CMTL · Read the filing

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading provider of advanced communications solutions for both commercial and government customers worldwide. Our solutions fulfill our customers' needs for secure wireless communications in some of the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial.

We manage our business through two reportable operating segments:

•Commercial Solutions - offers satellite ground station technologies (such as modems and amplifiers), public safety and location technologies (such as 911 call routing and mapping solutions) to commercial customers and smaller government customers, such as state and local governments. This segment also serves certain large government customers (including the U.S. government) that have requirements for off-the-shelf commercial equipment.

•Government Solutions - provides mission-critical technologies (such as tactical satellite-based networks and ongoing support for complicated communication networks) and high-performance transmission technologies (such as troposcatter systems and solid-state, high-power amplifiers) to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

Our Quarterly Financial Information

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 over time.

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

Critical Accounting Policies

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

Revenue Recognition.

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

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

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

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

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

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

In determining that our equipment has alternative use, we considered the underlying manufacturing process for our products. In the early phases of manufacturing, raw materials and work in process (including subassemblies) consist of common parts that are highly fungible among many different types of products and customer applications. Finished products are either configured to our standard configuration or based on our customers’ specifications. Finished products, whether built to our standard specification or to a customers’ specification, can be sold to a variety of customers and across many different end use applications with minimal rework, if needed, and without incurring a significant economic loss.

When identifying a contract with our customer, we consider when it has approval and commitment from both parties, if the rights of the parties are identified, if the payment terms are identified, if it has commercial substance and if collectability is probable.

When identifying performance obligations, we consider whether there are multiple promises and how to account for them. In our contracts, multiple promises are separated if they are distinct, both individually and in the context of the contract. If multiple promises in a contract are highly interrelated or comprise a series of distinct services performed over time, they are combined into a single performance obligation. In some cases, we may also provide the customer with an additional service-type warranty, which we recognize as a separate performance obligation. Service-type warranties do not represent a significant portion of our consolidated net sales. When service-type warranties represent a separate performance obligation, the revenue is deferred and recognized ratably over the extended warranty period. Our contracts, from time-to-time, may also include options for additional goods and services. To date, these options have not represented material rights to the customer as the pricing for them reflects standalone selling prices. As a result, we do not consider options we offer to be performance obligations for which we must allocate a portion of the transaction price. In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery.

When identifying the transaction price, we typically utilize the contract's stated price as a starting point. The transaction price in certain arrangements may include estimated amounts of variable consideration, including award fees, incentive fees or other provisions that can either increase or decrease the transaction price. We estimate variable consideration as the amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved. The estimation of this variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (e.g., historical, current and forecasted) that is reasonably available to us.

When allocating the contract’s transaction price, we consider each distinct performance obligation. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations.

Almost all of our contracts with customers are denominated in U.S. dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts). In almost all of our contracts with customers, we are the principal in the arrangement and report revenue on a gross basis. Transaction prices for contracts with U.S. domestic and international customers are usually based on specific negotiations with each customer and in the case of the U.S. government, sometimes based on estimated or actual costs of providing the goods or services in accordance with applicable regulations.

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Consolidated Balance Sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. On large long term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits. Under ASC 606, payments received from customers in excess of revenue recognized to date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition.

We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

As commissions payable to our internal sales and marketing employees or contractors are contingent upon multiple factors, such commissions are not considered direct costs to obtain or fulfill a contract with a customer and are expensed as incurred in selling, general and administrative expenses on our Consolidated Statements of Operations. As for commissions payable to our third-party sales representatives related to large long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts. Therefore, such types of commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Consolidated Statements of Operations.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period. Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts.

Impairment of Goodwill and Other Intangible Assets. As of July 31, 2020, total goodwill recorded on our Consolidated Balance Sheet aggregated $330.5 million (of which $255.4 million relates to our Commercial Solutions segment and $75.1 million relates to our Government Solutions segment). Additionally, as of July 31, 2020, net intangibles recorded on our Consolidated Balance Sheet aggregated $258.0 million (of which $208.1 million relates to our Commercial Solutions segment and $49.9 million relates to our Government Solutions segment). Each of our two operating segments constitutes a reporting unit and we must make various assumptions in determining their estimated fair values.

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods. If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value; however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

On August 1, 2020 (the first day of our fiscal 2021), we performed our annual quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value. In making this assessment, we considered, among other things, expectations of projected net sales and cash flows, assumptions impacting the weighted average cost of capital, trends in trading multiples of comparable companies, changes in our stock price and changes in the carrying values of our reporting units with goodwill. We also considered overall business conditions, including both the potential short-term and long-term effects of the COVID-19 pandemic.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches. The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value. 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). For purposes of conducting our impairment analysis, we assumed revenue growth rates and cash flow projections that are below our actual long-term expectations. 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, which reflects 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. Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Finally, we compared our estimates of fair values to our August 1, 2020 total public market capitalization and assessed implied control premiums based on our common stock price of $16.42 as of August 1, 2020.

