Appreciation Rights. Notwithstanding the foregoing, effective for Stock Options and Stock Appreciation Rights granted on or after October 19, 2000, if a Participant's Termination of Employment or Termination of Consultancy is voluntary, all Stock Options and Stock Appreciation Rights held by such Participant shall thereupon terminate and expire as of the date of such Termination of Employment or Termination of Consultancy.
(iv)    Termination for Cause. If a Participant's Termination of Employment or Termination of Consultancy (A) is for Cause or (B) is a voluntary termination (as provided in subsection (iii) above) within 90 days after an event which would be grounds for a Termination of Employment or Termination of Consultancy for Cause, all Stock Options and Stock Appreciation Rights held by such Participant shall thereupon terminate and expire as of the date of such Termination of Employment or Termination of Consultancy.
(b)    Rules Applicable to Restricted Stock. Subject to the applicable provisions of the Restricted Stock Award agreement and this Plan, upon a Participant's Termination of Employment or Termination of Consultancy for any reason during the relevant Restriction Period, all Restricted Stock still subject to restriction will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant or thereafter.
(c)    Rules Applicable to Performance Shares and Performance Units. Subject to the applicable provisions of the Award agreement and this Plan, upon a Participant's Termination of Employment or Termination of Consultancy for any reason during the Performance Period, the Performance Unit Cycle or other period or restriction as may be applicable for a given Award, the Performance Shares or Performance Units in question will vest (to the extent applicable and to the extent permissible under Section 162(m) of the Code) or be forfeited in accordance with the terms and conditions established by the Committee at grant or thereafter.
(d)    Rules Applicable to Other Stock-Based Awards. Subject to the applicable provisions of the Award agreement and this Plan, upon a Participant's Termination of Employment or Termination of Consultancy for any reason during

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any period or restriction as may be applicable for a given Award, the Other Stock-Based Awards in question will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant or thereafter.
ARTICLE XIII

NON-EMPLOYEE DIRECTOR GRANTS

13.1    Awards. The terms of this Article XIII shall apply only to Awards of Stock Options, Restricted Stock Units, Restricted Stock and Stock Units granted to Non-Employee Directors.
13.2    Stock Option Grants. Without further action by the Board or the stockholders of the Company, each Non-Employee Director shall, subject to the terms of the Plan, be granted:
(a)    Initial Option Grant.
(i)    Effective January 13, 2012 through December 10, 2015 (the “December Effective Date”), Stock Options to purchase shares of Common Stock as of the date the Non-Employee Director begins service as a Non-Employee Director on the Board (such date, the “Service Commencement Date”), provided that the Non-Employee Director began service on or after the Effective Date, in an amount determined as follows (subject to increase or decrease pursuant to Section 4.2): the number of shares of Common Stock subject to such Stock Options shall be equal to the product of 15,000 and a fraction, the numerator of which shall be equal to 365 minus the number of days that have elapsed since the previous “NED Grant Date” (as defined below), and the denominator of which is 365; and
(ii)    Effective after the December Effective Date, Stock Options to purchase shares of Common Stock as of the Service Commencement Date, provided that the Non-Employee Director began service after the Effective Date, in an amount (subject to increase or decrease pursuant to Section 4.2) that is the product of (A) Stock Options to purchase that number of shares of Common Stock having a Black-Scholes value of $100,000 as of the Service Commencement Date, and (B) a fraction, the numerator of which shall be equal to 365 minus the number of days that have elapsed since the previous NED Grant Date, and the denominator of which is 365 (with any fractional share rounded down to the nearest whole share); and
(b)    Annual Option Grant.
(i)    Subject to Sections 13.5(a), 13.5(b) and 13.6(a), effective January 13, 2012 through the December Effective Date, in addition to

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Stock Options granted pursuant to (a) above, Stock Options to purchase 15,000 shares of Common Stock (subject to increase or decrease pursuant to Section 4.2) as of June 2 of each calendar year or, if a different date, the date the Company grants annual equity awards under the Plan to the employees of the Company (such date, the “NED Grant Date”) commencing June 2, 2011 through the December Effective Date, provided he or she has not, as of such NED Grant Date, experienced a Termination of Directorship; and
(ii)    Subject to Sections 13.5(a), 13.5(b) and 13.6(a), effective after December Effective Date, in addition to Stock Options granted pursuant to (a) above, Stock Options to purchase that number of shares of Common Stock having a Black-Scholes value of $100,000 (subject to increase or decrease pursuant to Section 4.2) as of June 2 of each calendar year or, if a different date, the NED Grant Date commencing after the December Effective Date, provided he or she has not, as of such NED Grant Date, experienced a Termination of Directorship. The applicable number of Stock Options granted each calendar year to a Non-Employee Director pursuant to Section 13.2(b)(i) or (ii) is hereinafter referred to as an “Annual Option.”
13.3    Non-Qualified Stock Option. Stock Options granted under this Article XIII shall be Non-Qualified Stock Options.
13.4    Terms of Stock Options. Stock Options granted under this Article XIII shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable:
(a)    Stock Option Price. The Stock Option price per share of Common Stock purchasable under a Stock Option shall equal 100% of the Fair Market Value of the share of Common Stock on the NED Grant Date.
(b)    Stock Option Term. The term of each Stock Option granted (i) prior to August 1, 2005, shall be ten (10) years, (ii) on or after August 1, 2005 and prior to the December Effective Date, shall be five (5) years, and (iii) on or after the December Effective Date, shall be five (5) years unless otherwise determined by the Committee at or prior to grant, provided that in no event shall the term of any Stock Option exceed ten (10) years.
(c)    Exercisability. Stock Options granted to Non-Employee Directors pursuant to Section 13.2 shall vest and become exercisable (i) for Stock Options granted prior to August 1, 2005, on the first anniversary of the NED Grant Date, (ii) for Stock Options granted on or after August 1, 2005 and prior to the December Effective Date, in installments over a three (3) year period commencing on the NED Grant Date at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of the NED Grant Date, and (iii) for Stock Options granted on or after the December Effective Date, unless otherwise determined by the Committee at or prior to grant, in installments over a three (3) year period commencing on the NED Grant Date at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of

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the NED Grant Date; provided that, except as otherwise determined by the Committee at or prior to grant with respect to any Stock Option granted on or after the December Effective Date, or except as otherwise specifically provided herein, the Stock Option may become vested only during the period prior to his or her Termination of Directorship.
(d)    Method of Exercise. Subject to whatever waiting period provisions apply under subsection (c) above, Stock Options may be exercised in whole or in part at any time and from time to time during the Stock Option term, by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the Company; (ii) to the extent permitted by law, if the Common Stock is traded on a national securities exchange, through a "cashless exercise" procedure whereby the Participant delivers irrevocable instructions to a broker satisfactory to the Company to deliver promptly to the Company an amount equal to the purchase price; or (iii) such other arrangement for the satisfaction of the purchase price, as the Board may accept. If and to the extent determined by the Board in its sole discretion at or after grant, payment in full or in part may also be made in the form of Common Stock owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances) based on the Fair Market Value of the Common Stock on the payment date. No shares of Common Stock shall be issued until payment, as provided herein, therefore has been made or provided for.
(e)    Form, Modification, Extension and Renewal of Stock Options. Subject to the terms and conditions and within the limitations of this Plan, Stock Options granted under this Article XIII shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may (i) modify, extend or renew outstanding Stock Options granted under this Section XIII; provided that the rights of a Participant are not reduced without his consent; provided further, that any such modification, extension or renewal is intended to be structured to comply with Section 409A of the Code, to the extent applicable, and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, unless approved by stockholders of the Company, (i) an outstanding Option may not be modified to reduce the exercise price thereof, (ii) no new Option at a lower exercise price or base price may be substituted for a surrendered Option, and (iii) no other Award may be issued or cash may be paid in exchange for the surrender of an Option at a time that the exercise or base price of such Option exceeds the current Fair Market Value of a share of Common Stock or if such new Award or cash has a value in excess of the then in-the-

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money value of the surrendered Option, provided that adjustments or substitutions in accordance with Section 4.2 are not subject to this stockholder approval requirement.
(f)    Termination of Directorship. The following rules apply with regard to Stock Options upon the Termination of Directorship:
(i)    Termination of Directorship by Reason of Death, Disability or Otherwise Ceasing to be a Director. Except as otherwise provided herein, upon the Termination of Directorship by reason of death, Disability, resignation, failure to stand for reelection or failure to be reelected or otherwise, all outstanding Stock Options exercisable and not exercised shall remain exercisable to the extent exercisable on such date of Termination of Directorship by the Participant or, in the case of death, by the Participant's estate or by the person given authority to exercise such Stock Options by his or her will or by operation of law, at any time prior to the expiration of the stated term of such Stock Option.
(ii)    Cancellation of Options. Except as provided herein or in Section 13.4(g), no Stock Options that were not exercisable as of the date of Termination of Directorship shall thereafter become exercisable upon a Termination of Directorship for any reason or no reason whatsoever, and such Stock Options shall terminate and become null and void upon a Termination of Directorship. Notwithstanding the foregoing, the Committee shall be authorized, in its sole discretion, at any time on or prior to the date of the Termination of Directorship, to provide, based on such factors, if any, as the Committee may determine, that any outstanding Stock Options that are not exercisable as of the date of Termination of Directorship shall thereafter continue to become exercisable in accordance with the original terms of such Stock Options as if a Termination of Directorship never occurred. Notwithstanding anything herein to the contrary, if a Non-Employee Director's Termination of Directorship is for Cause, all Stock Options held by the Non-Employee Director shall thereupon terminate and expire as of the date of termination.
(g)    Acceleration of Exercisability. All Stock Options granted to a Non-Employee Director and not previously exercisable shall become fully exercisable upon such Director's death, and all Stock Options granted to Non-Employee Directors and not previously exercisable shall become fully exercisable immediately upon a Change in Control (as defined in Section 14.2). In addition, the Committee may accelerate the vesting and exercisability of any such Stock Option at any time at or after grant in whole or in part, based on such factors, if any, as the Committee shall determine, in its sole discretion.
(h)    Detrimental Activity. For Stock Options granted to Non-Employee Directors on or after September 21, 2011, unless otherwise determined by the Committee at grant, (i) in the event the Non-Employee Director engages in

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Detrimental Activity prior to any exercise of the Stock Option, all such Stock Options (whether vested or unvested) held by the Non-Employee Director shall thereupon terminate and expire, (ii) as a condition of the exercise of a Stock Option, the Non-Employee Director shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Non-Employee Director is in compliance with the terms and conditions of the Plan and that the Non-Employee Director has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event the Non-Employee Director engages in Detrimental Activity during the one year period following the later of (x) Non-Employee Director's Termination of Directorship or (y) the date the Stock Option is exercised, any such Stock Options shall be immediately forfeited (whether or not then vested) and the Company shall be entitled to recover from the Non-Employee Director at any time within one year after the later of (x) or (y), and the Non-Employee Director shall pay over to the Company, an amount equal to any gain realized as a result of the exercise of any Stock Options (whether at the time of exercise or thereafter).
13.5    Terms of Restricted Stock Units. RSUs granted under this Article XIII shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable:
(a)    Automatic Grant. Effective as of September 21, 2011, a Non-Employee Director who as of the December 31 of the calendar year prior to a NED Grant Date (the “Determination Date”) has not satisfied his minimum Company stock ownership requirement under the Ownership Guidelines shall be automatically granted, without further action by the Non-Employee Director, Committee or the stockholders of the Company, in lieu of all or a portion of the Annual Option that otherwise would have been granted to the Non-Employee Director on such NED Grant Date, a number of RSUs determined by the Committee in its sole discretion by converting the Stock Options that the Non-Employee Director would otherwise have received on the NED Grant Date to RSUs by dividing the Black-Scholes value of such Stock Options on the NED Grant Date by the Fair Market Value of a share of Common Stock on the NED Grant Date up to the number of RSUs equal to the number of shares of Common Stock necessary for the Non-Employee Director to have satisfied his minimum stock ownership requirement under the Ownership Guidelines as of the Determination Date. Any fractional Stock Options or RSUs, as applicable, resulting from the foregoing calculations shall be eliminated by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements or other Award shall be made with respect to fractional Stock Options or RSUs, as applicable, eliminated by rounding. Any Stock Options that remain following the forgoing calculations shall, subject to Sections 13.5(b) and 13.6(a), be granted to the Non-Employee Director on the NED Grant Date in accordance with Section 13.2(b).

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(b)    Election. Effective as of September 21, 2011, a Non-Employee Director may elect, without further action by the Committee or the stockholders of the Company, to be granted, in lieu of all or a portion of the Annual Option that, subject to Section 13.5(a), otherwise would have been granted to the Non-Employee Director on such NED Grant Date, the number of RSUs equal to the Black-Scholes value on the NED Grant Date of the Stock Options that the Non-Employee Director has elected not to receive on the NED Grant Date divided by the Fair Market Value of the Common Stock on the NED Grant Date, as determined by the Committee in its sole discretion. Any fractional RSU resulting from the foregoing calculation shall be eliminated by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements or other Award shall be made with respect to fractional RSUs eliminated by rounding. Any election pursuant to this Section 13.5(b) shall be in writing delivered to the Committee on an election form prescribed by, and acceptable to, the Committee and in accordance with the procedures established by the Committee, and must be delivered by the Non-Employee Director by either (i) no later than the December 31 of the calendar year prior to the calendar year in which the relevant NED Grant Date is scheduled to occur, (ii) within thirty (30) days of his first becoming a Non-Employee Director, or (iii) by such other deadline, approved in advance by the Committee, that is compliant with Section 409A of the Code and does not result in constructive receipt of income by the Non-Employee Director.
(c)    Vesting. RSUs granted to Non-Employee Directors pursuant to this Section 13.5 (i) prior to the December Effective Date, shall vest in installments over a three (3) year period, commencing on the NED Grant Date, at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of the NED Grant Date, and (ii) on or after the December Effective Date, shall vest, unless otherwise determined by the Committee at or prior to grant, in installments over a three (3) year period, commencing on the NED Grant Date, at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of the NED Grant Date; provided that, except as otherwise determined by the Committee at or prior to grant with respect to any RSUs granted on or after the December Effective Date, or except as otherwise specifically provided herein, the RSUs may become vested only during the period prior to his or her Termination of Directorship.
(d)    Acceleration of Vesting. All unvested RSUs granted to a Non-Employee Director shall become fully vested upon (i) such Non-Employee Director's death or (ii) a Change in Control. In addition, the Committee may accelerate the vesting of any such RSU at any time at or after grant in whole or in part, based on such factors, if any, as the Committee shall determine, in its sole discretion.
Within thirty (30) days following the Non-Employee Director’s Termination of Directorship for any reason other than a Termination of

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Directorship for Cause, the Non-Employee Director shall receive one share of Common Stock for each vested RSU held by the Non-Employee Director as of the date of the Non-Employee Director’s Termination of Directorship, the ownership of which shall be recognized by the Company through an uncertificated book entry credited to a book entry account maintained by the Company (or its designee) on behalf of the Non-Employee Director or such other method (including the issuance of stock certificate) as determined by the Company in its sole discretion.
(e)    Form and Modification of Restricted Stock Units. Subject to the terms and conditions and within the limitations of this Plan, RSUs granted under this Article XIII shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify outstanding RSUs granted under this Section XIII; provided that the rights of a Participant are not reduced without his consent; provided further, that any such modification is intended to be structured to comply with Section 409A of the Code, to the extent applicable.
(f)    Termination of Directorship. Except as otherwise provided in Section 13.5(d) hereof, RSUs that are not vested as of the date of a Non-Employee Director’s Termination of Directorship for any reason shall terminate and be forfeited in their entirety as of the date of such Termination of Directorship. Notwithstanding anything herein to the contrary, in the event of a Non-Employee Director’s Termination of Directorship for Cause, the Non-Employee Director’s RSUs (whether vested or unvested) shall terminate and be forfeited in their entirety as of the date of such Termination of Directorship.
(g)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of RSUs shall provide that in the event the Non-Employee Director engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Directorship or any vesting of RSUs, the Committee may direct (at any time within one year thereafter) that all unvested RSUs and all vested but unpaid RSUs shall be immediately forfeited to the Company and that the Non-Employee Director shall pay over to the Company the amount realized from any RSUs or any Common Stock paid in connection therewith.
(h)    Dividends. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and this Plan, the recipient of RSUs under this Section 13.5 shall be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion. Dividend equivalents shall confer upon the recipient the right to receive the cash value of any dividends and other distributions that would have been received as though the Non-Employee Director had held each share of Common Stock referenced by the RSU from such date as the Committee may specify (but not earlier than the Grant Date of the

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Award) until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded and to be paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant, may, at the discretion of the Committee, be paid with interest from the applicable dividend payment date until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not be greater than the Treasury Rate. Alternatively, the Committee may provide that such cash dividend equivalents will be deemed reinvested in additional RSUs as of the applicable dividend payment date, to be settled by delivery of shares of Common Stock or cash value thereof at the same time as such deferred cash dividend equivalents would have been settled hereunder.

