COMTECH TELECOMMUNICATIONS CORP /DE/ (Form: 10-Q, Received: 12/09/2013 16:03:50)

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 October 31, 2013



	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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of December 5, 2013 , the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 16,065,500 shares.

Index



COMTECH TELECOMMUNICATIONS CORP. INDEX
			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets - October 31, 2013 (Unaudited) and July 31, 201 3	2

		Condensed Consolidated Statements of Operations - Three Months Ended October 31, 2013 and 2012 (Unaudited)	3

		Condensed Consolidated Statements of Stockholders' Equity - Three Months Ended October 31, 2013 and 2012 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Three Months Ended October 31, 2013 and 2012 (Unaudited)	5

		Notes to Condensed Consolidated Financial Statements	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

	Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	43

	Item 1A.	Risk Factors	43

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

	Item 4.	Mine Safety Disclosures	43

	Item 6.	Exhibits	44

		Signature Page	45

Index

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



	October 31, 2013			July 31, 2013
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	346,553,000		356,642,000
Accounts receivable, net	62,020,000			49,915,000
Inventories, net	69,032,000			65,482,000
Prepaid expenses and other current assets	5,320,000			7,428,000
Deferred tax asset, net	10,135,000			10,184,000
Total current assets	493,060,000			489,651,000

Property, plant and equipment, net	19,620,000			20,333,000
Goodwill	137,354,000			137,354,000
Intangibles with finite lives, net	30,923,000			32,505,000
Deferred financing costs, net	736,000			1,093,000
Other assets, net	882,000			879,000
Total assets	$	682,575,000		681,815,000
Liabilities and Stockholders’ Equity
Current liabilities:
Convertible senior notes, current	$	200,000,000		200,000,000
Accounts payable	17,111,000			18,390,000
Accrued expenses and other current liabilities	26,183,000			29,892,000
Dividends payable	4,529,000			4,531,000
Customer advances and deposits	19,636,000			14,749,000
Interest payable	3,029,000			1,529,000
Income taxes payable	1,674,000			—
Total current liabilities	272,162,000			269,091,000

Other liabilities	4,064,000			3,958,000
Income taxes payable	3,068,000			2,963,000
Deferred tax liability, net	2,614,000			1,741,000
Total liabilities	281,908,000			277,753,000
Commitments and contingencies (See Note 19)
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 29,084,683 shares and 29,066,792 shares at October 31, 2013 and July 31, 2013, respectively	2,908,000			2,907,000
Additional paid-in capital	363,327,000			363,888,000
Retained earnings	404,148,000			403,398,000
	770,383,000			770,193,000
Less:
Treasury stock, at cost (12,733,254 shares and 12,608,501 shares at October 31, 2013 and July 31, 2013, respectively)	(369,716,000		)	(366,131,000	)
Total stockholders’ equity	400,667,000			404,062,000
Total liabilities and stockholders’ equity	$	682,575,000		681,815,000

See accompanying notes to condensed consolidated financial statements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three months ended October 31,
	2013			2012
Net sales	$	83,368,000		90,953,000
Cost of sales	46,990,000			49,150,000
Gross profit	36,378,000			41,803,000

Expenses:
Selling, general and administrative	16,198,000			16,810,000
Research and development	8,499,000			10,049,000
Amortization of intangibles	1,582,000			1,582,000
	26,279,000			28,441,000

Operating income	10,099,000			13,362,000

Other expenses (income):
Interest expense	2,018,000			2,111,000
Interest income and other	(273,000		)	(276,000	)

Income before provision for income taxes	8,354,000			11,527,000
Provision for income taxes	3,049,000			4,092,000

Net income	$	5,305,000		7,435,000
Net income per share (See Note 5):
Basic	$	0.32		0.43
Diluted	$	0.28		0.36

Weighted average number of common shares outstanding – basic	16,454,000			17,379,000

Weighted average number of common and common equivalent shares outstanding – diluted	22,698,000			23,444,000

Dividends declared per issued and outstanding common share as of the applicable dividend record date	$	0.275		0.275

See accompanying notes to condensed consolidated financial statements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED OCTOBER 31, 2013 AND 2012

(Unaudited)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Treasury Stock				Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Shares	Amount			Stockholders' Equity
Balance as of July 31, 2012	28,931,679	$	2,893,000	$	361,458,000		$	404,227,000		11,564,059	$	(339,177,000	)	$	429,401,000

Equity-classified stock award compensation	—	—		750,000			—			—	—			750,000
Proceeds from exercise of options	16,200	2,000		321,000			—			—	—			323,000
Proceeds from issuance of employee stock purchase plan shares	10,549	1,000		247,000			—			—	—			248,000
Cash dividends declared	—	—		—			(4,784,000		)	—	—			(4,784,000		)
Net income tax shortfall from settlement of stock-based awards	—	—		(5,000		)	—			—	—			(5,000		)
Reversal of deferred tax assets associated with expired and unexercised stock-based awards	—	—		(2,892,000		)	—			—	—			(2,892,000		)
Net income	—	—		—			7,435,000			—	—			7,435,000
Balance as of October 31, 2012	28,958,428	$	2,896,000	$	359,879,000		$	406,878,000		11,564,059	$	(339,177,000	)	$	430,476,000

Balance as of July 31, 2013	29,066,792	$	2,907,000	$	363,888,000		$	403,398,000		12,608,501	$	(366,131,000	)	$	404,062,000

Equity-classified stock award compensation	—	—		944,000			—			—	—			944,000
Equity-classified stock awards issued	—	—		139,000			—			—	—			139,000
Proceeds from exercise of options	4,050	—		79,000			—			—	—			79,000
Proceeds from issuance of employee stock purchase plan shares	10,345	1,000		213,000			—			—	—			214,000
Issuance of common stock for vested performance shares, net of minimum withholding tax and deferrals	3,496	—		(25,000		)	—			—	—			(25,000		)
Cash dividends declared	—	—		—			(4,529,000		)	—	—			(4,529,000		)
Accrual of dividend equivalents	—	—		—			(26,000		)	—	—			(26,000		)
Net excess income tax benefit from settlement of stock-based awards	—	—		10,000			—			—	—			10,000
Reversal of deferred tax assets associated with expired and unexercised stock-based awards	—	—		(1,921,000		)	—			—	—			(1,921,000		)
Repurchases of common stock	—	—		—			—			124,753	(3,585,000		)	(3,585,000		)
Net income	—	—		—			5,305,000			—	—			5,305,000
Balance as of October 31, 2013	29,084,683	$	2,908,000	$	363,327,000		$	404,148,000		12,733,254	$	(369,716,000	)	$	400,667,000

See accompanying notes to condensed consolidated financial statements.

Index

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

	Three months ended October 31,
	2013			2012
Cash flows from operating activities:
Net income	$	5,305,000		7,435,000
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment	1,710,000			2,025,000
Amortization of intangible assets with finite lives	1,582,000			1,582,000
Amortization of stock-based compensation	947,000			745,000
Deferred financing costs	357,000			352,000
Change in fair value of contingent earn-out liability	(239,000		)	(2,378,000	)
Loss on disposal of property, plant and equipment	30,000			9,000
Provision for allowance for doubtful accounts	104,000			211,000
Provision for excess and obsolete inventory	702,000			671,000
Deferred income tax (benefit) expense	(999,000		)	1,058,000
Changes in assets and liabilities:
Accounts receivable	(12,209,000		)	9,104,000
Inventories	(4,111,000		)	3,042,000
Prepaid expenses and other current assets	306,000			198,000
Other assets	(3,000		)	(40,000	)
Accounts payable	(1,279,000		)	(6,757,000	)
Accrued expenses and other current liabilities	(3,355,000		)	(7,273,000	)
Customer advances and deposits	4,746,000			(2,586,000	)
Other liabilities	75,000			518,000
Interest payable	1,500,000			1,500,000
Income taxes payable	3,591,000			2,462,000
Net cash (used in) provided by operating activities	(1,240,000		)	11,878,000

Cash flows from investing activities:
Purchases of property, plant and equipment	(1,027,000		)	(1,063,000	)
Net cash used in investing activities	(1,027,000		)	(1,063,000	)

Cash flows from financing activities:
Repurchases of common stock	(3,585,000		)	—
Cash dividends paid	(4,524,000		)	(4,773,000	)
Proceeds from exercises of stock options	79,000			323,000
Proceeds from issuance of employee stock purchase plan shares	214,000			248,000
Payment of contingent consideration related to business acquisition	(6,000		)	(1,000	)
Net cash used in financing activities	(7,822,000		)	(4,203,000	)

Net (decrease) increase in cash and cash equivalents	(10,089,000		)	6,612,000
Cash and cash equivalents at beginning of period	356,642,000			367,894,000
Cash and cash equivalents at end of period	$	346,553,000		374,506,000

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

Index

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

	Three months ended October 31,
	2013		2012
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	90,000	87,000
Income taxes	$	456,000	570,000

Non-cash investing and financing activities:
Cash dividends declared (including accrual of dividend equivalents)	$	4,555,000	4,784,000
Equity-classified stock awards issued	$	139,000	—

See accompanying notes to condensed consolidated financial statements.

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 months ended October 31, 2013 and 2012 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 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 financial statements, and the reported amounts of revenues 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, 2013 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'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 FASB ASC is subject to updates by FASB, which are known as Accounting Standards Updates (“ASUs”).

On August 1, 2013, we adopted FASB ASU No. 2011-11, which requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. In addition, we also adopted ASU No. 2013-01, which clarifies that the scope of ASU No. 2011-11 applies to derivatives accounted for in accordance with Topic 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar arrangement. Our adoption of this ASU, as amended, did not have any impact on our consolidated financial statements.

(3) Reclassifications

Certain reclassifications have been made to previously reported financial statements to conform to our current financial statement format.

(4) Fair Value Measurements and Financial Instruments

In accordance with FASB ASC 825, “Financial Instrumen ts,” we determined that, as of October 31, 2013 and July 31, 2013 , the fair value of our 3.0% convertible senior notes was approximately $210,080,000 and $208,080,000 , respectively, based on quoted market prices in an active market. Our 3.0% convertible senior notes are not marked-to-market and are shown on the accompanying balance sheet at their original issuance value. As such, changes in the estimated fair value of our 3.0% convertible senior notes are not recorded in our condensed consolidated financial statements.

As of October 31, 2013 and July 31, 2013 , we had approximately $45,187,000 and $50,182,000 , respectively, 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 current fair value. FASB ASC 820, “Fair Value Measurements and Disclosures,” requires us to define 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.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

As of October 31, 2013 and July 31, 2013 , other than our cash and cash equivalents, we have no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at current fair value. If we acquire different types of assets or incur different types of liabilities in the future, we might be required to use different FASB ASC fair value methodologies.

(5) Earnings Per Share

Our basic earnings per share (“EPS”) is computed based on the weighted average number of 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 and convertible senior notes, 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 a recipient 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 based on the Black Scholes option pricing model, recognized for financial reporting purposes.

Equity-classified stock-based awards to purchase 2,750,000 and 2,382,000 weighted average stock options for the three months ended October 31, 2013 and 2012 , respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 49,000 and 35,000 weighted average RSUs with performance measures (which we refer to as performance shares) outstanding for the three months ended October 31, 2013 and 2012 , respectively, as the respective performance conditions had 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.

In addition, the weighted average basic and diluted shares outstanding for the three months ended October 31, 2013 reflects a reduction of approximately 14,000 shares as a result of the repurchase of our common shares during the respective period. There were no repurchases of our common s tock during the three months ended October 31, 2012 . See Note (18) – “ Stockholders’ Equity ” for more information on our stock repurchase program.

Liability-classified stock-based awards do not impact and are not included in the denominator for EPS calculations.

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



	Three months ended October 31,
	2013		2012
Numerator:
Net income for basic calculation	$	5,305,000	7,435,000
Effect of dilutive securities:
Interest expense (net of tax) on 3.0% convertible senior notes	1,117,000		1,117,000
Numerator for diluted calculation	$	6,422,000	8,552,000

Denominator:
Denominator for basic calculation	16,454,000		17,379,000
Effect of dilutive securities:
Stock-based awards	75,000		159,000
Conversion of 3.0% convertible senior notes	6,169,000		5,906,000
Denominator for diluted calculation	22,698,000		23,444,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(6) Accounts Receivable

Accounts receivable consist of the following at:



	October 31, 2013		July 31, 2013
Billed receivables from commercial customers	$	46,722,000	40,005,000
Billed receivables from the U.S. government and its agencies	8,353,000		8,114,000
Unbilled receivables on contracts-in-progress	7,652,000		2,399,000
Total accounts receivable	62,727,000		50,518,000
Less allowance for doubtful accounts	707,000		603,000
Accounts receivable, net	$	62,020,000	49,915,000

Unbilled receivables on contracts-in-progress include $2,041,000 and $699,000 at October 31, 2013 and July 31, 2013 , respectively, due from the U.S. government and its agencies. We had virtually no retainage included in unbilled receivables at both October 31, 2013 and July 31, 2013 . In the opinion of management, a substantial portion of the unbilled balances will be billed and collected within one year.

As of October 31, 2013 , one customer, that is also the prime contractor that we perform work for on our two North African country end-customer over-the-horizon microwave system contracts, accounts for 20.3% of total accounts receivable.

(7) Inventories

Inventories consist of the following at:



	October 31, 2013		July 31, 2013
Raw materials and components	$	53,572,000	52,169,000
Work-in-process and finished goods	32,169,000		29,539,000
Total inventories	85,741,000		81,708,000
Less reserve for excess and obsolete inventories	16,709,000		16,226,000
Inventories, net	$	69,032,000	65,482,000

At October 31, 2013 and July 31, 2013 , the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $1,543,000 and $1,910,000 , respectively.

At October 31, 2013 and July 31, 2013 , $647,000 and $592,000 , respectively, of the inventory above related to contracts from third party commercial customers who outsource their manufacturing to us.

(8) Accrued Expenses and Other Current Liabilities

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



	October 31, 2013		July 31, 2013
Accrued wages and benefits	$	8,092,000	11,526,000
Accrued warranty obligations	7,935,000		7,797,000
Accrued commissions and royalties	4,324,000		4,206,000
Accrued business acquisition payments	43,000		288,000
Other	5,789,000		6,075,000
Accrued expenses and other current liabilities	$	26,183,000	29,892,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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:



	Three months ended October 31,
	2013			2012
Balance at beginning of period	$	7,797,000		7,883,000
Provision for warranty obligations	1,983,000			2,237,000
Charges incurred	(1,845,000		)	(1,610,000	)
Balance at end of period	$	7,935,000		8,510,000

Accrued Business Acquisition Payments

In October 2010 , we acquired the WAN optimization technology assets and assumed certain liabilities of Stampede for an estimated total purchase pric e of approximately $5,303,000 , including the initial fair value of contingent earn-out payments which aggregated $3,803,000 . Almost all of the purchase price for Stampede was allocated to the estimated fair value of technologies acquired and was assigned an estimated amortizable life of five years .

During the three months ended October 31, 2013 , the fair value of the contingent earn-out liability was reduced by $239,000 and, in November 2013, we made our final payment of $43,000 . During the three months ended October 31, 2012 , the fair value of the contingent earn-out liability was reduced by $2,378,000 . These adjustments are reflected as a reduction to selling, general and administrative expenses in our Condensed Consolidated Statement of Operations for the respective periods.

There was no interest accreted on the contingent earn-out liability for the three months ended October 31, 2013 . Interest accreted on the contingent earn-out liability was $108,000 for the three months ended October 31, 2012 . Total interest accreted through October 31, 2013 was $986,000 . As of October 31, 2013 , we paid $1,822,000 of the total purchase price in cash, including $322,000 of earn-out payments.

(9) Cost Reduction Actions

Wind-Down of Microsatellite Product Line

During fiscal 2013, we completed our fiscal 2012 plan to wind-down our mobile data communications segment's microsatellite product line. In connection with this plan, we recorded a net pre-tax restructuring charge of $822,000 in the three months ended October 31, 2012 , almost all of which was recorded in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations. There w as no such charge in the three months ended October 31, 2013 .

The activity pertaining to the accruals with respect to this plan, since July 31, 2013 , is summarized as follows:



	Facility exit costs			Other	Total
Balance as of July 31, 2013	$	413,000		50,000	$	463,000
Additions/(reversals)	—			—	—
Payments made	(39,000		)	—	(39,000		)
Balance as of October 31, 2013	$	374,000		50,000	$	424,000

Of the total remaining microsatellite product line wind-down liabilities of $424,000 , $278,000 is included in accrued expenses and other current liabilities and $146,000 is included in other long-term liabilities in our Con densed Consolidated Balance Sheet as of October 31, 2013 .

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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, whose lease term runs from November 1, 2008 through 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 beyond the current sublease terms. 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 October 31, 2013 , the amount of the acquisition-related restructuring reserve is as follows:



	Cumulative Activity Through October 31, 2013
Present value of estimated facility exit costs at August 1, 2008	$	2,100,000
Cash payments made	(5,585,000		)
Cash payments received	6,028,000
Accreted interest recorded	895,000
Net liability as of October 31, 2013	3,438,000
Amount recorded as prepaid expenses in the Condensed Consolidated Balance Sheet	450,000
Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet	$	3,888,000

As of July 31, 2013 , the present value of the es timated facility exit costs was $3,331,000 . During the three months ended October 31, 2013 , we made cash payments of $258,000 and we received cash payments of $306,000 . Interest accreted for the three months ended October 31, 2013 and 2012 was $59,000 and $52,000 , respectively, and is included in interest expense for each respective fiscal period.

As of October 31, 2013 , future cash payments associated with our restructuring plan are summarized below:



	As of
	October 31, 2013
Future lease payments to be made in excess of anticipated sublease payments	$	3,888,000
Less net cash to be received in next twelve months	(450,000		)
Interest expense to be accreted in future periods	1,145,000
Total remaining net cash payments	$	4,583,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(10) Credit Facility

We have a committed $100,000,000 secured revolving credit facility (the “Credit Facility”) with a syndicate of bank lenders, as amended. The Credit Facility, as amended December 6, 2013 , expires on October 31, 2014 but may be extended by us to December 31, 2016 , subject to certain conditions relating primarily to the repurchase, redemption or conversion of our 3.0% convertible senior notes and compliance with all other Credit Facility covenants.

The Credit Facility provides for the extension of credit to us in the form of revolving loans, including 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 $100,000,000 for both revolving loans and letters of credit, with sub-limits of $15,000,000 for commercial letters of credit and $35,000,000 for standby letters of credit. Subject to covenant limitations, the Credit Facility may be used for acquisitions, equity securities repurchases, dividends, working capital and other general corporate purposes. Since the inception of our Credit Facility in 2009, we have had no revolving loans under the Credit Facility. At October 31, 2013 , we had $1,871,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

At our election, borrowings under the Credit Facility will bear interest either at LIBOR plus an applicable margin or at the base rate plus an applicable margin, as amended. The interest rate margin over LIBOR ranges from 1.75 percent up to a maximum amount of 2.50 percent . The base rate is a fluctuating rate equal to the highest of (i) the Prime Rate; (ii) the Federal Funds Effective Rate from time to time plus fifty (50) basis points; and (iii) two hundred (200) basis points in excess of the floating rate of interest determined, on a daily basis, in accordance with the terms of the agreement. The interest rate margin over the base rate ranges from 0.75 percent up to a maximum amount of 1.50 percent . In both cases, the applicable interest rate margin is based on the ratio of our consolidated total indebtedness to our consolidated earnings before interest, taxes, depreciation and amortization (“Consolidated Adjusted EBITDA”). As defined in the Credit Facility, Consolidated Adjusted EBITDA is adjusted for certain items and, in the event of an acquisition with a purchase price in excess of $10,000,000 , provides for the inclusion of the last twelve months of consolidated EBITDA of a target.

