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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-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, 2022

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-7928
cmtl-20220131_g1.jpg
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per share CMTLNASDAQ Stock Market LLC

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 every Interactive Data file required to be submitted 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 such files).
Yes               No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes               No
As of March 4, 2022, the number of outstanding shares of Common Stock, par value $0.10 per share, of the registrant was 26,516,108 shares.


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

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
AssetsJanuary 31, 2022July 31, 2021
Current assets:
Cash and cash equivalents$30,918,000 30,861,000 
Accounts receivable, net138,767,000 158,110,000 
Inventories, net90,274,000 80,358,000 
Prepaid expenses and other current assets21,443,000 18,167,000 
Total current assets281,402,000 287,496,000 
Property, plant and equipment, net42,445,000 35,286,000 
Operating lease right-of-use assets, net54,328,000 44,486,000 
Goodwill347,692,000 347,698,000 
Intangibles with finite lives, net258,001,000 268,699,000 
Deferred financing costs, net1,419,000 1,824,000 
Other assets, net9,567,000 7,622,000 
Total assets$994,854,000 993,111,000 
Liabilities, Convertible Preferred Stock and Stockholders’ Equity  
Current liabilities:  
Accounts payable$32,550,000 36,193,000 
Accrued expenses and other current liabilities96,899,000 89,601,000 
Operating lease liabilities, current9,531,000 8,841,000 
Dividends payable2,640,000 2,601,000 
Contract liabilities77,732,000 66,130,000 
Interest payable138,000 195,000 
Total current liabilities219,490,000 203,561,000 
Non-current portion of long-term debt114,500,000 201,000,000 
Operating lease liabilities, non-current48,892,000 39,569,000 
Income taxes payable3,204,000 2,717,000 
Deferred tax liability, net19,248,000 21,230,000 
Long-term contract liabilities10,823,000 9,808,000 
Other liabilities8,966,000 14,507,000 
Total liabilities425,123,000 492,392,000 
Commitments and contingencies (See Note 19)
Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at January 31, 2022 (includes accrued dividends of $549,000)
101,867,000 — 
Stockholders’ equity:  
Preferred stock, par value $0.10 per share; authorized and unissued 1,875,000 shares
  
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 41,553,244 and 41,281,812 shares at January 31, 2022 and July 31, 2021, respectively
4,155,000 4,128,000 
Additional paid-in capital612,780,000 605,439,000 
Retained earnings292,778,000 333,001,000 
909,713,000 942,568,000 
Less:  
Treasury stock, at cost (15,033,317 shares at January 31, 2022 and July 31, 2021)
(441,849,000)(441,849,000)
Total stockholders’ equity467,864,000 500,719,000 
Total liabilities, convertible preferred stock and stockholders’ equity$994,854,000 993,111,000 
See accompanying notes to condensed consolidated financial statements.
2

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended January 31,Six months ended January 31,
 2022202120222021
Net sales$120,381,000 161,292,000 $237,140,000 296,510,000 
Cost of sales74,523,000 105,612,000 149,547,000 190,622,000 
Gross profit45,858,000 55,680,000 87,593,000 105,888,000 
Expenses:  
Selling, general and administrative29,827,000 29,462,000 58,069,000 57,002,000 
Research and development12,632,000 12,664,000 25,129,000 24,299,000 
Amortization of intangibles5,349,000 4,795,000 10,698,000 10,361,000 
CEO transition costs13,554,000  13,554,000  
Proxy solicitation costs9,086,000  11,248,000  
Acquisition plan expenses 3,357,000  94,540,000 
 70,448,000 50,278,000 118,698,000 186,202,000 
Operating (loss) income(24,590,000)5,402,000 (31,105,000)(80,314,000)
Other expenses (income):  
Interest expense988,000 1,418,000 2,595,000 3,715,000 
Interest (income) and other(30,000)(66,000)189,000  
Change in fair value of convertible preferred
  stock purchase option liability
(398,000) (702,000) 
(Loss) income before benefit from income taxes(25,150,000)4,050,000 (33,187,000)(84,029,000)
Benefit from income taxes(3,276,000)(155,000)(5,329,000)(2,394,000)
Net (loss) income$(21,874,000)4,205,000 $(27,858,000)(81,635,000)
Adjustments to reflect redemption value of convertible preferred stock:
       Convertible preferred stock issuance costs  (4,007,000) 
Establishment of initial convertible
  preferred stock purchase option liability
  (1,005,000) 
       Dividend on convertible preferred stock(1,632,000) (1,867,000) 
Net (loss) income attributable to common stockholders$(23,506,000)4,205,000 $(34,737,000)(81,635,000)
Net (loss) income per common share (See Note 6):  
Basic$(0.89)0.17 $(1.31)(3.22)
Diluted$(0.89)0.17 $(1.31)(3.22)
Weighted average number of common shares outstanding – basic26,472,000 25,337,000 26,449,000 25,321,000 
Weighted average number of common and common equivalent shares outstanding – diluted26,472,000 25,420,000 26,449,000 25,321,000 
 
See accompanying notes to condensed consolidated financial statements.