Based on our quantitative evaluation, we determined that our Commercial Solutions and Government Solutions reporting units had estimated fair values in excess of their carrying values of at least 8.4% and 78.0%, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

It is possible that, during fiscal 2021 or beyond, business conditions (both in the U.S. and internationally) could deteriorate from the current state, 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, or our common stock price could decline further. Such deterioration could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global business activity.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2021 or beyond. If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our Commercial Solutions and Government Solutions reporting units could be at risk of failing the quantitative assessment and goodwill and intangibles assigned to the respective reporting units could be impaired.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2021 (the start of our fiscal 2022). If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods. In addition to our impairment analysis of goodwill, we also review net intangible assets with finite lives when an event occurs indicating the potential for impairment. We believe that the carrying values of our net intangible assets were recoverable as of July 31, 2020. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

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. If we do not accurately estimate our warranty costs, any changes to our original estimates could be material to our results of operations and financial condition.

Accounting for Income Taxes. Our deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and applying enacted tax rates expected to be in effect for the year in which we expect the differences 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 potential interest and penalties related to uncertain tax positions in income tax expense. The U.S. federal government is our most significant income tax jurisdiction.

Significant judgment is required in determining income tax provisions and tax positions. We may be challenged upon review by the applicable taxing authority and positions taken by us may not be sustained. We recognize all or a portion of the benefit of income tax positions only when we have made a determination that it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position and other factors. For tax positions that are determined as more likely than not to be sustained upon examination, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The development of valuation allowances for deferred tax assets and reserves for income tax positions requires consideration of timing and judgments about future taxable income, tax issues and potential outcomes, and are subjective critical estimates. A portion of our deferred tax assets consist of federal research and experimentation tax credit carryforwards, most of which was acquired in connection with our acquisition of TCS. No valuation allowance has been established on these deferred tax assets based on our evaluation that our ability to realize such assets has met the criteria of "more likely than not." We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets. 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.

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state income tax returns prior to fiscal 2016 are subject to audit. None of TCS' state income tax returns prior to calendar year 2015 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Research and Development Costs. We generally expense all research and development costs. Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other personnel-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Costs incurred internally in researching and developing software to be sold are charged to expense until technological feasibility has been established for the software. Judgment is required in determining when technological feasibility of a product is established. Technological feasibility for our advanced communication software solutions is generally reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers and when we are able to validate the marketability of such product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. To date, capitalized internally developed software costs were not material.

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

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

We monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. In light of ongoing tight credit market conditions, we continue to see requests from our customers for higher credit limits and longer payment terms. 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. To-date, there has been no material changes in our credit portfolio as a result of the COVID-19 pandemic and related worldwide restrictions on business activities.

Although our overall credit losses have historically been within the allowances we established, we cannot accurately predict our future credit loss experience, given the current poor business environment. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business 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. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

Results of Operations

The following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of our consolidated net sales:

Fiscal Years Ended July 31,

Selling, general and administrative expenses 19.0 % 19.1 % 20.0 %

Research and development expenses 8.5 % 8.4 % 9.4 %

Settlement of intellectual property litigation — % (0.5) % — %

Acquisition plan expenses 3.4 % 0.9 % — %

Amortization of intangibles 3.5 % 2.7 % 3.7 %

Operating income 2.5 % 6.2 % 6.2 %

Interest expense (income) and other 1.0 % 1.4 % 1.8 %

Write-off of deferred financing costs — % 0.5 % — %

Income before provision for income taxes 1.5 % 4.3 % 4.3 %

Adjusted EBITDA (a Non-GAAP measure) 12.6 % 13.9 % 13.7 %

For a definition and explanation of Adjusted EBITDA, see "Item 6. Selected Consolidated Financial Data - Non-GAAP Financial Data" and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2020 and 2019 - Adjusted EBITDA."

Impact of COVID-19 and Business Outlook for Fiscal 2021

Fiscal 2020 was a challenging year. Although we got off to a good start, during our second half of fiscal 2020, the outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government. Attempts to contain the COVID-19 pandemic resulted in worldwide restrictions on many business activities, which in turn caused global economic conditions to rapidly deteriorate, resulting for us in lower net sales and Adjusted EBITDA as compared to our original business outlook for fiscal 2020. For the fiscal year, we generated consolidated:

•Net sales of $616.7 million;

•GAAP operating income of $15.2 million, or Non-GAAP operating income of $36.4 million, excluding $20.8 million of acquisition plan expenses and a $0.4 million charge related to estimated contract settlement costs;

•GAAP net income of $7.0 million, or Non-GAAP net income of $19.2 million, excluding acquisition plan expenses of $13.1 million (net of tax), a $0.3 million charge related to estimated contract settlement costs (net of tax) and a net discrete tax benefit of $1.2 million;

•Cash flows from operating activities of $52.8 million; and

•Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $77.8 million.

We achieved a fiscal 2020 consolidated book-to-bill ratio (a measure defined as bookings divided by net sales) of 0.95 and ended the year with consolidated backlog of $620.9 million. Our backlog (sometimes referred to herein as orders or bookings) are more fully defined in "Part I - Item 1. Business" included in this Annual Report on Form 10-K and the total value of multi-year contracts that we have received is substantially higher than our reported backlog.

As of July 31, 2020, our cash and cash equivalents were $47.9 million and our total debt outstanding (including finance lease and other obligations) was $149.6 million, which represents a $16.2 million reduction from our total debt outstanding as of July 31, 2019.