As amended December 6, 2013, the Credit Facility contains covenants, including covenants limiting certain debt, certain liens on assets, certain sales of assets and receivables, certain payments (including dividends), certain repurchases of equity securities, certain sale and leaseback transactions, certain guaranties, certain investments and certain minimum levels of cash and cash equivalents. Under certain conditions, the Credit Facility also contains financial condition covenants requiring that we (i) not exceed a maximum ratio of consolidated total indebtedness to Consolidated Adjusted EBITDA (each as defined in the Credit Facility and compliance with which was waived as of October 31, 2013 ); (ii) not exceed a maximum ratio of consolidated senior secured indebtedness to Consolidated Adjusted EBITDA (each as defined in the Credit Facility); (iii) maintain a minimum fixed charge ratio (as defined in the Credit Facility); (iv) maintain a minimum consolidated net worth; in each case measured on the last day of each fiscal quarter and (v) in the event total consolidated indebtedness (as defined in the Credit Facility) is less than $200,000,000 , we must maintain a minimum level of Consolidated Adjusted EBITDA (as defined in the Credit Facility).

At October 31, 2013 , had borrowings been outstanding under the Credit Facility, the interest rate would have been approximately 2.70 percent (LIBOR plus 2.50 percent ). We are also subject to an undrawn line fee based on the ratio of our consolidated total indebtedness to our Consolidated Adjusted EBITDA, as defined and adjusted for certain items specified in the Credit Facility. Interest expense, including amortization of deferred financing costs, related to our credit facility recorded during the three months ended October 31, 2013 was $186,000 , compared to $179,000 during the three months ended October 31, 2012 .

As of October 31, 2013 , based on our Consolidated Adjusted EBITDA (as defined in the Credit Facility) and our business outlook and related business plans, we believe we will be able to meet or obtain waivers for the applicable financial covenants that we are required to maintain.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(11) 3.0% Convertible Senior Notes

In May 2009 , we issued $200,000,000 of our 3.0% convertible senior notes in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from this transaction were $194,541,000 after deducting the initial purchasers' discount and other transaction costs of $5,459,000 .

Our 3.0% convertible senior notes bear interest at an annual rate of 3.0% . Pursuant to the terms of the 3.0% convertible senior notes indenture, cash dividends require an adjustment to the conversion rate, effective on the record date. Effective October 18, 2013 (the record date of our dividend declared on October 3, 2013 ), our 3.0% convertible senior notes are convertible into shares of our common stock at a conversion price of $32.15 per share (a conversion rate of 31.1038 shares per $1,000 original principal amount of notes) at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, subject to adjustment in certain circumstances.

We may, at our option, redeem some or all of our 3.0% convertible senior notes on or after May 5, 2014 . Holders of the 3.0% convertible senior notes will have the right to require us to repurchase some or all of our outstanding 3.0% convertible senior notes, solely for cash, on May 1, 2014 , May 1, 2019 and May 1, 2024 and upon certain events, including a change in control. If not redeemed by us or repaid pursuant to the holders' right to require repurchase, our 3.0% convertible senior notes mature on May 1, 2029 .

Because it is possible that the holders of our 3.0% convertible senior notes will require us to repurchase some or all of the outstanding notes on May 1, 2014, our 3.0% convertible senior notes are reflected as a current liability in our condensed consolidated balance sheet at October 31, 2013 and July 31, 2013 .

The 3.0% convertible notes are senior unsecured obligations of Comtech.

(12) Income Taxes

Our effective tax rate for the three months ended October 31, 2013 was 36.5% and does not assume that the federal research and experimentation credit will be extended past December 31, 2013. Excluding the impact of any potential discrete tax items, our fiscal 2014 effective tax rate is expected to approximate 36.5% .

At October 31, 2013 and July 31, 2013 , total unrecognized tax benefits, all of which were recorded as non-current income taxes payable in our Condensed Consolidated Balance Sheets, were $3,068,000 and $2,963,000 , respectively, including interest of $102,000 and $90,000 , respectively. Of these amounts, $2,413,000 and $2,348,000 , 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 financial statements.

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

Our federal income tax returns for fiscal 2010 through 2013 are subject to potential future IRS audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(13) 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”) and recognize related stock-based compensation for both equity and liability-classified stock-based awards in our 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) restricted stock units (“RSUs”), (iii) RSUs with performance measures (which we refer to as “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 stockholder who owns stock representing more than 10.0% of the voting power, no more than five years . We expect to settle all outstanding awards under the Plan and ESPP with new shares, except for SARs which may only be settled with cash.

As of October 31, 2013 , we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 6,874,264 shares (net of 2,695,240 expired and canceled awards), of which an aggregate of 3,830,652 have been exercised or converted into common stock, substantially all of which related to stock options.

As of October 31, 2013 , the following stock-based awards, by award type, were outstanding:



	October 31, 2013
Stock options	2,870,620
Performance shares	121,986
RSUs and restricted stock	37,326
Share units	6,680
SARs	7,000
Total	3,043,612

Our ESPP, approved by our shareholders on December 12, 2000, provides for the issuance of 675,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. Through October 31, 2013 , we have cumulatively issued 526,517 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 October 31,
	2013			2012
Cost of sales	$	53,000		$	45,000
Selling, general and administrative expenses	771,000			601,000
Research and development expenses	123,000			99,000
Stock-based compensation expense before income tax benefit	947,000			745,000
Estimated income tax benefit	(346,000		)	(264,000		)
Net stock-based compensation expense	$	601,000		$	481,000

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. Stock-based compensation for liability-classified awards is determined the same way, except that the fair value of liability-classified awards is re-measured at the end of each reporting period until the award is settled, with changes in fair value recognized pro-rata for the portion of the requisite service period rendered. At October 31, 2013 , unrecognized stock-based compensation of $ 10,374,000 , net of estimated forfeitures of $ 853,000 , is expected to be recognized over a weighted average period of 3.3 years. Total stock-based compensation capitalized and included in ending inventory at both October 31, 2013 and July 31, 2013 was $ 72,000 . Included in accrued expenses at October 31, 2013 and July 31, 2013 is $ 4,000 and $ 1,000 , respectively, relating to the potential cash settlement of liability-classified SARs.

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



	Three months ended October 31,
	2013			2012
Stock options	$	648,000		573,000
Performance shares	177,000			86,000
ESPP	45,000			53,000
RSUs and restricted stock	68,000			32,000
Share units	6,000			6,000
Equity-classified stock-based compensation expense	944,000			750,000
Liability-classified stock-based compensation expense (SARs)	3,000			(5,000	)
Stock-based compensation expense before income tax benefit	947,000			745,000
Estimated income tax benefit	(346,000		)	(264,000	)
Net stock-based compensation expense	$	601,000		481,000

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 and results in a deferred tax asset which is netted in our long-term deferred tax liability in our Condensed Consolidated Balance Sheet. 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.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

The following table provides the components of the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards:



	Three months ended October 31,
	2013		2012
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards	$	54,000	1,000
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, excluding income tax shortfalls	41,000		1,000
Excess income tax benefit recorded as an increase to additional paid-in capital	13,000		—
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, excluding income tax shortfalls	13,000		—
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	$	—	—

As of October 31, 2013 and July 31, 2013 , the amount of hypothetical tax benefits related to stock-based awards, recorded as a component of additional paid-in capital, was $18,072,000 and $19,981,000 , 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 the August 1, 2005), adjusted for actual excess income tax benefits or shortfalls since that date. During the three months ended October 31, 2013 and 2012 , we recorded $1,911,000 and $2,897,000 , respectively, as a net reduction to additional paid-in capital and accumulated hypothetical tax benefits, which primarily represents the reversal of unrealized deferred tax assets associated with certain vested equity-classified stock-based awards that expired during the respective periods.

Stock Options

The following table summarizes the Plan's activity (including SARs) during the three months ended October 31, 2013 :



	Awards (in Shares)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2013	3,047,910		$	29.94
Granted	247,000		27.23
Expired/canceled	(413,240	)	45.66
Exercised	(4,050	)	19.54
Outstanding at October 31, 2013	2,877,620		$	27.46	5.66	$	7,426,000

Exercisable at October 31, 2013	1,499,240		$	27.18	3.22	$	4,313,000

Vested and expected to vest at October 31, 2013	2,776,031		$	27.44	5.57	$	7,207,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Stock options (including SARs) outstanding as of October 31, 2013 have exercise prices ranging between $ 13.19 -$ 35.79 . The total intrinsic value relating to stock options exercised during the three months ended October 31, 2013 and 2012 was $ 41,000 and $ 350,000 , respectively. Stock options granted during the three months ended October 31, 2013 had exercise prices equal to the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years. There were no stock options granted during the three months ended October 31, 2012. There were no SARs granted or exercised during the three months ended October 31, 2013 and 2012 . The estimated per-share weighted average grant-date fair value of stock options granted during the three months ended October 31, 2013 was $5.47 which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:



Expected dividend yield	4.04	%
Expected volatility	32.89	%
Risk-free interest rate	1.38	%
Expected life (years)	5.44

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, as of October 31, 2013 , was $1.10 per share. We estimate expected volatility by considering the historical volatility of our stock, the implied volatility of publicly-traded call options on our stock, the implied volatility of call options embedded in our 3.0% convertible senior notes and our expectations of volatility for the expected life of stock options. 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, 2013	102,334		$	25.80
Granted	68,167		24.58
Converted to common stock	(4,509	)	26.25
Outstanding at October 31, 2013	165,992		$	25.28	$	4,983,000

Vested at October 31, 2013	12,335		$	26.84	$	370,000

Vested and expected to vest at October 31, 2013	158,953		$	25.29	$	4,772,000

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 during the three months ended October 31, 2013 vest over a three -year performance period that ends on July 31, 2016, if pre-established performance goals are attained or as specified pursuant to the Plan and related agreement. As of October 31, 2013, the number of outstanding performance shares included in the above table, and the related compensation expense, assume achievement of the pre-established goals at a target level. During the three months ended October 31, 2013 , our Board of Directors determined that the pre-established performance goals for 35,003 performance shares granted in fiscal 2012 had been attained and, as a result, the first tranche of 6,996 performance shares vested and converted into 3,496 net shares of our common stock, after reduction for 1,013 shares retained to satisfy minimum tax withholding and 2,487 shares for deferral requirements.

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 RSUs, restricted stock or 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 and 2014 are entitled to dividend equivalents unless forfeited before vesting occurs; however, performance shares granted in fiscal 2013 and 2014 are not entitled to such dividend equivalents until our Board of Directors has determined that the pre-established performance goals have been met. Share units granted prior to fiscal 2014 are not entitled to dividend equivalents. Share units granted in fiscal 2014 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. As of October 31, 2013 and July 31, 2013 , accrued dividend equivalents were $32,000 and $7,000 , respectively. Such amounts were recorded as a reduction to retained earnings.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(14) Customer and Geographic Information

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



	Three months ended October 31,
	2013		2012
United States
U.S. government	25.6	%	43.4	%
Commercial	17.4	%	13.5	%
Total United States	43.0	%	56.9	%

International
North African country	12.4	%	2.3	%
Other international	44.6	%	40.8	%
Total International	57.0	%	43.1	%

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

Excluding sales in our mobile data communications segment, aggregate sales to U.S. government end customers for our telecommunications transmission and RF microwave amplifiers segments were 20.6% and 36.3% of the combined net sales of these two segments for the three months ended October 31, 2013 and 2012 , respectively.

International sales for the three months ended October 31, 2013 and 2012 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $47,540,000 and $39,217,000 , respectively.

For the three months ended October 31, 2013 , sales to a prime contractor represented approximately 12.5% of consolidated net sales (almost all of which related to our North African country end-customer). For the three months ended October 31, 2013 and 2012 , 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.

(15) 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. Our chief operating decision-maker is our President and Chief Executive Officer.

While our results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker also manages the enterprise in three operating segments: (i) telecommunications transmission, (ii) RF microwave amplifiers, and (iii) mobile data communications.

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 Blue Force Tracking (“BFT-1”) and the U.S. Army's Movement Tracking System (“MTS”) programs, which are currently in a sustainment mode. We license certain of our intellectual property to the U.S. Army and provide satellite network and related engineering services (including program management) on a cost-plus-fixed-fee basis.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Corporate management defines and reviews segment profitability based on the same allocation methodology as presented in the segment data tables below:



	Three months ended October 31, 2013
	Telecommunications Transmission		RF Microwave Amplifiers		Mobile Data Communications	Unallocated		Total
Net sales	$	54,365,000	20,197,000		8,806,000	—		$	83,368,000
Operating income (loss)	8,929,000		591,000		4,106,000	(3,527,000	)	10,099,000
Interest income and other (expense)	6,000		(5,000	)	3,000	269,000		273,000
Interest expense (income)	59,000		—		—	1,959,000		2,018,000
Depreciation and amortization	2,259,000		943,000		74,000	963,000		4,239,000
Expenditure for long-lived assets, including intangibles	933,000		94,000		—	—		1,027,000
Total assets at October 31, 2013	243,851,000		92,774,000		7,236,000	338,714,000		682,575,000



	Three months ended October 31, 2012
	Telecommunications Transmission			RF Microwave Amplifiers		Mobile Data Communications	Unallocated		Total
Net sales	$	53,327,000		25,289,000		12,337,000	—		$	90,953,000
Operating income (loss)	12,259,000			1,718,000		3,471,000	(4,086,000	)	13,362,000
Interest income and other (expense)	(9,000		)	(22,000	)	9,000	298,000		276,000
Interest expense	159,000			—		—	1,952,000		2,111,000
Depreciation and amortization	2,436,000			980,000		152,000	784,000		4,352,000
Expenditure for long-lived assets, including intangibles	841,000			207,000		15,000	—		1,063,000
Total assets at October 31, 2012	233,446,000			95,785,000		8,511,000	367,852,000		705,594,000

Operating income in our telecommunications transmission segment for the three months ended October 31, 2013 and 2012 includes $239,000 and $2,378,000 , respectively, of a benefit related to a change in fair value of the earn-out liability associated with our acquisition of Stampede. See Note (8) - " Accrued Expenses and Other Current Liabilities. "

Operating income in our mobile data communications segment, for the three months ended October 31, 2012 , includes a pre-tax restructuring charge of $822,000 related to the wind-down of our microsatellite product line. See Note (9) - " Cost Reduction Actions ."

Unallocated expenses include corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs. In addition, for the three months ended October 31, 2013 and 2012 , unallocated expenses include $947,000 and $745,000 , respectively, of stock-based compensation expense. Interest expense (which includes amortization of deferred financing costs) associated with our convertible senior notes and our Credit Facility is not allocated to the operating segments. Depreciation and amortization includes amortization of stock-based compensation. Unallocated assets consist principally of cash, deferred financing costs and deferred tax assets. Substantially all of our long-lived assets are located in the U.S.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Intersegment sales for the three months ended October 31, 2013 and 2012 by the telecommunications transmission segment to the RF microwave amplifiers segment were $301,000 and $1,234,000 , respectively.

Intersegment sales by the telecommunications transmission segment to the mobile data communications segment were immaterial for the three months ended October 31, 2013 and $2,507,000 for the three months ended October 31, 2012.

All intersegment sales have been eliminated from the tables above.

(16) Goodwill

The carrying amount of goodwill by segment as of October 31, 2013 and July 31, 2013 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 goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two 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.

For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, each of our three operating segments constitutes a reporting unit and we must make various assumptions in determining the fair values of the reporting unit.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

On August 1, 2013 (the first day of our fiscal 2014), we performed our annual impairment test and estimated the fair value of each of our reporting units based on the income approach (also known as the discounted cash flow (“DCF”) method, which utilizes the present value of cash flows to estimate fair value). The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). We took into account expected challenging global industry and market conditions, including expected significant reductions in the overall budget for U.S. defense spending. As such, although both our telecommunications transmission and RF microwave amplifiers reporting units have historically achieved significant long-term revenue and operating income growth, we assumed growth rate estimates in our projections that were below our actual long-term expectations and below each reporting unit's actual historical growth rate. The discount rates used in our DCF method were based on a weighted-average cost of capital (“WACC”) determined from relevant market comparisons, adjusted upward for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). A terminal value growth rate was applied to the final year of the projected period and reflected our estimate of stable, perpetual growth. We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach and then used the market approach to corroborate this value. Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. In each case, the estimated fair value determined under the market approach exceeded our estimate of fair value determined under the income approach. Finally, we compared our estimates to our August 1, 2013 total public market capitalization and assessed implied control premiums. Based on the aforementioned, we concluded that the estimated fair value determined under the income approach for each of our reporting units, as of August 1, 2013, was reasonable. In each case, the estimated fair value exceeded the respective carrying value and, as such, we concluded that the goodwill assigned to our telecommunications transmission and RF microwave amplifiers reporting units, as of August 1, 2013, was not impaired. We also concluded that our telecommunications transmission reporting unit was currently not at risk of failing step one of the goodwill impairment test as prescribed under the ASC. However, we concluded that as of August 1, 2013, our RF microwave amplifiers reporting unit was at risk of failing step one of the goodwill impairment test.

As of August 1, 2013 , we determined that our RF microwave amplifiers reporting unit had an estimated fair value in excess of its respective carrying value of at least 13.2% , which represents an increase from the at least 5.0% excess we previously calculated as of January 31, 2013 (when we performed an interim fiscal 2013 impairment test). The increase from 5.0% to 13.2% was primarily driven by a decrease in the WACC from 12.0% to 11.0% . The WACC for any given impairment test is based on current market data as of the respective valuation date. Had we utilized a WACC of 12.0% for the fiscal 2014 annual impairment test, our RF microwave amplifiers reporting unit's estimated fair value would still exceed its carrying value as of August 1, 2013. The WACC of 11.0% used in our annual impairment test for fiscal 2014 was equal to the WACC utilized in our annual impairment test for fiscal 2013.