13.6    Terms of Restricted Stock Awards. Restricted Stock granted under this Article XIII shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable:
(a)    Election. Effective as of September 21, 2011, a Non-Employee Director may elect, without further action by the Committee or the stockholders of the Company, to be granted, in lieu of all or a portion of the Annual Option that, subject to Section 13.5(a), otherwise would have been granted to the Non-Employee Director on such NED Grant Date, the number of shares of Restricted Stock equal to the Black-Scholes value on the NED Grant Date of the Stock Options that the Non-Employee Director has elected not to receive on the NED Grant Date divided by the Fair Market Value of the Common Stock on the NED Grant Date, as determined by the Committee in its sole discretion. Any fractional share of Restricted Stock resulting from the foregoing calculation shall be eliminated by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements or other Award shall be made with respect to fractional shares of Restricted Stock eliminated by rounding. Any election pursuant to this Section 13.6(a) shall be in writing delivered to the Committee on an election form prescribed by, and acceptable to, the Committee and in accordance with the procedures established by the Committee, and must be delivered by the Non-Employee Director by either (i) no later than the December 31 of the calendar year prior to the calendar year in which the relevant NED Grant Date is scheduled to occur, (ii) within thirty (30) days of his first becoming a Non-Employee Director, or (iii) effective as of June 5, 2013, by such other deadline, approved in advance by the Committee, that is compliant with Section 409A of the Code and does not result in constructive receipt of income by the Non-Employee Director.
A Non-Employee Director who elects to receive Restricted Stock shall not have any rights with respect to such Award, unless and until such Participant has delivered to

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the Company a fully executed copy of the applicable Award agreement relating thereto and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:
(i)    Purchase Price. The purchase price for shares of Restricted Stock shall be zero to the extent permitted by applicable law, and, to the extent not so permitted, such be the lowest permissible price.
(ii)    Acceptance. Awards of Restricted Stock must be accepted within a period of 90 days (or such shorter period as the Committee may specify at grant) after the Award date by executing a Restricted Stock Award agreement and by paying whatever price (if any) required by law.
(iii)    Legend. Each Participant receiving shares of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of The Comtech Telecommunications Corp. 2000 Stock Incentive Plan (the "Plan") and an Agreement entered into between the registered owner and the Company dated _______. Copies of such Plan and Agreement are on file at the principal office of the Company."
(iv)    Custody. The Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition to the grant of such Award of Restricted Stock, the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award.
(b)    Restrictions and Conditions. Shares of Restricted Stock awarded pursuant to this Plan shall be subject to the following restrictions and conditions:
(i)    Vesting. Shares of Restricted Stock granted to Non-Employee Directors pursuant to Section 13.6(a) (i) prior to the December Effective Date, shall vest in installments over a three (3) year period, commencing on the NED Grant Date, at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of the NED Grant Date, and (ii) on or after the December Effective Date, shall vest, unless otherwise determined by the Committee

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at or prior to grant, in installments over a three (3) year period, commencing on the NED Grant Date, at the rate of 25% effective on the first and second anniversaries of the NED Grant Date and 50% on the third anniversary of the NED Grant Date; provided that, except as otherwise determined by the Committee at or prior to grant with respect to any shares of Restricted Stock granted on or after the December Effective Date, or except as otherwise specifically provided herein, the shares of Restricted Stock may become vested only during the period prior to his or her Termination of Directorship. Notwithstanding the foregoing, all unvested shares of Restricted Stock granted to Non-Employee Directors pursuant to Section 13.6(a) shall become fully vested upon (i) such Non-Employee Director's death or (ii) a Change in Control. In addition, the Committee may accelerate the vesting of any such shares of Restricted Stock at any time at or after grant in whole or in part, based on such factors, if any, as the Committee shall determine, in its sole discretion. The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under Section 13.6(a) prior to vesting.
(ii)    Rights as Stockholder. Except as otherwise determined by the Committee, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the vesting of the underlying shares of Restricted Stock.
(iii)    Lapse of Restrictions. If and when shares of Restricted Stock vest, the certificates for such shares shall be delivered to the Participant. All legends shall be removed from said certificates at the time of delivery to the Participant except as otherwise required by applicable law.
(iv)    Form and Modification of Restricted Stock Awards. Subject to the terms and conditions and within the limitations of this Plan, shares of Restricted Stock granted under this Article XIII shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify outstanding Restricted Stock Awards granted under this Section XIII; provided that the rights of a Participant are not reduced without his consent; provided further, that any such modification is intended to be structured to comply with Section 409A of the Code, to the extent applicable.
(v)     Termination of Directorship. Except as otherwise provided herein and in Section 13.6(c)(i) hereof, shares of Restricted Stock that are not vested as of the date of a Non-Employee Director’s

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Termination of Directorship for any reason shall terminate and be forfeited in their entirety as of the date of such Termination of Directorship. Notwithstanding the foregoing, the Committee shall be authorized, in its sole discretion, at any time on or prior to the date of the Termination of Directorship, to provide, based on such factors as the Committee may determine, in its sole discretion, that any shares of Restricted Stock that are not vested as of the date of Termination of Directorship shall thereafter continue to vest in accordance with the original terms of such shares of Restricted Stock as if a Termination of Directorship never occurred. Notwithstanding anything herein to the contrary, in the event of a Non-Employee Director’s Termination of Directorship for Cause, the Non-Employee Director’s shares of Restricted Stock (whether vested or unvested) shall be forfeited in their entirety as of the date of such Termination of Directorship.
(c)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of Restricted Stock shall provide that in the event the Non-Employee Director engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Directorship or any vesting of Restricted Stock, the Committee may direct (at any time within one year thereafter) that all unvested Restricted Stock shall be immediately forfeited to the Company and that the Non-Employee Director shall pay over to the Company the amount realized at the time of vesting of any Restricted Stock.
13.7    Terms of Stock Units. Stock Units granted under this Article XIII shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable:
(a)    Election. Effective as of September 21, 2011, a Non-Employee Director may elect, without further action by the Committee or the stockholders of the Company, to be granted on the date the relevant cash retainer payment was scheduled to be paid (the “Retainer Payment Date”), in lieu of all or a portion of the Non-Employee Director’s annual cash retainer that would have been paid to the Non-Employee Director, the number of Stock Units equal to the amount of the cash retainer that the Non-Employee Director has elected not to receive divided by the Fair Market Value of the Common Stock on the Retainer Payment Date, as determined by the Committee in its sole discretion. Any fractional Stock Unit resulting from the foregoing calculation shall be eliminated by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements or other Award shall be made with respect to fractional Stock Units eliminated by rounding. Any election pursuant to this Section 13.7(a) shall be in writing delivered to the Committee on an election form prescribed by, and acceptable to, the Committee and in accordance with the procedures established by the Committee, and must be delivered by the Non-Employee Director by either (i) no later than the December 31 of the calendar year prior to the calendar year in which the relevant cash retainer payment is

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scheduled to be paid, (ii) within thirty (30) days of his first becoming a Non-Employee Director or (iii) by such other deadline, approved in advance by the Committee, that is compliant with Section 409A of the Code and does not result in constructive receipt of income by the Non-Employee Director.
(b)    Vesting. Prior to the December Effective Date, Stock Units granted to Non-Employee Directors pursuant to Section 13.7(a) shall be fully vested on the date of grant. On or after the December Effective Date, Stock Units granted to Non-Employee Directors pursuant to Section 13.7(a) shall be fully vested on the date of grant unless otherwise provided by the Committee at or prior to grant.
(c)    Payment. Within thirty (30) days following the Non-Employee Director’s Termination of Directorship for any reason other than a Termination of Directorship for Cause, the Non-Employee Director shall receive one share of Common Stock for each Stock Unit held by the Non-Employee Director as of the date of the Non-Employee Director’s Termination of Directorship, the ownership of which shall be recognized by the Company through an uncertificated book entry credited to a book entry account maintained by the Company (or its designee) on behalf of the Non-Employee Director or such other method (including the issuance of stock certificate) as determined by the Company in its sole discretion.
(d)    Form and Modification of Stock Units. Subject to the terms and conditions and within the limitations of this Plan, Stock Units granted under this Article XIII shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify outstanding Stock Units granted under this Section XIII; provided that the rights of a Participant are not reduced without his consent; provided further, that any such modification is intended to be structured to comply with Section 409A of the Code, to the extent applicable.
(e)    Termination of Directorship. Notwithstanding anything herein to the contrary, in the event of a Non-Employee Director’s Termination of Directorship for Cause, the Non-Employee Director’s Stock Units shall terminate and be forfeited in their entirety as of the date of such Termination of Directorship.
(f)    Detrimental Activity. Unless otherwise determined by the Committee at grant, each Award of Stock Units shall provide that in the event the Non-Employee Director engages in Detrimental Activity prior to, or during the one year period following the later of Termination of Directorship or any grant of Stock Units, the Committee may direct (at any time within one year thereafter) that all Stock Units shall be immediately forfeited to the Company and that the Non-Employee Director shall pay over to the Company the amount realized from any Stock Units or any Common Stock paid in connection therewith.

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(h)    Dividends. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and this Plan, the recipient of Stock Units under this Section 13.7 shall be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion. Dividend equivalents shall confer upon the recipient the right to receive the cash value of any dividends and other distributions that would have been received as though the Non-Employee Director had held each share of Common Stock referenced by the Stock Unit from such date as the Committee may specify (but not earlier than the Grant Date of the Award) until the actual distribution to such Participant of the related share of Common Stock or cash value thereof. Such amounts, if awarded and to be paid to the Participant as and when the shares of Common Stock or cash value thereof are distributed to such Participant, may, at the discretion of the Committee, be paid with interest from the applicable dividend payment date until such amounts and any earnings thereon are distributed. The applicable rate of interest shall be determined by the Committee in its sole discretion; provided, however, that for each fiscal year or part thereof, the applicable interest rate shall not be greater than the Treasury Rate. Alternatively, the Committee may provide that such cash dividend equivalents will be deemed reinvested in additional Stock Units as of the applicable dividend payment date, to be settled by delivery of shares of Common Stock or cash value thereof at the same time as such deferred cash dividend equivalents would have been settled hereunder.
13.8    Changes.
(a)    The Awards to a Non-Employee Director shall be subject to Sections 4.2(a), (b) and (c) of the Plan and this Section 13.8, but shall not be subject to Section 4.2(d).
(b)    If the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to be dissolved or liquidated, then, unless the surviving corporation assumes the Stock Options or substitutes new Stock Options which are determined by the Board in its sole discretion to be substantially similar in nature and equivalent in terms and value for Stock Options then outstanding, upon the effective date of such merger, consolidation, liquidation or dissolution, any unexercised Stock Options shall expire without additional compensation to the holder thereof; provided, that, the Board shall deliver notice to each Non-Employee Director at least 30 days prior to the date of consummation of such merger, consolidation, dissolution or liquidation which would result in the expiration of the Stock Options and during the period from the date on which such notice of termination is delivered to the consummation of the merger, consolidation, dissolution or liquidation, such Participant shall have the right to exercise in full, effective as of such consummation, all Stock Options that are then outstanding (without regard to limitations on exercise otherwise contained in the Stock Options) but contingent on occurrence of the merger, consolidation, dissolution or liquidation, and, provided that, if the contemplated

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transaction does not take place within a 90 day period after giving such notice for any reason whatsoever, the notice, accelerated vesting and exercise shall be null and void and, if and when appropriate, new notice shall be given as aforesaid.
ARTICLE XIV

CHANGE IN CONTROL PROVISIONS

14.1    Benefits. In the event of a Change in Control of the Company, except as otherwise provided by the Committee upon the grant of an Award, the Participant shall be entitled to the following benefits:
(a)    Except to the extent provided in the applicable Award agreement, the Participant's employment agreement with the Company or an Affiliate, as approved by the Committee, or other written agreement approved by the Committee (as such agreement may be amended from time to time), (i) Equity Awards granted and not previously exercisable shall become exercisable upon a Change in Control, (ii) restrictions to which any shares of Restricted Stock granted prior to the Change in Control are subject shall lapse upon a Change in Control, and (iii) the conditions required for vesting of any unvested Performance Units and/or Performance Shares shall be deemed to be satisfied upon a Change in Control.
(b)    The Committee, in its sole discretion, may provide for the purchase of any Stock Option by the Company or an Affiliate for an amount of cash equal to the excess of the Change in Control Price (as defined below) of the shares of Common Stock covered by such Stock Options, over the aggregate exercise price of such Stock Options. For purposes of this Section 14.1, Change in Control Price shall mean the higher of (i) the highest price per share of Common Stock paid in any transaction related to a Change in Control of the Company, or (ii) the highest Fair Market Value per share of Common Stock at any time during the sixty (60) day period preceding a Change in Control; provided, however, that for the avoidance if doubt the Change in Control price shall not exceed the fair market value of the Common Stock at the time of purchase as determined in accordance Section 409A of the Code.
(c)    Notwithstanding anything to the contrary herein, unless the Committee provides otherwise at the time a Stock Option is granted hereunder or thereafter, no acceleration of exercisability shall occur with respect to such Stock Options if the Committee reasonably determines in good faith, prior to the occurrence of the Change in Control, that the Stock Options shall be honored or assumed, or new rights substituted therefore (each such honored, assumed or substituted stock option hereinafter called an "Alternative Option"), by a Participant's employer (or the parent or a subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Option must meet the following criteria:

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(i)    the Alternative Option must be based on stock which is traded on an established securities market, or which will be so traded within 30 days of the Change in Control;
(ii)    the Alternative Option must provide such Participant with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Stock Option, including, but not limited to, an identical or better exercise schedule;
(iii)    the Alternative Option must have economic value substantially equivalent to the value of such Stock Option (determined at the time of the Change in Control); and
(iv)    the Alternate Option must be structured in a manner intended to comply with Section 409A of the Code to avoid any adverse tax consequences thereunder, to the extent applicable.
For purposes of Incentive Stock Options, any assumed or substituted Stock Option shall comply with the requirements of Treasury Regulation § 1.424‑1 (and any amendments thereto).
(d)    Notwithstanding anything else herein, the Committee may, in its sole discretion, provide for accelerated vesting of an Award or accelerated lapsing of restrictions on shares of Restricted Stock at any time.
14.2    Change in Control. A "Change in Control" shall be deemed to have occurred:
(a)    upon any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Common Stock of the Company), becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities;
(b)    during any period of two (2) consecutive years (the “Board Measurement Period”), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c), or (d) of this section) or a director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of

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at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board of Directors; provided, that with respect to any payment pursuant to an Award granted under this Plan on or after September 21, 2011 that is triggered upon a Change in Control and that constitutes “non-qualified deferred compensation” pursuant to Section 409A of the Code, the Board Measurement Period shall be reduced from any period of two consecutive years to any period of twelve consecutive months;
(c)    upon a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (other than those covered by the exceptions in (a) above) acquires more than 50% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; or
(d)    upon approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for (or for Awards granted on or after September 21, 2011, the consummation of) the sale or disposition by the Company of all or substantially all of the Company's assets other than the sale or disposition of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale; provided, that with respect to any payment pursuant to an Award granted under this Plan on or after September 21, 2011 that is triggered upon a Change in Control and that constitutes “non-qualified deferred compensation” pursuant to Section 409A of the Code, stockholder approval of a plan of liquidation of the Company shall not constitute a Change in Control.
ARTICLE XV

TERMINATION OR AMENDMENT OF PLAN

Notwithstanding any other provision of this Plan, the Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of this Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XVII), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to

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such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, without the approval of the shareholders of the Company in accordance with the laws of the State of Delaware, to the extent required by the applicable provisions of Rule 16b-3 or Section 162(m) of the Code, or, to the extent applicable to Incentive Stock Options, Section 422 of the Code, no amendment may be made which would (i) increase the aggregate number of shares of Common Stock that may be issued under this Plan; (ii) increase the maximum individual Participant limitations for a fiscal year under Section 4.1(b); (iii) change the classification of employees, directors or Consultants eligible to receive Awards under this Plan; (iv) decrease the minimum option price of any Stock Option or Stock Appreciation Right; (v) extend the maximum option period under Section 6.3; (vi) materially alter the Performance Criteria for the Award of Restricted Stock, Performance Units, Performance Shares or cash incentive Awards as set forth in Exhibit A; or (vii) require stockholder approval in order for this Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code. In no event may this Plan be amended without the approval of the stockholders of the Company in accordance with the applicable laws of the State of Delaware to increase the aggregate number of shares of Common Stock that may be issued under this Plan, decrease the minimum exercise price of any Stock Option or Stock Appreciation Right, or to make any other amendment that would require stockholder approval under the rules of any exchange or system on which the Company's securities are listed or traded at the request of the Company.
The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV above or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any holder without the holder's consent.
ARTICLE XVI

UNFUNDED PLAN

16.1    Unfunded Status of Plan. This Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Company.
ARTICLE XVII

GENERAL PROVISIONS

17.1    Legend. The Committee may require each person receiving shares pursuant to an Award under this Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by this Plan, the certificates for such shares

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may include any legend which the Committee deems appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under this Plan shall be subject to such stop transfer orders and other restrictions as the Committee in its sole discretion may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or any national securities exchange system upon whose system the Common Stock is then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
17.2    Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
17.3    Right to Employment/Directorship/Consultancy. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other employee, Non-Employee Director or Consultant any right with respect to continuance of employment, directorship or Consultancy by the Company or any Affiliate, nor shall they be a limitation in any way on the right of the Company or any Affiliate by which an employee is employed or a Non-Employee Director or Consultant is retained to terminate his employment, directorship or Consultancy at any time.
17.4    Withholding of Taxes. The Company shall have the right to deduct from any payment to be made to a Participant, or to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any Federal, state or local taxes required by law to be withheld. Upon the vesting of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election under Code Section 83(b), a Participant shall pay all required withholding to the Company.
Any such withholding obligation with regard to any Participant may be satisfied, subject to the consent of the Committee, by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.
17.5    Listing and Other Conditions.
(a)    As long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issue of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the

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right to exercise any Stock Option with respect to such shares shall be suspended until such listing has been effected.
(b)    If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise with respect to shares of Common Stock or Awards, and the right to exercise any Stock Option shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.
(c)    Upon termination of any period of suspension under this Section 17.5, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Stock Option.
(d)    A Participant shall be required to supply the Company with any certificates, representations and information that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval the Company deems necessary or appropriate.
17.6    Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).
17.7    Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
17.8    Other Benefits. No Award payment under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its subsidiaries nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation, unless otherwise specifically stated in such other benefit plan.
17.9    Costs. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Stock pursuant to any Awards hereunder.

