CMTL 01.31.2014 10Q
Index

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

For the quarterly period ended January 31, 2014
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:    0-7928

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of March 4, 2014, the number of outstanding shares of Common Stock, par value $.10 per share, of the registrant was 15,326,717 shares.


Index

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



1

Index

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
January 31, 2014
 
July 31, 2013
Assets
 
(Unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
317,993,000

 
356,642,000

Accounts receivable, net
 
56,879,000

 
49,915,000

Inventories, net
 
70,095,000

 
65,482,000

Prepaid expenses and other current assets
 
11,846,000

 
7,428,000

Deferred tax asset, net
 
10,030,000

 
10,184,000

Total current assets
 
466,843,000

 
489,651,000

 
 
 
 
 
Property, plant and equipment, net
 
20,332,000

 
20,333,000

Goodwill
 
137,354,000

 
137,354,000

Intangibles with finite lives, net
 
29,341,000

 
32,505,000

Deferred financing costs, net
 
471,000

 
1,093,000

Other assets, net
 
873,000

 
879,000

Total assets
 
$
655,214,000

 
681,815,000

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Convertible senior notes, current
 
$
200,000,000

 
200,000,000

Accounts payable
 
18,600,000

 
18,390,000

Accrued expenses and other current liabilities
 
25,926,000

 
29,892,000

Dividends payable
 
4,731,000

 
4,531,000

Customer advances and deposits
 
15,337,000

 
14,749,000

Interest payable
 
1,529,000

 
1,529,000

Total current liabilities
 
266,123,000

 
269,091,000

 
 
 
 
 
Other liabilities
 
4,161,000

 
3,958,000

Income taxes payable
 
3,162,000

 
2,963,000

Deferred tax liability, net
 
1,823,000

 
1,741,000

Total liabilities
 
275,269,000

 
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 29,186,440 shares and 29,066,792 shares at January 31, 2014 and July 31, 2013, respectively
 
2,919,000

 
2,907,000

Additional paid-in capital
 
366,889,000

 
363,888,000

Retained earnings
 
405,375,000

 
403,398,000

 
 
775,183,000

 
770,193,000

Less:
 
 

 
 

Treasury stock, at cost (13,544,493 shares and 12,608,501 shares at January 31, 2014 and July 31, 2013, respectively)
 
(395,238,000
)
 
(366,131,000
)
Total stockholders’ equity
 
379,945,000

 
404,062,000

Total liabilities and stockholders’ equity
 
$
655,214,000

 
681,815,000


See accompanying notes to condensed consolidated financial statements.

2


Index

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
85,499,000

 
74,577,000

 
168,867,000

 
165,530,000

Cost of sales
 
48,130,000

 
42,337,000

 
95,120,000

 
91,487,000

Gross profit
 
37,369,000

 
32,240,000

 
73,747,000

 
74,043,000

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Selling, general and administrative
 
16,349,000

 
15,433,000

 
32,547,000

 
32,243,000

Research and development
 
8,266,000

 
9,278,000

 
16,765,000

 
19,327,000

Amortization of intangibles
 
1,582,000

 
1,582,000

 
3,164,000

 
3,164,000

 
 
26,197,000

 
26,293,000

 
52,476,000

 
54,734,000

 
 
 
 
 
 
 
 
 
Operating income
 
11,172,000

 
5,947,000

 
21,271,000

 
19,309,000

 
 
 
 
 
 
 
 
 
Other expenses (income):
 
 

 
 

 
 

 
 

Interest expense
 
1,998,000

 
2,030,000

 
4,016,000

 
4,141,000

Interest income and other
 
(228,000
)
 
(315,000
)
 
(501,000
)
 
(591,000
)
 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
9,402,000

 
4,232,000

 
17,756,000

 
15,759,000

Provision for income taxes
 
3,419,000

 
1,867,000

 
6,468,000

 
5,959,000

 
 
 
 
 
 
 
 
 
Net income
 
$
5,983,000

 
2,365,000

 
11,288,000

 
9,800,000

Net income per share (See Note 5):
 
 

 
 

 
 

 
 

Basic
 
$
0.37

 
0.14

 
0.70

 
0.57

Diluted
 
$
0.32

 
0.14

 
0.60

 
0.51

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
15,970,000

 
17,300,000

 
16,212,000

 
17,340,000

 
 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding – diluted
 
22,487,000

 
17,401,000

 
22,552,000

 
23,394,000

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

 
0.275

 
0.575

 
0.55

 
See accompanying notes to condensed consolidated financial statements.