This estimated fair value of our RF microwave amplifiers reporting unit is closely aligned with the ultimate amount of revenue and operating income that it achieves over the projected period. Our discounted cash flows, for goodwill impairment testing purposes, assumed that, through fiscal 2019, this reporting unit would achieve a compounded annual revenue growth rate of approximately 1.0% and 4.0% from its actual fiscal 2012 and 2013 revenues of $102,497,000 and $86,939,000 , respectively. Beyond fiscal 2019 , we assumed a long-term revenue growth rate of 3.5% in the terminal year. Given current challenging market conditions, we believe these modest long-term growth rates and the WACC are appropriate to use for our future cash flow assumptions. We also believe that it is possible that our actual revenue growth rates could be significantly higher due to a number of factors, including: (i) continued reliance by our customers on our advanced communications systems; (ii) the continued shift toward information-based, network-centric warfare; and (iii) the need for developing countries to upgrade their communication systems. If we do not at least meet the assumed revenue growth utilized in this goodwill impairment analysis, our RF microwave amplifiers reporting unit will likely fail step one of a goodwill impairment test in a future period. Modest changes in other key assumptions used in our impairment analysis may also result in the requirement to proceed to step two of the goodwill impairment test in future periods. For example, keeping all other variables constant, a 160 basis point increase in the WACC applied to our RF microwave amplifiers reporting unit or an increase to our RF microwave amplifiers carrying value of more than $13,200,000 would likely result in a step one failure. If this reporting unit fails step one in the future, we would be required to perform step two of the goodwill impairment test. If we perform step two, up to $43,387,000 of goodwil l and intangibles assigned to this reporting unit could be written off in the period that the impairment is triggered.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Our goodwill impairment analyses for the telecommunications transmission and RF microwave amplifiers reporting units are sensitive to the ultimate spending decisions by our global customers. Accordingly, we will continue to monitor key assumptions and other factors required to be utilized in evaluating impairment of goodwill. It is possible that, during fiscal 2014, business conditions (both in the U.S. and internationally) could deteriorate from the current state and our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate. A significant decline in defense spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a step one interim goodwill impairment test during fiscal 2014 for these two reporting units. In any event, we are required to perform the next annual step one goodwill impairment test on August 1, 2014 (the start of our fiscal 2015). If our assumptions and related estimates change in the future, or if we change our reporting structure or other events and circumstances change (e.g., such as 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 impairment charges when we perform these tests or in other future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

(17) Intangible Assets

Intangible assets with finite lives as of October 31, 2013 and July 31, 2013 are as follows:



	October 31, 2013
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Technologies	11.7	$	47,370,000	33,926,000	$	13,444,000
Customer relationships	10.0	29,831,000		15,818,000	14,013,000
Trademarks and other	20.0	5,794,000		2,328,000	3,466,000
Total		$	82,995,000	52,072,000	$	30,923,000



	July 31, 2013
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Technologies	11.7	$	47,494,000	33,264,000	$	14,230,000
Customer relationships	10.0	29,831,000		15,081,000	14,750,000
Trademarks and other	20.0	5,944,000		2,419,000	3,525,000
Total		$	83,269,000	50,764,000	$	32,505,000

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

Amortization expense for both the three months ended October 31, 2013 and 2012 was $1,582,000 .

The estimated amortization expense for the fiscal years ending July 31, 2014 , 2015 , 2016 , 2017 , and 2018 is $6,285,000 , $6,211,000 , $4,962,000 , $4,782,000 and $4,782,000 , respectively.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(18) Stockholders’ Equity

Stock Repurchase Program

During the three months ended October 31, 2013 , we repurchased 124,753 shares of our common stock in open-market transactions with an average price per share of $28.73 and at an aggregate cost of $3,585,000 (including transaction costs). There were no repurchases of our common stock during the three months ended October 31, 2012.

As of October 31, 2013 , we were authorized to repurchase up to an additional $30,752,000 of our common stock, pursuant to a $50,000,000 stock repurchase program that was authorized by our Board of Directors in December 2012 (which, effective December 9, 2013 has been increased to $100,000,000 ). 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. As of December 9, 2013 , approximately $71,000,000 remains available for repurchases of our common stock.

Dividends

Since September 2010, we have paid quarterly dividends pursuant to an annual targeted dividend amount that was established by our Board of Directors. On October 3, 2013 , our Board of Directors declared a quarterly dividend of $0.275 per common share, which was paid to shareholders on November 19, 2013 .

On December 9, 2013 , our Board of Directors increased our annual target dividend from $1.10 per common share to $1.20 per common share and, in connection with this target, declared a dividend of $0.30 per common share payable, on February 19, 2014 , to shareholders of record at the close of business on January 17, 2014 .

(19) Legal Proceedings and Other Matters

U.S. Government Investigations

In June 2012, certain officers and employees of the Company received subpoenas issued by the United States District Court for the Eastern District of New York (“EDNY”) seeking certain documents and records relating to our Chief Executive Officer (“CEO”). Although the EDNY subpoenas made no specific allegations, we believe the subpoenas related to a grand jury investigation stemming from our CEO's contacts with a scientific attaché to the Israeli Purchasing Mission in the United States who our CEO met in connection with the sale of our equipment to the State of Israel during the 1980's. This scientific attaché was later alleged to have conducted intelligence operations in the U.S. In August 2012, we were informed by the U.S. government that our CEO's security clearance was suspended. In order to maintain our qualification for government contracts requiring facility security clearance, we made certain internal organizational realignments. These changes restrict access to classified information to other Comtech senior executives, management and other employees who maintain the required level of clearance.

Separately, in connection with an investigation by the Securities and Exchange Commission (“SEC”) into trading in securities of CPI International, Inc. (“CPI”), in March and April 2012, we and our CEO received subpoenas for documents from the SEC concerning transactions in CPI stock by our CEO and other persons (including one subsidiary employee). Our CEO purchased CPI stock in November 2010 which was after the September 2010 termination of our May 2010 agreement to acquire CPI.

The independent members of our Board of Directors have monitored these matters with the assistance of independent counsel. We and our CEO have cooperated with the U.S. government regarding the above matters and have not been contacted by the government with respect to either matter since September 2012.

The outcome of any investigation is inherently difficult, if not impossible, to predict. However, based on our work to date in respect of the subpoenas in each matter, we do not believe that it is likely that either investigation will result in a legal proceeding against our CEO or the Company. If either of these investigations results in a legal proceeding, it could have a material adverse effect on our business and results of operations.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Defense Contract Audit Agency (“DCAA”) Audit

In May 2011, we were notified that our original BFT-1 contract, which was awarded to us on August 31, 2007 (our fiscal 2008), was selected for a post award audit by the DCAA. We received total funded orders against this contract, which expired December 31, 2011, of $376,246,000 . A post-award audit (sometimes referred to as a Truth in Negotiations Act or “TINA” audit) generally focuses on whether the contractor disclosed current, accurate and complete cost or pricing data in the contract negotiation process pursuant to TINA and the Federal Acquisition Regulation (“FAR”). Shortly after this audit began, the Defense Contract Management Agency (“DCMA”) advised us that the fiscal 2008 award of the BFT-1 contract triggered full coverage under the Cost Accounting Standards (“CAS”) and that we should submit an initial CAS disclosure statement. The CAS is a set of specialized rules and standards that the U.S. government uses for determining costs on large, negotiated contracts. We have cooperated fully with the DCAA and DCMA and provided them information that supports our view that the August 2007 BFT-1 contract is subject to a CAS and TINA exemption for fixed price commercial contract line items (such as our mobile satellite transceivers and other hardware), as defined by the FAR.

In March 2013, DCMA advised us that it was not making any determination with regard to the commerciality of our products and that it withdrew its request, at that time, for a CAS disclosure statement.

In May 2013, the DCAA provided a draft audit report which stated that the commercial item exemption to TINA did not apply because there was no official determination of commerciality for Delivery Order No. 1 at the time of award. Thus, according to DCAA, TINA applied and we were required to disclose current, accurate and complete cost or pricing data. The DCAA recommended a price adjustment of $11,819,000 (plus interest). This recommended price adjustment is approximately the same amount that was included in a draft audit report that was presented to us in December 2012.

Consistent with the position we have taken throughout the audit, we informed the DCAA that we believe the May 2013 draft audit report is erroneous. For example, we noted that the U.S. Army had previously determined, in July 2007, that the MT 2011F mobile satellite transceiver was a commercial item on a separate contract awarded to us. We also noted that the same contracting officer who signed the August 2007 BFT-1 contract, in an email sent four days after the BFT-1 contract was signed, indicated that certain of our mobile satellite transceivers and other equipment on the August 2007 BFT-1 contract were commercial. We advised the DCAA that, although the August 2007 BFT-1 contract did not initially incorporate FAR commercial clauses, the contract was modified in January 2008 to incorporate those clauses, and that an Administrative Contracting Officer confirmed, in January 2008, that Delivery Order No. 1 was for commercial items. Regardless of the commerciality determination, we informed the DCAA that we provided the U.S. government with all required information prior to August 31, 2007. We disagree with the DCAA's draft audit report and provided a written response in May 2013.

In October 2013, we were advised verbally by a DCAA senior auditor that a final DCAA audit report was issued to our BFT-1 Contracting Officer but we have not received a copy of a final report, nor any correspondence concerning issuance of a final report

If the above matters are not resolved in our favor with the Contracting Officer, the U.S. government could issue a demand in the form of a Contracting Officer's Final Decision, which we would have the right to appeal to the Armed Services Board of Contract Appeals or the U.S. Court of Federal Claims. If it is ultimately determined that a cost or price adjustment for our BFT-1 contract is appropriate, we would be required to refund monies to the U.S. government, with interest. These amounts could have a material adverse effect on our results of operations in the period in which we believe it is probable that we will be required to refund monies to the U.S. government. However, based on our analysis of the facts and circumstances regarding this matter, we do not believe this matter will ultimately have a material adverse effect on our consolidated financial condition.

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.

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 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, risks associated with our legal proceedings and other matters, risks associated with certain U.S. government investigations, risks associated with our BFT-1 contracts and the post-award audit of our original BFT-1 contract, risks associated with our obligations under our revolving credit facility, and other factors described in this and 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 believe many of our solutions play a vital role in providing or enhancing communication capabilities when terrestrial communications infrastructure is unavailable, inefficient or too expensive. We conduct our business through three complementary operating segments: telecommunications transmission, RF microwave amplifiers and mobile data communications. We sell our products to a diverse customer base in the global commercial and government communications markets. We believe we are a leader in the market segments that we serve.

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 telecommunications transmission segment also operates our high-volume technology manufacturing center that can be utilized, in part, by our other two segments and by third-party commercial customers who can outsource a portion of their manufacturing to us. Accordingly, our telecommunications transmission segment’s operating results are impacted positively or negatively by the level of utilization of our high-volume manufacturing center.

Our RF microwave amplifiers segment designs, develops, manufactures and markets traveling wave tube amplifiers and solid-state amplifiers, 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”) and the U.S. Army's Movement Tracking System (“MTS”) programs, which are currently in a sustainment mode. We license certain of our intellectual property to the U.S. Army and provide satellite network and related engineering services (including program management) on a cost-plus-fixed-fee basis.

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.

Our contracts with the U.S. government can be terminated at any time and orders are subject to unpredictable funding, deployment and technology decisions by the U.S. government. Some of these contracts, such as the BFT-1 sustainment contract, 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.

Index

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 is generally recognized in accordance with accounting standards that have been codified into 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 605-35, “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 long-term 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 (13) Stock-Based Compensation,” we issue stock-based awards to certain of our employees and members of 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.

Index

We have used and expect to continue to use the Black-Scholes option pricing model to compute the estimated fair value of certain stock-based awards. 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, the implied volatility of publicly traded call options on our stock, the implied volatility from call options embedded in our 3.0% convertible senior notes and our expectations of volatility for the expected life of stock options. The expected option term is the number of years that we estimate that stock options will be outstanding prior to exercise based upon exercise patterns. 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 option term.

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 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 Assets . As of October 31, 2013 , 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). Our mobile data communications segment has no goodwill recorded. Each of our three operating segments constitutes a reporting unit and we must make various assumptions in determining their estimated fair values.

Index

As of August 1, 2013, we determined that our RF microwave amplifiers reporting unit had an estimated fair value in excess of its respective carrying value of at least 13.2%, which represents an increase from the at least 5.0% excess we previously calculated as of January 31, 2013 (when we performed an interim fiscal 2013 impairment test). The increase from 5.0% to 13.2% was primarily driven by a decrease in the WACC from 12.0% to 11.0%. The WACC for any given impairment test is based on current market data as of the respective valuation date. Had we utilized a WACC of 12.0% for the fiscal 2014 annual impairment test, our RF microwave amplifiers reporting unit's estimated fair value would still exceed its carrying value as of August 1, 2013. The WACC of 11.0% used in our annual impairment test for fiscal 2014 was equal to the WACC utilized in our annual impairment test for fiscal 2013.

This estimated fair value of our RF microwave amplifiers reporting unit is closely aligned with the ultimate amount of revenue and operating income that it achieves over the projected period. Our discounted cash flows, for goodwill impairment testing purposes, assumed that, through fiscal 2019, this reporting unit would achieve a compounded annual revenue growth rate of approximately 1.0% and 4.0% from its actual fiscal 2012 and 2013 revenues of $102.5 million and $86.9 million, respectively. Beyond fiscal 2019, we assumed a long-term revenue growth rate of 3.5% in the terminal year. Given current challenging market conditions, we believe these modest long-term growth rates and the WACC are appropriate to use for our future cash flow assumptions. We also believe that it is possible that our actual revenue growth rates could be significantly higher due to a number of factors, including: (i) continued reliance by our customers on our advanced communications systems; (ii) the continued shift toward information-based, network-centric warfare; and (iii) the need for developing countries to upgrade their communication systems. If we do not at least meet the assumed revenue growth utilized in this goodwill impairment analysis, our RF microwave amplifiers reporting unit will likely fail step one of a goodwill impairment test in a future period. Modest changes in other key assumptions used in our impairment analysis may also result in the requirement to proceed to step two of the goodwill impairment test in future periods. For example, keeping all other variables constant, a 160 basis point increase in the WACC applied to our RF microwave amplifiers reporting unit or an increase to our RF microwave amplifiers carrying value of more than $13.2 million would likely result in a step one failure. If this reporting unit fails step o ne in the future, we would be required to perform step two of the goodwill impairment test. If we perform step two, up to $43.4 million of goodwill and intangibles assigned to this reporting unit could be written off in the period that the impairment is triggered.

Our goodwill impairment analyses for the telecommunications transmission and RF microwave amplifiers reporting units are sensitive to the ultimate spending decisions by our global customers. Accordingly, we will continue to monitor key assumptions and other factors required to be utilized in evaluating impairment of goodwill. It is possible that, during fiscal 2014, business conditions (both in the U.S. and internationally) could deteriorate from the current state and our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate. A significant decline in defense spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a step one interim goodwill impairment test during fiscal 2014 for these two reporting units. In any event, we are required to perform the next annual step one goodwill impairment test on August 1, 2014 (the start of our fiscal 2015). If our assumptions and related estimates change in the future, or if we change our reporting structure or other events and circumstances change (e.g., such as 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 impairment charges when we perform these tests, or in other future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

In addition to our impairment analysis of goodwill, we are also required to evaluate the recoverability of net intangibles with finite lives recorded on our Condensed Consolidated Balance Sheet which, as of October 31, 2013 , aggregated $30.9 million (of which $17.1 million relates to our telecommunications transmission segment and $13.8 million relates to our RF microwave amplifiers segment). Based on our most recent analysis of estimated undiscounted future cash flows expected to result from the use of these net intangibles with finite lives, we believe that their carrying values are recoverable as of October 31, 2013 .

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.

Index

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 reserves for income tax positions requires consideration of timing and judgments about tax issues and potential outcomes, and is a subjective critical estimate. 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.

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 credit 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. Because of our strong cash position and the nominal amount of interest we are earning on our cash and cash equivalents, we have, on a limited basis, approved certain customer requests.

We continue to monitor our accounts receivable credit portfolio and have not had any significant negative customer credit experiences to date. While our credit losses have historically been within our expectations of the allowances established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past, especially in light of the current global economic conditions and much tighter credit environment. 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.

Business Outlook for Fiscal 2014

Throughout the first quarter of fiscal 2014, we continued to see the signs of stabilization that we observed in certain of our end-markets during the last quarter of our fiscal 2013. We are pleased with our first quarter results and we believe that certain of our end markets may be improving. Based on the level of our current backlog and the timing of new orders we expect to receive, we expect annual consolidated net sales in fiscal 2014 to be modestly higher than the $319.8 million that we achieved in fiscal 2013. In addition, operating income is expected to be higher than the $34.5 million that we achieved in fiscal 2013 and, as a percentage of consolidated net sales, is expected to increase in fiscal 2014 as compared to fiscal 2013. Growth in consolidated net sales and operating income is expected to be driven by our telecommunications transmission and RF microwave amplifiers segments and is expected to be weighted towards the second half of fiscal 2014. Although net sales in our mobile data communications segment are expected to be significantly lower in fiscal 2014, operating income in this segment (in dollars) is expected to be comparable to the level we achieved in fiscal 2013.

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Given anticipated growth, we expect to continue to invest in research and development activities and anticipate that fiscal 2014 research and development expenses (in dollars) will be slightly lower than the amount we reported in fiscal 2013. Research and development expenses, as a percentage of expected fiscal 2014 consolidated net sales, is expected to decline from the percentage we achieved in fiscal 2013.

During fiscal 2013, we took a number of cost reduction actions across the Company and we believe we are now appropriately sized. Total operating expenses (which include research and development expenses, selling, general and administrative expenses, amortization of intangibles and amortization of stock-based compensation) in fiscal 2014 are expected to be slightly higher than the dollar amount reported in fiscal 2013.

Based on our fiscal 2014 business outlook, and excluding the impact of any discrete tax items, our fiscal 2014 estimated effective tax rate is expected to approximate 36.5%, as compared to 36.0% in fiscal 2013.

As of October 31, 2013 , we had $346.6 million of cash and cash equivalents. During our most recently completed quarter, we continued to repurchase our common stock pursuant to a $50.0 million stock repurchase program that was approved by our Board of Directors in December 2012 (which, effective December 9, 2013 has been increased to $100.0 million). As of December 9, 2013 , we can repurchase approximately $71.0 million of additional common stock pursuant to this program.

On December 9, 2013 , our Board of Directors increased our annual target dividend from $1.10 per common share to $1.20 per common share and, in connection with this target, declared a dividend of $0.30 per common share, payable on February 19, 2014 to shareholders of record at the close of business on January 17, 2014 .

We expect to supplement long-term organic growth opportunities by pursuing one or more acquisitions as appropriate opportunities arise.

As discussed further in “Notes to Condensed Consolidated Financial Statements - Note (11) 3.0% Convertible Senior Notes,” holders of $200.0 million of our 3.0% convertible senior notes may require us to repurchase some or all of the outstanding notes solely for cash on May 1, 2014. Accordingly, these notes are reflected as a current liability in our Condensed Consolidated Balance Sheet at October 31, 2013 .

Our business outlook for the remainder of fiscal 2014 and future years is dependent, in part, on the outcome of ongoing U.S. government budget issues and the growth of the global economy. Sequestration (as currently mandated) remains a significant risk. Approximately 22.5% of our consolidated backlog at October 31, 2013 consisted of orders for U.S. government end customers. Excluding sales in our mobile data communications segment (which derives a substantial majority of its net sales from the U.S. government), aggregate sales to U.S. government end customers for our telecommunications transmission and RF microwave amplifiers segments were 20.6% of the combined net sales of these two segments for the three months ended October 31, 2013.