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17.10    No Right to Same Benefits. The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.
17.11    Death/Disability. The Committee may in its discretion require the transferee of a Participant to supply it with written notice of the Participant's death or Disability and to supply it with a copy of the will (in the case of the Participant's death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of this Plan.
17.12    Section 16(b) of the Exchange Act. All elections and transactions under this Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of this Plan and the transaction of business thereunder.
17.13    Section 409A of the Code
(a)    Although the Company does not guarantee the particular tax treatment of an Award granted under the Plan, Awards made under the Plan are intended to comply with, or be exempt from, the applicable requirements of Section 409A of the Code and the Plan and any Award agreement hereunder shall be limited, construed and interpreted in accordance with such intent. Notwithstanding anything herein to the contrary, any provision in this Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null and void. In no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest or penalties that may be imposed on a Participant by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.
(b)    Notwithstanding anything in the Plan or in an Award to the contrary, the following provisions shall apply to any Award granted under the Plan that constitutes “non-qualified deferred compensation” pursuant to Section 409A of the Code (a “409A Covered Award”):

(i)    A termination of employment shall not be deemed to have occurred for purposes of any provision of a 409A Covered Award providing for payment upon or following a termination of the Participant’s employment unless such termination is also a “Separation from Service” within the meaning of Code Section 409A and, for purposes of any such provision of the 409A Covered Award, references to a “termination,” “termination of employment” or like terms shall mean Separation from

54
    



Service. Notwithstanding any provision to the contrary in the Plan or the Award, if the Participant is deemed on the date of the Participant’s Termination to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by the Company from time to time, or if none, the default methodology set forth in Code Section 409A, then with regard to any such payment under a 409A Covered Award, to the extent required to be delayed in compliance with Section 409A(a)(2)(B) of the Code, such payment shall not be made prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Participant’s Separation from Service, and (ii) the date of the Participant’s death. All payments delayed pursuant to this Section 13.13(b)(i) shall be paid to the Participant on the first day of the seventh month following the date of the Participant’s Separation from Service or, if earlier, on the date of the Participant’s death.
(ii)    Whenever a payment under a 409A Covered Award specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.
17.14    Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.
17.15    Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan.
17.16    Electronic Communications. Notwithstanding anything else herein to the contrary, any Award agreement, notice of exercise of an Option or Non-Tandem Stock Appreciation Right, or other document or notice required or permitted by this Plan that is required to be delivered in writing may, to the extent determined by the Committee, be delivered and accepted electronically. Signatures may also be electronic if permitted by the Committee. The term “written agreement” as used in the Plan shall include any document that it is delivered and/or accepted electronically.
ARTICLE XVIII

EFFECTIVE DATE OF PLAN

The Plan was originally adopted by the Board and effective on October 19, 1999, subject to approval by the stockholders of the Company (which was obtained at the stockholders meeting held on December 14, 1999). The Plan was thereafter amended and restated in accordance with the requirements of the laws of the State of Delaware. The Board approved the amendment and

55
    



restatement of the Plan on October 9, 2006 and such amended and restated plan became effective on October 9, 2006, subject to approval of the provisions of this Plan adding a cash incentive Award and re-approval of the Performance Criteria for performance-based Equity Awards by the stockholders of the Company in accordance with the requirements of the laws of the State of Delaware or such later date as provided in the adopting resolution. The stockholders of the Company approved the amendments that were subject to stockholder approval at the stockholder meeting held on December 5, 2006. A further restatement of the Plan was approved by the Board on December 6, 2007 which incorporated amendments effective on November 9, 2007 (deleting the Plan provision authorizing the Committee with the authority to buy out previously granted stock options based on terms and conditions established by the Committee) and on December 6, 2007 (increasing the number of shares available for grant of Awards under the Plan by 850,000). A further restatement of the Plan was approved by the Board on June 2, 2009 which incorporated amendments effective on June 2, 2009 (changing the date of grant of the annual grants of Stock Options to Non-Employee Directors). A further restatement of the Plan was approved by the Board on September 22, 2009 and incorporates amendments effective on October 18, 2009 (increasing the number of shares available for grant of Awards under the Plan by 2,375,000, adjusting the maximum annual grant of Performance Units and the maximum annual potential amount earnable under Performance Units, limiting the Committee's authority to amend or substitute a SAR or to issue Awards or cash in exchange for an Option or SAR in certain circumstances without stockholder approval, changing the conversion method for Performance Units, clarifying Plan provisions in compliance with Section 409A of the Code, and prohibiting any transfers or dispositions of Non-Qualified Stock Options to Family Members for value), certain of which were subject to the approval by the stockholders of the Company. The stockholders of the Company approved the amendments that were subject to stockholder approval at the stockholder meeting held on December 9, 2009. A further restatement of the Plan was approved by the Board on June 2, 2010 and incorporates amendments effective on June 2, 2010 (changing the date of grant and the amount of the annual grants of Stock Options to Non-Employee Directors). A further restatement of the Plan was approved by the Board and effective on September 21, 2011 and incorporates amendments effective on September 21, 2011 and, as approved by stockholders, at January 13, 2012 (including setting minimum vesting terms for Full-Value Awards and the right in certain cases to receive or retain dividends and dividend equivalents thereunder, providing the Committee the discretion to permit a Participant to designate a beneficiary to receive outstanding Awards or exercise rights thereunder following death, changing the amount of the initial and annual grants of Stock Options to Non-Employee Directors, providing Non-Employee Directors with the opportunity to elect to receive RSUs and/or shares of Restricted Stock in lieu of an Annual Option, providing Non-Employee Directors with the opportunity to elect to receive Stock Units in lieu of their annual cash retainer, providing for the automatic grant of RSUs to Non-Employee Directors in lieu of their Annual Options in order to satisfy minimum Company stock ownership requirements, providing the Committee the discretion to accelerate the vesting of Awards granted to Non-Employee Directors or to continue the vesting thereof beyond Termination of Directorship, and clarifying certain Plan provisions), with the provisions relating to the grant of RSUs, Restricted Stock and Stock Units to Non-Employee Directors subject to stockholder approval. A further restatement of the Plan was approved by the Board and is effective June 5, 2013 and incorporates amendments effective on June 5, 2013 with respect to Section 13.6(a) of the Plan to provide that the Committee may permit elections by Non-Employee Directors at any time. A further

56
    



restatement of the Plan was approved by the Board and effective on October 2, 2013 and incorporates amendments effective on October 2, 2013 (including authorizing dividend equivalents from the beginning date of any Performance Period, clarifying that dividend equivalents on certain Awards can be either cash or in additional Awards, adding more specific provisions regarding the grant of dividend equivalents on RSUs or Stock Units granted to Non-Employee Directors, and specifying that elections by Non-Employee Directors relating to type of award can be allowed by the Committee at any time compliant with Section 409A and other applicable provision of the Code. This restatement of the Plan was approved by the Board and effective on December 10, 2015, and incorporates amendments effective on December 10, 2015 with respect to Section 13.2 of the Plan to change the method for determining the initial and annual grants of Stock Options to Non-Employee Directors and to provide the Committee with discretion over the vesting of Non-Employee Director grants and the term of Stock Options.
ARTICLE XIX

TERM OF PLAN

No Award shall be granted pursuant to this Plan on or after October 18, 2019, but Awards granted prior to such date may extend beyond that date. The foregoing notwithstanding, any Awards, the vesting or payment of which is conditioned on the satisfaction of Performance Criteria intended to qualify as "performance-based compensation" under Section 162(m) of the Code may be granted until the date of the first Annual Meeting of Stockholders that occurs in the fifth year following the year in which the Company's stockholders last previously re-approved the Performance Criteria or approved other designated performance goals (even if this deadline extends past the date at which other Awards may be granted under the Plan).




57
    



EXHIBIT A

PERFORMANCE CRITERIA
Performance Goals established for purposes of conditioning the grant of an Award of Restricted Stock based on performance or the vesting of performance-based Awards of Restricted Stock, Performance Units, Performance Shares and/or cash incentive Awards shall be based on one or more of the following performance criteria ("Performance Criteria"): (i) the attainment of certain target levels of, or a specified percentage increase in, revenues, income before income taxes and extraordinary items, net income, income before income tax and stock based compensation expense, earnings before income tax, earnings before interest, taxes, depreciation and amortization or a combination of any or all of the foregoing; (ii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax profits including, without limitation, that attributable to continuing and/or other operations; (iii) the attainment of certain target levels of, or a specified increase in, operational cash flow; (iv) the achievement of a certain level of, reduction of, or other specified objectives with regard to limiting the level of increase in, all or a portion of, the Company's bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of such cash balances and/or other offsets and adjustments as may be established by the Committee; (v) the attainment of target levels of or a specified percentage increase in earnings per share or earnings per share from continuing operations; (vi) the attainment of certain target levels of, or a specified increase in return on capital employed or return on invested capital; (vii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax return on stockholders' equity; (viii) the attainment of certain target levels of, or a specified increase in, economic value added targets based on a cash flow return on investment formula; (ix) the attainment of certain target levels of or specified increases in the fair market value of the shares of the Company's common stock; and (x) the growth in the value of an investment in the Company's common stock assuming the reinvestment of dividends. For purposes of item (i) above, "extraordinary items" shall mean all items of gain, loss or expense for the fiscal year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to a corporate transaction (including, without limitation, a disposition or acquisition) or related to a change in accounting principle, all as determined in accordance with standards established by Opinion No. 30 of the Accounting Principles Board. The Committee may specify that specific items of income or expense may be included or excluded from the calculation of achievement of any of the foregoing Performance Criteria.
In addition, such Performance Criteria may be based upon the attainment of specified levels of Company (or subsidiary, division or other operational unit of the Company) performance under one or more of the measures described above relative to the performance of other corporations. To the extent permitted under Code Section 162(m), but only to the extent permitted under Code Section 162(m) (including, without limitation, compliance with any requirements for stockholder approval), the Committee may: (i) designate additional business criteria on which the Performance Criteria may be based or (ii) adjust, modify or amend the aforementioned business criteria.

58
    

Exhibit


Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Stanton D. Sloane, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Comtech Telecommunications Corp.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: March 10, 2016

 
/s/ Dr. Stanton D. Sloane
 
Dr. Stanton D. Sloane
President and Chief Executive Officer



Exhibit


Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Porcelain, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Comtech Telecommunications Corp.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: March 10, 2016

 
/s/ Michael D. Porcelain
 
Michael D. Porcelain
Senior Vice President and Chief Financial Officer




Exhibit


Exhibit 32.1



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Comtech Telecommunications Corp. (the “Company”) on Form 10-Q for the period ended January 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. Stanton D. Sloane, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




Date: March 10, 2016
 

 
/s/ Dr. Stanton D. Sloane
 
Dr. Stanton D. Sloane
President and Chief Executive Officer





Exhibit


Exhibit 32.2



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Comtech Telecommunications Corp. (the “Company”) on Form 10-Q for the period ended January 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Porcelain, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: March 10, 2016
 

 
/s/ Michael D. Porcelain
 
Michael D. Porcelain
Senior Vice President and Chief Financial Officer





cmtl-20160131.xml
Attachment: XBRL INSTANCE DOCUMENT


cmtl-20160131.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT


cmtl-20160131_cal.xml
Attachment: XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT


cmtl-20160131_def.xml
Attachment: XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT


cmtl-20160131_lab.xml
Attachment: XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT


cmtl-20160131_pre.xml
Attachment: XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT


v3.3.1.900
Document and Entity Information - shares
6 Months Ended
Jan. 31, 2016
Mar. 07, 2016
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jan. 31, 2016  
Current Fiscal Year End Date --07-31  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2016  
Entity Registrant Name COMTECH TELECOMMUNICATIONS CORP /DE/  
Entity Central Index Key 0000023197  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   16,162,140

v3.3.1.900
Condensed Consolidated Balance Sheets - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Current assets:    
Cash and cash equivalents $ 163,466,000 $ 150,953,000
Accounts receivable, net 53,749,000 69,255,000
Inventories, net 58,424,000 62,068,000
Prepaid expenses and other current assets 5,940,000 7,396,000
Deferred tax asset, net (See Note 10) 0 11,084,000
Total current assets 281,579,000 300,756,000
Property, plant and equipment, net 13,839,000 15,370,000
Goodwill 137,354,000 137,354,000
Intangibles with finite lives, net 17,437,000 20,009,000
Deferred tax asset, net, non-current (See Note 10) 10,512,000 0
Deferred financing costs 759,000 0
Other assets, net 690,000 388,000
Total assets 462,170,000 473,877,000
Current liabilities:    
Accounts payable 18,270,000 15,708,000
Accrued expenses and other current liabilities 30,579,000 29,470,000
Dividends payable 4,848,000 4,839,000
Customer advances and deposits 6,268,000 14,320,000
Total current liabilities 59,965,000 64,337,000
Other liabilities 2,864,000 3,633,000
Income taxes payable 1,469,000 1,573,000
Deferred tax liability, net (See Note 10) 0 2,925,000
Total liabilities $ 64,298,000 $ 72,468,000
Commitments and contingencies (See Note 17)
Stockholders’ equity:    
Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000 $ 0 $ 0
Common stock, par value $.10 per share; authorized 100,000,000 shares; issued 31,195,457 shares and 31,165,401 shares at January 31, 2016 and July 31, 2015, respectively 3,120,000 3,117,000
Additional paid-in capital 429,361,000 427,083,000
Retained earnings 407,240,000 413,058,000
Stockholders' equity before treasury stock 839,721,000 843,258,000
Treasury stock, at cost (15,033,317 shares at January 31, 2016 and July 31, 2015) (441,849,000) (441,849,000)
Total stockholders’ equity 397,872,000 401,409,000
Total liabilities and stockholders’ equity $ 462,170,000 $ 473,877,000

v3.3.1.900
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jan. 31, 2016
Jul. 31, 2015
Stockholders’ equity:    
Preferred stock, par value (in dollars per share) $ 0.10 $ 0.1
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.10 $ 0.1
Common stock, shares authorized (in shares) 100,000,000 100,000,000
Common stock, shares issued (in shares) 31,195,457 31,165,401
Treasury stock, shares (in shares) 15,033,317 15,033,317

v3.3.1.900
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Income Statement [Abstract]        
Net sales $ 70,323,000 $ 81,802,000 $ 134,440,000 $ 158,193,000
Cost of sales 40,885,000 43,927,000 76,800,000 84,993,000
Gross profit 29,438,000 37,875,000 57,640,000 73,200,000
Expenses:        
Selling, general and administrative 15,053,000 16,026,000 30,379,000 31,552,000
Research and development 7,663,000 9,666,000 15,603,000 19,685,000
Acquisition plan expenses 2,337,000 0 3,729,000 0
Amortization of intangibles 1,196,000 1,560,000 2,572,000 3,121,000
Total operating expenses 26,249,000 27,252,000 52,283,000 54,358,000
Operating income 3,189,000 10,623,000 5,357,000 18,842,000
Other expenses (income):        
Interest expense 73,000 69,000 148,000 334,000
Interest income and other (110,000) (90,000) (222,000) (174,000)
Income before provision for income taxes 3,226,000 10,644,000 5,431,000 18,682,000
Provision for income taxes 750,000 3,059,000 1,516,000 5,872,000
Net income $ 2,476,000 $ 7,585,000 $ 3,915,000 $ 12,810,000
Net income per share (See Note 4):        
Basic (in dollars per share) $ 0.15 $ 0.47 $ 0.24 $ 0.79
Diluted (in dollars per share) $ 0.15 $ 0.46 $ 0.24 $ 0.78
Weighted average number of common shares outstanding – basic (in shares) 16,186,000 16,241,000 16,178,000 16,229,000
Weighted average number of common and common equivalent shares outstanding – diluted (in shares) 16,205,000 16,505,000 16,201,000 16,510,000
Dividends declared per issued and outstanding common share as of the applicable dividend record date (in dollars per share) $ 0.30 $ 0.30 $ 0.60 $ 0.60

v3.3.1.900
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Beginning balance at Jul. 31, 2014 $ 396,925,000 $ 3,102,000 $ 421,240,000 $ 409,443,000 $ (436,860,000)
Common stock, beginning balance (in shares) at Jul. 31, 2014   31,016,469      
Treasury stock, beginning balance (in shares) at Jul. 31, 2014         14,857,582
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Equity-classified stock award compensation 2,398,000   2,398,000    
Proceeds from exercise of options 119,000 $ 0 119,000    
Proceeds from exercise of options (in shares)   4,200      
Proceeds from issuance of employee stock purchase plan shares 479,000 $ 2,000 477,000    
Proceeds from issuance of employee stock purchase plan shares (in shares)   16,491      
Common stock issued for net settlement of stock-based awards (389,000) $ 6,000 (395,000)    
Common stock issued for net settlement of stock-based awards (in shares)   58,577      
Cash dividends declared (9,732,000)     (9,732,000)  
Accrual of dividend equivalents, net of reversal (113,000)     (113,000)  
Net income tax shortfall from settlement of stock-based awards (149,000)   (149,000)    
Reversal of deferred tax assets associated with expired and unexercised stock-based awards (12,000)   (12,000)    
Net income 12,810,000     12,810,000  
Ending balance at Jan. 31, 2015 402,336,000 $ 3,110,000 423,678,000 412,408,000 $ (436,860,000)
Common stock, ending balance (in shares) at Jan. 31, 2015   31,095,737      
Treasury stock, ending balance (in shares) at Jan. 31, 2015         14,857,582
Beginning balance at Jul. 31, 2015 $ 401,409,000 $ 3,117,000 427,083,000 413,058,000 $ (441,849,000)
Common stock, beginning balance (in shares) at Jul. 31, 2015 31,165,401 31,165,401      
Treasury stock, beginning balance (in shares) at Jul. 31, 2015 15,033,317       15,033,317
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Equity-classified stock award compensation $ 2,084,000   2,084,000    
Proceeds from issuance of employee stock purchase plan shares 348,000 $ 2,000 346,000    
Proceeds from issuance of employee stock purchase plan shares (in shares)   20,131      
Common stock issued for net settlement of stock-based awards (73,000) $ 1,000 (74,000)    
Common stock issued for net settlement of stock-based awards (in shares)   9,925      
Cash dividends declared (9,692,000)     (9,692,000)  
Accrual of dividend equivalents, net of reversal (41,000)     (41,000)  
Net income tax shortfall from settlement of stock-based awards (43,000)   (43,000)    
Reversal of deferred tax assets associated with expired and unexercised stock-based awards (35,000)   (35,000)    
Net income 3,915,000     3,915,000  
Ending balance at Jan. 31, 2016 $ 397,872,000 $ 3,120,000 $ 429,361,000 $ 407,240,000 $ (441,849,000)
Common stock, ending balance (in shares) at Jan. 31, 2016 31,195,457 31,195,457      
Treasury stock, ending balance (in shares) at Jan. 31, 2016 15,033,317       15,033,317