3


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 2014 AND 2013
(Unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Treasury Stock
 
Stockholders'
Equity
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
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
 

 

 
1,532,000

 

 

 

 
1,532,000

Proceeds from exercise of options
 
25,800

 
3,000

 
443,000

 

 

 

 
446,000

Proceeds from issuance of employee stock purchase plan shares
 
21,222

 
2,000

 
476,000

 

 

 

 
478,000

Cash dividends declared
 

 

 

 
(9,562,000
)
 

 

 
(9,562,000
)
Net excess income tax benefit from settlement of stock-based awards
 

 

 
14,000

 

 

 

 
14,000

Reversal of deferred tax assets associated with expired and unexercised stock-based awards
 

 

 
(2,955,000
)
 

 

 

 
(2,955,000
)
Repurchases of common stock
 

 

 

 

 
397,798

 
(10,477,000
)
 
(10,477,000
)
Net income
 

 

 

 
9,800,000

 

 

 
9,800,000

Balance as of January 31, 2013
 
28,978,701

 
$
2,898,000

 
$
360,968,000

 
$
404,465,000

 
11,961,857

 
$
(349,654,000
)
 
$
418,677,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 

 

 
1,990,000

 

 

 

 
1,990,000

Equity-classified stock awards issued
 

 

 
139,000

 

 

 

 
139,000

Proceeds from exercise of options
 
95,425

 
10,000

 
2,549,000

 

 

 

 
2,559,000

Proceeds from issuance of employee stock purchase plan shares
 
20,727

 
2,000

 
428,000

 

 

 

 
430,000

Issuance of common stock for vested performance shares, net of minimum withholding tax and deferrals
 
3,496

 

 
(25,000
)
 

 

 

 
(25,000
)
Cash dividends declared
 

 

 

 
(9,260,000
)
 

 

 
(9,260,000
)
Accrual of dividend equivalents
 

 

 

 
(51,000
)
 

 

 
(51,000
)
Net income tax shortfall from settlement of stock-based awards
 

 

 
(155,000
)
 

 

 

 
(155,000
)
Reversal of deferred tax assets associated with expired and unexercised stock-based awards
 

 

 
(1,925,000
)
 

 

 

 
(1,925,000
)
Repurchases of common stock
 

 

 

 

 
935,992

 
(29,107,000
)
 
(29,107,000
)
Net income
 

 

 

 
11,288,000

 

 

 
11,288,000

Balance as of January 31, 2014
 
29,186,440

 
$
2,919,000

 
$
366,889,000

 
$
405,375,000

 
13,544,493

 
$
(395,238,000
)
 
$
379,945,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

4


Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six months ended January 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
11,288,000

 
9,800,000

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

 
 

Depreciation and amortization of property, plant and equipment
 
3,383,000

 
4,019,000

Amortization of intangible assets with finite lives
 
3,164,000

 
3,164,000

Amortization of stock-based compensation
 
2,016,000

 
1,551,000

Deferred financing costs
 
697,000

 
706,000

Change in fair value of contingent earn-out liability
 
(239,000
)
 
(3,267,000
)
Loss on disposal of property, plant and equipment
 
42,000

 
32,000

Provision for (benefit from) allowance for doubtful accounts
 
92,000

 
(107,000
)
Provision for excess and obsolete inventory
 
1,485,000

 
1,276,000

Excess income tax benefit from stock-based award exercises
 
(16,000
)
 
(19,000
)
Deferred income tax (benefit) expense
 
(1,689,000
)
 
1,029,000

Changes in assets and liabilities:
 
 

 
 

Accounts receivable
 
(7,056,000
)
 
14,113,000

Inventories
 
(5,939,000
)
 