Since March 2020, we have conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards. These precautions and business practices will remain in effect as long as government advisories recommend. Additionally, we have experienced minor supply chain disruptions, a lower level of factory utilization and higher logistics and operational costs. Although the COVID-19 pandemic is by no means over and a second wave of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us. Our long-term fundamentals remain strong as we continue to believe we are well-positioned for growth as business conditions meaningfully improve.

As we enter fiscal 2021, we believe our business is slowly rebounding, customers appear to be adjusting to new ways of doing business and our pipeline of opportunities looks like it is growing. Despite the ongoing impact of COVID-19, our diverse business is expected to support net sales and Adjusted EBITDA growth in fiscal 2021 as compared to the amounts we achieved in fiscal 2020.

Our ability to achieve improved results in fiscal 2021 will depend, in large part, on improvement in the global economy, no worsening of the ongoing COVID-19 pandemic, and the timely receipt of, and our performance on, new orders from our customers. During fiscal 2021, we expect to relocate production of our satellite earth station product line to a new 146,000 square foot facility in Chandler, Arizona. This new facility is located less than 10 miles from our existing facility, and we anticipate that we will be fully relocated by February 2021. Our Business Outlook for Fiscal 2021 does not consider the financial impact of the pending Gilat or UHP acquisitions or other expenses related to future actions we may take in order to achieve our strategic objectives. The UHP and Gilat acquisitions are discussed in the below section entitled “Acquisition Plan Update”.

On September 29, 2020, our Board of Directors declared a dividend of $0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020. Future Common Stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

Additional information related to our Business Outlook for Fiscal 2021 and a definition and explanation of Adjusted EBITDA is included in the below section "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2020 and 2019."

Acquisition Plan Update

The UHP Acquisition.On November 21, 2019, we announced that we entered into an agreement to acquire UHP Networks Inc. and its sister company (together, “UHP”), a leading provider of innovative and disruptive satellite ground station technology solutions. UHP is based in Canada and has developed revolutionary technology that we believe is transforming the Very Small Aperture Terminal (“VSAT”) market. With end-markets for high-speed satellite-based networks significantly growing, our acquisition of UHP, if consummated, will allow us to enhance our solution offerings with low cost time division multiple access (“TDMA”) satellite modems which we do not currently offer. In June 2020, we agreed with UHP to amend the terms of our purchase agreement which resulted in the total aggregate purchase price being reduced by approximately 24% from $50.0 million to $38.0 million (of which $5.0 million will be paid in cash, with the remainder in shares of our common stock, cash, or a combination of both, as we may elect at the time of closing). The transaction is subject to customary closing conditions, including regulatory approval to allow us to purchase UHP's sister company which is headquartered in Moscow. In August 2020, at the request of the Federal Antimonopoly Service ("FAS") of the Russian Federation we submitted an application for regulatory approval to the FAS and the Commission for Supervising Foreign Investments in the Russian Federation (the "Russian Commission") pursuant to Russia’s Foreign Investment Law ("FIL"). In order to purchase UHP’s sister company, which is based in Moscow, approval by the Russian Commission and the FAS is required. If we do not receive approval by December 31, 2020, either we or UHP may terminate the purchase agreement.

The Gilat Acquisition.On January 29, 2020, we entered into a highly strategic agreement to acquire Gilat Satellite Networks Ltd. ("Gilat"). Gilat is a worldwide leader in satellite networking technology, solutions and services, with market leading positions in the satellite ground station and in-flight connectivity solutions markets and deep expertise in operating large network infrastructures. The acquisition, if consummated, would provide several strategic benefits to us including:

i.strengthening our position as a leading supplier of advanced communications solutions, uniquely capable of servicing the expanding need for ground infrastructure to support both existing and emerging satellite networks;

ii.expanding our product portfolio with highly complementary technologies including Gilat’s high-performance TDMA-based satellite modems and its next generation amplifiers;

iii.facilitating adoption of our satellite technologies into the 4G and 5G cellular backhaul ecosystems;

iv.bolstering our world-class research and development capabilities, enabling us to offer customers more complete end-to-end technology solutions; and

v.enhancing our ability to accelerate shareholder value creation by contributing to our ongoing strategy to move toward higher margin solutions and by increasing customer diversification geographically and by market.

Pursuant to the agreement, each Gilat ordinary share would be converted into the right to receive consideration of (i) $7.18 in cash, without interest, plus (ii) 0.08425 of a share of Comtech common stock (worth approximately $1.12 per Gilat ordinary share as of September 24, 2020), with cash payable in lieu of fractional shares. Based on the terms agreed to on January 29, 2020 and the September 24, 2020 closing price of Comtech Common Stock of $13.32, the total amount payable to Gilat shareholders would have been approximately $465.8 million (consisting of approximately $402.9 million in cash with the remainder in Comtech Common Stock) or $8.30 per Gilat ordinary share.