v3.3.1.900
Condensed Consolidated Statements of Cash Flows - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Cash flows from operating activities:    
Net income $ 3,915,000 $ 12,810,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation and amortization of property, plant and equipment 2,996,000 3,230,000
Amortization of intangible assets with finite lives 2,572,000 3,121,000
Amortization of stock-based compensation 2,125,000 2,398,000
Amortization of deferred financing costs 0 65,000
(Gain) loss on disposal of property, plant and equipment (2,000) 3,000
Provision for allowance for doubtful accounts 520,000 74,000
Provision for excess and obsolete inventory 1,294,000 1,324,000
Excess income tax benefit from stock-based award exercises (5,000) (138,000)
Deferred income tax benefit (2,479,000) (548,000)
Changes in assets and liabilities:    
Accounts receivable 14,986,000 (14,083,000)
Inventories 2,369,000 (7,391,000)
Prepaid expenses and other current assets 1,836,000 475,000
Other assets 11,000 (37,000)
Accounts payable 2,555,000 (1,006,000)
Accrued expenses and other current liabilities (484,000) (2,634,000)
Customer advances and deposits (8,112,000) (4,086,000)
Other liabilities (269,000) (290,000)
Interest payable 0 (29,000)
Income taxes payable (436,000) (1,498,000)
Net cash provided by (used in) operating activities 23,392,000 (8,240,000)
Cash flows from investing activities:    
Purchases of property, plant and equipment (1,463,000) (2,145,000)
Net cash used in investing activities (1,463,000) (2,145,000)
Cash flows from financing activities:    
Cash dividends paid (9,691,000) (9,712,000)
Payment of shelf registration costs (78,000) 0
Proceeds from exercises of stock options 0 119,000
Proceeds from issuance of employee stock purchase plan shares 348,000 479,000
Excess income tax benefit from stock-based award exercises 5,000 138,000
Net cash used in financing activities (9,416,000) (8,976,000)
Net increase (decrease) in cash and cash equivalents 12,513,000 (19,361,000)
Cash and cash equivalents at beginning of period 150,953,000 154,500,000
Cash and cash equivalents at end of period 163,466,000 135,139,000
Cash paid during the period for:    
Interest 0 117,000
Income taxes 4,431,000 7,919,000
Non-cash investing and financing activities:    
Cash dividends declared but unpaid (including accrual of dividend equivalents) 5,206,000 5,093,000
Accrued deferred financing costs 759,000 0
Accrued shelf registration costs $ 235,000 $ 0

v3.3.1.900
General
6 Months Ended
Jan. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General
General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and subsidiaries (“Comtech,” “we,” “us,” or “our”) as of and for the three and six months ended January 31, 2016 and for the three and six months ended January 31, 2015 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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 condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates.

Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission (“SEC”), for the fiscal year ended July 31, 2015 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

v3.3.1.900
Adoption of Accounting Standards and Updates
6 Months Ended
Jan. 31, 2016
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
Adoption of Accounting Standards and Updates
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. generally accepted accounting principles, which is commonly referred to as “GAAP.” The ASC is subject to updates by the FASB, which are known as Accounting Standards Updates (“ASUs”). During the six months ended January 31, 2016, we adopted:

FASB ASU No. 2014-08 which changed the definition of discontinued operations and related disclosure requirements. Only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results will be reported as discontinued operations. Continuing involvement will no longer prevent a disposal group from being presented as discontinued operations. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2014-16 which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-01 which eliminates the concept of extraordinary items from GAAP and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-02 which amends current consolidation guidance affecting the evaluation of whether certain legal entities should be consolidated. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-03 which requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Also, ASU No. 2015-15 was issued in August 2015 and indicates that Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs associated with a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-05 which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Our adoption of this ASU did not have any material impact on our consolidated financial statements.

FASB ASU No. 2015-07 which removes the requirements to categorize within the fair value hierarchy, and make certain disclosures related to, investments for which fair value is measured using the net asset value per share practical expedient. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures.

FASB ASU No. 2015-17 which requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. As discussed further in Note (10) - "Income Taxes," we adopted this ASU prospectively on August 1, 2015 and reclassified our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted.

v3.3.1.900
Fair Value Measurements and Financial Instruments
6 Months Ended
Jan. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments
Fair Value Measurements and Financial Instruments

As of January 31, 2016 and July 31, 2015, we had approximately $3,132,000 and $3,130,000, respectively, consisting primarily of money market mutual funds which are classified as cash and cash equivalents in our Condensed Consolidated Balance Sheets. These money market mutual funds are recorded at their fair value. FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, using the fair value hierarchy described in FASB ASC 820, we valued our money market mutual funds using Level 1 inputs that were based on quoted market prices.

As of January 31, 2016 and July 31, 2015, other than our cash and cash equivalents, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value.

v3.3.1.900
Earnings Per Share
6 Months Ended
Jan. 31, 2016
Earnings Per Share [Abstract]  
Earnings Per Share
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. When calculating our diluted earnings per share, we consider (i) the amount an employee must pay upon assumed exercise of stock-based awards; (ii) the amount of stock-based compensation cost attributed to future services and not yet recognized; and (iii) the amount of excess tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of in-the-money stock-based awards. This excess tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial reporting purposes.

There were no repurchases of our common stock during the six months ended January 31, 2016 or 2015.

Weighted average stock options and RSUs outstanding to purchase 2,369,000 and 447,000 shares for the three months ended January 31, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Weighted average stock options and RSUs outstanding to purchase 2,367,000 and 287,000 shares for the six months ended January 31, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 144,000 and 120,000 weighted average RSUs with performance measures (which we refer to as performance shares) outstanding for the three months ended January 31, 2016 and 2015, respectively, and 143,000 and 119,000 weighted average performance shares outstanding for the six months ended January 31, 2016 and 2015, respectively, as the respective performance conditions have not yet been satisfied. However, the compensation expense related to these awards is included in net income (the numerator) for EPS calculations for each respective period.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income for basic calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

Numerator for diluted calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Denominator for basic calculation
 
16,186,000

 
16,241,000

 
16,178,000

 
16,229,000

Effect of dilutive securities:
 
 
 
 

 
 
 
 
Stock-based awards
 
19,000

 
264,000

 
23,000

 
281,000

Denominator for diluted calculation
 
16,205,000

 
16,505,000

 
16,201,000

 
16,510,000


v3.3.1.900
Accounts Receivable
6 Months Ended
Jan. 31, 2016
Accounts Receivable Additional Disclosures [Abstract]  
Accounts Receivable
Accounts Receivable

Accounts receivable consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Billed receivables from commercial customers
 
$
27,677,000

 
39,062,000

Billed receivables from the U.S. government and its agencies
 
15,124,000

 
8,375,000

Unbilled receivables on contracts-in-progress
 
12,629,000

 
23,024,000

Total accounts receivable
 
55,430,000

 
70,461,000

Less allowance for doubtful accounts
 
1,681,000

 
1,206,000

Accounts receivable, net
 
$
53,749,000

 
69,255,000



Of the unbilled receivables at January 31, 2016 and July 31, 2015, $9,396,000 and $20,256,000, respectively, relates to our two large over-the-horizon microwave system contracts with our large U.S. prime contractor customer (all of which related to our North African country end-customer). The remaining unbilled receivables include $1,070,000 and $1,126,000 at January 31, 2016 and July 31, 2015, respectively, due from the U.S. government and its agencies. We had virtually no retainage included in unbilled receivables at both January 31, 2016 and July 31, 2015. In the opinion of management, a majority of the unbilled receivables at January 31, 2016 will be billed and collected within one year.

As of January 31, 2016 and July 31, 2015, 17.2% and 36.3%, respectively of total accounts receivable was due from one large U.S. prime contractor customer (the majority of which related to our North African country end-customer).

v3.3.1.900
Inventories
6 Months Ended
Jan. 31, 2016
Inventory Disclosure [Abstract]  
Inventories
Inventories

Inventories consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Raw materials and components
 
$
50,530,000

 
51,272,000

Work-in-process and finished goods
 
24,025,000

 
27,700,000

Total inventories
 
74,555,000

 
78,972,000

Less reserve for excess and obsolete inventories
 
16,131,000

 
16,904,000

Inventories, net
 
$
58,424,000

 
62,068,000



At January 31, 2016 and July 31, 2015, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $2,010,000 and $2,261,000, respectively.

At January 31, 2016 and July 31, 2015, $949,000 and $609,000, respectively, of the inventory balance above related to contracts from third party commercial customers who outsource their manufacturing to us.

v3.3.1.900
Accrued Expenses and Other Current Liabilities
6 Months Ended
Jan. 31, 2016
Accrued Liabilities, Current [Abstract]  
Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Accrued wages and benefits
 
$
8,678,000

 
12,134,000

Accrued warranty obligations
 
8,624,000

 
8,638,000

Accrued commissions and royalties
 
3,031,000

 
2,398,000

Other
 
10,246,000

 
6,300,000

Accrued expenses and other current liabilities
 
$
30,579,000

 
29,470,000



Included in other accrued expenses and other current liabilities as of January 31, 2016 was $2,193,000 of accrued costs associated with our acquisition of TeleCommunication Systems, Inc. ("TCS"). See Note (18) - "Subsequent Events" for further information regarding the TCS acquisition.
  
Accrued Warranty Obligations
We provide warranty coverage for most of our products for a period of at least one year from the date of shipment. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our product warranty liability were as follows:
 
 
Six months ended January 31,
 
 
2016
 
2015
Balance at beginning of period
 
$
8,638,000

 
8,618,000

Provision for warranty obligations
 
2,096,000

 
1,992,000

Charges incurred
 
(2,110,000
)
 
(2,315,000
)
Balance at end of period
 
$
8,624,000

 
8,295,000


v3.3.1.900
Radyne Acquisition-Related Restructuring Plan
6 Months Ended
Jan. 31, 2016
Radyne Acquisition Related Restructuring Plan [Abstract]  
Radyne Acquisition-Related Restructuring Plan
Radyne Acquisition-Related Restructuring Plan

In connection with our August 1, 2008 acquisition of Radyne, we adopted a restructuring plan for which we recorded $2,713,000 of estimated restructuring costs. Of this amount, $613,000 related to severance for Radyne employees which was paid in fiscal 2009. The remaining estimated amounts relate to facility exit costs and were determined as follows:
 
At August 1, 2008
Total non-cancelable lease obligations
$
12,741,000

Less: Estimated sublease income
8,600,000

Total net estimated facility exit costs
4,141,000

Less: Interest expense to be accreted
2,041,000

Present value of estimated facility exit costs
$
2,100,000



Our total non-cancelable lease obligations were based on the actual lease term which runs from November 1, 2008 through October 31, 2018. We estimated sublease income based on (i) the terms of a fully executed sublease agreement that expired on October 31, 2015, and (ii) our assessment of future uncertainties relating to the commercial real estate market. Based on our assessment of commercial real estate market conditions, we currently believe that it is not probable that we will be able to sublease the facility for the remainder lease term. As such, in accordance with grandfathered accounting standards that were not incorporated into the FASB’s ASC, we recorded these costs, at fair value, as assumed liabilities as of August 1, 2008, with a corresponding increase to goodwill.

As of January 31, 2016, the amount of the acquisition-related restructuring reserve is as follows:
 
Cumulative
Activity Through
January 31, 2016
Present value of estimated facility exit costs at August 1, 2008
$
2,100,000

Cash payments made
(8,242,000
)
Cash payments received
8,600,000

Accreted interest recorded
1,510,000

Liability as of January 31, 2016
3,968,000

Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet
1,316,000

Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet
$
2,652,000


 
As of July 31, 2015, the present value of the estimated facility exit costs was $4,235,000. During the six months ended January 31, 2016, we made cash payments of $738,000 and we received cash payments of $323,000. Interest accreted for the three and six months ended January 31, 2016 and 2015 was $73,000 and $148,000, respectively, and $69,000 and $135,000, respectively, and is included in interest expense for each respective fiscal period.

Future cash payments associated with our restructuring plan are summarized below:
 
As of
 
January 31, 2016
Future lease payments to be made
$
3,968,000

Interest expense to be accreted in future periods
530,000

Total remaining payments
$
4,498,000


v3.3.1.900
Credit Facility
6 Months Ended
Jan. 31, 2016
Line of Credit Facility [Abstract]  
Credit Facility

Credit Facility

As of January 31, 2016, we had an uncommitted $15,000,000 secured credit facility (the "Credit Facility") with one bank that provides for the extension of credit to us in the form of revolving loans, including letters of credit and standby letters of credit, at any time and from time to time during its term, in an aggregate principal amount at any time outstanding not to exceed $15,000,000. Subject to covenant limitations, the Credit Facility may be used for working capital, capital expenditures and other general corporate purposes.

At January 31, 2016, we had $1,699,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

The Credit Facility was terminated on February 23, 2016, when, as discussed further in Note (18) - "Subsequent Events," in connection with our acquisition of TCS, we entered into a new $400,000,000 credit facility.

Interest expense, including amortization of deferred financing costs, recorded during the six months ended January 31, 2015 was $198,000, all of which related to our $100,000,000 committed revolving credit facility that expired on October 31, 2014. There was no interest expense recorded during the three months ended January 31, 2016 and 2015 or the six months ended January 31, 2016.

v3.3.1.900
Income Taxes
6 Months Ended
Jan. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

At January 31, 2016 and July 31, 2015, total unrecognized tax benefits were $3,055,000 and $2,796,000, respectively, including interest of $84,000 and $68,000, respectively. At January 31, 2016 and July 31, 2015, $1,469,000 and $1,573,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable in our Condensed Consolidated Balance Sheets. At January 31, 2016 and July 31, 2015, the remaining unrecognized tax benefits of $1,586,000 and $1,223,000, respectively, were presented as an offset to the associated non-current deferred tax asset in our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits at January 31, 2016 and July 31, 2015, $2,339,000 and $2,138,000, respectively, net of the reversal of the federal benefit recognized as deferred tax assets relating to state reserves, excluding interest, would positively impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. Our policy is to recognize interest and penalties relating to uncertain tax positions in income tax expense.

On August 1, 2015, we adopted FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” on a prospective basis. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. Adoption of this ASU resulted in a reclassification of our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted.

In December 2015, we received notification from the Internal Revenue Service ("IRS") of its intent to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2012 and 2013 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition. Excluding the impact of the TCS acquisition and any discrete tax items, we expect our fiscal 2016 effective tax rate to approximate 33.5%. This rate reflects the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014.

v3.3.1.900
Stock-Based Compensation
6 Months Ended
Jan. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock Based Compensation

Overview
We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the “Plan”) and our 2001 Employee Stock Purchase Plan (the “ESPP”), as amended and restated, and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) RSUs, (iii) performance shares, (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, “share units”) and (vi) stock appreciation rights (“SARs”), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations. The aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 8,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a shareholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and ESPP with new shares.

As of January 31, 2016, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 7,718,350 shares (net of 3,124,811 expired and canceled awards), of which an aggregate of 5,143,687 have been exercised or converted into common stock, substantially all of which related to stock options.

As of January 31, 2016, the following stock-based awards, by award type, were outstanding:

 
January 31, 2016
Stock options
2,350,258

Performance shares
174,665

RSUs and restricted stock
41,237

Share units
8,503

Total
2,574,663



Our ESPP provides for the issuance of shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. In December 2015, our shareholders approved an amendment to increase the number of shares authorized under the ESPP from 675,000 to 800,000. Through January 31, 2016, we have cumulatively issued 609,184 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Cost of sales
 
$
100,000

 
66,000

 
163,000

 
133,000

Selling, general and administrative expenses
 
881,000

 
856,000

 
1,755,000

 
1,958,000

Research and development expenses
 
93,000

 
139,000

 
207,000

 
307,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000



Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At January 31, 2016, unrecognized stock-based compensation of $8,686,000, net of estimated forfeitures of $803,000, is expected to be recognized over a weighted average period of 3.0 years. Total stock-based compensation capitalized and included in ending inventory at January 31, 2016 and July 31, 2015 was $51,000 and $92,000, respectively.

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Stock options
 
$
609,000

 
731,000

 
1,212,000

 
1,489,000

Performance shares
 
390,000

 
167,000

 
724,000

 
575,000

ESPP
 
40,000

 
53,000

 
83,000

 
106,000

RSUs and restricted stock
 
35,000

 
96,000

 
106,000

 
200,000

Share units
 

 
14,000

 

 
28,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000



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

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such amount was recorded as a non-current deferred tax asset in our Condensed Consolidated Balance Sheet as of January 31, 2016. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

The following table reconciles the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards to the excess income tax benefit reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows:

 
 
Six months ended January 31,
 
 
2016
 
2015
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards
 
$
132,000

 
941,000

Less: Tax benefit initially recognized on settled stock-based awards vesting subsequent to the adoption of accounting standards that require us to expense stock-based awards
 
127,000

 
803,000

Excess income tax benefit recorded as an increase to additional paid-in capital
 
5,000

 
138,000

Less: Tax benefit initially disclosed but not previously recognized on settled equity-classified stock-based awards vesting prior to the adoption of accounting standards that require us to expense stock-based awards
 

 

Excess income tax benefit from settled equity-classified stock-based awards reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows
 
$
5,000

 
138,000



As of January 31, 2016 and July 31, 2015, the amount of hypothetical tax benefits related to stock-based awards, recorded as a component of additional paid-in capital, was $17,142,000 and $17,220,000, respectively. These amounts represent the initial hypothetical tax benefit of $8,593,000 determined upon adoption of ASC 718 (which reflects our estimate of cumulative actual tax deductions for awards issued and settled prior to August 1, 2005), adjusted for actual excess income tax benefits or shortfalls since that date. During the six months ended January 31, 2016, we recorded a $78,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which represents net income tax shortfalls recognized from the settlement of stock-based awards and the reversal of unrealized deferred tax assets associated with certain vested equity-classified stock-based awards that expired during the respective period. During the six months ended January 31, 2015, we recorded a $161,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which primarily represents net income tax shortfalls recognized from the settlement of stock-based awards during the respective period.