905,000

Prepaid expenses and other current assets
 
(4,308,000
)
 
(740,000
)
Other assets
 
6,000

 
15,000

Accounts payable
 
210,000

 
(6,899,000
)
Accrued expenses and other current liabilities
 
(3,574,000
)
 
(8,645,000
)
Customer advances and deposits
 
409,000

 
(3,986,000
)
Other liabilities
 
149,000

 
588,000

Income taxes payable
 
(66,000
)
 
(2,141,000
)
Net cash provided by operating activities
 
54,000

 
11,394,000

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(3,424,000
)
 
(2,457,000
)
Net cash used in investing activities
 
(3,424,000
)
 
(2,457,000
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Repurchases of common stock
 
(29,107,000
)
 
(10,477,000
)
Cash dividends paid
 
(9,053,000
)
 
(14,335,000
)
Proceeds from exercises of stock options
 
2,559,000

 
446,000

Proceeds from issuance of employee stock purchase plan shares
 
430,000

 
478,000

Excess income tax benefit from stock-based award exercises
 
16,000

 
19,000

Payment of contingent consideration related to business acquisition
 
(49,000
)
 
(10,000
)
Fees related to line of credit
 
(75,000
)
 
(25,000
)
Net cash used in financing activities
 
(35,279,000
)
 
(23,904,000
)
 
 
 
 
 
Net decrease in cash and cash equivalents
 
(38,649,000
)
 
(14,967,000
)
Cash and cash equivalents at beginning of period
 
356,642,000

 
367,894,000

Cash and cash equivalents at end of period
 
$
317,993,000

 
352,927,000

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

5


Index

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

 
 
Six months ended January 31,
 
 
2014
 
2013
Supplemental cash flow disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
3,178,000

 
3,177,000

Income taxes
 
$
8,224,000

 
7,070,000

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Cash dividends declared (including accrual of dividend equivalents)
 
$
4,789,000

 

Equity-classified stock awards issued
 
$
139,000

 


See accompanying notes to condensed consolidated financial statements.


6


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


(1)    General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and Subsidiaries (“Comtech,” “we,” “us,” or “our”) as of and for the three and six months ended January 31, 2014 and 2013 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 Instruments,” we determined that, as of January 31, 2014 and July 31, 2013, the fair value of our 3.0% convertible senior notes was approximately $206,780,000 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 January 31, 2014 and July 31, 2013, we had approximately $39,192,000 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.


7


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


As of January 31, 2014 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 recognized for financial reporting purposes.

Weighted average stock options outstanding to purchase 573,000 and 2,658,000 shares for the three months ended January 31, 2014 and 2013, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Weighted average stock options outstanding to purchase 2,308,000 and 2,680,000 shares for the six months ended January 31, 2014 and 2013, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our diluted EPS calculations exclude 92,000 and 35,000 weighted average RSUs with performance measures (which we refer to as performance shares) outstanding for the three months ended January 31, 2014 and 2013, respectively, and 70,000 and 35,000 weighted average performance shares outstanding for the six months ended January 31, 2014 and 2013, 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.

Our diluted EPS calculation for the three months ended January 31, 2013 excludes the effect of 5,992,000 shares and $1,117,000 of interest expense (net of tax) related to our 3.0% convertible senior notes, because their effect would have been anti-dilutive for the period.

In addition, the weighted average basic and diluted shares outstanding for the three months ended January 31, 2014 and 2013 reflects a reduction of approximately 439,000 and 102,000 shares as a result of the repurchase of our common shares during the respective periods. The weighted average basic and diluted shares outstanding for the six months ended January 31, 2014 and 2013 reflects a reduction of approximately 289,000 and 51,000 shares as a result of the repurchase of our common shares during the respective periods. 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.