We believe that the U.S. government's failure to timely resolve its budget issues has and continues to result in uncertainty amongst our global customer base. In addition to debt reduction efforts already authorized or planned for, it is possible that the U.S. government could reduce or further delay its spending on, or reprioritize its spending away from, government programs we participate in. It remains difficult, if not impossible, to determine specific amounts to be appropriated for many of our products and services and our assessment may prove to be incorrect. In addition to ongoing U.S. government budget pressures, we believe we will continue to operate in an environment of challenging global economic conditions and with ongoing uncertainty throughout our global customer base that we believe exists due to: (i) significant U.S. and foreign government budget constraints; (ii) challenging global business conditions; and (iii) increasingly volatile political conditions in certain international markets. If business conditions further deteriorate or our current or prospective customers materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, our fiscal 2014 business outlook will be adversely affected.

Additional information related to our fiscal 2014 business outlook on certain income statement line items and recent operating segment bookings trends is included in the below section entitled “Comparison of the Results of Operations for the Three Months Ended October 31, 2013 and October 31, 2012 .”

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COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2013 AND OCTOBER 31, 2012

Net Sales. Consolidated net sales were $83.4 million and $91.0 million for the three months ended October 31, 2013 and 2012 , respectively, representing a decrease of $7.6 million, or 8.4% . As further discussed below, the period-over-period decrease reflects lower net sales in our RF microwave amplifiers and mobile data communications segments, partially offset by higher sales in our telecommunications transmission segment.

Telecommunications Transmission

Net sales in our telecommunications transmission segment were $54.4 million and $53.3 million for the three months ended October 31, 2013 and 2012 , respectively, an increase of $1.1 million, or 2.1% . This increase reflects higher sales in our over-the-horizon microwave systems product line, partially offset by slightly lower sales in our satellite earth station product line.

Sales of our satellite earth station products were slightly lower during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 , primarily as a result of lower sales to the U.S. government. Despite the impact of the partial U.S. government shutdown that occurred during the three months ended October 31, 2013, we did experience a period-over-period and sequential quarterly increase in satellite earth station product bookings and our book-to-bill ratio for our most recent quarter was slightly over 1.0. Sales during the three months ended October 31, 2013 include our efforts related to cost-plus-incentive-fee development work on our contract to develop and manufacture the Advanced Time Division Multiple Access ("TDMA") Interface Processor ("ATIP") for the U.S. Navy's Space and Naval Warfare Systems Command. Development work on this contract (which was awarded in fiscal 2013 and has a potential value of approximately $29.0 million) is expected to continue for the remainder of fiscal 2014. Based on our assessment that end market conditions for our satellite earth station product line have stabilized and may be improving, we expect bookings and sales in this product line in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013. If business conditions deteriorate from current levels or we do not receive expected orders, we may not be able to achieve our expected level of net sales for this product line in fiscal 2014.

Sales of our over-the-horizon microwave systems were higher during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 , primarily as a result of our performance on both our three-year $58.6 million contract and our four-year $57.4 million contract (including a recently announced $6.3 million add-on contract) to design and supply over-the-horizon microwave systems and equipment for use in a North African government's communications network. Sales of our over-the-horizon microwave system products in the three months ended October 31, 2012 reflect the benefit of shipments related to orders for our Modular Transportable Troposcatter System ("MTTS") for end-use by the U.S. Army. Based on our expected performance on both North African government end-customer contracts, other contracts that are currently in our backlog, and other contracts that we anticipate receiving, we expect net sales in this product line, in fiscal 2014, to be significantly higher than the level we achieved in fiscal 2013.

Our telecommunications transmission segment represented 65.2% of consolidated net sales for the three months ended October 31, 2013 , as compared to 58.6% for the three months ended October 31, 2012 . 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 product business, the current 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 international customers.

RF Microwave Amplifiers

Net sales in our RF microwave amplifiers segment were $20.2 million for the three months ended October 31, 2013 , as compared to $25.3 million for the three months ended October 31, 2012 , a decrease of $5.1 million, or 20.2% . This decline reflects significantly lower sales in our traveling wave tube amplifier product line, partially offset by higher sales in our solid state high-power amplifier product line.

Although sales in this segment during the most recent quarter were impacted by challenging market conditions and the timing of orders received and shipped, our book-to-bill ratio for the first quarter of fiscal 2014 was approximately 1.0. Based on discussions with our customers, we believe that end markets for our RF microwave amplifier products have stabilized and may be improving. As such, although overall market conditions remain difficult, based on the current level of our backlog and the timing of new orders we expect to receive, we expect net sales in this segment in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013. If we do not receive expected orders, we may not be able to achieve our expected level of sales in fiscal 2014 for this product line.

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Our RF microwave amplifiers segment represented 24.2% of consolidated net sales for the three months ended October 31, 2013 as compared to 27.8% for the three months ended October 31, 2012 . 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.

Mobile Data Communications

Net sales in our mobile data communications segment were $8.8 million for the three months ended October 31, 2013 as compared to $ 12.3 million for the three months ended October 31, 2012 , a decrease of $3.5 million, or 28.5% . This anticipated decrease is primarily attributable to a decline in BFT-1 sustainment sales to the U.S. Army.

During the three months ended October 31, 2013 and 2012 , BFT-1 sustainment sales to the U.S. Army were $5.5 million , or 62.5% , and $10.0 million , or 81.3% , respectively, of our mobile data communications segment's sales. Sales in both the three months ended October 31, 2013 and 2012 include $2.5 million of revenue related to our annual $10.0 million BFT-1 intellectual property license fee. Sales for the three months ended October 31, 2012 include shipments of MTS and BFT-1 mobile satellite transceivers, for which we did not have any related sales during the most recent quarter and currently have no orders in our backlog. The remaining BFT-1 sustainment sales for both periods primarily related to certain satellite network and related engineering services (including program management) that are provided on a cost-plus-fixed-fee basis.

Sales to the U.S. Army for BFT-1 sustainment services (including the licensing of certain of our intellectual property to the U.S. Army) are pursuant to a two-year $44.3 million indefinite delivery/indefinite quantity ("IDIQ") BFT-1 sustainment contract. Funding for the first year of this BFT-1 sustainment contract (which had a performance period from April 1, 2012 through March 31, 2013) was definitized at $22.8 million and funding for the second year (which has a performance period from April 1, 2013 through March 31, 2014) is currently at $21.5 million (including the annual $10.0 million intellectual property license fee). Specific terms and conditions related to the intellectual property license fee are covered by a separate licensing agreement that provides for annual renewals, at the U.S. Army's option, for up to a five-year period ending March 31, 2017, after which time the U.S. Army will have a limited non-exclusive right to use certain of our intellectual property for no additional intellectual property licensing fee.

We have been informally notified by the U.S. Army that it intends to award us a new multi-year contract for BFT-1 sustainment services for performance periods beyond March 31, 2014. Due to ongoing U.S. government budget pressures, future funding, contract modifications and new contract awards for BFT-1 sustainment services are difficult to predict. If the U.S. Army does not award us a new contract and does not exercise its option to renew the annual $10.0 million intellectual property license fee, it would have a material adverse effect on our fiscal 2014 business outlook.

For the three months ended October 31, 2013 , our mobile data communications segment sales include $2.0 million of high margin revenue related to the sale of certain of our Sensor Enabled Notification System ("SENS") technology-based solutions, including certain intellectual property, to one of our customers. We retain the right to use certain of this technology and, going forward, only expect to generate a modest amount of ongoing royalties.

Based on the current level of our backlog and the anticipated receipt of a new contract for BFT-1 sustainment services (including the annual $10.0 million intellectual property license fee), we expect net sales in our mobile data communications segment in fiscal 2014 to be significantly lower than the amount we achieved in fiscal 2013.

Our mobile data communications segment represented 10.6% of consolidated net sales for the three months ended October 31, 2013 , as compared to 13.6% for the three months ended October 31, 2012 . 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.

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Geography and Customer Type

Sales to U.S. government end customers approximated 25.6% and 43.4% of consolidated net sales for the three months ended October 31, 2013 and 2012 , respectively. International sales (which include sales to U.S. companies for inclusion in products that are sold to international customers) approximated 57.0% and 43.1% of consolidated net sales for the three months ended October 31, 2013 and 2012 , respectively. Domestic commercial sales approximated 17.4% and 13.5% of consolidated net sales for the three months ended October 31, 2013 and 2012 , respectively.

The lower percentage of consolidated net sales to the U.S. government during the three months ended October 31, 2013 is attributable to lower sales to the U.S. Army for BFT-1 sustainment services and ongoing U.S. government budget pressures. Excluding sales in our mobile data communications segment (which derives a substantial majority of its net sales from the U.S. government), aggregate sales to U.S. government end customers for our telecommunications transmission and RF microwave amplifiers segments were 20.6% and 36.3% of the combined net sales of these two segments for the three months ended October 31, 2013 and 2012, respectively.

Gross Profit. Gross profit was $36.4 million and $ 41.8 million for the three months ended October 31, 2013 and 2012 , respectively, representing a decrease of $5.4 million, which was primarily driven by the decline in consolidated net sales.

Our gross profit, as a percentage of consolidated net sales, for the three months ended October 31, 2013 was 43.6% as compared to 46.0% for the three months ended October 31, 2012 . This decrease is primarily attributable to a lower gross profit percentage in our telecommunications transmission segment, partially offset by a higher gross profit percentage in both our mobile data communications and RF microwave amplifiers segments. 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 October 31, 2013 , was significantly lower than the percentage achieved for the three months ended October 31, 2012 . This decrease was primarily the result of changes in overall sales mix. Our gross profit percentage in this segment during the first quarter of fiscal 2014 reflects low margin sales associated with developing the U.S. Navy's ATIP for which we recover our costs plus a nominal incentive fee. Our gross profit percentage in this segment during the first quarter of fiscal 2013 benefited from the sale of MTTS hardware for end-use by the U.S. Army. We did not ship any MTTS hardware in the first quarter of fiscal 2014. Based on the nature and type of orders that are currently in our backlog and the anticipated orders we expect to receive, we expect the gross profit percentage in our telecommunications transmission segment, in fiscal 2014, to be slightly lower than the gross profit percentage achieved in fiscal 2013 .

Our RF microwave amplifiers segment experienced a slightly higher gross profit, as a percentage of related segment net sales, for the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 . This slight increase is primarily the result of changes in overall sales mix. Based on the nature and type of orders that are currently in our backlog and anticipated orders we expect to receive, we expect gross profit, both in dollars and as a percentage of related segment net sales, in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013 .

Our mobile data communications segment's gross profit, as a percentage of related segment net sales, for the three months ended October 31, 2013 was significantly higher as compared to the three months ended October 31, 2012 . The increase was primarily due to changes in overall sales mix. Our gross profit percentage in this segment during the first quarter of fiscal 2014 reflects the benefit of a high margin sale of certain of our SENS technology, as discussed above. Gross profit in both periods reflects the benefit of $2.5 million of revenue related to our annual $10.0 million intellectual property license fee. Looking forward for the next few years, our annual gross profit, as a percentage of sales, in this segment is expected to be higher than historical percentages due to our expectation that the U.S. Army will continue to renew the separate intellectual property license and pay us a $10.0 million annual license fee through March 2017. Future orders for products and services beyond March 31, 2014 are subject to contract ceiling modifications, new funding, or the award of a new BFT-1 sustainment contract.

Included in consolidated cost of sales are provisions for excess and obsolete inventory of $0.7 million in both periods. 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.

Because our consolidated gross profit, as a percentage of consolidated net sales, depends on sales, sales mix and related gross profit for each individual segment, it is difficult to forecast. Nevertheless, based on orders currently in our consolidated backlog and orders we expect to receive, we anticipate that our consolidated gross profit in fiscal 2014 , as a percentage of consolidated net sales, will be comparable to the level we achieved in fiscal 2013 .

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Selling, General and Administrative Expenses . Selling, general and administrative expenses were $16.2 million and $ 16.8 million for the three months ended October 31, 2013 and 2012 , respectively, representing a decrease of $0.6 million, or 3.6% . As a percentage of consolidated net sales, selling, general and administrative expenses were 19.4% and 18.5% for the three months ended October 31, 2013 and 2012 , respectively.

Our selling, general and administrative expenses for the three months ended October 31, 2013 and 2012 reflect a benefit of $0.2 million and $2.4 million, respectively, relating to a change in the fair value of a contingent earn-out liability associated with our acquisition of Stampede Technologies, Inc. ("Stampede"). Selling, general and administrative expenses for the three months ended October 31, 2012 also include $0.8 million of net pre-tax restructuring charges associated with the wind-down of our microsatellite product line. Excluding the aforementioned amounts, selling, general and administrative expenses, for the three months ended October 31, 2013 and 2012 would have been $16.4 million and $18.4 million, respectively, or 19.7% and 20.2% of consolidated net sales, respectively. This decrease , both in dollars and as a percentage of consolidated net sales, was primarily due to overall lower spending associated with the lower level of consolidated net sales during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 . Selling, general and administrative expenses in both periods reflect benefits related to cost reduction actions that we previously took in all three of our reportable operating segments.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses increased to $0.8 million in the three months ended October 31, 2013 as compared to $0.6 million in the three months ended October 31, 2012 . This increase is primarily related to changes to the timing of grants for certain stock-based awards.

In light of modest consolidated net sales growth expected in fiscal 2014 , selling, general and administrative expenses, in dollars, are expected to be slightly higher in fiscal 2014 as compared to fiscal 2013 . As a percentage of consolidated net sales, we expect selling, general and administrative expenses in fiscal 2014 to be comparable to fiscal 2013 .

Research and Development Expenses. Research and development expenses were $8.5 million and $10.0 million for the three months ended October 31, 2013 and 2012 , respectively, representing a decrease of $1.5 million, or 15.0% .

For the three months ended October 31, 2013 and 2012 , research and development expenses of $6.1 million and $7.6 million, respectively, related to our telecommunications transmission segment and $2.3 million in both periods related to our RF microwave amplifiers segment. Research and development expenses in our mobile data communications segment were nominal for both the three months ended October 31, 2013 and 2012 . The remaining research and development expenses we incurred relate to the amortization of stock-based compensation expense, which is not allocated to our three operating segments. Amortization of stock-based compensation expense recorded as research and development expenses was $0.1 million for both the three months ended October 31, 2013 and 2012 .

As a percentage of consolidated net sales, research and development expenses were 10.2% and 11.0% for the three months ended October 31, 2013 and 2012 , respectively. The decrease in research and development expenses, both in dollars and as a percentage of consolidated net sales, is attributable to lower spending associated with the lower level of consolidated net sales during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 . We anticipate that fiscal 2014 research and development expenses (in dollars) will be slightly lower than the amount we reported in fiscal 2013. Research and development expenses, as a percentage of expected fiscal 2014 consolidated net sales, is expected to decline from the percentage we achieved in fiscal 2013.

As an investment for the future, we are continually enhancing our existing products and developing new products and technologies. Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During the three months ended October 31, 2013 and 2012 , customers reimbursed us $3.1 million and $1.3 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. Included in customer funded research and development for the three months ended October 31, 2013 is funding related to work performed on our cost-plus-incentive-fee development contract for the U.S. Navy's ATIP.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $1.6 million for both the three months ended October 31, 2013 and 2012 .

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Operating Income. Operating income for the three months ended October 31, 2013 and 2012 was $10.1 million, or 12.1% of consolidated net sales, and $13.4 million, or 14.7% of consolidated net sales, respectively. Operating income for the three months ended October 31, 2013 and 2012 reflects a benefit of $0.2 million and a net benefit of $1.6 million, respectively (as discussed above in the selling, general and administrative expenses section). Excluding these amounts, operating income for the three months ended October 31, 2013 and 2012 would have been $9.9 million, or 11.9% , and $11.8 million, or 13.0% , of consolidated net sales, respectively.

The decline in operating income (both in dollars and as a percentage of consolidated net sales) is primarily attributable to the overall lower level of consolidated net sales and gross profit percentage we achieved during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 . Operating income, by segment, is discussed further below.

Operating income in our telecommunications transmission segment was $8.9 million, or 16.4% of related segment net sales, for the three months ended October 31, 2013 , as compared to $12.3 million, or 23.0% of related segment net sales, for the three months ended October 31, 2012 . Excluding the previously discussed changes in fair value of the Stampede contingent earn-out liability in both the three months ended October 31, 2013 and 2012, operating income, as a percentage of related net sales, was 16.0% and 18.6% , respectively. The decrease from 18.6% to 16.0% was primarily the result of changes in overall sales mix and gross profit percentage changes as previously discussed. Based on orders currently in our backlog and anticipated receipt of new orders, we expect that operating income in this segment, as a percentage of related segment net sales, will improve from current levels during the next three fiscal quarters as well as for the full fiscal year as compared to fiscal 2013.

Our RF microwave amplifiers segment generated operating income of $0.6 million, or 3.0% of related segment net sales, for the three months ended October 31, 2013 as compared to $1.7 million, or 6.8% of related segment net sales, for the three months ended October 31, 2012 . This decrease in operating income, both in dollars and as a percentage of related segment net sales, is primarily due to significantly lower net sales, as discussed above. Based on the nature and type of orders that are currently in our backlog, anticipated orders we expect to receive, and anticipated research and development spending, we expect that operating income in this segment (both in dollars and as a percentage of related segment net sales) will improve from current levels during the next three fiscal quarters as well as for the full fiscal year as compared to fiscal 2013.

Our mobile data communications segment generated operating income of $4.1 million, or 46.6% of related segment net sales, for the three months ended October 31, 2013 as compared to $ 3.5 million, or 28.1% of related segment net sales, for the three months ended October 31, 2012 . The increase in operating income, both in dollars and as a percentage of related segment net sales, was primarily driven by overall changes in this segment's sales mix (including the benefit of high margin revenue related to the sale of certain SENS technology solutions), as discussed above. Operating income in this segment for the three months ended October 31, 2012 also included a $0.8 million net pre-tax restructuring charge associated with the wind-down of our microsatellite product line. Although net sales in our mobile data communications segment are expected to be significantly lower in fiscal 2014, operating income in this segment (in dollars) is expected to be comparable to the level we achieved in fiscal 2013. Based on the nature and type of orders that are currently in our backlog and the anticipated orders we expect to receive, we expect that operating income in this segment, as a percentage of related net sales in fiscal 2014, will be higher than the amount we achieved in fiscal 2013.

Unallocated operating expenses were $3.5 million for the three months ended October 31, 2013 as compared to $4.1 million for the three months ended October 31, 2012 . The $0.6 million decrease is primarily attributable to a decline in selling, general and administrative expenses associated with the lower level of consolidated net sales.

Amortization of stock-based compensation expense, which is included in unallocated operating expenses, was $0.9 million for the three months ended October 31, 2013 as compared to $0.7 million in the three months ended October 31, 2012 .

Based on the level and composition of sales that we expect to achieve in fiscal 2014, we are targeting GAAP operating income, as a percentage of consolidated net sales, to be at least 11.0% in fiscal 2014.