3

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited)
Three months ended January 31, 2022 and 2021
Series A Convertible Preferred StockCommon StockAdditional
Paid-in Capital
Retained EarningsTreasury StockStockholders'
Equity
SharesAmountSharesAmountSharesAmount
Balance as of October 31, 2020— $— 40,043,753 $4,004,000 $569,422,000 $328,575,000 15,033,317 $(441,849,000)$460,152,000 
Equity-classified stock award compensation
— — — — 1,287,000 — — — 1,287,000 
Proceeds from issuance of employee stock purchase plan shares
— — 15,857 2,000 185,000 — — — 187,000 
Net settlement of stock-based awards
— — 367  (3,000)— — — (3,000)
Cash dividends declared, net ($0.10 per share)
— — — — — (2,495,000)— — (2,495,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
— — — — — (49,000)— — (49,000)
Net income— — — — — 4,205,000 — — 4,205,000 
Balance as of January 31, 2021— $— 40,059,977 $4,006,000 $570,891,000 $330,236,000 15,033,317 $(441,849,000)$463,284,000 
Balance as of October 31, 2021100,000 $100,235,000 41,380,241 $4,138,000 $604,452,000 $319,053,000 15,033,317 $(441,849,000)$485,794,000 
Equity-classified stock award compensation
— — — — 1,983,000 — — — 1,983,000 
CEO transition costs related to equity-classified stock-based awards (See Note 1)— — — — 7,388,000 — — — 7,388,000 
Proceeds from issuance of employee stock purchase plan shares
— — 11,136 1,000 224,000 — — — 225,000 
Issuance of restricted stock— — 119,426 12,000 (12,000)— — —  
Net settlement of stock-based awards
— — 42,441 4,000 (1,255,000)— — — (1,251,000)
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)— 1,632,000 — — — (1,632,000)— — (1,632,000)
Cash dividends declared, net ($0.10 per share)
— — — — — (2,640,000)— — (2,640,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
— — — — — (129,000)— — (129,000)
Net loss— — — — — (21,874,000)— — (21,874,000)
Balance as of January 31, 2022100,000 $101,867,000 41,553,244 $4,155,000 $612,780,000 $292,778,000 15,033,317 $(441,849,000)$467,864,000 

See accompanying notes to condensed consolidated financial statements.
4

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited)
Six months ended January 31, 2022 and 2021
Series A Convertible Preferred StockCommon StockAdditional
Paid-in Capital
Retained EarningsTreasury StockStockholders'
Equity
SharesAmountSharesAmountSharesAmount
Balance as of July 31, 2020— $— 39,924,439 $3,992,000 $569,891,000 $417,265,000 15,033,317 $(441,849,000)$549,299,000 
Equity-classified stock award compensation
— — — — 1,986,000 — — — 1,986,000 
Proceeds from issuance of employee stock purchase plan shares
— — 31,122 3,000 366,000 — — — 369,000 
Issuance of restricted stock
— — 35,975 4,000 (4,000)— — —  
Net settlement of stock-based awards
— — 68,441 7,000 (1,348,000)— — — (1,341,000)
Cash dividends declared, net ($0.20 per share)
— — — — — (4,988,000)— — (4,988,000)
Accrual of dividend equivalents, net of reversal ($0.20 per share)
— — — — — (191,000)— — (191,000)
Adoption of current expected credit loss standard— — — — — (215,000)— — (215,000)
Net loss— — — — — (81,635,000)— — (81,635,000)
Balance as of January 31, 2021— $— 40,059,977 $4,006,000 $570,891,000 $330,236,000 15,033,317 $(441,849,000)$463,284,000 
Balance as of July 31, 2021— $— 41,281,812 $4,128,000 $605,439,000 $333,001,000 15,033,317 $(441,849,000)$500,719,000 
Equity-classified stock award compensation
— — — — 2,904,000 — — — 2,904,000 
CEO transition costs related to equity-classified stock-based awards (See Note 1)— — — — 7,388,000 — — — 7,388,000 
Proceeds from issuance of employee stock purchase plan shares
— — 21,676 2,000 452,000 — — — 454,000 
Issuance of restricted stock— — 132,854 13,000 (13,000)— — —  
Net settlement of stock-based awards
— — 116,902 12,000 (3,390,000)— — — (3,378,000)
Issuance of convertible preferred stock100,000 100,000,000 — — — — — — — 
Convertible preferred stock issuance costs— (4,007,000)— — — — — — — 
Establishment of initial convertible preferred stock purchase option liability— (1,005,000)— — — — — — — 
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)— 6,879,000 — — — (6,879,000)— — (6,879,000)
Cash dividends declared, net ($0.20 per share)
— — — — — (5,269,000)— — (5,269,000)
Accrual of dividend equivalents, net of reversal ($0.20 per share)
— — — — — (217,000)— — (217,000)
Net loss— — — — — (27,858,000)— — (27,858,000)
Balance as of January 31, 2022100,000 $101,867,000 41,553,244 $4,155,000 $612,780,000 $292,778,000 15,033,317 $(441,849,000)$467,864,000 