8


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



The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
 
Net income for basic calculation
 
$
5,983,000

 
2,365,000

 
11,288,000

 
9,800,000

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Interest expense (net of tax) on 3.0% convertible senior notes
 
1,117,000

 

 
2,234,000

 
2,234,000

Numerator for diluted calculation
 
$
7,100,000

 
2,365,000

 
13,522,000

 
12,034,000

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Denominator for basic calculation
 
15,970,000

 
17,300,000

 
16,212,000

 
17,340,000

Effect of dilutive securities:
 
 
 
 

 
 
 
 
Stock-based awards
 
287,000

 
101,000

 
141,000

 
105,000

Conversion of 3.0% convertible senior notes
 
6,230,000

 

 
6,199,000

 
5,949,000

Denominator for diluted calculation
 
22,487,000

 
17,401,000

 
22,552,000

 
23,394,000

 
(6)    Accounts Receivable

Accounts receivable consist of the following at:
 
 
January 31, 2014
 
July 31, 2013
Billed receivables from commercial customers
 
$
36,018,000

 
40,005,000

Billed receivables from the U.S. government and its agencies
 
8,757,000

 
8,114,000

Unbilled receivables on contracts-in-progress
 
12,799,000

 
2,399,000

Total accounts receivable
 
57,574,000

 
50,518,000

Less allowance for doubtful accounts
 
695,000

 
603,000

Accounts receivable, net
 
$
56,879,000

 
49,915,000


Unbilled receivables on contracts-in-progress include $1,334,000 and $699,000 at January 31, 2014 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 January 31, 2014 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 January 31, 2014, one customer, which 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 17.9% of total accounts receivable.

(7)    Inventories

Inventories consist of the following at:
 
 
January 31, 2014
 
July 31, 2013
Raw materials and components
 
$
55,791,000

 
52,169,000

Work-in-process and finished goods
 
30,030,000

 
29,539,000

Total inventories
 
85,821,000

 
81,708,000

Less reserve for excess and obsolete inventories
 
15,726,000

 
16,226,000

Inventories, net
 
$
70,095,000

 
65,482,000


9


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



At January 31, 2014 and July 31, 2013, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $1,370,000 and $1,910,000, respectively.

At January 31, 2014 and July 31, 2013, $617,000 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:
 
 
January 31, 2014
 
July 31, 2013
Accrued wages and benefits
 
$
9,783,000

 
11,526,000

Accrued warranty obligations
 
8,291,000

 
7,797,000

Accrued commissions and royalties
 
2,985,000

 
4,206,000

Accrued business acquisition payments
 

 
288,000

Other
 
4,867,000

 
6,075,000

Accrued expenses and other current liabilities
 
$
25,926,000

 
29,892,000


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

Changes in our product warranty liability were as follows:
 
 
Six months ended January 31,
 
 
2014
 
2013
Balance at beginning of period
 
$
7,797,000

 
7,883,000

Provision for warranty obligations
 
3,548,000

 
3,709,000

Charges incurred
 
(3,054,000
)
 
(2,928,000
)
Balance at end of period
 
$
8,291,000

 
8,664,000


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 price 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.

In the first quarter of fiscal 2014, the fair value of the contingent earn-out liability was reduced by $239,000, which is reflected as a reduction to selling, general and administrative expenses in our Condensed Consolidated Statement of Operations for the six months ended January 31, 2014. In November 2013, we made our final earn-out payment of $43,000. In fiscal 2013, the fair value of the contingent earn-out liability was reduced by $889,000 and $3,267,000 during the three and six months ended January 31, 2013, respectively, which is 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 and six months ended January 31, 2014. Interest accreted on the contingent earn-out liability was $25,000 and $133,000 for the three and six months ended January 31, 2013, respectively. Total interest accreted through January 31, 2014 was $986,000.

Through January 31, 2014, we paid $1,865,000 of the total purchase price in cash, including $365,000 of earn-out payments.

10


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



(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 pre-tax benefit of $253,000 in the three months ended January 31, 2013, resulting from the reversal of previously accrued costs that were lower than expected. For the six months ended January 31, 2013, we recorded a net pre-tax restructuring charge of $569,000 related to this plan. Almost all of these amounts are reflected in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations. There were no such charges or benefits in the three and six months ended January 31, 2014.

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

Payments made
(75,000
)
 

 
(75,000
)
Balance as of January 31, 2014
$
338,000

 
50,000

 
$
388,000


Of the total remaining microsatellite product line wind-down liabilities of $388,000, $282,000 is included in accrued expenses and other current liabilities and $106,000 is included in other long-term liabilities in our Condensed Consolidated Balance Sheet as of January 31, 2014.