Our intention would be to fund the $402.9 million cash portion of the amount payable by redeploying a large portion of both our and Gilat's unrestricted cash and cash equivalents, with the remaining funds provided by a new Gilat Acquisition Related Credit Facility that would replace our existing Credit Facility, allow us to refinance our existing debt of approximately $149.5 million as of July 31, 2020 and fund the $5.0 million minimum cash portion of the purchase price for UHP. Our acquisition of Gilat remains subject to certain conditions to closing, including regulatory approval in Russia required to purchase Gilat’s Russian subsidiary.

In July 2020, we commenced litigation in the Delaware Court of Chancery (the “Delaware Court”) seeking certain declaratory judgments, including a declaratory judgment that Gilat has suffered a Material Adverse Effect (as defined in the Merger Agreement) and that, as a result, we are not obligated to complete the acquisition of Gilat. The amended complaint also seeks a declaratory judgment that certain actions, if taken by Gilat, relating to Comtech’s application for Russian regulatory approval, would breach Gilat’s obligations under the Merger Agreement. Gilat subsequently sued in the Delaware Court for declaratory judgments, including that it has not suffered a Material Adverse Effect and that Comtech has not used reasonable best efforts to obtain Russian regulatory approval for the transaction. To-date, we incurred significant amounts of legal expenses and professional fees in connection with the litigation and a trial is scheduled for October 5, 2020. The Delaware Court has indicated that it intends to render a judgment prior to October 29, 2020, the date that we or Gilat may terminate the Merger Agreement. If we are required to close the Gilat acquisition, total net debt of the combined companies would be expected to approximate $525.0 million. Litigation related to these matters is further discussed in "Notes to Consolidated Financial Statements - Note (13)(a) - Commitments and Contingencies - Legal Proceedings and Other Matters" included in "Part II - Item 8.- Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K.

Comparison of Fiscal 2020 and 2019

Net Sales. Consolidated net sales were $616.7 million and $671.8 million for fiscal 2020 and 2019, respectively, representing a decrease of $55.1 million, or 8.2%. The period-over-period decrease in net sales reflects lower net sales in both our Government Solutions and Commercial Solutions segments. Net sales by operating segment are discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $353.7 million for fiscal 2020, as compared to $357.3 million for fiscal 2019, a decrease of $3.6 million, or 1.0%. Our Commercial Solutions segment represented 57.4% of consolidated net sales for fiscal 2020 as compared to 53.2% for fiscal 2019. Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.91. Period-to-period fluctuations in bookings is normal for this segment. As further discussed below, long-term demand for our Commercial Solutions products and technologies appears strong and we believe fiscal 2021 net sales for this segment will be slightly higher than the amount we achieved in fiscal 2020.

Although the business impact of COVID-19 resulted in significantly lower net sales of our satellite ground station technologies during fiscal 2020 as compared to fiscal 2019, bookings began to rebound in the fourth quarter of our fiscal 2020. We were awarded a number of important orders including: (i) contracts valued at more than $2.2 million for Ka-band high-power traveling wave tube amplifiers (“TWTAs”) for trailer-based satellite communications terminals; (ii) a contract valued at more than $1.5 million for 500W Ka-band TWTAs for a tracking, telemetry and command application to be deployed globally by a major satellite service provider; (iii) $1.3 million in orders for advanced satellite modems, WAN optimization and redundancy switches to support cellular LTE backhaul for a service provider in the Middle East; and (iv) a $1.1 million order for satellite ground station equipment from a South East Asia Ministry of Defense for a network upgrade, which could expand to more than 2,000 units. In addition, we received additional orders on our contract valued at $4.7 million to support a critical U.S. Air Force and U.S. Army Anti-jam Modem (“A3M”) program which is intended to provide the U.S. Air Force and U.S. Army with a secure, wideband, anti-jam satellite communications terminal modem for tactical satellite communication operations.

Despite the ongoing impact of the COVID-19 pandemic, based on the anticipated increase in the number of high-throughput satellites and low earth orbit and medium earth orbit satellites expected to be launched, and the migration of networks from 3G to 4G and ultimately 5G technologies in emerging countries, we believe that we are in the early stages of a multi-year period of growing demand for satellite ground station technologies which are used to backhaul cellular traffic. Also, we continue to focus efforts on expanding sales of our HeightsTM solutions and believe the pipeline for this product line is growing.

Net sales of our public safety and location technology solutions were higher in fiscal 2020 as compared to fiscal 2019. Sales in fiscal 2020 of these products included an insignificant amount of sales from our February 2020 acquisition of NG-911. To-date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted and demand for our products appears strong. For example, we were awarded and began work on close to $30.0 million of multi-year contracts from two U.S. tier-one mobile network operators for 5G virtual mobile location-based technology solutions, including public safety applications. Also, we secured several multi-year contracts valued at more than $15.0 million to deploy new call-handling solutions in the Midwest region of the United States.

Although COVID-19 has resulted in the cancellation of several key public safety trade shows and some states and municipalities have announced budget constraints, other existing and potential customers are increasing their funding for next-generation 911 solutions, recognizing the critical importance of upgrading their 911 systems. For example, during the fourth quarter of fiscal 2020, we were awarded a contract valued at up to $54.0 million to design, deploy, and operate next generation 911 services for the State of South Carolina. Additionally, we are working with two other states for multi-million dollar contracts to upgrade certain components of their 911 networks. Although public safety and location technology solutions have long sales cycles and are subject to difficult-to-predict changes in the overall procurement strategies of wireless carrier customers, we believe we are well positioned for long-term growth in this market.