See accompanying notes to condensed consolidated financial statements.
5

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended January 31,
 20222021
Cash flows from operating activities:  
Net loss$(27,858,000)(81,635,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property, plant and equipment4,575,000 5,009,000 
Amortization of intangible assets with finite lives10,698,000 10,361,000 
Amortization of stock-based compensation2,904,000 1,986,000 
CEO transition costs related to equity-classified stock-based awards 7,388,000  
Amortization of deferred financing costs405,000 368,000 
Change in fair value of convertible preferred stock purchase option liability(702,000) 
Changes in other liabilities(2,066,000)(3,756,000)
(Gain) / loss on disposal of property, plant and equipment(147,000)29,000 
Provision for allowance for doubtful accounts12,000 204,000 
Provision for excess and obsolete inventory2,241,000 2,444,000 
Deferred income tax benefit(2,049,000)(287,000)
Other (225,000)
Changes in assets and liabilities, net of effects of business acquisitions:  
Accounts receivable19,337,000 (23,736,000)
Inventories(12,157,000)(1,772,000)
Prepaid expenses and other current assets602,000 2,124,000 
Other assets(765,000)(115,000)
Accounts payable(4,501,000)14,481,000 
Accrued expenses and other current liabilities7,028,000 (6,734,000)
Contract liabilities12,617,000 15,210,000 
Other liabilities, non-current(3,443,000)3,687,000 
Interest payable(56,000)102,000 
Income taxes payable(4,512,000)(1,117,000)
Net cash provided by (used in) operating activities9,551,000 (63,372,000)
Cash flows from investing activities:  
Payment for acquisition of CGC, net of cash acquired (750,000)
Purchases of property, plant and equipment(8,811,000)(3,686,000)
Net cash used in investing activities(8,811,000)(4,436,000)
Cash flows from financing activities:  
Proceeds from issuance of convertible preferred stock100,000,000  
Net (payments) borrowings of long-term debt under Credit Facility(86,500,000)58,500,000 
Remittance of employees' statutory tax withholding for stock awards(4,724,000)(2,740,000)
Cash dividends paid on common stock(5,755,000)(5,237,000)
Payment of convertible preferred stock issuance costs(4,007,000) 
Payment of deferred financing costs(140,000) 
Repayment of principal amounts under finance lease liabilities(11,000)(28,000)
Proceeds from issuance of employee stock purchase plan shares454,000 369,000 
Net cash (used in) provided by financing activities(683,000)50,864,000 
Net increase (decrease) in cash and cash equivalents57,000 (16,944,000)
Cash and cash equivalents at beginning of period30,861,000 47,878,000 
Cash and cash equivalents at end of period$30,918,000 30,934,000 

See accompanying notes to condensed consolidated financial statements.

6

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six months ended January 31,
20222021
Supplemental cash flow disclosures:
Cash paid (received) during the period for:
Interest$2,101,000 3,208,000 
Income taxes, net$1,205,000 (991,000)
Non-cash investing and financing activities:
Unpaid additions to property, plant and equipment$2,904,000 1,132,000 
Cash dividends declared on common stock but unpaid (including accrual of
dividend equivalents)
$2,857,000 2,686,000 
Issuance of restricted stock$13,000 4,000 
Accrued remittance of employees' statutory tax withholdings $1,250,000  
Establishment of initial convertible preferred stock purchase option liability $1,005,000  
Adjustment to reflect redemption value of convertible preferred stock $6,879,000  

See accompanying notes to condensed consolidated financial statements.