Interest Expense. Interest expense was $2.0 million and $2.1 million for the three months ended October 31, 2013 and 2012 , respectively, and primarily reflects interest on our 3.0% convertible notes. We expect that our 3.0% convertible notes will be converted or redeemed in May 2014. As such, we currently anticipate that interest expense in fiscal 2014 will be lower than fiscal 2013.

Interest Income and Other. Interest income and other for the three months ended October 31, 2013 and 2012 was $ 0.3 million in both periods. 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 0.34%.

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Provision for Income Taxes. The provision for income taxes was $3.0 million and $ 4.1 million for the three months ended October 31, 2013 and 2012 , respectively. Our effective tax rate was 36.5% for the three months ended October 31, 2013 , as compared to 35.5% for the three months ended October 31, 2012 . The increase from 35.5% to 36.5% is principally attributable to the product and geographical mix changes reflected in our fiscal 2014 business outlook. Our effective tax rate for the three months ended October 31, 2013 does not assume that the federal research and experimentation credit will be extended past December 31, 2013. There was no benefit for federal research and experimentation credits in the effective tax rate for the three months ended October 31, 2012.

Excluding the impact of any potential discrete tax items, our fiscal 2014 effective tax rate is expected to approximate 36.5%.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash and cash equivalents decreased to $ 346.6 million at October 31, 2013 from $356.6 million at July 31, 2013 , a decrease of $10.0 million. The decrease in cash and cash equivalents during the three months ended October 31, 2013 was driven by the following:

•

Net cash used in operating activities was $ 1.2 million for the three months ended October 31, 2013 as compared to net cash provided by operating activities of $ 11.9 million for the three months ended October 31, 2012 . The decrease was primarily attributable to a significant increase in net working capital requirements, most notably the timing of shipments and payments received from customers during the three months ended October 31, 2013 as compared to the three months ended October 31, 2012 . Although we expect to generate significant positive net cash from operating activities for the remainder of fiscal 2014, we are unable to accurately predict the amount, which will be largely dependent on the impact of timing associated with our overall sales efforts, including our efforts related to both our $58.6 million and $57.4 million over-the-horizon microwave systems contracts.


•	Net cash used in investing activities for the three months ended October 31, 2013 was $ 1.0 million as compared to $ 1.1 million for the three months ended October 31, 2012 . Both of these amounts primarily represent expenditures relating to ongoing equipment upgrades and enhancements.

•

Net cash used in financing activities was $ 7.8 million for the three months ended October 31, 2013 as compared to $ 4.2 million for the three months ended October 31, 2012 . During the three months ended October 31, 2013 , we spent $3.6 million for repurchases of our common stock and we paid $4.5 million in cash dividends to our stockholders. During the three months ended October 31, 2012 , there were no repurchases of our common stock and we paid $4.8 million in cash dividends.

Our investment policy relating to our unrestricted cash and cash equivalents is intended to minimize principal loss while at the same time maximizing 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 or the ultimate outcome of the current European monetary issues and related concerns, 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 of October 31, 2013 , our material short-term cash requirements primarily consist of cash necessary to fund: (i) our ongoing working capital needs, including income tax payments, (ii) accrued and anticipated quarterly dividends, and (iii) repurchases of our common stock that we may make pursuant to our stock repurchase program. Our material short-term cash requirements also include the possible use of cash to repay $200.0 million of our 3.0% convertible senior notes, as the holders of our 3.0% convertible senior notes may require us to repurchase some or all of the outstanding notes on May 1, 2014. In addition, we may also redeploy a portion of our cash and cash equivalents for one or more acquisitions.

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During the three months ended October 31, 2013 , we repurchased 124,753 shares of our common stock in open-market transactions with an average price per share of $28.73 and at an aggregate cost of $3.6 million (including transaction costs). As of October 31, 2013 , we were authorized to repurchase up to an additional $30.8 million of our common stock, pursuant to a $50.0 million stock repurchase program that was authorized by our Board of Directors in December 2012 (which, effective December 9, 2013 has been increased to $100.0 million). 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. As of December 9, 2013 , approximately $71.0 million remains available for repurchases of our common stock.

On October 3, 2013 , our Board of Directors declared a quarterly dividend of $0.275 per common share, which was paid to shareholders on November 19, 2013 . On December 9, 2013 , our Board of Directors increased our annual target dividend from $1.10 per common share to $1.20 per common share and, in connection with this target, declared a quarterly dividend of $0.30 per common share, payable on February 19, 2014 to shareholders of record at the close of business on January 17, 2014 . This latest dividend declaration represents our fourteenth consecutive quarterly dividend. Future dividends are subject to Board approval.

Our material long-term cash requirements primarily consist of payments relating to our operating leases. In addition, we expect to make future cash payments of approximately $4.6 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 (9) Cost Reduction Actions - 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. Because of our strong cash position and the nominal amount of interest we are earning on our cash and cash equivalents, we have, on a limited basis, approved certain customer requests. We continue to monitor our accounts receivable credit portfolio and have not had any material negative customer credit experiences to date.

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.

The outcome of legal proceedings and investigations, as discussed in “ Notes to Condensed Consolidated Financial Statements – Note (19) Legal Proceedings and Other Matters,” is inherently difficult to predict and an adverse outcome in one or more matters could have a material adverse effect on our consolidated financial condition and results of operations.

Based on our anticipated level of future sales and operating income, we believe that our existing cash and cash equivalent balances and our cash generated from operating activities will be sufficient to meet both our currently anticipated short-term and long-term operating cash requirements.

We currently expect capital expenditures for fiscal 2014 to be approximately $5.0 million to $7.0 million.

FINANCING ARRANGEMENTS

In May 2009, we issued $200.0 million of our 3.0% convertible senior notes in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from this transaction were approximately $194.5 million after deducting the initial purchasers’ discount and transaction costs. For further information, see “Notes to Condensed Consolidated Financial Statements – Note (11) 3.0% Convertible Senior Notes.”

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We have a committed $100.0 million secured revolving credit facility ("Credit Facility") with a syndicate of bank lenders, as amended June 6, 2012. The Credit Facility, as amended December 6, 2013, expires on October 31, 2014 but may be extended by us to December 31, 2016 , subject to certain conditions relating primarily to the repurchase, redemption or conversion of our 3.0% convertible senior notes and compliance with all other Credit Facility covenants. The Credit Facility provides for the extension of credit to us in the form of revolving loans, including letters of credit, at any time and from time to time during its term, in the aggregate principal amount at any time outstanding not to exceed $100.0 million for both revolving loans and letters of credit, with sub-limits of $15.0 million for commercial letters of credit and $35.0 million for standby letters of credit. Subject to certain limitations as defined, the Credit Facility may be used for acquisitions, stock repurchases, dividends, working capital and other general corporate purposes. Since the inception of our Credit Facility in 2009, we have had no revolving loans under the Credit Facility. At October 31, 2013 , we had $1,871,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

As amended December 6, 2013, the Credit Facility contains covenants, including covenants limiting certain debt, certain liens on assets, certain sales of assets and receivables, certain payments (including dividends), certain repurchases of equity securities, certain sale and leaseback transactions, certain guaranties, certain investments and certain minimum levels of cash and cash equivalents. Under certain conditions, the Credit Facility also contains financial condition covenants requiring that we (i) not exceed a maximum ratio of consolidated total indebtedness to Consolidated Adjusted EBITDA (each as defined in the Credit Facility and compliance with which was waived as of October 31, 2013 ); (ii) not exceed a maximum ratio of consolidated senior secured indebtedness to Consolidated Adjusted EBITDA (each as defined in the Credit Facility); (iii) maintain a minimum fixed charge ratio (as defined in the Credit Facility); (iv) maintain a minimum consolidated net worth; in each case measured on the last day of each fiscal quarter and (v) in the event total consolidated indebtedness (as defined in the Credit Facility) is less than $200.0 million , we must maintain a minimum level of Consolidated Adjusted EBITDA (as defined in the Credit Facility).

For additional information related to our Credit Facility, see “Notes to Condensed Consolidated Financial Statements - Note (10) Credit Facility.”

OFF-BALANCE SHEET ARRANGEMENTS

As of October 31, 2013 , 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, 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 October 31, 2013 , will materially adversely affect our liquidity. At October 31, 2013 , cash payments due under long-term obligations, excluding interest on our 3.0% convertible senior notes and 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 2014		2015 and 2016		2017 and 2018	After 2018
Operating lease commitments	$	26,897		4,999		11,034		7,430	3,434
3.0% convertible senior notes (see below)	200,000			—		—		—	200,000
Total contractual cash obligations	226,897			4,999		11,034		7,430	203,434
Less contractual sublease payments	(2,563		)	(948	)	(1,615	)	—	—
Net contractual cash obligations	$	224,334		4,051		9,419		7,430	203,434

As discussed further in “Notes to Condensed Consolidated Financial Statements – Note (11) 3.0% Convertible Senior Notes” on May 8, 2009 , we issued $200.0 million of our 3.0% convertible senior notes. Although these notes have a maturity date of May 1, 2029, holders of the notes have the right to require us to repurchase some or all of the outstanding notes, solely for cash, on May 1, 2014 , May 1, 2019 and May 1, 2024 and upon certain events, including a change in control. Our 3.0% convertible senior notes are reflected as a current liability in our Condensed Consolidated Balance Sheet at October 31, 2013 , as it is possible that the holders of the notes may require us to repurchase some or all of the outstanding notes on May 1, 2014. If not redeemed by us or repaid pursuant to the holders’ right to require repurchase, the notes mature on May 1, 2029 .

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As discussed further in “Notes to Condensed Consolidated Financial Statements – Note (18) Stockholders’ Equity,” on December 9, 2013 , our Board of Directors increased our annual target dividend from $1.10 per common share to $1.20 per common share and, in connection with this target, declared a dividend of $0.30 per common share to be paid on February 19, 2014 to shareholders of record at the close of business on January 17, 2014 . Future dividends are subject to Board approval. No dividend amounts are included in the above table.

At October 31, 2013 , we have approximately $1.9 million of standby letters of credit outstanding under our Credit Facility related to the guarantee of future performance on certain 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. 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 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.

Pursuant to an indemnification agreement with our CEO (see Exhibit 10.1, "Form of Indemnification Agreement" in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on March 8, 2007), our Board of Directors agreed to pay, on behalf of our CEO, expenses incurred by him in connection with an investigation conducted by the SEC and an investigation by the United States Attorney for the Eastern District Court of New York, on the condition that Mr. Kornberg repay such amounts to the extent that it is ultimately determined that he is not entitled to be indemnified by us. To-date, legal expenses paid on behalf of our CEO have been nominal. We have incurred approximately $1.5 million of expenses (of which approximately $1.0 million was incurred in fiscal 2012 and approximately $0.5 million was incurred in fiscal 2013) responding to the subpoenas that are discussed in “Notes to Condensed Consolidated Financial Statements - Note (19) Legal Proceedings and Other Matters.” Any amounts that may be advanced to our CEO in the future are not included in the above table.

Our Condensed Consolidated Balance Sheet at October 31, 2013 includes total liabilities of $3.1 million for uncertain tax positions, including interest, 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 three months ended October 31, 2013, we adopted FASB ASU No. 2011-11, which requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. In addition, we also adopted ASU No. 2013-01, which clarifies that the scope of ASU No. 2011-11 applies to derivatives accounted for in accordance with Topic 815, "Derivatives and Hedging," including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar arrangement. Our adoption of this ASU, as amended, did not have any impact on our consolidated financial statements.

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In addition, the following FASB ASUs have been issued and incorporated into the ASC and have not yet been adopted by us as of October 31, 2013:

•

FASB ASU No. 2013-04, issued in February 2013, which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements, for which the total amount of the obligation is fixed at the reporting date. Examples of obligations within the scope of this ASU include debt arrangements, settled litigation and judicial rulings and other contractual obligations. This ASU is effective no later than the first quarter of our fiscal 2015, and should be applied retrospectively to all prior periods presented, for those obligations that exist at the beginning of the fiscal year of adoption. We are currently evaluating if this ASU will have any potential impact on our consolidated financial statements and or disclosures.

•

FASB ASU No. 2013-05, issued in March 2013, which requires a parent company, that ceases to have a controlling interest in a subsidiary or group of assets that is a non profit entity or business within a foreign entity, to release any cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This ASU is effective in our first quarter of fiscal 2015 and should be applied prospectively. Early adoption is permitted. We do not believe that the adoption of this ASU will have any impact on our consolidated financial statements, as we currently do not have cumulative translation adjustments in our Condensed Consolidated Balance Sheet.

•

FASB ASU No. 2013-07, issued in April 2013, which clarifies that an entity should apply the liquidation basis of accounting when liquidation is imminent, as defined. This ASU also provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective prospectively for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013 (our first quarter of fiscal 2015) and interim reporting periods therein. Early adoption is permitted. As we do not believe that liquidation is imminent, we do not believe that adoption of this ASU will have any impact on our consolidated financial statements.

•

FASB ASU No. 2013-11, issued in July 2013, which amends the presentation requirements of ASC 740, "Income Taxes," and which generally requires that unrecognized tax benefits, or portions of unrecognized tax benefits, relating to a net operating loss carryforward, a similar tax loss, or a tax credit carryforward be presented in the financial statements as a reduction to the associated deferred tax asset. This ASU is effective in our first quarter of fiscal 2015 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application are permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures. As this ASU relates to presentation and disclosure only, we do not expect this ASU to impact our consolidated results of operations.

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.

As of October 31, 2013 , we had unrestricted cash and cash equivalents of $346.6 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 October 31, 2013 , a hypothetical change in interest rates of 10% would have a $0.1 million 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.

Our 3.0% convertible senior notes bear a fixed rate of interest. As such, our earnings and cash flows are not sensitive to changes in interest rates on our long-term debt. As of October 31, 2013 , we estimate the fair market value on our 3.0% convertible senior notes to be $210.1 million based on quoted market prices in a n active market.

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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 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. 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.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See “Notes to Condensed Consolidated Financial Statements - Note (19) 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, 2013 .

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The number and average price of shares purchased during the three months ended October 31, 2013 are set forth in the table below:



	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
August 1 – August 31, 2013	—	$	—	—	$	34,334,000
September 1 – September 30, 2013	—	—		—	34,334,000
October 1 – October 31, 2013	124,753	28.73		124,753	30,752,000
Total	124,753	28.73		124,753	30,752,000

During the three months ended October 31, 2013 , we repurchased 124,753 shares of our common stock in open-market transactions with an average price per share of $28.73 and at an aggregate cost of $3.6 million (including transaction costs). As of October 31, 2013 , we were authorized to repurchase up to an additional $30.8 million of our common stock, pursuant to a $50.0 million stock repurchase program that was authorized by our Board of Directors in December 2012 (which, effective December 9, 2013 has been increased to $100.0 million). 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. As of December 9, 2013 , approximately $71.0 million remains available for repurchases of our common stock.

See “Notes to Condensed Consolidated Financial Statements - Note (10) Credit Facility,” in Part I, Item 1. of this Form 10-Q for a description of certain restrictions on equity security repurchases.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 6. Exhibits


(a)	Exhibits

Exhibit 10.1 - Fourth Amended and Restated Employment Agreement dated November 7, 2013, between the Registrant and Fred Kornberg

Exhibit 10.2 - Form of Share Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan

Exhibit 10.3 - Seventh Amendment to Credit Facility, dated as of June 24, 2009 (as amended by the Amendment dated as of December 6, 2013), by and among Comtech Telecommunications Corp. and Citibank, N.A., as Administrative Agent and the Lenders Party Hereto

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

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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:	December 9, 2013	By: /s/ Fred Kornberg
		Fred Kornberg
		Chairman of the Board
		Chief Executive Officer and President
		(Principal Executive Officer)



Date:	December 9, 2013	By: /s/ Michael D. Porcelain
		Michael D. Porcelain
		Senior Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

FOURTH AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “ Agreement ”) dated November 7, 2013 between Comtech Telecommunications Corp. (the “ Company ”) and Fred Kornberg (“ Kornberg ”).

Kornberg is presently Chairman of the Board of Directors, President and Chief Executive Officer of the Company and is employed pursuant to a third amended and restated employment agreement dated August 1, 2011 (the “ Prior Agreement ”). The Company and Kornberg now desire to enter into a further amended and restated employment agreement on the terms and conditions set forth herein.

Accordingly, the Company and Kornberg hereby amend and restate the Prior Agreement to read in its entirety as follows:

1. The Company hereby employs Kornberg as general manager and chief executive officer of its business for the period (hereinafter referred to as the “ Employment Period ”) commencing as of November 7, 2013 and, except as otherwise provided in Paragraph 6 hereof, terminating at the close of business on July 31, 2017. Kornberg shall have supervision over the business and affairs of the Company and its subsidiaries, shall report and be responsible only to the Board of Directors of the Company, and shall have powers and authority superior to those of any other officer or employee of the Company or any of its subsidiaries. Kornberg accepts such employment and agrees to devote his full business time and effort to the business and affairs of the Company and, subject to his election as such, to serve as a director and as Chairman of the Board and President of the Company. He shall not be required to relocate his principal residence or to perform services which would make the continuance of such residence inconvenient to him. Except as otherwise specifically provided herein, if Kornberg remains employed by the Company following the expiration of the Employment Period, his employment with the Company shall be “at will.”

2. The Company shall pay to Kornberg, for all services rendered by him during the Employment Period, compensation as follows:

(a) Salary (“ Base Salary ”) at the annual rate of $735,000, plus such additional amounts, if any, as the Board of Directors may from time to time determine, payable in accordance with the Company’s current practice. Once increased, the Base Salary may not be decreased without Kornberg’s prior written consent.

(b) Incentive compensation (“ Incentive Compensation ”) for each fiscal year in which any part of the Employment Period falls in an amount equal to 3.0% of the Company’s Pre-Tax Income for each such fiscal year; provided, however, that (1) the amount payable under this Paragraph 2(b) in respect of a completed fiscal year and paid at a time that Kornberg remains employed shall be reduced such that the amount, together with Base Salary projected to be payable in that fiscal year, will equal $1 million (references to “Incentive Compensation” elsewhere in this Agreement refer to the amount calculated without regard to this

reduction); and (2) if the Employment Period Terminates earlier than at the end of a fiscal year, Incentive Compensation shall be based upon the Company’s Pre-Tax Income for the then current fiscal year through the date of Termination of Employment, but without duplication of any payout of an annual incentive award authorized under the Company's 2000 Stock Incentive Plan (the “ 2000 Plan ”). In addition, Kornberg may receive from time to time, in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “ Compensation Committee ”), additional incentive compensation, which may be intended to comply with the “performance-based compensation” exception under Section 162(m) of the Internal Revenue Code, under the 2000 Plan on such terms and conditions as determined by the Compensation Committee. For purposes of this Paragraph 2(b):

(i) The Company’s “Pre-Tax Income” for any fiscal year or period shall be the consolidated earnings of the Company and its subsidiaries for such fiscal year or period, as audited by the independent accounting firm employed by the Company as its regular auditors in accordance with generally accepted accounting principles applied on a consistent basis, before: (A) any extraordinary item, (B) stock-based compensation expense before income tax benefit under FASB ASC Topic 718, (C) provision for federal, state or municipal income taxes thereon, (D) provision for any Incentive Compensation payable to Kornberg hereunder, (E) costs associated with exit or disposal activities under FASB ASC Topic 420, (F) impairment loss on Goodwill under FASB ASC Topic 350, (G) impairment loss on long-lived assets under FASB ASC Topic 360, (H) expenses relating to a potential or actual Change in Control (as defined in Section 14.2 of the 2000 Plan), (I) expenses in connection with a potential or actual purchase business combination under FASB ASC Topic 805 or other accounting literature, (J) expenses associated with termination of employees under FASB ASC Topic 420, (K) write-off of purchased in-process research and development under FASB ASC 730, (L) amortization of newly acquired intangibles with finite lives relating to the acquisition of a trade or business, (M) any adjustment to income before provision of income taxes as required by adoption of a new accounting standard, and (N) at the discretion of the Compensation Committee, any non-recurring items.