Bookings, sales and profitability in our Commercial Solutions segment can fluctuate from period-to-period due to many factors, including changes in the general business environment. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Government Solutions

Net sales in our Government Solutions segment were $263.0 million for fiscal 2020 as compared to $314.5 million for fiscal 2019, a decrease of $51.5 million or 16.4%. Our Government Solutions segment represented 42.6% of consolidated net sales for fiscal 2020 as compared to 46.8% for fiscal 2019. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2020 was 1.0. Period-to-period fluctuations in bookings is normal for this segment. As further discussed below, despite the year-over-year decline in net sales, long-term demand for our Government Solutions products and technologies remains strong. Looking forward, and despite the lingering impact of COVID-19, we believe fiscal 2021 net sales for this segment will be slightly higher than the amount we achieved in fiscal 2020.

Net sales of our mission-critical technologies during fiscal 2020 were significantly lower as compared to fiscal 2019, due primarily to the timing of and performance on orders related to our $98.6 million U.S. Army global field support contract and lower sales for high reliability Electrical, Electronic and Electromechanical (“EEE”) satellite based space components. While fiscal 2020 benefited from a nominal amount of sales related to our new X/Y satellite tracking antenna product line acquired in connection with our January 2020 acquisition of CGC, it also reflected the absence of sales of our next generation MT-2025 mobile satellite transceivers. In fiscal 2019, we sold $11.7 million of such transceivers.

Although we believe that COVID-19 did cause fielding and order delays for our customers which also impacted the timing and receipt of awards in fiscal 2020 for our mission-critical technologies, it was a solid year for bookings. Receipt of new orders in fiscal 2020 include: (i) over $37.1 million of orders to supply Manpack Satellite Terminals, networking equipment and other advanced VSAT products to the U.S. Army (which were booked pursuant to our $223.4 million Global Tactical Advanced Communication Systems ("GTACS") contract with the U.S. Army's PM Tactical Network, which has a remaining unfunded contract value of $8.4 million as of July 31, 2020); (ii) $28.2 million of orders to provide ongoing sustainment services to the U.S. Army for the AN/TSC-198A SNAP (Secret Internet Protocol Router ("SIPR") and Non-classified Internet Protocol Router ("NIPR") Access Point), Very Small Aperture Terminals ("VSATs"); (iii) $10.7 million of additional orders from the U.S. government for our Joint Cyber Analysis Course (“JCAC”) training solutions; (iv) over $7.7 million of additional funding related to sustaining the U.S. Army's Project Manager Mission Command (“PM MC”) Blue Force Tracking (“BFT-1”) program; and (v) $6.3 million of initial funding on a $12.6 million contract from a major U.S. subcontractor for the supply of high reliability EEE space components to be utilized on NASA's Artemis missions.

Net sales of our high-performance transmission technologies in fiscal 2020 were slightly lower as compared to fiscal 2019 with increased sales of solid-state, high-power amplifiers and related switching technologies being offset by lower sales of our over-the-horizon microwave system technologies.

Bookings for our high-performance transmission technologies were lower in fiscal 2020 as compared to fiscal 2019 as the business impact of COVID-19 resulted in some of our international customers delaying awards for certain large over-the-horizon microwave system technology projects. However, demand from the U.S. military for these products remains strong. In fiscal 2020, we were awarded several contracts for our recently introduced Comtech COMET terminals to be used by a U.S. Army Special Operations Command and received $13.4 million of initial funding related to a 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next generation troposcatter systems in support of the U.S. Marine Corps. We believe this multi-year opportunity validates Comtech’s market leading troposcatter technologies and expertise.

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

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the fiscal years ended July 31, 2020 and 2019 are as follows:

Fiscal Years Ended July 31,

Commercial Solutions Government Solutions Consolidated

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

Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Except for the U.S. government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020 and 2019.

International sales for fiscal 2020 and 2019 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were $145.1 million and $170.6 million, respectively. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for fiscal 2020 and 2019.

Gross Profit. Gross profit was $226.8 million and $247.4 million for fiscal 2020 and 2019, respectively. The decrease of $20.6 million primarily reflects the decline in consolidated net sales, as discussed above.

Gross profit, as a percentage of consolidated net sales, for both fiscal 2020 and fiscal 2019 was 36.8%. Although fiscal 2020 reflects a higher percentage of consolidated net sales in our Commercial Solutions segment, which historically achieves higher gross margins than our Government Solutions segment, this benefit was offset by overall company-wide product mix changes. Our gross profit in fiscal 2020 reflects minor increases in costs due to a lower level of factory utilization and higher logistics and operational costs resulting from COVID-19. Gross profit, as a percentage of related segment net sales, is further discussed below.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2020 decreased in comparison to fiscal 2019. The decrease in gross profit percentage in fiscal 2020 primarily reflects changes in products and services mix, primarily lower net sales of our satellite ground station technologies.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2020 increased slightly in comparison to fiscal 2019. The slight increase in gross profit percentage primarily reflects a more favorable mix of mission-critical technology solutions, despite lower fiscal 2020 sales of such solutions.