7

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 its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and six months ended January 31, 2022 and 2021 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, 2021 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

    Impact of Coronavirus Disease 2019 Pandemic ("COVID-19") and Global Supply Chain Constraints on Our Business

Since March 2020, we conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and established social distancing safeguards. Both COVID-19 and the related global supply chain constraints have impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. We have experienced order and production delays, disruptions in component availability and pricing, lower levels of factory utilization and higher logistics and operational costs. Although such business conditions are expected to persist for most of our fiscal 2022, and may carry into fiscal 2023, we believe that our long-term fundamentals remain strong and that our business is well-positioned for growth once the aftershocks of the pandemic subside.

CEO Transition Costs

On December 31, 2021, our Board of Directors appointed Michael D. Porcelain as Chief Executive Officer (“CEO”). Prior to that, Mr. Porcelain served as our President and Chief Operating Officer (“COO”). Also, on January 3, 2022, Mr. Porcelain was appointed to our Board of Directors, along with Wendi Carpenter and Mark Quinlan. CEO transition costs were $13,554,000 and all expensed in the three and six months ended January 31, 2022. Of such amount, $10,304,000 related to Mr. Kornberg's severance payments and benefits upon termination of his employment; the remainder related to Mr. Kornberg agreeing to serve as a Senior Technology Advisor for a minimum of two years. Of the total CEO transition costs of $13,554,000, $7,388,000 relates to the amortization of equity-classified stock-based awards.
8

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2)     Acquisitions
UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc. ("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions, pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 1, 2021, respectively. With end-markets for high-speed satellite-based networks anticipated to significantly grow, our acquisition allows us to enhance our Commercial Solutions segment's offerings with low cost time division multiple access ("TDMA") satellite modems.

The acquisition has a preliminary purchase price for accounting purposes of $37,470,000. Pursuant to the stock purchase agreement, during fiscal 2021, the initial upfront payment of approximately $23,979,000 was paid mostly in shares of our common stock, with $87,000 in cash. In August 2021, $3,991,000 of the $4,991,000 hold back amount previously placed into escrow at closing was paid to the seller in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met. The stock purchase agreement also provides for a contingent earn-out payment of up to $9,000,000, also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during a defined period ending September 30, 2022. The preliminary estimated fair value of such contingent earn-out consideration at the acquisition date was $8,500,000.

Of the $23,979,000 paid at closing, $4,560,000 was placed into escrow to be released ratably over three years upon settlement of potential indemnification obligations of the seller.

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average stock price of approximately $28.14 per share, in satisfaction of initial payment and escrow arrangements under the terms of the stock purchase agreement. The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

We are accounting for the acquisition under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805"). The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of March 2, 2021 pursuant to the business combination accounting rules. Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred. Our condensed consolidated statements of operations for the three and six months ended January 31, 2022 include a nominal amount of revenue contribution from the acquisition. Pro forma financial information is not disclosed, as the acquisition is not material.

9

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in connection with the acquisition:

Purchase
Price Allocation (1)
Initial upfront payment$23,979,000 
Hold-back amount4,991,000 
Contingent earn-out consideration8,500,000 
Preliminary purchase price at fair value$37,470,000 
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents$1,391,000 
Current assets1,367,000 
Property, plant and equipment10,000 
Deferred tax assets310,000 
Contract liabilities(648,000)
Accrued warranty obligations(750,000)
Other current liabilities(1,175,000)
Non-current liabilities(160,000)
Net tangible assets at preliminary fair value$345,000 
Identifiable intangibles, deferred taxes and goodwill:
Estimated
Useful Lives
Technology$15,300,000 15 years
Customer relationships15,500,000 15 years
Trade name800,000 20 years
Deferred tax liabilities(8,374,000)
Goodwill13,899,000 Indefinite
Preliminary allocation of aggregate purchase price$37,470,000 
(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2021.