(ii) Incentive Compensation payable with respect to any fiscal year shall be paid in cash to Kornberg. Incentive Compensation payable under clause (1) of the preamble of this Paragraph 2(b) shall be paid no later than the end of the calendar year in which the fiscal year to which it relates ends promptly after completion of the Company’s audited year-end financial statements for such fiscal year (but in any event by the end of the calendar year in which such fiscal year ends) and at the same time as incentive compensation is paid to the other most senior executive officers of the Company. Incentive Compensation payable under clause (2) of the preamble of this Paragraph 2(b) shall be paid on the 60 ^th day after his Termination of Employment based on unaudited financial information for the relevant period, subject to Paragraph 15(c). If Kornberg voluntarily terminates his employment with the Company other than as permitted by Paragraph 6(b) of this Agreement, or if the Company terminates his employment for “cause” as defined in Paragraph 6(a) hereof, Kornberg shall forfeit his right to receive any Incentive Compensation accrued but unpaid in accordance with this Paragraph 2(b)(ii).

3. During the Employment Period, Kornberg shall be entitled to participate in, and receive benefits in accordance with, the Company’s employee benefit plans and programs at the time maintained by the Company for its executives, subject to the provisions of such plans and programs. In addition, during the Employment Period, the Company will provide Kornberg, at the Company’s expense, with: (i) a monthly automobile allowance equal to the amount being provided on the date of this Agreement, (ii) reimbursement for actual expenses, including fuel, insurance and maintenance, incurred in connection with operating such automobile, and (iii) a monthly expense allowance equal to the amount currently being provided on the date of this Agreement for use at Kornberg’s discretion.

4. During the Employment Period, Kornberg shall be entitled to receive reimbursement for all expenses reasonably incurred by him in connection with his duties hereunder in accordance with the usual policies and procedures of the Company.

5. (a) During the Employment Period, Kornberg shall be entitled to annual reimbursement from the Company of the cost of premiums paid by Kornberg to secure such life insurance coverage on Kornberg’s life as Kornberg determines in his discretion; provided that the Company’s maximum annual reimbursement obligation under this Paragraph 5(a) shall be capped based on the annual cost of a customary term life insurance policy with a maximum face amount of $3.5 million (or, if higher, five times Kornberg’s then Base Salary) purchased for a five-year term for a non-smoker at the same age as Kornberg as of the date hereof, such cost to be determined within six months after the date hereof. This benefit is intended to be in addition to, and not in lieu of, any group life insurance coverage provided by the Company.

(b) In addition to the insurance provided for in Paragraph 5(a) hereof, the Company, in its discretion, and at its own cost and expense, may also obtain insurance covering Kornberg’s life in such amount as it considers advisable, payable to the Company, and Kornberg agrees to cooperate fully to enable the Company to obtain such insurance.

6. The Employment Period may be earlier Terminated only as follows:

(a) By action of the Board of Directors of the Company, upon notice to Kornberg, if during the Employment Period Kornberg shall fail to render the services provided for hereunder for a continuous period of 12 months because of his physical or mental incapacity, or for “cause,” which shall mean (i) willful misconduct, gross negligence, dishonesty, misappropriation, breach of fiduciary duty or fraud by Kornberg with regard to the Company or any of its assets or businesses; (ii) conviction of Kornberg or the pleading of nolo contendere with regard to any felony or crime (for the purpose hereof, traffic violations and misdemeanors shall not be deemed to be a crime); or (iii) any material breach by Kornberg of the provisions of this Agreement which is not cured within thirty days after written notice to Kornberg of such breach from the Board of Directors of the Company.

(b) By Kornberg for “Good Reason,” as defined below, on 30 days’ notice to the Company within 2.5 years after a Change in Control of the Company, as defined in Paragraph 7(d) hereof, occurs. “Good Reason” for Termination of Employment by Kornberg means the occurrence, without Kornberg’s written consent, simultaneous with or within two years after a Change in Control, of any one of the events specified in clause (i), (ii) or (iii) below,

provided that Kornberg has given written notice to the Company that an event constituting Good Reason has occurred within 90 days after the initial existence of the condition giving rise to such specified Good Reason, and the Company has failed to fully correct the specified Good Reason within 30 days after receipt of such notice (such correction by the Company having the effect of canceling such notice and any related Termination of Employment), and Kornberg’s separation from service occurs within two years after the initial event constituting Good Reason (but not more than 2.5 years after the Change in Control):

(i) The assignment to Kornberg of any duties inconsistent in any material adverse respect with Kornberg’s position, authority or responsibilities immediately prior to the occurrence of the Change in Control or any other material adverse change in such position, authority or responsibilities; for this purpose and for clarity (without limiting the scope of this clause (i)), Kornberg’s position, authority or responsibilities will be deemed to be materially and adversely changed if (A) Kornberg ceases to be the most senior executive officer of the ultimate parent entity of the group of entities that includes the Company (or any successor) or he is the most senior executive officer but such ultimate parent entity or the Company (or any successor) does not have an outstanding class of common stock listed on a national securities exchange, or (B) the Board of Directors of the Company (or any successor) or a Board committee approves or adopts a significant business strategy or policy, including without limitation a material acquisition or disposition of assets, change in capitalization (including a material extraordinary dividend or spinoff), or reduction in force, which business strategy or policy was not approved by a majority of Incumbent Directors (as defined in Paragraph 7(d)(ii)) and was not approved by Kornberg in his capacity as a Director;

(ii) A material reduction by the Company in any of (A) Kornberg’s annual base salary in effect immediately prior to the Change in Control and as such base salary thereafter may have been increased, (B) Kornberg’s annual incentive opportunity (i.e., bonus, as specified below), or (C) Kornberg’s annual equity award (as specified below), or (D) the monthly allowances provided for in Section 3. For this purpose, a reduction of $10,000 in amount or value, on an annualized basis, of Kornberg’s base salary, annual equity award value or allowances in Section 3 or of these elements in the aggregate, will be deemed "material" (other changes may be material in the particular circumstances). A material reduction in Kornberg’s annual incentive opportunity will have occurred (x) if the amount potentially earnable in a given fiscal year is less than 3.0% of “Post-CiC Pre-Tax Income” (as defined below), taking into account both the required annual incentive under Paragraph 2(b) and any discretionary Annual Incentive Award (as defined in Paragraph 7(a)(ii)), (y) if negative discretion is exercised with respect to the potential annual incentive payout in a manner materially inconsistent with exercises of negative discretion in the three fiscal years prior to the Change in Control by the Company with respect to Kornberg’s potential annual incentive payout, or (z) if the actual incentive award paid is less than 80% of the average actual Annual Incentive Award for the

three fiscal years prior to the Change in Control, taking into account both the required annual incentive under Paragraph 2(b) and any discretionary Annual Incentive Award. For purposes of this Section 6(b)(ii), “Post-CiC Pre-Tax Income” shall mean Pre-Tax Income as defined in Section 2(b)(i) or the alternative definition of pre-tax income used for calculating the Annual Incentive Award in the year in which the Change in Control occurred (or the preceding year if the Annual Incentive Award opportunity for that year was not yet established at the time of the Change in Control) or in the year preceding the year in which the existence of Good Reason is being determined, whichever definition would result in the highest amount. Annual equity awards shall be deemed to have a value determined in a manner consistent with the Company's (or then parent entity's) internal valuation method for such awards used at the time of grant. It shall not constitute a material reduction in the annual equity grant for the Company to change the form of such award to either an award based on the equity of the surviving parent entity or cash, provided the value thereof is not materially reduced as set forth above; or

(iii) The relocation of the principal place of Kornberg’s employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company’s business to an extent substantially consistent with Kornberg’s business travel obligations prior to the Change in Control.

7. If either (A) Kornberg terminates the Employment Period in accordance with Paragraph 6(b) hereof, or (B) following the Employment Period Kornberg remains employed by the Company and during the two-year period following the end of the Employment Period he terminates his employment for Good Reason as defined in Paragraph 6(b) on thirty days notice to the Company and within 2.5 years after a Change in Control of the Company that occurred during the Employment Period, the following provisions shall apply

(a) The Company shall pay to Kornberg, on the 60 ^th day after the effective date of the Termination (the “ Effective Date ”), subject to Paragraph 15(c) hereof, a lump sum equal to:

(i) the greater of (x) Kornberg’s Base Salary, at the rate in effect at the time such notice is given, for the full unexpired term of the Employment Period, and (y) 2.5 times Kornberg’s Base Salary then in effect; plus

(ii) an amount equal to 2.5 times Kornberg’s average Incentive Compensation plus Annual Incentive Awards under the 2000 Plan actually paid or payable for performance in the three fiscal years preceding the year in which the Change in Control occurs (which for this purpose shall also include any annual incentive amounts paid to Kornberg for service to the Company or to a subsidiary that was at the time of such service wholly owned (directly or indirectly) by the Company). “Annual Incentive Award” shall include for this

purpose the annual incentive compensation (including for this purpose any long term performance share award) during the applicable period or any award to the extent specified by the Board of Directors of the Company (or a committee thereof) in the relevant award agreement or any other equity based awards in each case paid during the relevant period in lieu of the relevant annual non-equity incentive compensation; provided that grants of stock options (or restricted stock units or performance shares or, to the extent specified by the Board of Directors of the Company (or a committee thereof) in the relevant award agreement, other equity based awards in each case granted in lieu of stock options) granted by the Company in the normal course shall not be considered annual incentive awards and provided further that, (A) the grant date fair value of any equity based award granted as annual incentive compensation shall be included in the computation of the annual incentive amounts paid in any applicable fiscal year based upon the grant date fair value of such award for accounting purposes and (B) any dividend equivalents paid or payable with respect to such an equity based award shall not be considered annual incentive compensation; plus

(iii) the amount of any unpaid Incentive Compensation (x) accrued with respect to any fiscal year ended prior to the Effective Date, and/or (y) accrued with respect to the then current fiscal year, pursuant to the proviso in Paragraph 2(b); plus

(iv) the amount of $37,500.

(b) Subject to Paragraph 15(c) hereof to the extent considered to result in the “deferral of compensation” under Code Section 409A, for the greater of (x) the full unexpired term of the Employment Period (but not beyond the December 31, of the second calendar year following Termination) or (y) the two-year period following Kornberg’s Termination (the “ Continuation Period ”), the Company shall continue Kornberg’s participation in each employee benefit plan or reimbursement arrangement (including, without limitation, life insurance (and the life insurance reimbursement provided in Paragraph 5(a) above), but excluding medical plans which are within the scope of Section 4980D of the Code, in which Kornberg was entitled to participate immediately prior to the Effective Date as if he continued to be employed by the Company hereunder. If the terms of any benefit plan of the Company may not under Section 401(a) or other similar provisions of the Internal Revenue Code of 1986, as amended (the “ Code ”), permit continued participation by Kornberg, the Company will arrange to credit to Kornberg benefits substantially equivalent to, as to time and amount, and no less favorable than, on an after-tax basis, the benefits he would have been entitled to receive under such plan (assuming he had elected to participate voluntarily to the maximum extent permissible) if he had been continuously employed by the Company during the Continuation Period with payment of any accrued amount on the date of the end of the Continuation Period. Kornberg shall have the option to have assigned to him, at no cost and with no apportionment of prepaid premiums, any assignable insurance policies owned by the Company that relate specifically to Kornberg and are payable to his estate or his designee(s).

(c)

(i) Notwithstanding any other provision of this Agreement, in the event Kornberg becomes entitled to any amounts or benefits payable in connection with a Change in Control (whether or not such amounts are

payable pursuant to this Agreement) (the “ Change in Control Payments ”), if any of such Change in Control Payments are subject to the tax (the “ Excise Tax ”) imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Change in Control Payments shall be reduced to the Reduced Amount (as defined below) if but only if reducing the Change in Control Payments would provide to Kornberg a greater net after-tax amount of Change in Control Payments than would be the case if no such reduction took place. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of the Change in Control Payments without causing any Change in Control Payment to be subject to the Excise Tax, determined in accordance with Section 280G(d)(4) of the Code. Any reduction in Change in Control Payments shall be implemented in accordance with Paragraph 7(c)(ii).

(ii) Any reduction in payments under this Paragraph 7(c) shall apply to cash payments and/or vesting of equity awards so as to minimize the amount of compensation that is reduced (i.e., it applies to payments or vesting that to the greatest extent represent parachute payments), with the amount of compensation based on vesting to be measured (to be minimally reduced, for purposes of this provision) by the intrinsic value of the equity award at the date of such vesting. Kornberg will be advised of the determination as to which compensation will be reduced and the reasons therefor, and Kornberg and his advisors will be entitled to present information that may be relevant to this determination. No reduction shall be applied to an amount that constitutes a deferral of compensation under Code Section 409A except for amounts that have become payable at the time of the reduction and as to which the reduction will not result in a non-reduction in a corresponding amount that is a deferral of compensation under Code Section 409A that is not currently payable.

For purposes of determining whether any of the Change in Control Payments will be subject to the Excise Tax and the amount of such Excise Tax:

(A) The Change in Control Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants, counsel or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Kornberg, the Change in Control Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning

of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax.

(B) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

For purposes of determining reductions in compensation under Paragraph 7(c), if any, Kornberg will be deemed (A) to pay federal income taxes at the applicable rates of federal income taxation for the calendar year in which the compensation would be payable; and (B) to pay any applicable state and local income taxes at the applicable rates of taxation for the calendar year in which the compensation would be payable, taking into account any affect on federal income taxes from payment of state and local income taxes. Compensation will be adjusted not later than the applicable deadline under Code Section 409A to provide for accurate payments under this Paragraph 7(c), but after any such deadline no further adjustment will be made if it would result in a tax penalty under Code Section 409A.

(iii) The Company shall have the right to control all proceedings with the Internal Revenue Service (or relating thereto) that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which compensation may be reduced hereunder, and Kornberg will be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. Kornberg agrees to cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax.

(d) Except as provided below, for purposes of this Agreement a Change in Control shall be deemed to have occurred:

(i) upon any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (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;

(ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, 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 sub-paragraph (i), (iii), or (iv) of this Paragraph 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 of the Company or nomination for election by the Company's stockholders was approved by a vote of 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 (an “Incumbent Director”), cease for any reason to constitute at least a majority of the Board of Directors of the Company;

(iii) 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 (i) 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

(iv) upon the stockholders of the Company’s approval of a plan of complete liquidation of the Company or 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.

(e) In connection with a Termination of Kornberg’s Employment triggering payments and benefits under this Paragraph 7, Kornberg shall have no further obligations hereunder and shall be under no duty to seek other employment or otherwise mitigate his damages, and no compensation or other payment from a third party shall reduce or offset his damages.

8. (a) In order to induce Kornberg to enter into this Agreement, the Company agrees that if it terminates Kornberg’s employment hereunder without cause, or if it otherwise breaches this Agreement and Kornberg terminates his employment as a result of such breach, Kornberg shall have no further obligations hereunder and shall be under no duty to seek other employment or otherwise mitigate his damages, no compensation or other payment from a third party shall reduce or offset his damages, and the Company shall pay Kornberg the following amounts as liquidated damages in lieu of any further obligations hereunder:

(i) Subject to Paragraph 15(c), an amount equal to his total Base Salary, at the rate in effect at the time of such breach, for the full unexpired term of the Employment Period, such amount to be payable on the 60 ^th day after such Termination; plus

(ii) Subject to Paragraph 15(c), an amount equal to his Incentive Compensation for the full fiscal year in which the breach occurs as if he had remained employed for the complete fiscal year, such amount to be payable when it otherwise would have been paid in accordance with Paragraph 2;

(iii) Kornberg’s rights to continue participation in the Company’s medical plans (under COBRA) shall be provided in accordance with applicable law without discrimination;

(iv) Subject to Paragraph 15(c), the Company shall make a single payment of $22,500 to Kornberg, such amount to be payable on the 60 ^th day after such Termination; and

(v) for the two year period following Kornberg’s Termination, the Company shall continue Kornberg’s participation in the Company’s life insurance plan or continue to provide the life insurance reimbursement provided in Paragraph 5(a) above, as applicable, as if he continued to be employed by the Company hereunder;

provided however, that if a Change in Control of the Company has occurred at any time prior to the date of such breach, Kornberg shall be entitled to receive as liquidated damages amounts and benefits equal to the amounts and benefits he would have been entitled to receive pursuant to Paragraph 7 hereof (including Paragraph 7(c)) if he had terminated the Employment Period effective on the date of breach, to the extent such payments or benefits would exceed the level of corresponding payments or benefits under this Paragraph 8(a) ( i.e. , without duplication of the payments and benefits provided in this Paragraph 8(a)).

(b) The Company shall be responsible for Kornberg’s reasonable attorney’s fees and disbursements in any action to recover any amounts due him or obtain other relief under this Agreement or in any action relating to a breach by the Company of this Agreement.

9. (a) Kornberg acknowledges that his services hereunder are of a special and unique nature and his position with the Company places him in a position of confidence and trust with clients and employees of the Company. Therefore, and in consideration of the Company’s performance of its covenants and agreements under this Agreement, Kornberg will not at any time during his employment with the Company and for a period of two years thereafter (the “ Restrictive Period ”), directly or indirectly, engage in any business (as an owner, joint venturer, partner, stockholder, director, officer, consultant, agent or otherwise, other than as the owner of less than 1% of the outstanding class of a publicly traded security) which competes with the business in which the Company is presently engaged or may be engaged at any time during his employment with the Company.

(b) Kornberg agrees that he will not (except on behalf of the Company during his employment with the Company), during the Restrictive Period, employ or retain, solicit the employment or retention of, or knowingly cause or encourage any entity to retain or solicit the employment or retention of, any person who is or was an employee of the Company at any time during the period commencing 12 months prior to the Termination of Kornberg’s

Employment with the Company. After Termination of Kornberg’s Employment with the Company: (i) Kornberg will refrain from disparaging, whether orally, in writing or in other media, the Company, its affiliates, the officers, directors and employees of each of them, and the products and services of each of them, and (ii) the Company will not disparage Kornberg or otherwise comment upon the employment performance of Kornberg other than as may be required by law or as requested by Kornberg.