Included in consolidated cost of sales for fiscal 2020 and 2019 are provisions for excess and obsolete inventory of $1.6 million and $6.0 million, respectively. As discussed in "Item 7. 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 trends.

Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $117.1 million and $128.6 million for fiscal 2020 and 2019, respectively, representing a decrease of $11.5 million, or 8.9%. As a percentage of consolidated net sales, selling, general and administrative expenses were 19.0% and 19.1% for fiscal 2020 and 2019, respectively.

Our selling, general and administrative expenses in fiscal 2020 reflect certain cost reduction actions taken in response to lower levels of business activity resulting from COVID-19. These cost savings measures included reducing global headcount, temporarily reducing salaries, suspending merit increases and eliminating certain discretionary expenses. Severance costs related to these actions were not material. Additionally, during most of the second half of fiscal 2020, we have conducted most of our non-production related operations through remote working arrangements, curtailed most business travel, and have established social distancing safeguards. These precautions and business practices will remain in effect as long as government advisories recommend. Although we have incurred lower travel expenses in fiscal 2020 than we did in fiscal 2019, there has been a corresponding increase in information technology cost and COVID-19 safety related expenses.

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million related to the repositioning of our location technologies solutions offerings in our Commercial Solutions segment. In fiscal 2019, we incurred $6.4 million of such costs and also incurred $1.4 million of facility exit costs in our Government Solutions segment. Excluding all of these costs in both periods, our selling, general and administrative expenses would have been $116.7 million, or 18.9% of consolidated net sales for fiscal 2020 and $120.8 million, or 18.0% of consolidated net sales for fiscal 2019.

Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $7.5 million in fiscal 2020 as compared to $9.3 million in fiscal 2019. This year-over-year decrease largely occurred due to the temporary suspension of stock-based awards for certain employees to reduce expenses as a response to COVID-19. Stock-based awards for these employees are expected to resume in fiscal 2021.

Amortization of stock-based compensation is not allocated to our two reportable operating segments.

Research and Development Expenses.Research and development expenses were $52.2 million and $56.4 million for fiscal 2020 and 2019, respectively, representing a decrease of $4.2 million, or 7.4%. As a percentage of consolidated net sales, research and development expenses were 8.5% and 8.4% for fiscal 2020 and 2019, respectively.

For fiscal 2020 and 2019, research and development expenses of $45.2 million and $48.2 million, respectively, related to our Commercial Solutions segment, and $6.1 million and $7.2 million, respectively, related to our Government Solutions segment. The remaining research and development expenses of $0.9 million and $1.0 million in fiscal 2020 and 2019, respectively, related to the amortization of stock-based compensation expense.

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During fiscal 2020 and 2019, customers reimbursed us $11.9 million and $14.7 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.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $21.6 million (of which $17.3 million was for the Commercial Solutions segment and $4.3 million was for the Government Solutions segment) for fiscal 2020 and $18.3 million (of which $14.9 million was for the Commercial Solutions segment and $3.4 million was for the Government Solutions segment) for fiscal 2019. The increase of $3.3 million was primarily due to our 2019 acquisitions of Solacom and the GD NG-911 business and our 2020 acquisition of CGC.

Excluding the impact of any increased amortization from our pending acquisitions of Gilat and UHP, our Business Outlook for Fiscal 2021 assumes total annual amortization of intangible assets of approximately $21.3 million.

Settlement of Intellectual Property Litigation.In fiscal 2019, we recorded a $3.2 million benefit in our Unallocated segment as a result of a favorable ruling issued by the U.S. Court of Appeals for the Federal Circuit related to a legacy TCS intellectual property matter. There was no comparable adjustment in fiscal 2020.

Acquisition Plan Expenses. During fiscal 2020, we incurred acquisition plan expenses of $20.8 million, primarily related to our pending acquisitions of Gilat (including significant litigation expenses) and UHP. Fiscal 2020 acquisition plan expenses also include costs associated with our completed acquisitions of CGC and NG-911. In fiscal 2019, our acquisition plan expenses of $5.9 million primarily related to our acquisitions of Solacom and the GD NG-911 business. Except for $0.8 million of fiscal 2020 costs which are reflected in our Commercial Solutions segment, all of these expenses are primarily recorded in our Unallocated segment.

We expect to incur a significant amount of acquisition plan expenses (including a large amount of litigation expenses) in fiscal 2021. Acquisition related litigation expenses incurred so far during our first quarter of fiscal 2021 approximate $14.2 million and will increase during the trial period. If we are required to close the Gilat acquisition, we expect to incur additional acquisition plan expenses of approximately $38.0 million related to additional litigation expenses, debt commitment and issuance costs, advisory fees and other expenses.