Stock Options

The following table summarizes the Plan's activity during the six months ended January 31, 2016:

 
 
Awards
(in Shares)
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
2,119,683

 
$
29.33

 
 
 
 
Granted
 
480,265

 
28.00

 
 
 
 
Expired/canceled
 
(182,250
)
 
29.84

 
 
 
 
Exercised
 
(19,200
)
 
27.24

 
 
 
 
Outstanding at October 31, 2015
 
2,398,498

 
29.04

 
 
 
 
Granted
 
10,000

 
20.90

 
 
 
 
Expired/canceled
 
(58,240
)
 
28.84

 
 
 
 
Outstanding at January 31, 2016
 
2,350,258

 
$
29.01

 
6.89
 
$

 
 
 
 
 
 
 
 
 
Exercisable at January 31, 2016
 
1,050,880

 
$
28.59

 
5.42
 
$

 
 
 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
2,259,510

 
$
28.99

 
6.84
 
$



Stock options outstanding as of January 31, 2016 have exercise prices ranging between $20.90 - $33.94. There were no stock options exercised during the three months ended January 31, 2016. The total intrinsic value relating to stock options exercised during the three months ended January 31, 2015 was $806,000. The total intrinsic value relating to stock options exercised during the six months ended January 31, 2016 and 2015 was $32,000 and $1,959,000, respectively. Stock options granted during the six months ended January 31, 2016 and 2015 had exercise prices equal to the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years.

During the six months ended January 31, 2016 and 2015, at the election of certain holders of vested stock options, 19,200 and 280,288 stock options, respectively, were net settled upon exercise. As a result, 706 and 45,989 net shares of our common stock were issued after reduction of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements during the six months ended January 31, 2016 and 2015, respectively.

The estimated per-share weighted average grant-date fair value of stock options granted during the three and six months ended January 31, 2016 was $3.69 and $5.69, respectively, and $6.46 and $6.14, respectively, during the three and six months ended January 31, 2015, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Expected dividend yield
 
5.74
%
 
3.55
%
 
4.32
%
 
3.54
%
Expected volatility
 
34.76
%
 
29.98
%
 
34.27
%
 
28.13
%
Risk-free interest rate
 
1.64
%
 
1.36
%
 
1.54
%
 
1.61
%
Expected life (years)
 
5.04

 
5.48

 
5.16

 
5.45


Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant, which was $1.20 per share for grants in the six months ended January 31, 2016 and 2015. We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term. The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns. Assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock-based awards.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
 
 
Awards
(in Shares)
 
Weighted Average
Grant Date
Fair Value
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
224,165

 
$
28.26

 
 
Granted
 
62,440

 
28.35

 
 
Converted to common stock
 
(6,988
)
 
25.28

 
 
Forfeited
 
(45,154
)
 
28.14

 
 
Outstanding at October 31, 2015
 
234,463

 
28.39

 
 
Converted to common stock
 
(4,725
)
 
26.77

 
 
Forfeited
 
(5,333
)
 
29.07

 
 
Outstanding at January 31, 2016
 
224,405

 
$
28.41

 
$
4,380,000

 
 
 
 
 
 
 
Vested at January 31, 2016
 
31,181

 
$
27.15

 
$
609,000

 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
214,373

 
$
28.40

 
$
4,185,000



The total intrinsic value relating to fully-vested awards converted into our common stock during the six months ended January 31, 2016 and 2015 was $275,000 and $504,000, respectively. Performance shares granted to employees prior to fiscal 2014 vest over a 5.3 year period, beginning on the date of grant if pre-established performance goals are attained, 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. The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained or as specified pursuant to the Plan and related agreements. As of January 31, 2016, 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 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 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.

Share units are 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. No share units granted to date have been converted into common stock.

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. RSUs and performance shares granted in fiscal 2012 are not entitled to dividend equivalents. RSUs, performance shares and restricted stock granted in fiscal 2013 through 2016 are entitled to dividend equivalents unless forfeited before vesting occurs; however, performance shares granted in fiscal 2013 were not entitled to such dividend equivalents until our Board of Directors determined that the pre-established performance goals were met. Share units granted prior to fiscal 2014 are not entitled to dividend equivalents. Share units granted in fiscal 2014 and thereafter are entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of conversion of the underlying shares into our common stock. During the six months ended January 31, 2016, we accrued $41,000 of dividend equivalents and paid out $8,000 when certain awards were converted to common stock. As of January 31, 2016 and July 31, 2015, accrued dividend equivalents were $358,000 and $325,000, respectively, of which $214,000 and $306,000, respectively, were included in other liabilities with the remainder included in accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets for the respective periods. Such amounts were recorded as a reduction to retained earnings.

Cash payments to remit employees' minimum statutory tax withholding requirements related to the net settlement of stock-based awards for the six months ended January 31, 2016 and 2015 were $73,000 and $389,000, respectively, which is reported as a cash outflow from operating activities in our Condensed Consolidated Statements of Cash Flows for each respective period.

v3.3.1.900
Customer and Geographic Information
6 Months Ended
Jan. 31, 2016
Geographic Areas, Revenues from External Customers [Abstract]  
Customer and Geographic Information
Customer and Geographic Information

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
United States
 
 
 
 
 
 
 
 
U.S. government
 
42.0
%
 
27.5
%
 
41.7
%
 
26.2
%
Commercial
 
20.0
%
 
11.7
%
 
17.4
%
 
12.8
%
Total United States
 
62.0
%
 
39.2
%
 
59.1
%
 
39.0
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
North African country
 
2.4
%
 
15.0
%
 
4.2
%
 
14.8
%
Other international
 
35.6
%
 
45.8
%
 
36.7
%
 
46.2
%
Total International
 
38.0
%
 
60.8
%
 
40.9
%
 
61.0
%


Sales to U.S. government customers include the Department of Defense ("DoD") and intelligence and civilian agencies, as well as sales directly to or through prime contractors.

International sales for the three months ended January 31, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $26,731,000 and $49,768,000, respectively. International sales for the six months ended January 31, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $54,983,000 and $96,524,000, respectively.

Sales to a U.S. prime contractor customer represented approximately 14.4% of consolidated net sales for both three and six months ended January 31, 2015. Almost all of these sales related to our North African country end-customer. For the three and six months ended January 31, 2016, except for the U.S. government, no other customer or individual country (including sales to U.S. domestic companies for inclusion in products that will be sold to a foreign country) represented more than 10% of consolidated net sales.

v3.3.1.900
Segment Information
6 Months Ended
Jan. 31, 2016
Segment Reporting [Abstract]  
Segment Information
Segment Information

Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280, “Segment Reporting,” is based on the way that the chief operating decision maker organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. As of January 31, 2016, our chief operating decision maker function, for purposes of FASB ASC 280, consisted of our President and Chief Executive Officer ("CEO").

While our results of operations are primarily reviewed on a consolidated basis, during the three and six months ended January 31, 2016, our chief operating decision maker managed the enterprise in three operating segments: (i) telecommunications transmission, (ii) RF microwave amplifiers, and (iii) mobile data communications, which are the same as our reportable operating segments.

Telecommunications transmission products include satellite earth station products (such as analog and digital modems, frequency converters, power amplifiers, transceivers and voice gateways) and over-the-horizon microwave communications products and systems (such as digital troposcatter modems).

RF microwave amplifier products include traveling wave tube amplifiers and solid-state, high-power narrow and broadband amplifier products that use the microwave and radio frequency spectrums.

Mobile data communications products and services substantially relate to our support of the U.S. Army's BFT-1 program, which is currently in a sustainment mode. We currently perform engineering services and satellite network operations on a cost-plus-fixed fee basis and program management services on a firm-fixed-price basis and we license certain of our intellectual property to the U.S. Army.

Segment information is presented in the tables below:

 
 
Three months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
38,544,000

 
24,933,000

 
6,846,000

 

 
$
70,323,000

Operating income (loss)
 
4,803,000

 
1,382,000

 
3,735,000

 
(6,731,000
)
 
3,189,000

Interest income and other (expense)
 
(15,000
)
 
(7,000
)
 
2,000

 
130,000

 
110,000

Interest expense
 
73,000

 

 

 

 
73,000

Depreciation and amortization
 
1,715,000

 
860,000

 
79,000

 
1,082,000

 
3,736,000

Expenditure for long-lived assets, including intangibles
 
777,000

 
29,000

 
8,000

 
13,000

 
827,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000


 
 
Three months ended January 31, 2015
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
53,867,000

 
21,646,000

 
6,289,000

 

 
$
81,802,000

Operating income (loss)
 
11,049,000

 
969,000

 
2,709,000

 
(4,104,000
)
 
10,623,000

Interest income and other (expense)
 
(26,000
)
 
(7,000
)
 
3,000

 
120,000

 
90,000

Interest expense
 
69,000

 

 

 

 
69,000

Depreciation and amortization
 
2,196,000

 
906,000

 
72,000

 
1,069,000

 
4,243,000

Expenditure for long-lived assets, including intangibles
 
742,000

 
582,000

 
60,000

 
14,000

 
1,398,000

Total assets at January 31, 2015
 
240,413,000

 
92,918,000

 
6,002,000

 
132,154,000

 
471,487,000


 
 
Six months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
73,793,000

 
47,587,000

 
13,060,000

 

 
$
134,440,000

Operating income (loss)
 
7,164,000

 
3,350,000

 
6,734,000

 
(11,891,000
)
 
5,357,000

Interest income and other (expense)
 
(32,000
)
 
(7,000
)
 
5,000

 
256,000

 
222,000

Interest expense
 
148,000

 

 

 

 
148,000

Depreciation and amortization
 
3,658,000

 
1,734,000

 
160,000

 
2,141,000

 
7,693,000

Expenditure for long-lived assets, including intangibles
 
1,247,000

 
171,000

 
30,000

 
15,000

 
1,463,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000



 
 
Six months ended January 31, 2015
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
105,223,000

 
40,410,000

 
12,560,000

 

 
$
158,193,000

Operating income (loss)
 
19,215,000

 
2,032,000

 
5,576,000

 
(7,981,000
)
 
18,842,000

Interest income and other (expense)
 
(55,000
)
 
(25,000
)
 
6,000

 
248,000

 
174,000

Interest expense
 
136,000

 

 

 
198,000

 
334,000

Depreciation and amortization
 
4,409,000

 
1,785,000

 
142,000

 
2,413,000

 
8,749,000

Expenditure for long-lived assets, including intangibles
 
1,280,000

 
674,000

 
144,000

 
47,000

 
2,145,000

Total assets at January 31, 2015
 
240,413,000

 
92,918,000

 
6,002,000

 
132,154,000

 
471,487,000


Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs. In addition, unallocated expenses include amortization of stock-based compensation of $1,074,000, and $2,125,000, respectively, for the three and six months ended January 31, 2016 and $1,061,000 and $2,398,000, respectively, for the three and six months ended January 31, 2015. Interest expense for the six months ended January 31, 2015 includes interest on a committed $100,000,000 secured revolving credit facility that expired on October 31, 2014 and amortization of deferred financing costs, neither of which is allocated to the operating segments. Unallocated expenses for the three and six months ended January 31, 2016 include $2,337,000 and $3,729,000, respectively, of transaction costs primarily related to our acquisition of TCS. Unallocated expenses for the six months ended January 31, 2015 include $585,000 of expenses related to our strategic alternatives analysis which we concluded in December 2014. There were no such expenses during the three months ended January 31, 2015. Unallocated assets at January 31, 2016 consist principally of cash and deferred tax assets.

Intersegment sales for the three months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the RF microwave amplifiers segment were $652,000 and $720,000, respectively. Intersegment sales for the six months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the RF microwave amplifiers segment were $1,305,000 and $1,009,000, respectively.

Intersegment sales for the three months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the mobile data communications segment were $87,000 and $141,000, respectively. Intersegment sales for the six months ended January 31, 2016 and 2015 by the telecommunications transmission segment to the mobile data communications segment were $108,000 and $337,000, respectively.

Intersegment sales for the three and six months ended January 31, 2016 by the RF microwave amplifiers segment to the telecommunications transmission segment were $13,000 and $32,000, respectively. There were no intersegment sales for the three and six months ended January 31, 2015 by the RF microwave amplifiers segment to the telecommunications transmission segment.

Substantially all of our long-lived assets are located in the U.S. and all intersegment sales are eliminated in consolidation and are excluded from the tables above.

As discussed further in Note (18) - "Subsequent Events," in connection with the TCS acquisition, which closed on February 23, 2016 (the first month of our third quarter of fiscal 2016), we announced a new organizational structure in which our chief operating decision maker will manage the enterprise in two operating segments: commercial solutions and government solutions. As a result of these changes, effective with our third quarter ending April 30, 2016, we anticipate no longer reporting our financial results in three operating segments but rather our two new operating segments. We anticipate that historical operating segment financial information will be retrospectively reported for certain periods in a future SEC filing.

v3.3.1.900
Goodwill
6 Months Ended
Jan. 31, 2016
Goodwill [Abstract]  
Goodwill
Goodwill

The carrying amount of goodwill by segment as of January 31, 2016 and July 31, 2015 are as follows:
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Total
Goodwill
 
$
107,779,000

 
29,575,000

 
13,249,000

 
$
150,603,000

Accumulated impairment
 

 

 
(13,249,000
)
 
(13,249,000
)
Balance
 
$
107,779,000

 
29,575,000

 

 
$
137,354,000



In accordance with FASB ASC 350, “Intangibles - Goodwill and Other,” 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. If we fail Step One (described below), we would do a Step Two test which compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.

On August 1, 2015 (the first day of our fiscal 2016), we performed a quantitative assessment (commonly referred to as a Step One test) using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value. Based on our quantitative evaluation performed on August 1, 2015, we determined that our telecommunications transmission and RF microwave amplifiers reporting units had estimated fair values in excess of their carrying values of at least 14.0% and 14.2%, respectively, and concluded that our goodwill was not impaired. As such, we did not perform a Step Two assessment.
 
As discussed further in Note (18) - "Subsequent Events," in connection with the TCS acquisition, which closed on February 23, 2016 (the first month of our third quarter of fiscal 2016), we announced a new organizational structure in which our chief operating decision maker will manage the enterprise in two operating segments: commercial solutions and government solutions. In connection with this reporting change, we intend to perform a “Before Reorganization” and an “After Reorganization” interim goodwill impairment test during our three months ending April 30, 2016. Although these tests have not yet been finalized, we believe that no impairment of goodwill will result from our change to a new segment organizational structure.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2016 (the start of our fiscal 2017). This test will include an evaluation of the substantial goodwill that is expected to result from the TCS acquisition. During the interim periods, if our expected financial results materially decline below our initial expectations
or if other events and circumstances change which indicate the potential for impairment (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record interim impairment charges if we perform and fail an interim test. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

v3.3.1.900
Intangible Assets
6 Months Ended
Jan. 31, 2016
Finite-Lived Intangible Assets, Net [Abstract]  
Intangible Assets
Intangible Assets

Intangible assets with finite lives as of January 31, 2016 and July 31, 2015 are as follows:
 
 
January 31, 2016
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
13.0
 
$
47,370,000

 
40,245,000

 
$
7,125,000

Customer relationships
 
10.0
 
29,831,000

 
22,456,000

 
7,375,000

Trademarks and other
 
20.0
 
5,794,000

 
2,857,000

 
2,937,000

Total
 
 
 
$
82,995,000

 
65,558,000

 
$
17,437,000


 
 
July 31, 2015
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
12.1
 
$
47,370,000

 
39,266,000

 
$
8,104,000

Customer relationships
 
10.0
 
29,831,000

 
20,981,000

 
8,850,000

Trademarks and other
 
20.0
 
5,794,000

 
2,739,000

 
3,055,000

Total
 
 
 
$
82,995,000

 
62,986,000

 
$
20,009,000



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

Amortization expense for the three months ended January 31, 2016 and 2015 was $1,196,000 and $1,560,000, respectively. Amortization expense for the six months ended January 31, 2016 and 2015 was $2,572,000 and $3,121,000, respectively.

Excluding the impact of the TCS acquisition which closed on February 23, 2016 and which is further discussed in Note (18) - "Subsequent Events," the estimated amortization expense for the fiscal years ending July 31, 2016, 2017, 2018, 2019, and 2020 is $4,962,000, $4,782,000, $4,782,000, $862,000 and $862,000, respectively.

v3.3.1.900
Stockholders' Equity
6 Months Ended
Jan. 31, 2016
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
Stockholders’ Equity

Stock Repurchase Program
As of January 31, 2016 and March 9, 2016, we were authorized to repurchase up to an additional $8,664,000 of our common stock, pursuant to our current $100,000,000 stock repurchase program. Our stock repurchase program has no time restrictions and repurchases may be made in open-market or privately negotiated transactions and may be made pursuant to SEC Rule 10b5-1 trading plans.

There were no repurchases of our common stock during the six months ended January 31, 2016 and 2015.

Dividends
The current targeted dividend amount that was established by our Board of Directors for fiscal 2016 is $1.20 per common share.

During the six months ended January 31, 2016, our Board of Directors declared quarterly dividends of $0.30 per common share on September 28, 2015 and December 9, 2015, which were paid to shareholders on November 20, 2015 and February 17, 2016, respectively.

On March 10, 2016, our Board of Directors declared a dividend of $0.30 per common share, payable on May 20, 2016, to shareholders of record at the close of business on April 20, 2016.

v3.3.1.900
Legal Proceedings and Other Matters
6 Months Ended
Jan. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Legal Proceedings and Other Matters
Legal Proceedings and Other Matters

Licensed Technology Dispute
In May 2015, we notified a third party that we were terminating their rights to use certain of our technology because they failed to remit payments owed to us pursuant to a written agreement. The technology relates to certain mobile data communications products that we no longer sell. In response, the third party informed us that they believed we were in breach of a written agreement and demanded a return of royalties paid. During the three months ended January 31, 2016, this matter was settled in our favor and we received payments owed to us.