(c) Any discovery, design, invention or improvement (whether or not patentable) that Kornberg develops during his employment with the Company (whether or not during his regular working hours or on the Company’s premises) and that is related to the Company’s business or operations as then conducted or contemplated, shall belong solely to the Company and shall be promptly disclosed to the Company. During the period of his employment with the Company and thereafter, Kornberg shall, without additional compensation, execute and deliver to the Company any instruments of transfer and take any other action that the Company may reasonably request to carry out the provisions of this Paragraph, including executing and filing, at the Company’s expense, patent and/or copyright applications and assignments of such applications to the Company.

(d) Kornberg will not at any time, directly or indirectly, without the Company’s prior written consent, disclose to any third party or use (except as authorized in the regular course of the Company’s business or in Kornberg’s performance of his responsibilities as the Company’s Chief Executive Officer) any confidential, proprietary or trade secret information that was either acquired by him during his employment with the Company or thereafter, including, without limitation, sales and marketing information, information relating to existing or prospective customers and markets, business opportunities, and financial, technical and other data (collectively, the “ Confidential Information ”). After Termination of Kornberg’s Employment with the Company for any reason and upon the written request of the Company, Kornberg shall promptly return to the Company all originals and/or copies of written or recorded material (regardless of the medium) containing or reflecting any Confidential Information and shall promptly confirm in writing to the Company that such action has been taken. Notwithstanding the foregoing, the following shall not constitute Confidential Information: (i) information that is already in the public domain at the time of its disclosure to Kornberg; (ii) information that, after its disclosure to Kornberg, becomes part of the public domain by publication or otherwise other than through Kornberg’s act; and (iii) information that Kornberg received from a third party having the right to make such disclosure without restriction on disclosure or use thereof.

10. Kornberg acknowledges that, in view of the nature of the Company’s business, the restrictions contained in this Agreement are reasonably necessary to protect the legitimate business interests of the Company and its affiliates and that any violation of such restrictions will result in irreparable injury to the Company for which money damages will not be an adequate remedy. Accordingly, Kornberg agrees that, in addition to such money damages, he may be restrained and enjoined from any continuing breach of such covenants without any bond or other security being required by any court. In the event of a material violation by Kornberg of any provision of Paragraph 9 hereof, any severance compensation being paid to Kornberg pursuant to this Agreement or otherwise shall immediately cease, and

any severance compensation previously paid to Kornberg (other than $1,000) shall be immediately repaid to the Company. If any restriction contained in this Agreement shall be deemed to be invalid, illegal or unenforceable by reason of the extent, duration or geographical scope, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated thereby.

11. In consideration of the payments and other undertakings set forth herein, Kornberg acknowledges that it is an express condition to his right to receive any payments or benefits pursuant to Paragraph 7 or Paragraph 8 that he deliver to the Company a fully effective copy of a release, in substantially the form attached hereto as Exhibit A (with such changes therein, if any, as are legally necessary at the time of execution to make it enforceable), within sixty (60) days following the date of Termination. The Company will provide Kornberg with a copy of the release to be executed within seven (7) days following the date of Termination.

12. Any offer, notice, request or other communication hereunder shall be in writing and shall be deemed to have been duly given if hand delivered or mailed by registered or certified mail, return receipt requested, addressed to the respective address of each party hereinafter set forth, or to such other address as each party may designate by a notice pursuant hereto, which change of address notice shall be effective upon receipt thereof



If to the Company:	Comtech Telecommunications Corp. 68 South Service Road Melville, NY 11747
	Attention: Secretary

If to Kornberg:	At his home address appearing in the records of the Company.

13. If any provision of this Agreement shall be held for any reason to be unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect.

14. This Agreement, including, without limitation, the provisions of this Paragraph 14, shall be binding upon and inure to the benefit of, and shall be deemed to refer with equal force and effect to, any corporate or other successor to the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or business of the Company. This Agreement shall not be assignable by the Company or any such successor, except to the corporate or other successor referred to in the preceding sentence. Kornberg may not assign, pledge or encumber his interest in this Agreement without the written consent of the Company. This Agreement shall be binding upon and inure to the benefit of Kornberg, his heirs and personal representatives. This Agreement constitutes the entire agreement by the Company and Kornberg with respect to the subject matter hereof and supersedes any and all prior agreements or understandings between Kornberg and the Company with respect to the subject matter hereof, whether written or oral (including, without limitation, the Prior Agreement). This Agreement may be amended or

modified only by a written instrument executed by Kornberg and the Company. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to its conflict of law principles.

15. (a) The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

(b) The intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If Kornberg notifies the Company (with specificity as to the reason therefor) that Kornberg believes that any provision of this Agreement (or of any award of compensation) would cause Kornberg to incur any additional tax or interest under Code Section 409A, the Company shall, after consulting with Kornberg, reform such provision to try to comply with Code Section 409A through good faith modifications to the minimum extent reasonably appropriate to conform with Code Section 409A. To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to Kornberg and the Company of the applicable provision without violating the provisions of Code Section 409A.

(c) “Termination (Terminates or Terminated)”, “Termination of Employment” and “Termination of the Employment Period” means an event by which Kornberg’s then current employment relationship with the Company and all subsidiaries (or a successor) has ended, regardless of whether Kornberg has been subsequently rehired into a new position (including, without limitation, as a consultant). However, notwithstanding the foregoing or any other provision to the contrary in this Agreement, any payment or the provision of any benefit that is specified as subject to this Paragraph or any other payment or provision of any benefit which constitutes a deferral of compensation for purposes of Code Section 409A that is to made upon a Termination of Employment shall only be made upon a “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h) and, if Kornberg is deemed on the date of such termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), such payment or benefit shall be made or provided (subject to the second to last sentence of this Paragraph 15(c)) at the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of such “separation from service” of Kornberg, and (ii) the date of Kornberg’s death (the “ Delay Period ”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Paragraph 15(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Kornberg in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding the foregoing, to the extent that the foregoing applies to the provision of any ongoing welfare benefits to Kornberg that would not be required to be delayed if the premiums therefor were paid by Kornberg, Kornberg shall pay the full cost of the premiums for such welfare benefits during the Delay Period and the Company shall pay Kornberg an amount equal to the amount of such premiums paid by Kornberg during

the Delay Period promptly after its conclusion. Subject to the previous sentence, the Company shall pay the Company portion of the premiums for any such ongoing welfare plan benefits on a monthly basis not later than the month following the due date for such premiums.

(d) Following the occurrence of a Change in Control, in the event that Kornberg becomes liable for any additional tax, interest or penalty under Code Section 409A or any damages resulting from the failure of the payments and benefits provided under this Agreement or any other arrangement between Kornberg and the Company to comply with Code Section 409A resulting from a failure of the Company to comply with a documentary or operational requirement under Code Section 409A, Kornberg shall be entitled to receive payment from the Company fully indemnifying him on an after-tax basis for the effect of such additional tax, interest, penalty or damages. Such additional indemnification payment shall be made within ninety days following the date on which Kornberg remits such additional tax, interest, penalty or damages.

(e) Any expense reimbursement under Paragraph 4, 5(a), 7(b), 8(a)(iv) or 8(b) hereof shall, except as permitted under Code Section 409A, be made on or before the last day of the taxable year following the taxable year in which such expense was incurred by Kornberg, and no such reimbursement or the amount of expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year. The right to receive a reimbursement or an in-kind benefit payable hereunder is not subject to liquidation or exchange for another benefit.

(f) Notwithstanding anything in this Agreement or elsewhere to the contrary, a Termination of Employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that constitute “non-qualified deferred compensation” within the meaning of Code Section 409A upon or following a Termination of Kornberg’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 this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service” and the date of such separation from service shall be the date of Termination for purposes of any such payment or benefits.

(g) Whenever a payment under this Agreement may be paid within a specified period, the actual date of payment within the specified period shall be within the sole discretion of the Company. With regard to any installment payments provided for under this Agreement, each installment thereof shall be deemed a separate payment for purposes of Code Section 409A.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF , the parties have executed this Agreement as of the day and year first written above.



	COMTECH TELECOMMUNICATIONS CORP.

	By: /s/ Michael D. Porcelain Authorized Signatory



Approval of Chairman of the Compensation Committee of the Board of Directors


/s/ Ira Kaplan		/s/ Fred Kornberg
		Fred Kornberg

Exhibit A

General Release

For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, I, for myself and my successors, assigns, heirs and representatives (each, a “Releasing Party”), hereby release and forever discharge Comtech Telecommunications Corp. (the “Company”), its stockholders, officers, directors, employees, agents and attorneys, and their respective successors, assigns, heirs and representatives (each, a “Released Party”), individually and collectively, from any and all claims, demands, causes of action, liabilities or obligations, known or unknown, pending or not pending, liquidated or not liquidated, of every kind and nature whatsoever (collectively, the “Released Claims”) which the Releasing Party has, has had or may have against any one or more of the Released Parties arising out of, based upon or in any way, directly or indirectly, related to the Company’s business, my employment with the Company or the Termination of such employment; provided , however , that this General Release shall have no effect whatsoever upon: (a) the Company’s obligations, if any, to pay any amounts or provide any benefits pursuant to the Fourth Amended and Restated Employment Agreement between the undersigned and the Company, dated November 7, 2013 (the “Employment Agreement”) or the rights of the undersigned to enforce such obligations; (b) any and all obligations of the Released Parties to defend, indemnify, hold harmless or reimburse the undersigned under the Employment Agreement and/or the Indemnification Agreement between the Company and the undersigned, and/or under applicable law and/or under their respective charters and by-laws and/or pursuant to insurance policies, if any, for acts or omissions in the undersigned’s capacity as a director, officer and/or employee thereof; and (c) any and all rights the undersigned may have to vested or accrued benefits or entitlements under and in accordance with any applicable plan, agreement, program, award, policy or arrangement of a Released Party.

The Released Claims include, without limitation, (a) all claims arising out of or relating to breach of contract, the Fair Labor Standards Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the National Labor Relations Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act and/or any other federal, state or local statute, law, ordinance, regulation or order as the same may be amended or supplemented from time to time, (b) all claims for back pay, lost benefits, reinstatement, liquidated damages, punitive damages, and damages on account of any alleged personal, physical or emotional injury, and (c) all claims for attorneys’ fees and costs.

I agree that I am voluntarily executing this General Release. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the Age Discrimination in Employment Act of 1967 and that the consideration given for the waiver and release is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the Age Discrimination in Employment Act of 1967, that: (a) my waiver and release specified herein does not apply to any rights or claims that may arise after the date I sign this General Release or my rights with respect to severance compensation, if any, payable to me pursuant to the Employment Agreement; (b) I have the right to consult with an attorney prior to signing this General Release; (c) I have twenty-one (21) days to consider this General Release (although I may choose to sign it earlier);

A-1

(d) I have seven (7) days after I sign this General Release to revoke it; and (e) this General Release will not be effective until the date on which the revocation period has expired, which will be the eighth day after I sign this General Release, assuming I have returned it to the Company by such date.



Dated:
			Fred Kornberg

A-2

Exhibit 10.2

[GRANT NUMBER]

SHARE UNIT AGREEMENT

PURSUANT TO THE

COMTECH TELECOMMUNICATIONS CORP.

2000 STOCK INCENTIVE PLAN

Dear [Employee Name]:

Preliminary Statement

As an employee of Comtech Telecommunications Corp. (the “ Company ”) or an Affiliate, pursuant to Section 11.1 of The Comtech Telecommunications Corp. 2000 Stock Incentive Plan, as amended (the “ Plan ”), you were granted on [Date] (the “ Grant Date ”), pursuant to the terms of the Plan and this Share Unit Agreement (this “ Agreement ”), the number of share units (the “ Units ”) set forth below. Each Unit represents one (1) share of the Company’s common stock, $.10 par value per share (the “ Common Stock ”).

The terms of the grant are as follows:

1. Grant of Units . Subject in all respects to the Plan and the terms and conditions set forth herein and therein, on the Grant Date you were granted [#] fully vested Units (the “ Award ”).

2. Payment . Subject to the terms of this Agreement and the Plan, you shall receive one share of Common Stock with respect to each Unit subject to the Award within thirty (30) days following the earliest to occur of your death, Disability, Termination of Employment, or a 409A Change in Control (such date of settlement, the “ Settlement Date ”). For purposes of this agreement:

(a) “ Disability ” means a Disability as defined in Plan Section 2.14 treating the Units as being subject to Code Section 409A;

(b) “ Termination of Employment ” means termination of employment as defined in Section 2.56 of the Plan; and

(c) “ 409A Change in Control ” means a Change in Control as defined under Section 14.2 of the Plan treating the Units as a deferral of compensation for purposes of Code Section 409A, except that any event that would constitute a Change in Control but would not constitute a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” under Treasury Regulation Section 1.409A-3(i)(5) shall not be deemed to constitute a “409A Change in Control.”

3. Dividend Equivalents . Any cash or Common Stock dividends paid on shares of Common Stock underlying a Unit prior to the Settlement Date for such Unit shall be credited to a dividend book entry account on your behalf (any such credited amount, a “Dividend Equivalent”). Any cash Dividend Equivalents shall not be deemed to be reinvested in shares of Common Stock and will be held uninvested and without interest. Any Dividend Equivalents with respect to cash dividends shall be paid to you in cash on the applicable Settlement Date on which the related Unit is settled. With respect to any Dividend Equivalents with respect to dividends of Common Stock, on the applicable Settlement Date on which the related Unit is settled you will be paid an amount in cash equal to the Fair Market Value of the Common Stock underlying such dividend as of the applicable Settlement Date. Prior to the payment thereof, any Dividend Equivalents will be encompassed within the term “Award” with respect to the relevant Units.

4. Detrimental Activity . In the event you engage in Detrimental Activity prior to, or during the one year period following the later of your Termination of Employment or any grant of Share Units, the Committee may direct (at any time within one year thereafter) that all of the Units (including any Dividend Equivalents credited thereupon) shall be immediately forfeited to the Company and that you shall pay over to the Company an amount equal to the amount realized from any Units or any Common Stock or Dividend Equivalents paid in connection therewith. For purposes of this Agreement, Detrimental Activity means: (a) activity while employed that results, or if known could result, in my Termination of employment for Cause (as defined below); (b) any breach of my Confidential Information and Inventions Agreement (or similar agreement) as reasonably interpreted by the Company; or (c) any breach of any other agreement between me and the Company (including, without limitation, any employment agreement) as reasonably interpreted by the Company. For purposes of the foregoing, “Cause” means Termination of employment due to my commission of a fraud or a felony in connection with my duties as an employee of the Company, willful misconduct or any act of disloyalty, dishonestly, fraud, breach of trust or confidentiality as to the Company or any other act which is intended to cause or may reasonably be expected to cause economic of reputational injury to the Company, or if my employment is governed by the terms of any employment agreement, “cause” as defined under such agreement.

5. Restriction on Transfer . The Award is not transferable other than by will or by the laws of descent and distribution. In addition, the Award shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Award shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate all or part of the Award or in the event of any levy upon the Award by reason of any execution, attachment or similar process contrary to the provisions hereof, the Award shall immediately become null and void.

6. Rights as a Stockholder . Except as otherwise specifically provided herein, you shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Award unless and until you have become the holder of record of the shares of Common Stock.

7. Provisions of Plan Control . This grant is subject to all the terms, conditions and provisions of the Plan, including, without limitation, Section 17.13 of the Plan (Section 409A of the Code) and the amendment provisions of the Plan, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Board of Directors of the Company and as may be in effect from time to time. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan. The Plan is incorporated herein by reference. If and to the extent that this grant conflicts or is inconsistent with the terms, conditions and provisions of the Plan, the Plan shall control, and this grant shall be deemed to be modified accordingly.

8. Notices . Any notice or communication given hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, or by United States mail, to the appropriate party at the address set forth below (or such other address as the party shall from time to time specify):

If to the Company, to:

Comtech Telecommunications Corp.

68 South Service Road, Suite 230

Melville, NY 11747

Attention: Secretary

If to you, to the address indicated at the end of this Agreement.

9. Withholding . You shall be solely responsible for all applicable foreign, federal, state, and local taxes with respect to the Units and the payment of Common Stock thereunder; provided, however, that at any time the Company is required to withhold any such taxes, you shall pay, or make arrangements to pay, in a manner satisfactory to the Company, an amount equal to the amount of all applicable federal, state and local or foreign taxes that the Company is required to withhold at any time, including, if then permitted by the Company, by electing to

reduce the number of shares of Common Stock otherwise then deliverable to you under this Award. In the absence of such arrangements, the Company or one of its Affiliates shall have the right to withhold such taxes from any amounts payable to you, including, but not limited to, the right to withhold shares otherwise deliverable to you under this Award. If the Company has announced that it will withhold shares in the absence of alternative arrangements, you must make arrangements for such alternative payment (if you wish to do so) either 60 days in advance of the applicable tax date or at a time when you are not otherwise precluded from trading Common Stock under the Company’s insider trading policies (unless otherwise determined by the Company). For clarity, the Company will not withhold, or permit you to require that the Company withhold, taxes in excess of the statutory minimums (e.g., federal, state and local taxes, including payroll taxes) and the Company, as a matter of practice, will not withhold taxes in excess of statutory minimums. If a taxing authority or jurisdiction has multiple statutory withholding rates to choose from, the lowest withholding rate must be withheld.

10. Securities Representations . The grant of the Award and issuance of shares of Common Stock upon settlement of the Award shall be subject to, and in compliance with, all applicable requirements of federal, state or foreign securities law. No shares of Common Stock may be issued hereunder if the issuance of such shares would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which such shares may then be listed. As a condition to the settlement of the Award, the Company may require you to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation.

The shares of Common Stock are being issued to you and this Agreement is being made by the Company in reliance upon the following express representations and warranties. You acknowledge, represent and warrant that:

(a) you have been advised that you may be an “affiliate” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “ Act ”) and in this connection the Company is relying in part on your representations set forth in this section.

(b) If you are deemed to be an affiliate within the meaning of Rule 144 of the Act, the shares of Common Stock issued to you must be held indefinitely unless an exemption from any applicable resale restrictions is available or the Company files an additional registration statement (or a “re-offer prospectus”) with regard to such shares of Common Stock and the Company is under no obligation to register the shares (or to file a “re-offer prospectus”).

(c) If you are deemed to be an affiliate within the meaning of Rule 144 of the Act, you understand that the exemption from registration under Rule 144 will not be available unless (i) a public trading market then exists for the Common Stock, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 or any exemption therefrom are complied with; and that any sales of the shares of Common Stock may be made only in limited amounts in accordance with such terms and conditions.

11. Right to Terminate Employment . Neither the Plan nor the grant of the Award hereunder shall impose any obligations on the Company or an Affiliate and/or the stockholders of the Company to retain you as an employee, nor shall it impose any obligation on your part to remain as an employee of the Company or an Affiliate.

12. ERISA; Claims Procedures . You acknowledge and agree that you are a member of a select group of management and highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”). Subject to the six-month delay applicable to “specified employees” within the meaning of Code Section 409A(a)(2)(B) as set forth in Section 17.13(b)(i) of the Plan, the provisions of the U.S. Department of Labor Regulations Section 2560.503-1 governing claims procedures shall apply to any disputes relating to this Award.