Operating Income. Operating income for fiscal 2020 was $15.2 million as compared $41.4 million for fiscal 2019. Operating income by reportable segment is shown in the table below:

Fiscal Years Ended July 31,

Percentage of related net sales 9.8 % 10.1 % 7.6 % 9.2 % NA NA 2.5 % 6.2 %

The Commercial Solutions segment's operating income for fiscal 2020 and fiscal 2019 reflects $0.4 million and $6.4 million of estimated contract settlement costs, as discussed above. The segment's operating income for fiscal 2020 also reflects $0.8 million of the total acquisition plan expenses, as discussed above. Excluding such charges, operating income in our Commercial Solutions segment would have been $36.0 million, or 10.2% of related segment net sales for fiscal 2020, and $42.5 million, or 11.9% of related segment net sales for fiscal 2019. The decrease in operating income, both in dollars and as a percentage of related segment net sales, was driven primarily by lower net sales and a lower gross profit percentage and increased amortization of intangibles, as discussed above.

The Government Solutions segment’s operating income for fiscal 2019 included $1.4 million of facility exit costs, as discussed above. Excluding such facility exist costs, operating income in our Government Solutions segment for fiscal 2019 would have been $30.4 million, or 9.7% of related segment net sales as compared to fiscal 2020 operating income of $20.0 million, or 7.6% of related segment net sales. The decrease in our Government Solutions segment’s operating income, both in dollars and as a percentage of related segment net sales, in fiscal 2020 was driven primarily by lower net sales and increased amortization of intangibles, as discussed above.

The increase in unallocated expenses in fiscal 2020 as compared to fiscal 2019 is primarily due to higher acquisition plan expenses and the absence of the $3.2 million benefit related to the fiscal 2019 favorable ruling issued by the U.S. Court of Appeals for the Federal Circuit for a legacy TCS intellectual property matter, as discussed above. Amortization of stock-based compensation was $9.3 million and $11.4 million, respectively, for fiscal 2020 and 2019.

Excluding the $20.8 million of acquisition plan expenses and $0.4 million of estimated contract settlement costs, consolidated operating income for fiscal 2020 would have been $36.4 million, or 5.9% of consolidated net sales. Excluding net costs of $10.5 million, consisting of $6.4 million of estimated contract settlement costs, $1.4 million of facility exit costs, $5.9 million of acquisition plan expenses and a $3.2 million benefit related to a legacy TCS intellectual property matter (all of which are discussed above), consolidated operating income for fiscal 2019 would have been $51.8 million, or 7.7% of consolidated net sales. The decrease in dollars, and as a percentage of consolidated net sales, was due primarily to lower consolidated net sales and increased amortization of intangibles, as discussed above.

Unallocated expenses in fiscal 2021 will be impacted by ongoing acquisition plan expenses, discussed above.

Interest Expense and Other. Interest expense was $6.1 million and $9.2 million for fiscal 2020 and 2019, respectively. The decrease is attributable to lower interest rates and lower outstanding indebtedness under our existing Credit Facility. Our effective interest rate (including amortization of deferred financing costs) in fiscal 2020 was approximately 3.9%. Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 2.0%. Excluding the impact of our pending acquisitions, interest expense in fiscal 2021, is expected to approximate $5.9 million.

Write-off of Deferred Financing Costs. In connection with the establishment of a new Credit Facility in fiscal 2019, we wrote-off $3.2 million of deferred financing costs which primarily related to the term loan portion of our prior credit facility. See "Notes to Consolidated Financial Statements - Note (8) - Credit Facility" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, for further information. There was no comparable charge in fiscal 2020.

Interest (Income) and Other. Interest (income) and other for both fiscal 2020 and 2019 was nominal. All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate.

Provision for Income Taxes. The provision for income taxes for fiscal 2020 and 2019 was $2.3 million and $3.9 million, respectively. Our effective tax rate (excluding discrete tax items) for fiscal 2020 and 2019 was 37.0% and 23.25%, respectively. The increase from 23.25% to 37.0% is primarily due to the decrease in fiscal 2020 consolidated net sales.

During fiscal 2020, we recorded a net discrete tax benefit of $1.2 million, primarily related to the finalization of certain tax accounts in connection with the filing of our fiscal 2019 federal and state income tax returns. These benefits were offset, in part, by (i) the remeasurement of certain foreign deferred taxes resulting from the passage of legislation that increased the statutory tax rate in the United Kingdom from 17.0% to 19.0% and (ii) the settlement of certain stock-based awards during fiscal 2020.

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2016 are subject to audit. None of TCS' state income tax returns prior to calendar year 2015 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Net Income. During fiscal 2020, consolidated net income was $7.0 million as compared to $25.0 million during fiscal 2019.

Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both fiscal 2020 and 2019 are shown in the table below (numbers in the table may not foot due to rounding):

Fiscal Years Ended July 31,

Provision for (benefit from) income taxes 0.4 — (0.1) — 2.0 3.9 2.3 3.9

Interest (income) and other — 0.1 (0.2) — — — (0.2) —

Write-off of deferred financing costs — — — — — 3.2 — 3.2

Amortization of stock-based compensation — — — — 9.3 11.4 9.3 11.4

Estimated contract settlement costs 0.4 6.4 — — — — 0.4 6.4

Settlement of intellectual property litigation — — — — — (3.2) — (3.2)

Facility exit costs — — — 1.4 — — — 1.4

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2020 as compared to fiscal 2019 is primarily attributable to lower consolidated net sales, as discussed above.

The decrease in our Commercial Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is due to lower net sales and a lower gross profit percentage, as discussed above.

The decrease in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was primarily driven by lower net sales, as discussed above.