The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized over their estimated useful lives. The preliminary fair value of customer relationships was estimated primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. The preliminary fair value of technology and trade name was estimated based on the discounted capitalization of royalty expense saved because we now own the assets. The preliminary estimated fair value of contingent earn-out consideration represents the present value of the estimated amount payable, based on a probability-weighted amount of net sales, as defined, during the earn-out period, which reflects significant management estimates and assumptions using unobservable Level 3 inputs, including: (i) possible outcomes for targeted net sales during the earn-out period; (ii) timing of each possible outcome; (iii) probability of each possible outcome; and (vi) discount rate reflecting the credit risk of the Company. Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Commercial Solutions segment based on specific identification and is generally not deductible for income tax purposes.

The allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period, generally one year from the acquisition date. The primary areas of the purchase price allocation not yet finalized include the purchase price (due to customary adjustments for potential indemnification obligations of the seller under the stock purchase agreement), a final assessment of assets acquired and liabilities assumed, accrued warranty obligations, income taxes and residual goodwill.
10

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition Plan Expenses

During the three and six months ended January 31, 2021, we incurred acquisition plan expenses of $3,357,000 and $94,540,000, respectively. Of the amount recorded for the six months ended January 31, 2021, $88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd. ("Gilat"), including $70,000,000 paid in cash to Gilat. The remaining costs primarily related to the April 2021 settlement of litigation associated with the 2019 acquisition of GD NG-911 as well as our acquisition of UHP, which closed in March 2021. Additionally, during the six months ended January 31, 2021, we recorded $1,178,000 of incremental interest expense related to a now terminated financing commitment letter.

(3)     Adoption of Accounting Standards and Updates

We are required to prepare our condensed 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 are commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs"). During the six months ended January 31, 2022, we adopted:

FASB ASU No. 2019-12, which simplifies various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Our adoption of this ASU on August 1, 2021 did not have a material impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2020-01, which clarifies the interactions between Topics 321, 323 and 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815. Our adoption of this ASU on August 1, 2021 did not impact our condensed consolidated financial statements or disclosures.

FASB ASU No. 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments. As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives. On August 1, 2021, we early adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2021-08, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. On August 1, 2021, we early adopted this ASU. Our early adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.
11

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4)     Revenue Recognition

In accordance with FASB ASC 606 - Revenue from Contracts with Customers ("ASC 606"), we record revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue using one of the following two methods:

Over time - We recognize revenue using the over time method when there is a continuous transfer of control to the customer over the contractual period of performance. This generally occurs when we enter into a long-term contract relating to the design, development or manufacture of complex equipment or technology platforms to a buyer’s specification (or to provide services related to the performance of such contracts). Continuous transfer of control is typically supported by contract clauses which allow our customers to unilaterally terminate a contract for convenience, pay for costs incurred plus a reasonable profit and take control of work-in-process. Revenue recognized over time is generally based on the extent of progress toward completion of the related performance obligations. The selection of the method to measure progress requires judgment and is based on the nature of the products or services provided. In certain instances, typically for firm fixed-price contracts, we use the cost-to-cost measure because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion, including warranty costs. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill generally include direct labor, materials, subcontractor costs, other direct costs and an allocation of indirect costs. When these contracts are modified, the additional goods or services are generally not distinct from those already provided. As a result, these modifications form part of an existing contract and we must update the transaction price and our measure of progress for the single performance obligation and recognize a cumulative catch-up to revenue and gross profits.

For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and costs, and making assumptions for schedule and technical issues. Since certain contracts extend over a long period of time, the impact of revisions in revenue and or cost estimates during the progress of work may impact current period earnings through a cumulative adjustment. Additionally, if the EAC process indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly.

The cost-to-cost method is principally used to account for contracts in our Government Solutions segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Commercial Solutions segment. For service-based contracts in our public safety and location technologies product line, we also recognize revenue over time. These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide.

Point in time - When a performance obligation is not satisfied over time, we must record revenue using the point in time accounting method which generally results in revenue being recognized upon shipment or delivery of a promised good or service to a customer. This generally occurs when we enter into short term contracts or purchase orders where items are provided to customers with relatively quick turn-around times. Modifications to such contracts and or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices.

12

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power RF amplifiers. The contracts related to these product lines do not meet the requirements for over time revenue recognition because our customers cannot utilize the equipment for its intended purpose during any phase of our manufacturing process; customers do not simultaneously receive and or consume the benefits provided by our performance; customers do not control the asset (i.e., prior to delivery, customers cannot direct the use of the asset, sell or exchange the equipment, etc.); and, although many of our contracts have termination for convenience clauses and or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point