13. Agreement and Grant Not Effective Unless Accepted . By selecting the “Accept” button below you agree (i) to enter into this Agreement electronically, and (ii) to the terms and conditions of the Agreement. Until you select the “Accept” button below, this Award shall not be effective and if you do not select the “Accept” button within 14 days from the date the Agreement is made available to you electronically this Award shall be null and void.

Exhibit 10.3

SEVENTH AMENDMENT TO CREDIT AGREEMENT

THIS SEVENTH AMENDMENT, dated as of December 6, 2013 (this “Amendment”) to the Credit Agreement, dated as of June 24, 2009 (as amended, restated, supplemented or modified, from time to time, the “Credit Agreement”), by and among COMTECH TELECOMMUNICATIONS CORP., a Delaware corporation (the “Company”), the Lenders party thereto and CITIBANK, N.A., a national banking association, as Administrative Agent for the Lenders.

WHEREAS, the Company has requested that the Lenders amend, and waive compliance with, certain provisions of the Credit Agreement, and the Lenders have agreed to amend and waive compliance with such provisions of the Credit Agreement, subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows:

1. Amendments .

(a) The following definitions in Section 1.01 of the Credit Agreement are hereby amended and restated in their entirety to provide as follows:

“Basket Amount” shall mean, $650,000,000 (including any premium paid or discount received in connection therewith but excluding Transaction Costs), with respect to repurchases of Equity Securities other than the Replacement Convertible Notes.

“Revolving Credit Commitment Termination Date” shall mean (a) October 31, 2014 or, (b) in the event that the Borrower shall comply with all of the provisions set forth in Section 3.14 hereof, December 31, 2016.

(b) Section 3.14 of the Credit Agreement is hereby amended and restated in its entirety to provide as follows:

“ SECTION 3.14 Extension of Maturity Date .

(a) In the event that there are no Investor Notes outstanding on the Notice Date (as defined below) : the Company may extend the Revolving Credit Commitment Termination Date from October 31, 2014 to December 31, 2016 , so long as the Company shall have delivered to the Administrative Agent and the Lenders, by a date no earlier than October 1, 2014 nor later than October 15, 2014 (the “Notice Date”), the following:

(i) an officer’s certificate, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that: (x) no Default or Event of Default has occurred and is then continuing, (y) there is no other convertible, institutional or other similar type debt of the Company outstanding with a maturity date on or prior to the proposed extended Revolving Credit Commitment Termination Date and (z) the Company is exercising its option to extend the Revolving Credit Commitment Termination Date from October 31, 2014 to December 31, 2016;

(ii) a proforma balance sheet, along with projections (for the period through January 31, 2017, at a minimum), each to be in form and

substance satisfactory to the Administrative Agent, demonstrating covenant compliance;

(iii) evidence, reasonably satisfactory to the Administrative Agent that either: (x) the holders of all of the Company’s Investor Notes have elected to convert, or have already converted, such notes to equity, or (y) the Company has purchased, whether in open market transactions, through redemption or otherwise, all the Investor Notes, or (z) as a result of a combination of conversions described in clause (a)(iii)(x) and purchases described in clause (a)(iii)(y), there are no Investor Notes outstanding;

(iv) payment to the Administrative Agent of all fees required to be paid in accordance with the fee letter dated the date hereof, for the pro-rata distribution to the Lenders; and

(v) receipt by the Administrative Agent and the Lenders of (A) the Company’s Annual Report on Form 10-K (which shall include the financial statements described in Section 6.03(a)) and (B) the certificate of the Chief Financial Officer described in Section 6.03(c) hereof, all with respect to the fiscal year ended July 31, 2014.

(b) In the event that there are Investor Notes outstanding on the Notice Date : the Company may extend the Revolving Credit Commitment Termination Date from October 31, 2014 to December 31, 2016 , so long as the Company shall have delivered to the Administrative Agent and the Lenders the following:

(i) an officer’s certificate, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that (x) no Default or Event of Default has occurred and is then continuing, (y) there is no other convertible, institutional or other similar type debt outstanding with a maturity date on or prior to the proposed extended Revolving Credit Commitment Termination Date and (z) the Company is exercising its option to extend the Revolving Credit Commitment Termination Date from October 31, 2014 to December 31, 2016;

(ii) a proforma balance sheet, along with projections (for the period through January 31, 2017, at a minimum), each to be in form and substance satisfactory to the Administrative Agent, demonstrating covenant compliance.

(iii) evidence, reasonably satisfactory to the Administrative Agent that the Company’s Cash and Cash Equivalents on hand is greater than $1,000 multiplied by the number of Investor Notes that the Company may thereinafter be required to redeem for repurchase, which totals $[ applicable amount to be inserted on such date ], in the aggregate;

(iv) payment to the Administrative Agent of all fees required to be paid in accordance with the fee letter dated the date hereof, for the pro-rata distribution to the Lenders; and

(c) Other than as expressly set forth in this Section 3.14, no other amendments, modifications or waivers to the Credit Agreement shall be made or deemed made unless such amendments, modification or waivers are made in accordance with Section 10.04 hereof. Notwithstanding anything to the contrary herein, all repurchases and redemptions of the Investor Notes shall otherwise be in compliance with the terms and conditions of this Agreement which provide, among other things, for limitations on the “Basket Amount” and “Excess Equity Repurchases” in accordance with Section 7.13 hereof.

(d) Notwithstanding anything to the contrary above, the Revolving Credit Commitment Termination Date, as extended in accordance with the terms described above, shall be subject to earlier termination if, on any date after April 30, 2014 that is the Business Day immediately preceding the date on which the Company is required to pay for any Investor Notes pursuant to the Company’s exercise of its redemption option (such payment date, a “ Redemption Payment Date ”), unless, as of the close of business on the Business Day immediately preceding such Redemption Payment Date, the Company’s Cash and Cash Equivalents on hand is greater than $1,000 multiplied by the number of Investor Notes that the Company must redeem on the Redemption Payment Date. The Company shall give the Administrative Agent and the Lenders not less than 15 calendar days prior written notice of such redemption and such notice shall provide a certification that no Default or Event of Default has occurred and is then continuing or would occur as a result of such redemption.

(d) Compliance with Financial Covenants. In the event that the Company shall request a Loan hereunder during the period from December 6, 2013 through and including the later of (x) October 14, 2014 or (y) the date that the Company’s Annual Report on Form 10-K for the fiscal year ending July 31, 2014 is delivered to the Securities and Exchange Commission, the Company shall have delivered to the Administrative Agent and the Lenders, in addition to other certificates, documents and information required herein:

(i) if such Loan will be used to finance a Permitted Acquisition, a certificate from an Executive Officer of the Company (including supporting calculations reasonably satisfactory to the Administrative Agent) stating that the Company was in compliance with the financial covenants set forth in Section 7.12(a)(iii) hereof for the immediately preceding fiscal quarter or would have been in compliance with such financial covenants for the immediately preceding fiscal quarter as determined on a pro forma basis after giving effect to such Permitted Acquisition and, in addition, after giving effect to such requested Loan; and

(ii) if such Loan will be used to finance a Loan for any other purpose, a certificate from an Executive Officer of the Company (including

supporting calculations reasonably satisfactory to the Administrative Agent) stating that the Company was in compliance with the financial covenants set forth in Section 7.12(a)(iii) hereof for the preceding fiscal quarter and would have been in compliance after giving effect to such requested Loan.

(d) Section 7.12 is hereby amended and restated in its entirety to provide as follows:

(a) For the fiscal quarters ending October 31, 2013, January 31, 2014 and April 30, 2014 :

(i) In the event that Aggregate Outstandings were not greater than $0 during such fiscal period :

(x) Minimum Consolidated Net Worth . Permit Consolidated Net Worth to be less than $200,000,000, at the end of such fiscal quarter.

(y) Maximum Consolidated Senior Secured Indebtedness/ Consolidated Adjusted EBITDA . Permit the ratio of Consolidated Senior Secured Indebtedness to Consolidated Adjusted EBITDA to be greater than 3.00:1.00, at the end of such fiscal quarter.

(z) Minimum Unrestricted Cash . Permit unrestricted domestic Cash or Cash Equivalent and/or Cash Collateral that is held at branches of any Lender to be less than $90,000,000, in the aggregate.

(ii) In the event that Aggregate Letters of Credit Outstanding were greater than $0, but the outstanding principal amount of the Revolving Credit Loans did not exceed $0 during such fiscal period :

(x) Minimum Consolidated Net Worth . Permit Consolidated Net Worth to be less than $200,000,000, at the end of such fiscal quarter.

(z) Minimum Unrestricted Cash . Permit unrestricted domestic Cash or Cash Equivalent and/or Cash Collateral (including Cash Collateral that is being held for any Cash-Secured Letters of Credit) that is held at branches of any Lender to be less than an aggregate amount equal to the sum of (A) $90,000,000 plus (B) Aggregate Letters of Credit Outstanding.

(iii) In the event that the outstanding principal amount of the Loans was greater than $0 during such fiscal period :

(v) Minimum Consolidated Net Worth . Permit Consolidated Net Worth to be less than $200,000,000, at the end of such fiscal quarter.

(w) Maximum Consolidated Senior Secured Indebtedness/ Consolidated Adjusted EBITDA . Permit the ratio of Consolidated Senior

Secured Indebtedness to Consolidated Adjusted EBITDA to be greater than 3.00:1.00, at the end of such quarter.

(x) Minimum Consolidated Adjusted EBITDA . Permit Consolidated Adjusted EBITDA to be less than $50,000,000, at the end of such fiscal quarter, as determined on a rolling four fiscal quarters basis, provided that this covenant shall only be tested during such period when Consolidated Total Indebtedness is less than $200,000,000.

(y) Minimum Fixed Charge Coverage Ratio . Permit the Fixed Charge Coverage Ratio, at the end of such fiscal quarter, to be less than 1.50:1.00.

(z) Maximum Consolidated Total Indebtedness/Consolidated Adjusted EBITDA . Permit the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA to be greater than 4.00:1.00, at the end of such fiscal quarter.

(b) For the fiscal quarter ending July 31, 2014 and for all fiscal periods thereafter :

(i) Minimum Consolidated Net Worth . Permit Consolidated Net Worth to be less than $200,000,000, at the end of any fiscal quarter.

(ii) Maximum Consolidated Senior Secured Indebtedness/ Consolidated Adjusted EBITDA . Permit the ratio of Consolidated Senior Secured Indebtedness to Consolidated Adjusted EBITDA to be greater than 3.00:1.00, at the end of any fiscal quarter.

(iii) Minimum Consolidated Adjusted EBITDA . Permit Consolidated Adjusted EBITDA to be less than $50,000,000, at the end of any fiscal quarter, as determined on a rolling four fiscal quarters basis, provided that this covenant shall only be tested during such period when Consolidated Total Indebtedness is less than $200,000,000.

(iv) Minimum Fixed Charge Coverage Ratio . Permit the Fixed Charge Coverage Ratio, at the end of any fiscal quarter, to be less than 1.50:1.00.

(v) Maximum Consolidated Total Indebtedness/Consolidated Adjusted EBITDA . Permit the ratio of Consolidated Total Indebtedness to Consolidated Adjusted EBITDA to be greater than 4.00:1.00, at the end of any fiscal quarter.

Compliance with all of the financial covenants contained in this Section 7.12 shall be determined by reference to the consolidated financial statements of the Company and its Subsidiaries delivered to the Administrative Agent in accordance with Section 6.03 hereof. All defined terms relating to accounting terms or to financial ratios or to the financial performance of the Company shall be determined and measured on a Consolidated basis.

(e) The second sentence of Section 7.13 of the Credit Agreement is hereby amended and restated in its entirety to provide as follows:

Notwithstanding the foregoing and subject to the next sentence, and so long as no Default or Event of Default has occurred and is then continuing or would occur as a result thereof, the Company shall be permitted to (i) pay cash dividends in the aggregate amount not to exceed the Annual Dividend Basket Amount, (ii) repurchase Equity Securities for cash in an aggregate amount not to exceed the Basket Amount (of which $369,248,000 (excluding Transactions Costs) has been expended as of October 31, 2013) and (iii) (a) at any time between October 31, 2013 and April 30, 2014 (the “ Permitted Payment Period ), pay any Excess Dividends and make any Excess Equity Repurchases, (b) at any time on or after May 1, 2014 through and including July 31, 2014, pay Excess Dividends and make Excess Equity Repurchases in an aggregate amount not to exceed, for the fiscal year ending July 31, 2014, fifty percent (50%) of the prior fiscal year's Consolidated Net Income (the “ Permitted Excess Amount ”), provided that the Company shall not make any Excess Dividends or Excess Equity Repurchases during the period from May 1, 2014 through and including July 31, 2014 if Excess Dividends paid and Excess Equity Repurchases made during the Permitted Payment Period were in excess of the Permitted Excess Amount, provided further that the Company’s failure to comply with this clause (b) shall not be deemed a breach of this Section 7.13 if such breach arose solely after giving effect to the Excess Dividends paid and Excess Equity Repurchases made during the Permitted Payment Period in accordance with clause (iii)(a) above, and (c) for the fiscal year commencing August 1, 2014 and for each fiscal year thereafter, pay Excess Dividends and make Excess Equity Repurchases in an aggregate amount not to exceed fifty percent (50%) of the prior fiscal year's Consolidated Net Income.


2.	Waiver .

Compliance with Section 7.13(c) of the Credit Agreement, Maximum Consolidated Total Indebtedness/Consolidated Adjusted EBITDA , is hereby waived for the fiscal quarter ended October 31, 2013, provided that the ratio Consolidated Total Indebtedness to Consolidated Adjusted EBITDA was not greater than 4.19:1.00 at the end of such fiscal quarter.


3.	Conditions to Effectiveness .

This Amendment shall become effective upon receipt by the Administrative Agent of (a) this Amendment duly executed by the Company, the Guarantors and the Lenders, (b) all fees required to be paid pursuant to the fee letter dated the date hereof and executed by the Administrative Agent and the Company, shall have been paid in full, and (c) such other documents, instruments or agreements that the Administrative Agent shall reasonably require with respect thereto.


4.	Miscellaneous .

Capitalized terms used herein and not otherwise defined herein shall have the same meanings as defined in the Credit Agreement.

Except as expressly amended and waived hereby, the Credit Agreement shall remain in full force and effect in accordance with the original terms thereof.

The amendments and waiver set forth above are limited specifically to the matters set forth above and for the specific instances and purposes given and do not constitute directly or by implication a waiver or amendment of any other provision of the Credit Agreement or a waiver of any

Default or Event of Default, whether now existing or hereafter arising, which may occur or may have occurred.

The Company hereby (i) represents and warrants that, after giving effect to this Amendment, (a) the representations and warranties made by the Company and each of its Subsidiaries pursuant to the Credit Agreement and the other Loan Documents to which each is a party are true and correct in all material respects as of the date hereof with the same effect as though such representations and warranties had been made on and as of such date, unless any such representation or warranty is as of a specific date, in which case, as of such date and (b) no Default or Event of Default has occurred and is continuing and (ii) confirms that the liens, heretofore granted, pledged and/or assigned to the Administrative Agent for the Lenders shall not be impaired, limited or affected in any manner whatsoever by reason of this Amendment.

The Company hereby further represents and warrants that the execution, delivery and performance by the Company of this Amendment and the Credit Agreement (as amended by this Amendment), (a) have been duly authorized by all requisite corporate action, (b) will not violate or require any consent (other than consents as have been made or obtained and which are in full force and effect) under (i) any provision of law applicable to the Company, any applicable rule or regulation of any Governmental Authority, or the Certificate of Incorporation or By-laws of the Company, (ii) any order of any court or other Governmental Authority binding on the Company or (iii) any agreement or instrument binding on the Company. Each of this Amendment and the Credit Agreement (as amended hereby), constitutes a legal, valid and binding obligation of the Company.

This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one Amendment. This Amendment shall become effective when duly executed counterparts hereof which, when taken together, bear the signatures of each of the parties hereto shall have been delivered to the Administrative Agent.

This Amendment shall constitute a Loan Document.

This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[next page is signature page]

IN WITNESS WHEREOF, the Company, the Administrative Agent and the Lenders have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written.

CITIBANK, N.A. , as Administrative Agent and as a

Lender

By:________________________

Name: Stuart N. Berman

Title: Vice President

MANUFACTURERS AND TRADERS TRUST

COMPANY , as a Lender

By:________________________

Name:

Title:

NEW YORK COMMERCIAL BANK , as a Lender

By:________________________

Name:

Title:

SANTANDER BANK, N.A. (formerly known as

Sovereign Bank, N.A.), as a Lender

By:________________________

Name:

Title:

COMTECH TELECOMMUNICATIONS

CORP.

By:_____________________________

Name: Michael D. Porcelain

Title: SVP, Chief Financial Officer

[ Signature Page to Seventh Amendment]

Each of the undersigned, not as a party to the Credit Agreement but as a Guarantor under the Guaranty, dated June 24, 2009 and as a Grantor under the Security Agreement dated as of October 31, 2011 hereby (a) accepts and agrees to the terms of the foregoing Amendment, (b) acknowledges and confirms that all terms and provisions contained in the Loan Documents to which it is a party are, and shall remain, in full force and effect in accordance with their respective terms, (c) reaffirms and ratifies all the representations and covenants contained in each Loan Document in all material respects to which it is a party; (d) represents, warrants and confirms the non-existence of any offsets, defenses, or counterclaims to its obligations under any of the Loan Documents to which it is a party; and (e) confirms and agrees that the liens heretofore granted, pledged and/or assigned to the Administrative Agent for the benefit of the Lenders as security for the Obligations (as defined in the Security Agreement) shall not be impaired, limited or affected in any manner whatsoever by reason of this Amendment.

COMTECH SYSTEMS, INC.

COMTECH ANTENNA SYSTEMS, INC.

COMTECH EFDATA CORP. (successor-by-merger to Comtech AHA Corporation)

COMTECH PST CORP.

COMTECH MOBILE DATACOM CORPORATION

COMTECH XICOM TECHNOLOGY, INC.

COMTECH COMSTREAM, INC. (f/k/a Comtech Tiernan Video, Inc.)

COMTECH TOLT TECHNOLOGIES, INC.

COMTECH SYSTEMS INTERNATIONAL, INC.

COMTECH COMMUNICATIONS CORP.

ARMER COMMUNICATIONS ENGINEERING SERVICES, INC.

TIERNAN RADYNE COMSTREAM, INC.

COMTECH AEROASTRO, INC.

ANGELS ACQUISITION CORP.

By:___________________________

Name: Michael D. Porcelain

Title: SVP, Chief Financial Officer

[ Signature Page to Seventh Amendment]

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Fred Kornberg, 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: December 9, 2013



	/s/ Fred Kornberg
	Fred Kornberg Chairman of the Board Chief Executive Officer and President

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: December 9, 2013



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

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 October 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fred Kornberg, 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: December 9, 2013



	/s/ Fred Kornberg
	Fred Kornberg Chairman of the Board Chief Executive Officer and President

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 October 31, 2013 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: December 9, 2013



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