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.


11


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


As of January 31, 2014, the amount of the acquisition-related restructuring reserve is as follows:
 
Cumulative
Activity Through
January 31, 2014
Present value of estimated facility exit costs at August 1, 2008
$
2,100,000

Cash payments made
(5,855,000
)
Cash payments received
6,347,000

Accreted interest recorded
956,000

Net liability as of January 31, 2014
3,548,000

Amount recorded as prepaid expenses in the Condensed Consolidated Balance Sheet
454,000

Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet
$
4,002,000

 
As of July 31, 2013, the present value of the estimated facility exit costs was $3,331,000. During the six months ended January 31, 2014, we made cash payments of $528,000 and we received cash payments of $625,000. Interest accreted for the three and six months ended January 31, 2014 and 2013 was $61,000 and $120,000, respectively, and $53,000 and $105,000, respectively, and is included in interest expense for each respective fiscal period.

As of January 31, 2014, future cash payments associated with our restructuring plan are summarized below:
 
As of
 
January 31, 2014
Future lease payments to be made in excess of anticipated sublease payments
$
4,002,000

Less net cash to be received in next twelve months
(454,000
)
Interest expense to be accreted in future periods
1,084,000

Total remaining net cash payments
$
4,632,000


(10)    Credit Facility

We have a committed $100,000,000 secured revolving credit facility (the “Credit Facility”) with a syndicate of bank lenders. 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 January 31, 2014, we had $1,791,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.


12


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


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); (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 January 31, 2014, 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 and six months ended January 31, 2014 was $167,000 and $353,000, respectively, as compared to $184,000 and $363,000 during the three and six months ended January 31, 2013, respectively.

As of January 31, 2014, 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.

(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 January 17, 2014 (the record date of our dividend declared on December 9, 2013), our 3.0% convertible senior notes are convertible into shares of our common stock at a conversion price of $31.85 per share (a conversion rate of 31.3953 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 January 31, 2014 and July 31, 2013.

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


13


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


(12)    Income Taxes

Excluding the impact of any discrete tax items, our fiscal 2014 effective tax rate is expected to approximate 36.5%. This rate reflects the expiration of the federal research and experimentation credit on December 31, 2013.

At January 31, 2014 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 $3,162,000 and $2,963,000, respectively, including interest of $113,000 and $90,000, respectively. Of these amounts, $2,474,000 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.

(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 January 31, 2014, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 6,827,882 shares (net of 2,757,610 expired and canceled awards), of which an aggregate of 3,922,027 have been exercised or converted into common stock, substantially all of which related to stock options.

As of January 31, 2014, the following stock-based awards, by award type, were outstanding:

 
January 31, 2014
Stock options
2,737,445

Performance shares
117,210

RSUs and restricted stock
37,326

Share units
6,874

SARs
7,000

Total
2,905,855


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 January 31, 2014, we have cumulatively issued 536,899 shares of our common stock to participating employees in connection with our ESPP.


14


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


Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
Cost of sales
 
$
84,000

 
74,000

 
137,000

 
119,000

Selling, general and administrative expenses
 
832,000

 
614,000

 
1,603,000

 
1,215,000

Research and development expenses
 
153,000

 
118,000

 
276,000

 
217,000

Stock-based compensation expense before income tax benefit
 
1,069,000

 
806,000

 
2,016,000

 
1,551,000

Estimated income tax benefit
 
(403,000
)
 
(346,000
)
 
(749,000
)
 
(610,000
)
Net stock-based compensation expense
 
$
666,000

 
460,000

 
1,267,000

 
941,000


Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. 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 January 31, 2014, unrecognized stock-based compensation of $9,310,000, net of estimated forfeitures of $580,000, is expected to be recognized over a weighted average period of 3.1 years. Total stock-based compensation capitalized and included in ending inventory at January 31, 2014 and July 31, 2013 was $52,000 and $72,000, respectively. Included in accrued expenses at January 31, 2014 and July 31, 2013 is $7,000 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 January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
Stock options
 