TCS Legal Proceedings
Infringement Matters
As discussed further in Note (18) - "Subsequent Events," on February 23, 2016, we acquired TCS which is a party to a number of legal proceedings relating to customers seeking indemnification under contractual arrangements for claims and other costs associated with defending lawsuits alleging infringement of patents through their use of TCS’s products and services, including in combination with products and services of other vendors. In some cases, TCS has agreed to assume the defense of lawsuits and in other situations, TCS did not believe that its technology was infringing or that certain customers were entitled to indemnification. Due to the inherent difficulty of predicting the outcome of the TCS legal proceedings, it may be difficult to estimate the amount or range of reasonably possible loss in excess of amounts that TCS accrued as of the date of the acquisition. Resolution of any particular legal proceeding could have a material adverse effect on our future consolidated results of operations, financial position, or cash flows.

Acquisition-Related Lawsuits
On December 9, 2015, a putative class action, Stanley Magee v. TeleCommunication Systems, Inc., was commenced by the filing of a complaint in Maryland state court, in the Circuit Court for Anne Arundel County, against TCS, members of the TCS Board of Directors, Comtech and a wholly owned subsidiary of Comtech formed to effect the acquisition, Typhoon Acquisition Corp. (“Acquisition Corp.”). Three other complaints were filed on December 15, 2015: James Morakis v. TeleCommunication Systems, Inc., in the same Circuit Court; and Rafal Sawicz v. TeleCommunication Systems, Inc., and Wesley Shaffron v. TeleCommunication Systems, Inc., both filed in Maryland state court in the Circuit Court for Baltimore County. All of the complaints raise similar putative class claims against TCS, members of the TCS Board, Comtech and Acquisition Corp., in challenging (i) the process undertaken by TCS leading up to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 22, 2015, among TCS, the Company and Acquisition Corp., (ii) the consideration to be received by TCS stockholders and (iii) the disclosures made in connection with the tender offer made pursuant to the Merger Agreement. The complaints generally allege breaches of fiduciary duty by members of the TCS Board in connection with the Merger Agreement, and allege that some or all of TCS, Comtech and Acquisition Corp. aided and abetted the purported breaches of fiduciary duty. The complaints seek equitable and injunctive relief, including an order enjoining the defendants from having completed the Acquisition, rescission of any consummated transaction, unspecified damages and attorneys’ fees. In the actions pending in Baltimore City, the defendants moved to dismiss the complaints and the plaintiffs moved for a preliminary injunction against completion of the acquisition. A hearing on these motions was held on January 18, 2016. The court in Baltimore City, however, did not rule on the preliminary injunction motion prior to the expiration of the tender offer or the closing of the acquisition which actually occurred on February 23, 2016.

On February 29, 2016, the court in Baltimore City issued a “Memorandum to Counsel” stating that the court had determined to grant defendants’ motion to dismiss the complaints in the actions pending in that court and would issue a decision within seven to ten days. With respect to the two actions pending in Anne Arundel County, on February 10, 2016, the court consolidated the two actions. There has been no further activity in that court with respect to those actions. The Company intends to seek dismissal of the Anne Arundel County actions following receipt of the decision by the Baltimore City court dismissing the actions pending there.

Other Proceedings
There are certain other pending and threatened legal actions which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

v3.3.1.900
Subsequent Events
6 Months Ended
Jan. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events

On February 23, 2016, we completed our acquisition of TCS, pursuant to the Agreement and Plan of Merger, dated as of November 22, 2015 (the “Merger Agreement”), among Comtech, TCS and Typhoon Acquisition Corp., a Maryland corporation and a direct, wholly owned subsidiary of Comtech (“Merger Sub”).

TCS is a leading provider of commercial solutions such as public safety systems and enterprise application technologies and government solutions such as command control (also known as Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (“C4ISR”) applications). The TCS acquisition was a significant step in our strategy of entering complementary markets and expanding our domestic and international commercial offerings. TCS is now a wholly-owned legal subsidiary.

A total of approximately 55,871,832 shares of Class A common stock, par value $0.01 per share (the “Class A Shares”), and Class B common stock, par value $0.01 per share (the “Class B Shares”, together with the Class A Shares, the “Shares”) (including Shares delivered through notices of guaranteed delivery), were validly tendered and not validly withdrawn in the tender offer (the “Offer”) to acquire all of the issued and outstanding Shares at a price of $5.00 per share (the “Offer Price”), representing approximately 88.32% of the issued and outstanding Shares as of the expiration of the Offer. The Offer expired at 5:00 P.M., New York City time, on Thursday, February 18, 2016. The number of Shares tendered in the Offer were accepted for payment and constituted a majority of all outstanding Shares satisfying the Minimum Condition (as defined in the Merger Agreement).

Following the completion of the Offer, all conditions to the Merger set forth in the Merger Agreement were satisfied, and on February 23, 2016, we completed our acquisition of TCS by effecting a merger in accordance with Section 3-106.1 of the Maryland General Corporation Law, pursuant to which Merger Sub was merged with and into TCS, with TCS surviving the merger as a wholly owned subsidiary of Comtech (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding Share, other than any Shares owned by Comtech, Merger Sub or any subsidiary of Comtech, Merger Sub or TCS immediately prior to the Effective Time, was automatically converted into the right to receive an amount in cash, without interest and subject to applicable withholding taxes, equal to the Offer Price.
 
At the Effective Time, each option to purchase Shares outstanding immediately prior to the Effective Time, by virtue of the Merger, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (i) the number of Shares underlying such option and (ii) an amount equal to (x) the Offer Price less (y) the per share exercise price of such option. In addition, at the Effective Time, each Share subject to forfeiture or other restrictions outstanding immediately prior to the Effective Time, by virtue of the Merger, was cancelled and converted into the right to receive an amount in cash, without interest and less the amount of any withholding taxes, equal to the product of (i) the number of Shares underlying such restricted share and (ii) the Offer Price; provided that any payments in respect of such restricted shares to which a former holder thereof may be eligible to receive will be earned subject to the same vesting schedule and other vesting terms and conditions which applied to such restricted shares prior to the Effective Time, and such payment shall become payable on the date or dates that such restricted shares would have become vested under the vesting schedule in place immediately prior to the Effective Time.

During the twelve months ended December 31, 2015, based on unaudited financial results, TCS generated revenue of approximately $360,000,000. On February 23, 2016, based on unaudited financial results, TCS had $61,405,000 of cash and cash equivalents and debt (including accrued interest) of approximately $144,124,000.

The acquisition has a preliminary aggregate purchase price for accounting purposes of approximately $340,432,000 (also referred to as the transaction equity value) and an enterprise value of approximately $423,151,000. We have funded and expect to fully fund the acquisition (including $48,000,000 of transaction and merger related expenditures) and repay the large majority of TCS debt by redeploying a significant amount of our combined cash and cash equivalents, with the remaining funds coming from a new $400,000,000 credit facility (the "New Credit Facility"). On the closing date, on a pro-forma combined basis, and assuming all transaction costs and TCS outstanding debt have been paid or assumed, the combined companies had more than $50,000,000 of cash and cash equivalents and outstanding debt of approximately $361,604,000.

Our New Credit Facility contains customary negative covenants, subject to negotiated exceptions, on (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The New Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of the Company’s business. The obligations under our New Credit Facility are guaranteed by certain of the Company’s domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security under the New Credit Facility and the guarantees thereof, the Company and the Subsidiary 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 their tangible and intangible assets. The agreements for our New Credit Facility were filed in a separate Current Report on Form 8-K dated February 29, 2016, with the SEC. In addition, under certain circumstances, we may be required to enter into amendments to the agreements in connection with the further syndication of our New Credit Facility. Any such material amendment will be disclosed in a future SEC filing.

We expect to incur transaction and merger related expenditures of approximately $48,000,000, which includes significant amounts for: (i) change-in-control payments, (ii) severance, (iii) costs associated with establishing our New Credit Facility, and (iv) professional fees for financial and legal advisors for both Comtech and TCS. Given that the TCS transaction closed on February 23, 2016, it was not practicable to perform and complete an analysis and assessment of the fair values of assets acquired and liabilities assumed as well as the accounting treatment related to expected transaction and merger related expenditures. Some of these expenditures are expected to be immediately expensed, some expensed during the first year following the closing and some capitalized in accordance with purchase accounting rules. The acquisition is expected to result in a material increase to Comtech’s annual amortization expense related to intangible assets as well as a material increase in annual interest expense.

In connection with the TCS acquisition, and beginning with our third quarter of fiscal 2016, we began managing our business in two operating segments: commercial solutions and government solutions. Our commercial solutions segment serves commercial customers (including smaller governments such as state and local governments) who require advanced technologies to meet their needs. We believe this segment has leadership positions in the areas of satellite communications, public safety systems and enterprise application technologies. Our government solutions segment serves large government end-users (including those of foreign countries) who require mission critical technologies and systems. We believe this segment has leadership positions in the areas of command and control applications, troposcatter communications and RF power and switching technologies.

v3.3.1.900
Earnings Per Share (Tables)
6 Months Ended
Jan. 31, 2016
Earnings Per Share [Abstract]  
Schedule of numerators and denominators used in basic and diluted EPS calculations
The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income for basic calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

Numerator for diluted calculation
 
$
2,476,000

 
7,585,000

 
3,915,000

 
12,810,000

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Denominator for basic calculation
 
16,186,000

 
16,241,000

 
16,178,000

 
16,229,000

Effect of dilutive securities:
 
 
 
 

 
 
 
 
Stock-based awards
 
19,000

 
264,000

 
23,000

 
281,000

Denominator for diluted calculation
 
16,205,000

 
16,505,000

 
16,201,000

 
16,510,000


v3.3.1.900
Accounts Receivable (Tables)
6 Months Ended
Jan. 31, 2016
Accounts Receivable Additional Disclosures [Abstract]  
Accounts receivable
Accounts receivable consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Billed receivables from commercial customers
 
$
27,677,000

 
39,062,000

Billed receivables from the U.S. government and its agencies
 
15,124,000

 
8,375,000

Unbilled receivables on contracts-in-progress
 
12,629,000

 
23,024,000

Total accounts receivable
 
55,430,000

 
70,461,000

Less allowance for doubtful accounts
 
1,681,000

 
1,206,000

Accounts receivable, net
 
$
53,749,000

 
69,255,000


v3.3.1.900
Inventories (Tables)
6 Months Ended
Jan. 31, 2016
Inventory Disclosure [Abstract]  
Inventories
Inventories consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Raw materials and components
 
$
50,530,000

 
51,272,000

Work-in-process and finished goods
 
24,025,000

 
27,700,000

Total inventories
 
74,555,000

 
78,972,000

Less reserve for excess and obsolete inventories
 
16,131,000

 
16,904,000

Inventories, net
 
$
58,424,000

 
62,068,000


v3.3.1.900
Accrued Expenses and Other Current Liabilities (Tables)
6 Months Ended
Jan. 31, 2016
Accrued Liabilities, Current [Abstract]  
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following at:
 
 
January 31, 2016
 
July 31, 2015
Accrued wages and benefits
 
$
8,678,000

 
12,134,000

Accrued warranty obligations
 
8,624,000

 
8,638,000

Accrued commissions and royalties
 
3,031,000

 
2,398,000

Other
 
10,246,000

 
6,300,000

Accrued expenses and other current liabilities
 
$
30,579,000

 
29,470,000

Product warranty rollforward
Changes in our product warranty liability were as follows:
 
 
Six months ended January 31,
 
 
2016
 
2015
Balance at beginning of period
 
$
8,638,000

 
8,618,000

Provision for warranty obligations
 
2,096,000

 
1,992,000

Charges incurred
 
(2,110,000
)
 
(2,315,000
)
Balance at end of period
 
$
8,624,000

 
8,295,000


v3.3.1.900
Radyne Acquisition-Related Restructuring Plan (Tables)
6 Months Ended
Jan. 31, 2016
Radyne Acquisition Related Restructuring Plan [Abstract]  
Determination of estimated facility exit costs table
The remaining estimated amounts relate to facility exit costs and were determined as follows:
 
At August 1, 2008
Total non-cancelable lease obligations
$
12,741,000

Less: Estimated sublease income
8,600,000

Total net estimated facility exit costs
4,141,000

Less: Interest expense to be accreted
2,041,000

Present value of estimated facility exit costs
$
2,100,000

Summary of acquisition-related restructuring liabilities
As of January 31, 2016, the amount of the acquisition-related restructuring reserve is as follows:
 
Cumulative
Activity Through
January 31, 2016
Present value of estimated facility exit costs at August 1, 2008
$
2,100,000

Cash payments made
(8,242,000
)
Cash payments received
8,600,000

Accreted interest recorded
1,510,000

Liability as of January 31, 2016
3,968,000

Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet
1,316,000

Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet
$
2,652,000

Summary of future cash payments associated with estimated facility exit costs
Future cash payments associated with our restructuring plan are summarized below:
 
As of
 
January 31, 2016
Future lease payments to be made
$
3,968,000

Interest expense to be accreted in future periods
530,000

Total remaining payments
$
4,498,000


v3.3.1.900
Stock-Based Compensation (Tables)
6 Months Ended
Jan. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Stock-based Awards Outstanding by Award Type
As of January 31, 2016, the following stock-based awards, by award type, were outstanding:

 
January 31, 2016
Stock options
2,350,258

Performance shares
174,665

RSUs and restricted stock
41,237

Share units
8,503

Total
2,574,663

Stock-based compensation for awards detailing where recorded in Condensed Consolidated Statement of Operations
Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Cost of sales
 
$
100,000

 
66,000

 
163,000

 
133,000

Selling, general and administrative expenses
 
881,000

 
856,000

 
1,755,000

 
1,958,000

Research and development expenses
 
93,000

 
139,000

 
207,000

 
307,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000

Summary of net stock-based compensation expense by award type
Stock-based compensation expense, by award type, is summarized as follows:

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Stock options
 
$
609,000

 
731,000

 
1,212,000

 
1,489,000

Performance shares
 
390,000

 
167,000

 
724,000

 
575,000

ESPP
 
40,000

 
53,000

 
83,000

 
106,000

RSUs and restricted stock
 
35,000

 
96,000

 
106,000

 
200,000

Share units
 

 
14,000

 

 
28,000

Stock-based compensation expense before income tax benefit
 
1,074,000

 
1,061,000

 
2,125,000

 
2,398,000

Estimated income tax benefit
 
(347,000
)
 
(383,000
)
 
(712,000
)
 
(851,000
)
Net stock-based compensation expense
 
$
727,000

 
678,000

 
1,413,000

 
1,547,000

Components of actual Income tax benefit recognized for tax deductions relating to settlement of stock-based awards
The following table reconciles the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards to the excess income tax benefit reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows:

 
 
Six months ended January 31,
 
 
2016
 
2015
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards
 
$
132,000

 
941,000

Less: Tax benefit initially recognized on settled stock-based awards vesting subsequent to the adoption of accounting standards that require us to expense stock-based awards
 
127,000

 
803,000

Excess income tax benefit recorded as an increase to additional paid-in capital
 
5,000

 
138,000

Less: Tax benefit initially disclosed but not previously recognized on settled equity-classified stock-based awards vesting prior to the adoption of accounting standards that require us to expense stock-based awards
 

 

Excess income tax benefit from settled equity-classified stock-based awards reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows
 
$
5,000

 
138,000

Summary of the Plan's activity relating to stock options
The following table summarizes the Plan's activity during the six months ended January 31, 2016:

 
 
Awards
(in Shares)
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Contractual
Term (Years)
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
2,119,683

 
$
29.33

 
 
 
 
Granted
 
480,265

 
28.00

 
 
 
 
Expired/canceled
 
(182,250
)
 
29.84

 
 
 
 
Exercised
 
(19,200
)
 
27.24

 
 
 
 
Outstanding at October 31, 2015
 
2,398,498

 
29.04

 
 
 
 
Granted
 
10,000

 
20.90

 
 
 
 
Expired/canceled
 
(58,240
)
 
28.84

 
 
 
 
Outstanding at January 31, 2016
 
2,350,258

 
$
29.01

 
6.89
 
$

 
 
 
 
 
 
 
 
 
Exercisable at January 31, 2016
 
1,050,880

 
$
28.59

 
5.42
 
$

 
 
 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
2,259,510

 
$
28.99

 
6.84
 
$

Certain weighted average assumptions used to estimate the fair value of stock-based awards
The estimated per-share weighted average grant-date fair value of stock options granted during the three and six months ended January 31, 2016 was $3.69 and $5.69, respectively, and $6.46 and $6.14, respectively, during the three and six months ended January 31, 2015, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Expected dividend yield
 
5.74
%
 
3.55
%
 
4.32
%
 
3.54
%
Expected volatility
 
34.76
%
 
29.98
%
 
34.27
%
 
28.13
%
Risk-free interest rate
 
1.64
%
 
1.36
%
 
1.54
%
 
1.61
%
Expected life (years)
 
5.04

 
5.48

 
5.16

 
5.45


Summary of the Plan's activity relating to performance shares, RSUs, restricted stock and share units
The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
 
 
Awards
(in Shares)
 
Weighted Average
Grant Date
Fair Value
 
Aggregate
Intrinsic Value
Outstanding at July 31, 2015
 
224,165

 
$
28.26

 
 
Granted
 
62,440

 
28.35

 
 
Converted to common stock
 
(6,988
)
 
25.28

 
 
Forfeited
 
(45,154
)
 
28.14

 
 
Outstanding at October 31, 2015
 
234,463

 
28.39

 
 
Converted to common stock
 
(4,725
)
 
26.77

 
 
Forfeited
 
(5,333
)
 
29.07

 
 
Outstanding at January 31, 2016
 
224,405

 
$
28.41

 
$
4,380,000

 
 
 
 
 
 
 
Vested at January 31, 2016
 
31,181

 
$
27.15

 
$
609,000

 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2016
 
214,373

 
$
28.40

 
$
4,185,000


v3.3.1.900
Customer and Geographic Information (Tables)
6 Months Ended
Jan. 31, 2016
Geographic Areas, Revenues from External Customers [Abstract]  
Schedule of net sales, as a percentage, by geography and customer type
Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
United States
 
 
 
 
 
 
 
 
U.S. government
 
42.0
%
 
27.5
%
 
41.7
%
 
26.2
%
Commercial
 
20.0
%
 
11.7
%
 
17.4
%
 
12.8
%
Total United States
 
62.0
%
 
39.2
%
 
59.1
%
 
39.0
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
North African country
 
2.4
%
 
15.0
%
 
4.2
%
 
14.8
%
Other international
 
35.6
%
 
45.8
%
 
36.7
%
 
46.2
%
Total International
 
38.0
%
 
60.8
%
 
40.9
%
 
61.0
%

v3.3.1.900
Segment Information (Tables)
6 Months Ended
Jan. 31, 2016
Segment Reporting [Abstract]  
Segment information
Segment information is presented in the tables below:

 
 
Three months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
38,544,000

 
24,933,000

 
6,846,000

 

 
$
70,323,000

Operating income (loss)
 
4,803,000

 
1,382,000

 
3,735,000

 
(6,731,000
)
 
3,189,000

Interest income and other (expense)
 
(15,000
)
 
(7,000
)
 
2,000

 
130,000

 
110,000

Interest expense
 
73,000

 

 

 

 
73,000

Depreciation and amortization
 
1,715,000

 
860,000

 
79,000

 
1,082,000

 
3,736,000

Expenditure for long-lived assets, including intangibles
 
777,000

 
29,000

 
8,000

 
13,000

 
827,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000


 
 
Three months ended January 31, 2015
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
53,867,000

 
21,646,000

 
6,289,000

 

 
$
81,802,000

Operating income (loss)
 
11,049,000

 
969,000

 
2,709,000

 
(4,104,000
)
 
10,623,000

Interest income and other (expense)
 
(26,000
)
 
(7,000
)
 
3,000

 
120,000

 
90,000

Interest expense
 
69,000

 

 

 

 
69,000

Depreciation and amortization
 
2,196,000

 
906,000

 
72,000

 
1,069,000

 
4,243,000

Expenditure for long-lived assets, including intangibles
 
742,000

 
582,000

 
60,000

 
14,000

 
1,398,000

Total assets at January 31, 2015
 
240,413,000

 
92,918,000

 
6,002,000

 
132,154,000

 
471,487,000


 
 
Six months ended January 31, 2016
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
73,793,000

 
47,587,000

 
13,060,000

 

 
$
134,440,000

Operating income (loss)
 
7,164,000

 
3,350,000

 
6,734,000

 
(11,891,000
)
 
5,357,000

Interest income and other (expense)
 
(32,000
)
 
(7,000
)
 
5,000

 
256,000

 
222,000

Interest expense
 
148,000

 

 

 

 
148,000

Depreciation and amortization
 
3,658,000

 
1,734,000

 
160,000

 
2,141,000

 
7,693,000

Expenditure for long-lived assets, including intangibles
 
1,247,000

 
171,000

 
30,000

 
15,000

 
1,463,000

Total assets at January 31, 2016
 
212,211,000

 
87,070,000

 
6,415,000

 
156,474,000

 
462,170,000



v3.3.1.900
Goodwill (Tables)
6 Months Ended
Jan. 31, 2016
Goodwill [Abstract]  
Schedule of goodwill by segment
The carrying amount of goodwill by segment as of January 31, 2016 and July 31, 2015 are as follows:
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Total
Goodwill
 
$
107,779,000

 
29,575,000

 
13,249,000

 
$
150,603,000

Accumulated impairment
 

 

 
(13,249,000
)
 
(13,249,000
)
Balance
 
$
107,779,000

 
29,575,000

 

 
$
137,354,000


v3.3.1.900
Intangible Assets (Tables)
6 Months Ended
Jan. 31, 2016
Finite-Lived Intangible Assets, Net [Abstract]  
Intangible assets with finite lives
Intangible assets with finite lives as of January 31, 2016 and July 31, 2015 are as follows:
 
 
January 31, 2016
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
13.0
 
$
47,370,000

 
40,245,000

 
$
7,125,000

Customer relationships
 
10.0
 
29,831,000

 
22,456,000

 
7,375,000

Trademarks and other
 
20.0
 
5,794,000

 
2,857,000

 
2,937,000

Total
 
 
 
$
82,995,000

 
65,558,000

 
$
17,437,000


 
 
July 31, 2015
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
12.1
 
$
47,370,000

 
39,266,000

 
$
8,104,000

Customer relationships
 
10.0
 
29,831,000

 
20,981,000

 
8,850,000

Trademarks and other
 
20.0
 
5,794,000

 
2,739,000

 
3,055,000

Total
 
 
 
$
82,995,000

 
62,986,000

 
$
20,009,000


v3.3.1.900
Fair Value Measurements and Financial Instruments (Details) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Fair Value Disclosures [Abstract]    
Amount invested in money market mutual funds disclosed at fair value $ 3,132,000 $ 3,130,000

v3.3.1.900
Earnings Per Share (Details) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Earnings Per Share [Abstract]        
Net income for basic calculation $ 2,476,000 $ 7,585,000 $ 3,915,000 $ 12,810,000
Numerator for diluted calculation $ 2,476,000 $ 7,585,000 $ 3,915,000 $ 12,810,000
Denominator for basic calculation (in shares) 16,186,000 16,241,000 16,178,000 16,229,000
Dilutive effect on shares of stock-based awards (in shares) 19,000 264,000 23,000 281,000
Denominator for diluted calculation (in shares) 16,205,000 16,505,000 16,201,000 16,510,000
Repurchases of common stock (in shares)     0 0
Weighted average performance shares outstanding during the period that are excluded from EPS Calculation 144,000 120,000 143,000 119,000
Stock options and RSUs [Member]        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Anti-dilutive equity-classified stock-based awards not included in calculation of diluted earnings per share (in shares) 2,369,000 447,000 2,367,000 287,000

v3.3.1.900
Accounts Receivable (Details) - USD ($)
6 Months Ended 12 Months Ended
Jan. 31, 2016
Jul. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Total accounts receivable $ 55,430,000 $ 70,461,000
Less allowance for doubtful accounts 1,681,000 1,206,000
Accounts receivable, net $ 53,749,000 $ 69,255,000
Accounts Receivable | Major customer | U.S. Prime Contractor    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Percentage of total accounts receivable 17.20% 36.30%
Billed Receivables | Commercial Customers    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Total accounts receivable $ 27,677,000 $ 39,062,000
Billed Receivables | U.S. Government and Its Agencies    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Total accounts receivable 15,124,000 8,375,000
Unbilled Receivables on Contracts-In-Progress    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Total accounts receivable 12,629,000 23,024,000
Unbilled receivables on contracts-in-progress due from U.S. government and its agencies 1,070,000 1,126,000
Retainage included in unbilled receivables 0 0
Unbilled Receivables on Contracts-In-Progress | Major customer | U.S. Prime Contractor    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Unbilled receivable related to our large over-the-horizon microwave system contracts $ 9,396,000 $ 20,256,000

v3.3.1.900
Inventories (Details) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Inventory Disclosure [Abstract]    
Raw materials and components $ 50,530,000 $ 51,272,000
Work-in-process and finished goods 24,025,000 27,700,000
Total inventories 74,555,000 78,972,000
Less reserve for excess and obsolete inventories 16,131,000 16,904,000
Inventories, net 58,424,000 62,068,000
Inventory directly related to long-term contracts 2,010,000 2,261,000
Inventory related to contracts from third party commercial customers who outsource their manufacturing to us $ 949,000 $ 609,000

v3.3.1.900
Accrued Expenses and Other Current Liabilities (Details) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Jan. 31, 2015
Jul. 31, 2014
Business Acquisition [Line Items]        
Accrued wages and benefits $ 8,678,000 $ 12,134,000    
Accrued warranty obligations 8,624,000 8,638,000 $ 8,295,000 $ 8,618,000
Accrued commissions and royalties 3,031,000 2,398,000    
Other 10,246,000 6,300,000    
Accrued expenses and other current liabilities 30,579,000 $ 29,470,000    
TeleCommunication Systems, Inc.        
Business Acquisition [Line Items]        
Accrued expenses and other current liabilities $ 2,193,000      

v3.3.1.900
Accrued Expenses and Other Current Liabilities - Product Warranty Rollforward (Details) - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Accrued Liabilities, Current [Abstract]    
Minimum coverage period of product warranty from the date of shipment 1 year  
Changes in Product Warranty Liability    
Accrued warranty obligations, as of the beginning of the period $ 8,638,000 $ 8,618,000
Provision for warranty obligations 2,096,000 1,992,000
Charges incurred (2,110,000) (2,315,000)
Accrued warranty obligations, as of the end of the period $ 8,624,000 $ 8,295,000

v3.3.1.900
Radyne Acquisition-Related Restructuring Plan - Summary of Radyne Acquisition Related Restructuring Plan (Details) - USD ($)
Aug. 01, 2008
Jan. 31, 2016
Jul. 31, 2015
Jul. 31, 2008
Radyne Acquisition Related Restructuring Plan [Abstract]        
Business acquisition restructuring costs $ 2,713,000      
Business acquisition restructuring costs related to severance for employees 613,000      
Total non-cancelable lease obligations 12,741,000      
Less: Estimated sublease income 8,600,000      
Total net estimated facility exit costs 4,141,000      
Less: Interest expense to be accreted 2,041,000      
Present value of estimated facility exit costs $ 2,100,000 $ 3,968,000 $ 4,235,000 $ 2,100,000
Radyne lease expiration date Oct. 31, 2018      
Radyne sublease expiration date Oct. 31, 2015      

v3.3.1.900
Radyne Acquisition-Related Restructuring Plan - Activity of Facility Related Exit Costs (Details) - USD ($)
3 Months Ended 6 Months Ended 90 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Restructuring Reserve [Roll Forward]          
Present value of estimated facility-related exit costs, beginning balance     $ 4,235,000   $ 2,100,000
Cash payments made     (738,000)   (8,242,000)
Cash payments received     323,000   8,600,000
Accreted interest recorded $ 73,000 $ 69,000 148,000 $ 135,000 1,510,000
Present value of estimated facility-related exit costs, ending balance 3,968,000   3,968,000   3,968,000
Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet 1,316,000   1,316,000   1,316,000
Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet $ 2,652,000   $ 2,652,000   $ 2,652,000

v3.3.1.900
Radyne Acquisition-Related Restructuring Plan - Details of Future Cash Payments (Details) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Aug. 01, 2008
Jul. 31, 2008
Radyne Acquisition Related Restructuring Plan [Abstract]        
Future lease payments to be made $ 3,968,000 $ 4,235,000 $ 2,100,000 $ 2,100,000
Interest expense to be accreted in future periods 530,000      
Total remaining payments $ 4,498,000      

v3.3.1.900
Credit Facility (Details) - USD ($)
3 Months Ended 6 Months Ended
Feb. 23, 2016
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Uncommitted Secured Revolving Credit Facility          
Line of Credit Facility [Line Items]          
Line of Credit Facility, maximum borrowing capacity   $ 15,000,000   $ 15,000,000  
Outstanding standby letters of credit at period end   1,699,000   1,699,000  
Outstanding commercial letters of credit at period end   0   0  
Interest expense related to Credit Facility   $ 0 $ 0 $ 0  
Uncommitted Secured Revolving Credit Facility | Subsequent Event          
Line of Credit Facility [Line Items]          
Line of Credit Facility, expiration date Feb. 23, 2016        
New Credit Facility | Subsequent Event          
Line of Credit Facility [Line Items]          
Line of Credit Facility, maximum borrowing capacity $ 400,000,000        
Committed Secured Revolving Credit Facility          
Line of Credit Facility [Line Items]          
Line of Credit Facility, maximum borrowing capacity     $ 100,000,000   $ 100,000,000
Line of Credit Facility, expiration date     Oct. 31, 2014    
Interest expense related to Credit Facility         $ 198,000

v3.3.1.900
Income Taxes (Details) - USD ($)
6 Months Ended
Jan. 31, 2016
Jul. 31, 2015
Income Tax Contingency [Line Items]    
Unrecognized tax benefits $ 3,055,000 $ 2,796,000
Interest accrued relating to income taxes 84,000 68,000
Unrecognized tax benefits that would positively impact our effective tax rate, if recognized $ 2,339,000 2,138,000
Effective income tax rate, continuing operations, excluding discrete adjustments 33.50%  
An offset to the non-current deferred tax assets    
Income Tax Contingency [Line Items]    
Unrecognized tax benefits $ 1,586,000 1,223,000
Noncurrent Income Taxes Payable    
Income Tax Contingency [Line Items]    
Unrecognized tax benefits $ 1,469,000 $ 1,573,000

v3.3.1.900
Stock-Based Compensation - Overview (Details) - shares
6 Months Ended
Jan. 31, 2016
Dec. 31, 2015
Oct. 31, 2015
Jul. 31, 2015
Stock options        
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of stock-based option awards outstanding at period end 2,350,258   2,398,498 2,119,683
Employee Stock Purchase Plan - ESPP        
2001 Employee Stock Purchase Plan        
Increase in total common shares reserved for an issuance under the Company's ESPP requested by the Company   675,000    
2000 Stock Incentive Plan        
2000 Stock Incentive Plan        
Aggregate maximum number of shares of common stock which may be issued under stock option plan 8,962,500      
Aggregate net number of stock-based awards granted 7,718,350      
Aggregate number of stock based awards expired and canceled 3,124,811      
Aggregate number of stock-based awards exercised 5,143,687      
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of total stock-based awards outstanding 2,574,663      
2000 Stock Incentive Plan | Stock options        
2000 Stock Incentive Plan        
Maximum term for grants of incentive and non-qualified stock-based awards, excluding incentive stock-based awards granted to stockholders who own more than 10% of the voting power 10 years      
Percentage of a stockholder's voting power that limits the contractual term of an incentive stock-based award 10.00%      
Maximum term for incentive stock-based awards granted to stockholders who own more than 10% of the voting power 5 years      
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of stock-based option awards outstanding at period end 2,350,258      
2000 Stock Incentive Plan | Performance shares        
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of stock-based non-option awards outstanding at period end 174,665      
2000 Stock Incentive Plan | RSUs and restricted stock        
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of stock-based non-option awards outstanding at period end 41,237      
2000 Stock Incentive Plan | Share units        
Stock-Based Awards Outstanding By Award Type (In Shares)        
Number of stock-based non-option awards outstanding at period end 8,503      
2001 Employee Stock Purchase Plan | Employee Stock Purchase Plan - ESPP        
2001 Employee Stock Purchase Plan        
Discount rate from market value, on purchase date, offered to employees participating in the Employee Stock Purchase Plan (ESPP) 85.00%      
Total number of common shares reserved for issuance under employee stock purchase plan 800,000      
Total number of shares of common stock issued to employees under employee stock purchase plan and through the end of the reporting period 609,184      

v3.3.1.900
Stock-Based Compensation - Expenses (Details) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit $ 1,074,000 $ 1,061,000 $ 2,125,000 $ 2,398,000  
Estimated income tax benefit (347,000) (383,000) (712,000) (851,000)  
Net stock-based compensation expense 727,000 678,000 1,413,000 1,547,000  
Total remaining unrecognized compensation cost related to the unvested stock-based awards 8,686,000   8,686,000    
Estimated forfeitures related to unvested stock-based awards 803,000   $ 803,000    
Weighted average number of years net compensation cost is expected to be recognized over     3 years    
Stock-based compensation capitalized and included in ending inventory 51,000   $ 51,000   $ 92,000
Stock Options          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 609,000 731,000 1,212,000 1,489,000  
Performance Shares          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 390,000 167,000 724,000 575,000  
Employee Stock Purchase Plan - ESPP          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 40,000 53,000 $ 83,000 $ 106,000  
Discount offered to employees participating in the ESPP as a percentage of market price     15.00% 15.00%  
RSUs and restricted stock          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 35,000 96,000 $ 106,000 $ 200,000  
Share units          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 0 14,000 0 28,000  
Cost of sales          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 100,000 66,000 163,000 133,000  
Selling, general and administrative expenses          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit 881,000 856,000 1,755,000 1,958,000  
Research and development expenses          
Stock-based Compensation Expenses          
Stock-based compensation expense before income tax benefit $ 93,000 $ 139,000 $ 207,000 $ 307,000  

v3.3.1.900
Stock-Based Compensation - Income Tax Benefit From Stock-based Awards (Details) - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Aug. 01, 2005
Income Tax Benefits From Stock Based Awards [Abstract]        
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards $ 132,000 $ 941,000    
Less: Tax benefit initially recognized on settled stock-based awards vesting subsequent to the adoption of accounting standards that require us to expense stock-based awards 127,000 803,000    
Excess income tax benefit recorded as an increase to additional paid-in capital 5,000 138,000    
Less: Tax benefit initially disclosed but not previously recognized on settled equity-classified stock-based awards vesting prior to the adoption of accounting standards that require us to expense stock-based awards 0 0    
Excess income tax benefit from settled equity-classified stock-based awards reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows 5,000 138,000    
Hypothetical tax benefits related to stock-based awards 17,142,000   $ 17,220,000 $ 8,593,000
Reduction to APIC and accumulated hypothetical tax benefits $ 78,000 $ 161,000    