$
719,000

 
638,000

 
1,367,000

 
1,211,000

Performance shares
 
230,000

 
86,000

 
407,000

 
172,000

ESPP
 
43,000

 
48,000

 
88,000

 
101,000

RSUs and restricted stock
 
68,000

 
28,000

 
136,000

 
60,000

Share units
 
6,000

 
6,000

 
12,000

 
12,000

Equity-classified stock-based compensation expense
 
1,066,000

 
806,000

 
2,010,000

 
1,556,000

Liability-classified stock-based compensation expense (benefit) (SARs)
 
3,000

 

 
6,000

 
(5,000
)
Stock-based compensation expense before income tax benefit
 
1,069,000

 
806,000

 
2,016,000

 
1,551,000

Estimated income tax benefit
 
(403,000
)
 
(346,000
)
 
(749,000
)
 
(610,000
)
Net stock-based compensation expense
 
$
666,000

 
460,000

 
1,267,000

 
941,000


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.


15


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:

 
 
Six months ended January 31,
 
 
2014
 
2013
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards
 
$
174,000

 
79,000

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
 
145,000

 
60,000

Excess income tax benefit recorded as an increase to additional paid-in capital
 
29,000

 
19,000

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
 
$
16,000

 
19,000


As of January 31, 2014 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 $17,901,000 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 six months ended January 31, 2014 and 2013, we recorded $2,080,000 and $2,941,000, 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.

16


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


Stock Options

The following table summarizes the Plan's activity (including SARs) during the six months ended January 31, 2014:

 
 
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

 
 
 
 
Granted
 
11,000

 
31.29

 
 
 
 
Expired/canceled
 
(52,800
)
 
27.80

 
 
 
 
Exercised
 
(91,375
)
 
27.14

 
 
 
 
Outstanding at January 31, 2014
 
2,744,445

 
$
27.48

 
5.47
 
$
8,134,000

 
 
 
 
 
 
 
 
 
Exercisable at January 31, 2014
 
1,408,803

 
$
27.18

 
3.00
 
$
4,612,000

 
 
 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2014
 
2,678,766

 
$
27.47

 
5.42
 
$
7,971,000


Stock options (including SARs) outstanding as of January 31, 2014 have exercise prices ranging between $13.19-$35.79. The total intrinsic value relating to stock options exercised during the three months ended January 31, 2014 and 2013 was $391,000 and $125,000, respectively. The total intrinsic value relating to stock options exercised during the six months ended January 31, 2014 and 2013 was $432,000 and $264,000, respectively. Stock options granted during the six months ended January 31, 2014 and 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 SARs granted or exercised during the three and six months ended January 31, 2014 and 2013. The estimated per-share weighted average grant-date fair value of stock options granted during the three and six months ended January 31, 2014 was $6.26 and $5.50, respectively, and $5.46 during the three and six months ended January 31, 2013, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
Expected dividend yield
 
3.84
%
 
4.29
%
 
4.03
%
 
4.29
%
Expected volatility
 
32.00
%
 
37.00
%
 
32.85
%
 
37.00
%
Risk-free interest rate
 
1.50
%
 
0.61
%
 
1.39
%
 
0.61
%
Expected life (years)
 
5.31

 
5.31

 
5.44

 
5.31


Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant, which was increased from $1.10 per share to $1.20 per share during the three months ended January 31, 2014. 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.


17


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


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

 
 
Granted
 
4,988

 
31.32

 
 
Converted to common stock
 

 

 
 
Forfeited
 
(9,570
)
 
24.82

 
 
Outstanding at January 31, 2014
 
161,410

 
$
25.50

 
$
4,910,000

 
 
 
 
 
 
 
Vested at January 31, 2014
 
12,529

 
$
26.93

 
$
381,000

 
 
 
 
 
 
 
Vested and expected to vest at January 31, 2014
 
156,337

 
$
25.51

 
$
4,756,000


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 and six months ended January 31, 2014 principally 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 January 31, 2014, 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 six months ended January 31, 2014, 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 of 1,013 shares retained to satisfy minimum tax withholding and 2,487 shares for deferral requirements.