v3.3.1.900
Stock-Based Compensation - Stock Options (Details) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Oct. 31, 2015
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Additional Disclosures          
Targeted annual dividend per share (in dollars per share)       $ 1.20 $ 1.20
Stock Options          
Awards (in Shares)          
Outstanding, Beginning Balance (in shares) 2,398,498 2,119,683   2,119,683  
Granted (in shares) 10,000 480,265      
Expired/canceled (in shares) (58,240) (182,250)      
Exercised (in shares) 0 (19,200)      
Outstanding, Ending Balance (in shares) 2,350,258 2,398,498   2,350,258  
Exercisable, Ending Balance (in shares) 1,050,880     1,050,880  
Vested and Expected to Vest, Ending Balance (in shares) 2,259,510     2,259,510  
Weighted Average Exercise Price          
Outstanding, Beginning Balance (in dollars per share) $ 29.04 $ 29.33   $ 29.33  
Granted (in dollars per share) 20.90 28.00      
Expired/canceled (in dollars per share) 28.84 29.84      
Exercised (in dollars per share)   27.24      
Outstanding, Ending Balance (in dollars per share) 29.01 $ 29.04   29.01  
Exercisable, Ending Balance (in dollars per share) 28.59     28.59  
Vested and Expected to Vest, Ending Balance (in dollars per share) $ 28.99     $ 28.99  
Weighted Average Remaining Contractual Term (Years)          
Outstanding, Ending Balance       6 years 10 months 22 days  
Exercisable, Ending Balance       5 years 5 months 2 days  
Vested And Expected To Vest, Ending Balance       6 years 10 months 2 days  
Aggregate Intrinsic Value          
Outstanding, Ending Balance $ 0     $ 0  
Exercisable, Ending Balance 0     0  
Vested and Expected to Vest, Ending Balance $ 0     $ 0  
Additional Disclosures          
Exercise price, lower range limit (in dollars per share)       $ 20.90  
Exercise price, upper range limit (in dollars per share)       $ 33.94  
Total intrinsic value of stock-based awards settled     $ 806,000 $ 32,000 $ 1,959,000
Vested Stock Based Awards Net Settled Upon Exercise (in shares)       19,200 280,288
Stock Issued During The Period, Shares, Net Settlement Of Stock-Based Awards       706 45,989
Per share weighted average grant date fair value of stock based awards granted (in dollars per share) $ 3.69   $ 6.46 $ 5.69 $ 6.14
Fair Value Assumptions          
Expected dividend yield 5.74%   3.55% 4.32% 3.54%
Expected volatility 34.76%   29.98% 34.27% 28.13%
Risk-free interest rate 1.64%   1.36% 1.54% 1.61%
Expected life (years) 5 years 15 days   5 years 5 months 23 days 5 years 1 month 28 days 5 years 5 months 12 days
Minimum | Stock Options          
Additional Disclosures          
Contractual term (in years)       5 years 5 years
Vesting period (in years)       3 years  
Maximum | Stock Options          
Additional Disclosures          
Contractual term (in years)       10 years 10 years
Vesting period (in years)       5 years  
Granted since fiscal 2014 | Performance shares          
Additional Disclosures          
Vesting period (in years)         3 years

v3.3.1.900
Stock-Based Compensation - Performance Shares, RSUs, Restricted Stock and Share Unit Awards (Details) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Oct. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Additional Disclosures          
Accrual of dividend equivalents, net of reversal     $ (41,000) $ (113,000)  
Carrying value at period end $ 64,298,000   64,298,000   $ 72,468,000
Amount included in other liabilities $ 2,864,000   2,864,000   3,633,000
Cash payments to remit employee's minimum statutory tax withholding requirements related to the net settlement of stock-based awards     $ 73,000 389,000  
Performance Shares, RSUs, Restricted Stock and Share Units          
Awards (in Shares)          
Outstanding, Beginning Balance (in shares) 234,463 224,165 224,165    
Granted (in shares)   62,440      
Converted to common stock (in shares) (4,725) (6,988)      
Forfeited (in shares) (5,333) (45,154)      
Outstanding, Ending Balance (in shares) 224,405 234,463 224,405    
Vested, Ending Balance (in shares) 31,181   31,181    
Vested and Expected to Vest, Ending Balance (in shares) 214,373   214,373    
Weighted Average Grant Date Fair Value          
Outstanding, Beginning Balance (in dollars per share) $ 28.39 $ 28.26 $ 28.26    
Granted (in dollars per share)   28.35      
Converted to common stock (in dollars per share) 26.77 25.28      
Forfeited (in dollars per share) 29.07 28.14      
Outstanding, Ending Balance (in dollars per share) 28.41 $ 28.39 28.41    
Vested, Ending Balance (in dollars per share) 27.15   27.15    
Vested and Expected to Vest, Ending Balance (in dollars per share) $ 28.40   $ 28.40    
Aggregate Intrinsic Value          
Outstanding, Ending Balance $ 4,380,000   $ 4,380,000    
Vested, Ending Balance     609,000    
Vested and Expected to Vest, Ending Balance 4,185,000   4,185,000    
Additional Disclosures          
Total intrinsic value of stock-based awards settled     $ 275,000 $ 504,000  
Performance Shares | Granted prior to fiscal 2014          
Additional Disclosures          
Vesting period (in years)     5 years 3 months 19 days    
Performance Shares | Granted since fiscal 2014          
Additional Disclosures          
Vesting period (in years)       3 years  
Performance period (in years)     3 years    
RSUs and restricted stock | Non-Employee Director          
Additional Disclosures          
Vesting period (in years)     3 years    
RSUs and restricted stock | Employees          
Additional Disclosures          
Vesting period (in years)     5 years    
Dividend Equivalents          
Additional Disclosures          
Accrual of dividend equivalents, net of reversal     $ (41,000)    
Dividend equivalents paid     8,000    
Carrying value at period end 358,000   358,000   325,000
Amount included in other liabilities $ 214,000   $ 214,000   $ 306,000

v3.3.1.900
Customer and Geographic Information (Details) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Major customer        
Revenues from External Customers        
Minimum percentage of consolidated net sales sold to one customer or individual country requiring additional and separate disclosure 10.00%   10.00% 10.00%
Major customer | Sales Revenue, Net        
Revenues from External Customers        
Percentage of revenue generated from external customer type 0.00% 0.00% 0.00% 0.00%
U.S. government        
Revenues from External Customers        
Percentage of revenue generated from external customer type 42.00% 27.50% 41.70% 26.20%
Commercial (United States)        
Revenues from External Customers        
Percentage of revenue generated from external customer type 20.00% 11.70% 17.40% 12.80%
Total United States        
Revenues from External Customers        
Percentage of revenue generated from external customer type 62.00% 39.20% 59.10% 39.00%
North African country        
Revenues from External Customers        
Percentage of revenue generated from external customer type 2.40% 15.00% 4.20% 14.80%
Other international        
Revenues from External Customers        
Percentage of revenue generated from external customer type 35.60% 45.80% 36.70% 46.20%
Total International        
Revenues from External Customers        
Revenue generated from external customers $ 26,731,000 $ 49,768,000 $ 54,983,000 $ 96,524,000
Percentage of revenue generated from external customer type 38.00% 60.80% 40.90% 61.00%
U.S. Prime Contractor | Major customer | Sales Revenue, Net        
Revenues from External Customers        
Percentage of revenue generated from external customer type   14.40%   14.40%

v3.3.1.900
Segment Information (Details)
3 Months Ended 6 Months Ended
Feb. 23, 2016
operating_segment
Jan. 31, 2016
USD ($)
operating_segment
Jan. 31, 2015
USD ($)
Jan. 31, 2016
USD ($)
operating_segment
Jan. 31, 2015
USD ($)
Jul. 31, 2015
USD ($)
Segment Reporting Information [Line Items]            
Number of reportable operating segments | operating_segment   3   3    
Net sales   $ 70,323,000 $ 81,802,000 $ 134,440,000 $ 158,193,000  
Operating income (loss)   3,189,000 10,623,000 5,357,000 18,842,000  
Interest income and other (expense)   110,000 90,000 222,000 174,000  
Interest expense (income)   73,000 69,000 148,000 334,000  
Depreciation and amortization   3,736,000 4,243,000 7,693,000 8,749,000  
Expenditure for long-lived assets, including intangibles   827,000 1,398,000 1,463,000 2,145,000  
Total assets   462,170,000 471,487,000 462,170,000 471,487,000 $ 473,877,000
Amortization of stock-based compensation   1,074,000 1,061,000 2,125,000 2,398,000  
Transaction costs, acquisition of TCS   2,337,000 0 3,729,000 0  
Telecommunications Transmission Segment            
Segment Reporting Information [Line Items]            
Net sales   38,544,000 53,867,000 73,793,000 105,223,000  
Operating income (loss)   4,803,000 11,049,000 7,164,000 19,215,000  
Interest income and other (expense)   (15,000) (26,000) (32,000) (55,000)  
Interest expense (income)   73,000 69,000 148,000 136,000  
Depreciation and amortization   1,715,000 2,196,000 3,658,000 4,409,000  
Expenditure for long-lived assets, including intangibles   777,000 742,000 1,247,000 1,280,000  
Total assets   212,211,000 240,413,000 212,211,000 240,413,000  
RF Microwave Amplifiers Segment            
Segment Reporting Information [Line Items]            
Net sales   24,933,000 21,646,000 47,587,000 40,410,000  
Operating income (loss)   1,382,000 969,000 3,350,000 2,032,000  
Interest income and other (expense)   (7,000) (7,000) (7,000) (25,000)  
Interest expense (income)   0 0 0 0  
Depreciation and amortization   860,000 906,000 1,734,000 1,785,000  
Expenditure for long-lived assets, including intangibles   29,000 582,000 171,000 674,000  
Total assets   87,070,000 92,918,000 87,070,000 92,918,000  
Mobile Data Communication Segment            
Segment Reporting Information [Line Items]            
Net sales   6,846,000 6,289,000 13,060,000 12,560,000  
Operating income (loss)   3,735,000 2,709,000 6,734,000 5,576,000  
Interest income and other (expense)   2,000 3,000 5,000 6,000  
Interest expense (income)   0 0 0 0  
Depreciation and amortization   79,000 72,000 160,000 142,000  
Expenditure for long-lived assets, including intangibles   8,000 60,000 30,000 144,000  
Total assets   6,415,000 6,002,000 6,415,000 6,002,000  
Unallocated            
Segment Reporting Information [Line Items]            
Net sales   0 0 0 0  
Operating income (loss)   (6,731,000) (4,104,000) (11,891,000) (7,981,000)  
Interest income and other (expense)   130,000 120,000 256,000 248,000  
Interest expense (income)   0 0 0 198,000  
Depreciation and amortization   1,082,000 1,069,000 2,141,000 2,413,000  
Expenditure for long-lived assets, including intangibles   13,000 14,000 15,000 47,000  
Total assets   156,474,000 132,154,000 156,474,000 132,154,000  
Amortization of stock-based compensation   1,074,000 1,061,000 2,125,000 2,398,000  
Transaction costs, acquisition of TCS   2,337,000   3,729,000    
Expenses related to strategic alternatives analysis     0   585,000  
Telecommunications Transmission Sales to RF Microwave Amplifiers            
Segment Reporting Information [Line Items]            
Intersegment sales   652,000 720,000 1,305,000 1,009,000  
Telecommunications Transmissions Sales to Mobile Data Communications            
Segment Reporting Information [Line Items]            
Intersegment sales   87,000 141,000 108,000 337,000  
Rf Microwave Amplifiers Sales To Telecommunications Transmission            
Segment Reporting Information [Line Items]            
Intersegment sales   $ 13,000 0 $ 32,000 0  
Committed Secured Revolving Credit Facility            
Segment Reporting Information [Line Items]            
Line of Credit Facility, maximum borrowing capacity     $ 100,000,000   $ 100,000,000  
Subsequent Event            
Segment Reporting Information [Line Items]            
Number of reportable operating segments | operating_segment 2          

v3.3.1.900
Goodwill (Details) - USD ($)
Jan. 31, 2016
Aug. 01, 2015
Jul. 31, 2015
Goodwill, Impaired, Accumulated Impairment Loss [Abstract]      
Goodwill gross $ 150,603,000   $ 150,603,000
Goodwill accumulated impairment (13,249,000)   (13,249,000)
Goodwill 137,354,000   137,354,000
Telecommunications Transmission Segment      
Goodwill, Impaired, Accumulated Impairment Loss [Abstract]      
Goodwill gross 107,779,000   107,779,000
Goodwill accumulated impairment 0   0
Goodwill 107,779,000   107,779,000
Percentage of fair value in excess of carrying value   14.00%  
RF Microwave Amplifiers Segment      
Goodwill, Impaired, Accumulated Impairment Loss [Abstract]      
Goodwill gross 29,575,000   29,575,000
Goodwill accumulated impairment 0   0
Goodwill 29,575,000   29,575,000
Percentage of fair value in excess of carrying value   14.20%  
Mobile Data Communications Segment      
Goodwill, Impaired, Accumulated Impairment Loss [Abstract]      
Goodwill gross 13,249,000   13,249,000
Goodwill accumulated impairment (13,249,000)   (13,249,000)
Goodwill $ 0   $ 0

v3.3.1.900
Intangible Assets (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Finite-Lived Intangible Assets [Line Items]          
Gross carrying amount $ 82,995,000   $ 82,995,000   $ 82,995,000
Accumulated amortization 65,558,000   65,558,000   62,986,000
Net carrying amount 17,437,000   17,437,000   $ 20,009,000
Amortization of intangibles 1,196,000 $ 1,560,000 2,572,000 $ 3,121,000  
Amortization expense - year one 4,962,000   4,962,000    
Amortization expense - year two 4,782,000   4,782,000    
Amortization expense - year three 4,782,000   4,782,000    
Amortization expense - year four 862,000   862,000    
Amortization expense - year five 862,000   $ 862,000    
Technologies          
Finite-Lived Intangible Assets [Line Items]          
Weighted average amortization period     13 years   12 years 1 month 6 days
Gross carrying amount 47,370,000   $ 47,370,000   $ 47,370,000
Accumulated amortization 40,245,000   40,245,000   39,266,000
Net carrying amount 7,125,000   $ 7,125,000   $ 8,104,000
Customer relationships          
Finite-Lived Intangible Assets [Line Items]          
Weighted average amortization period     10 years   10 years
Gross carrying amount 29,831,000   $ 29,831,000   $ 29,831,000
Accumulated amortization 22,456,000   22,456,000   20,981,000
Net carrying amount 7,375,000   $ 7,375,000   $ 8,850,000
Trademarks and other          
Finite-Lived Intangible Assets [Line Items]          
Weighted average amortization period     20 years   20 years
Gross carrying amount 5,794,000   $ 5,794,000   $ 5,794,000
Accumulated amortization 2,857,000   2,857,000   2,739,000
Net carrying amount $ 2,937,000   $ 2,937,000   $ 3,055,000

v3.3.1.900
Stockholders' Equity (Details) - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Mar. 10, 2016
Mar. 09, 2016
Dec. 09, 2015
Sep. 28, 2015
Stock Repurchase Program            
Stock repurchase program, remaining authorized repurchase amount $ 8,664,000          
Maximum amount authorized by the Board of Directors for repurchases of the Company's common stock $ 100,000,000          
Repurchases of common stock (in shares) 0 0        
Dividends            
Targeted annual dividend per share (in dollars per share) $ 1.20 $ 1.20        
Quarterly dividend payment amount per share (in dollars per share)         $ 0.30 $ 0.30
Subsequent Event            
Stock Repurchase Program            
Stock repurchase program, remaining authorized repurchase amount       $ 8,664,000    
Dividends            
Quarterly dividend payment amount per share (in dollars per share)     $ 0.30      

v3.3.1.900
Subsequent Events (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Feb. 23, 2016
USD ($)
operating_segment
Nov. 22, 2015
Jan. 31, 2016
USD ($)
operating_segment
$ / shares
Jan. 31, 2016
USD ($)
operating_segment
$ / shares
Dec. 31, 2015
USD ($)
Feb. 18, 2016
$ / shares
shares
Jul. 31, 2015
USD ($)
$ / shares
Jan. 31, 2015
USD ($)
Jul. 31, 2014
USD ($)
Subsequent Event [Line Items]                  
Common stock, par value (in dollars per share) | $ / shares     $ 0.10 $ 0.10     $ 0.1    
Cash and cash equivalents, assuming payments of all transaction costs and outstanding debts paid or assumed     $ 163,466,000 $ 163,466,000     $ 150,953,000 $ 135,139,000 $ 154,500,000
Number of reportable operating segments | operating_segment     3 3          
TeleCommunication Systems, Inc.                  
Subsequent Event [Line Items]                  
Business Acquisition, Date of Acquisition Agreement   Nov. 22, 2015              
Revenue based on unaudited financial results         $ 360,000,000        
Subsequent Event                  
Subsequent Event [Line Items]                  
Number of reportable operating segments | operating_segment 2                
Subsequent Event | On a pro-forma combined basis | Minimum                  
Subsequent Event [Line Items]                  
Cash and cash equivalents, assuming payments of all transaction costs and outstanding debts paid or assumed $ 50,000,000                
Subsequent Event | New Credit Facility                  
Subsequent Event [Line Items]                  
Line of Credit Facility, maximum borrowing capacity 400,000,000                
Subsequent Event | New Credit Facility | On a pro-forma combined basis                  
Subsequent Event [Line Items]                  
Outstanding debt, credit facility $ 361,604,000                
Subsequent Event | TeleCommunication Systems, Inc.                  
Subsequent Event [Line Items]                  
Business Acquisition, Effective Date of Acquisition Feb. 23, 2016                
Business acquisition, transaction equity value $ 340,432,000                
Business acquisition, enterprise value 423,151,000                
Subsequent Event | TeleCommunication Systems, Inc. | On a pro-forma combined basis                  
Subsequent Event [Line Items]                  
Business Combination, Estimated Transaction and Merger Related Expenditures 48,000,000                
Subsequent Event | TeleCommunication Systems, Inc. | TCS                  
Subsequent Event [Line Items]                  
Business Combination, Cash and Cash Equivalents Acquired based on unaudited financial results 61,405,000                
Debt, including accrued interest, based on unaudited financial results $ 144,124,000                
Subsequent Event | Tender Offer | TeleCommunication Systems, Inc.                  
Subsequent Event [Line Items]                  
Business Acquisition, number of common stock validly tendered and not validly withdrawn in the tender offer (in shares) | shares           55,871,832      
Business Acquisition, Share Price (in dollars per share) | $ / shares           $ 5.00      
Business Acquisition, shares validly tendered and not validly withdrawn in the tender offer as a percentage of the acquiree's issued and outstanding common stock           88.32%      
Subsequent Event | Tender Offer | Class A Shares | TeleCommunication Systems, Inc.                  
Subsequent Event [Line Items]                  
Common stock, par value (in dollars per share) | $ / shares           $ 0.01      
Subsequent Event | Tender Offer | Class B Shares | TeleCommunication Systems, Inc.                  
Subsequent Event [Line Items]                  
Common stock, par value (in dollars per share) | $ / shares           $ 0.01      

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