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.


18


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


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 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 January 31, 2014 and July 31, 2013, accrued dividend equivalents were $58,000 and $7,000, respectively. Such amounts were recorded as a reduction to retained earnings.

(14)    Customer and Geographic Information

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

 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2014
 
2013
 
2014
 
2013
United States
 
 
 
 
 
 
 
 
U.S. government
 
31.2
%
 
32.8
%
 
28.4
%
 
38.6
%
Commercial
 
11.3
%
 
12.9
%
 
14.3
%
 
13.3
%
Total United States
 
42.5
%
 
45.7
%
 
42.7
%
 
51.9
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
North African country
 
13.7
%
 
8.2
%
 
13.1
%
 
5.0
%
Other international
 
43.8
%
 
46.1
%
 
44.2
%
 
43.1
%
Total International
 
57.5
%
 
54.3
%
 
57.3
%
 
48.1
%

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 25.7% and 25.8% of the combined net sales of these two segments for the three months ended January 31, 2014 and 2013, respectively. 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 23.2% and 31.5% of the combined net sales of these two segments for the six months ended January 31, 2014 and 2013, respectively.

International sales for the three months ended January 31, 2014 and 2013 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $49,144,000 and $40,471,000, respectively. International sales for the six months ended January 31, 2014 and 2013 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $96,684,000 and $79,689,000, respectively.

For the three and six months ended January 31, 2014, sales to a prime contractor represented approximately 13.5% and 13.0%, respectively, of consolidated net sales (almost all of which related to our North African country end-customer).

For the three and six months ended January 31, 2013, except for the U.S. government, no other customer or individual country (including sales to U.S. domestic companies for inclusion in products that will be sold to a foreign country) represented more than 10% of consolidated net sales.


19


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


(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. Pursuant to a two-year $44,279,000 indefinite delivery/indefinite quantity BFT-1 sustainment contract, which performance period ends on March 31, 2014, 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.

Corporate management defines and reviews segment profitability based on the same allocation methodology as presented in the segment data tables below:
 
 
Three months ended January 31, 2014
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
56,521,000

 
22,041,000

 
6,937,000

 

 
$
85,499,000

Operating income (loss)
 
10,268,000

 
1,077,000

 
3,273,000

 
(3,446,000
)
 
11,172,000

Interest income and other (expense)
 
(18,000
)
 
(13,000
)
 
3,000

 
256,000

 
228,000

Interest expense (income)
 
61,000

 

 
(3,000
)
 
1,940,000

 
1,998,000

Depreciation and amortization
 
2,231,000

 
945,000

 
63,000

 
1,085,000

 
4,324,000

Expenditure for long-lived assets, including intangibles
 
1,981,000

 
163,000

 
246,000

 
7,000

 
2,397,000

Total assets at January 31, 2014
 
244,478,000

 
90,733,000

 
7,114,000

 
312,889,000

 
655,214,000



20


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


 
 
Three months ended January 31, 2013
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
45,769,000

 
20,362,000

 
8,446,000

 

 
$
74,577,000

Operating income (loss)
 
5,549,000

 
645,000

 
2,994,000

 
(3,241,000
)
 
5,947,000

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

 
345,000

 
315,000

Interest expense (income)
 
80,000

 

 
(6,000
)
 
1,956,000

 
2,030,000

Depreciation and amortization
 
2,427,000

 
977,000

 
134,000

 
844,000

 
4,382,000

Expenditure for long-lived assets, including intangibles
 
1,228,000

 
135,000

 
26,000

 
5,000

 
1,394,000

Total assets at January 31, 2013
 
226,656,000

 
93,208,000

 
10,651,000

 
354,232,000

 
684,747,000


 
 
Six months ended January 31, 2014
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
110,886,000

 
42,238,000

 
15,743,000

 

 
$
168,867,000

Operating income (loss)
 
19,197,000

 
1,668,000

 
7,379,000

 
(6,973,000
)
 
21,271,000

Interest income and other (expense)
 
(12,000
)
 
(18,000
)
 
6,000

 
525,000

 
501,000

Interest expense (income)
 
120,000

 

 
(3,000
)
 
3,899,000

 
4,016,000

Depreciation and amortization
 
4,490,000

 
1,888,000

 
137,000

 
2,048,000

 
8,563,000

Expenditure for long-lived assets, including intangibles
 
2,914,000

 
257,000

 
246,000

 
7,000

 
3,424,000

Total assets at January 31, 2014
 
244,478,000

 
90,733,000

 
7,114,000

 
312,889,000

 
655,214,000


 
 
Six months ended January 31, 2013
 
 
Telecommunications
Transmission
 
RF Microwave
Amplifiers
 
Mobile Data
Communications
 
Unallocated
 
Total
Net sales
 
$
99,096,000

 
45,651,000

 
20,783,000

 

 
$
165,530,000

Operating income (loss)
 
17,808,000

 
2,363,000

 
6,465,000

 
(7,327,000
)
 
19,309,000

Interest income and other (expense)
 
(35,000
)
 
(29,000
)
 
12,000

 
643,000

 
591,000

Interest expense (income)
 
239,000

 

 
(6,000
)
 
3,908,000

 
4,141,000

Depreciation and amortization
 
4,863,000

 
1,957,000

 
286,000

 
1,628,000

 
8,734,000

Expenditure for long-lived assets, including intangibles
 
2,069,000

 
342,000

 
41,000

 
5,000

 
2,457,000

Total assets at January 31, 2013
 
226,656,000

 
93,208,000

 
10,651,000

 
354,232,000

 
684,747,000



21


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


Operating income in our telecommunications transmission segment for the six months ended January 31, 2014 includes a benefit of $239,000 related to a change in fair value of the earn-out liability associated with our acquisition of Stampede. There was no such benefit during the three months ended January 31, 2014. Operating income in our telecommunications transmission segment for the three and six months ended January 31, 2013 includes a benefit of $889,000 and $3,267,000, respectively, 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 January 31, 2013 includes a benefit of $253,000 relating to an adjustment for actual pre-tax restructuring charges that were lower than expected and, for the six months ended January 31, 2013, includes a net pre-tax restructuring charge of $569,000 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 and six months ended January 31, 2014 and 2013, unallocated expenses include $1,069,000 and $2,016,000, respectively, and $806,000 and $1,551,000, 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.

Intersegment sales for the three months ended January 31, 2014 and 2013 by the telecommunications transmission segment to the RF microwave amplifiers segment were $464,000 and $423,000, respectively. Intersegment sales for the six months ended January 31, 2014 and 2013 by the telecommunications transmission segment to the RF microwave amplifiers segment were $765,000 and $1,657,000, respectively.

Intersegment sales for the three months ended January 31, 2014 and 2013 by the telecommunications transmission segment to the mobile data communications segment were $134,000 and $112,000, respectively. Intersegment sales for the six months ended January 31, 2014 and 2013 by the telecommunications transmission segment to the mobile data communications segment were $172,000 and $2,619,000, respectively.

Intersegment sales for the three months ended January 31, 2014 and 2013 by the RF microwave amplifiers segment to the telecommunications transmission segment were $68,000 and $3,000, respectively. Intersegment sales for the six months ended January 31, 2014 and 2013 by the RF microwave amplifiers segment to the telecommunications transmission segment were $134,000 and $6,000, respectively.

All intersegment sales have been eliminated from the tables above.

(16)    Goodwill

The carrying amount of goodwill by segment as of January 31, 2014 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.

22


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



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.

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.


23


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


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 $42,750,000 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.


24


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


(17)    Intangible Assets

Intangible assets with finite lives as of January 31, 2014 and July 31, 2013 are as follows:

 
 
January 31, 2014
 
 
Weighted Average
Amortization Period
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Technologies
 
11.8
 
$
47,370,000

 
34,711,000

 
$
12,659,000

Customer relationships
 
10.0
 
29,831,000

 
16,556,000

 
13,275,000

Trademarks and other
 
20.0
 
5,794,000

 
2,387,000

 
3,407,000

Total
 
 
 
$
82,995,000

 
53,654,000

 
$
29,341,000


 
 
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