Because our consolidated Adjusted EBITDA, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each individual segment as well as unallocated spending, it is inherently difficult to forecast.

Reconciliations of our GAAP consolidated operating income, net income and net income per diluted share for fiscal 2020 and 2019 to the corresponding non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding):

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported $ 15.2 $ 7.0 $ 0.28

Estimated contract settlement costs 0.4 0.3 0.01

Net discrete tax benefit — (1.2) (0.05)

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported $ 41.4 $ 25.0 $ 1.03

Estimated contract settlement costs 6.4 4.9 0.20

Settlement of intellectual property litigation (3.2) (2.5) (0.10)

Acquisition plan expenses 5.9 4.5 0.19

Write-off of deferred financing costs — 2.5 0.10

Net discrete tax benefit — (2.9) (0.12)

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, facility exit costs and strategic alternatives analysis expenses and other. Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is also a measure frequently requested by our investors and analysts. We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, in assessing our performance and comparability of our results with other companies. Our Non-GAAP measures for consolidated operating income, net income and net income per diluted share reflect the GAAP measures as reported, adjusted for certain items as described. These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the above tables, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings.

Comparison of Fiscal 2019 and 2018

Net Sales. Consolidated net sales were $671.8 million and $570.6 million for fiscal 2019 and 2018, respectively, representing a significant increase of $101.2 million, or 17.7%. The significant period-over-period increase in net sales reflects higher net sales in both our Commercial and Government Solutions segments. Net sales by operating segment are discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $357.3 million for fiscal 2019, as compared to $345.1 million for fiscal 2018, an increase of $12.2 million, or 3.5%. Our Commercial Solutions segment represented 53.2% of consolidated net sales for fiscal 2019 as compared to 60.5% for fiscal 2018.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment for fiscal 2019 was 1.25. Period-to-period fluctuations in bookings is normal for this segment.

Net sales of our satellite ground station technologies during fiscal 2019 were slightly lower than fiscal 2018. In fiscal 2019, we experienced significant growth in sales to international customers as well as incremental demand from U.S. government customers. This strength was offset by order delays and lower sales for inflight communication amplifiers sold primarily to a U.S. domestic customer. Our HeightsTM solutions bookings and sales were significantly higher than the amounts achieved in fiscal 2018.

Net sales for fiscal 2019 of our public safety and location technology solutions were significantly higher as compared to the net sales we achieved in fiscal 2018. During fiscal 2019, we benefited from incremental sales to key wireless customers for 911 call routing and incremental sales to state and local agencies for our next-generation 911 products. The impact of the February 28, 2019 acquisition of Solacom on fiscal 2019 sales was nominal. Sales of our location technology solutions were significantly lower in fiscal 2019 as we repositioned this product line to focus on providing higher margin solutions offerings to our customers, ceased offering certain solutions and have not renewed certain contracts.

Government Solutions

Net sales in our Government Solutions segment were $314.5 million for fiscal 2019 as compared to $225.5 million for fiscal 2018, a significant increase of $89.0 million or 39.5%. Our Government Solutions segment represented 46.8% of consolidated net sales for fiscal 2019, as compared to 39.5% for fiscal 2018.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2019 was 0.88. Period-to-period fluctuations in bookings is normal for this segment.

Net sales of our mission-critical technologies during fiscal 2019 were significantly higher as compared to fiscal 2018.

Net sales of our high-performance transmission technologies in fiscal 2019 were significantly higher than fiscal 2018 driven by increased deliveries in fiscal 2019 of troposcatter technologies (including our Modular Transportable Transmission System ("MTTS") troposcatter terminals to two foreign militaries) and an increase in both orders and sales of solid-state, high-power amplifiers and related switching technologies.

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the fiscal years ended July 31, 2019 and 2018 are as follows:

Fiscal Years Ended July 31,

Commercial Solutions Government Solutions Consolidated

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

Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Included in domestic sales, are sales to Verizon Communications Inc. ("Verizon"). Sales to Verizon were 10.0% of consolidated net sales for fiscal 2018.

International sales for fiscal 2019 and 2018 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were $170.6 million and $145.8 million, respectively. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for fiscal 2019 and 2018.

Gross Profit. Gross profit was $247.4 million and $223.9 million for fiscal 2019 and 2018, respectively. The increase of $23.5 million reflects higher sales in both of our segments, as discussed above.

Gross profit, as a percentage of consolidated net sales, for fiscal 2019 was 36.8% as compared to 39.2% for fiscal 2018. This decrease was almost entirely driven by product mix changes as a result of the significant year-to-year increase in net sales in our Government Solutions segment. This segment historically achieves lower gross margins than our Commercial Solutions segment. Gross profit in fiscal 2018 also reflects a benefit from a $0.7 million favorable warranty settlement and a $1.0 million favorable sales and use tax settlement, both of which are reflected in our unallocated segment. Gross profit, as a percentage of related segment net sales, is further discussed below.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2019 declined in comparison to fiscal 2018. The decrease in gross profit percentage in fiscal 2019 primarily reflects changes in products and services mix, including a significant increase in fiscal 2019 net sales of our HeightsTM solutions which had lower gross margins than our traditional satellite ground station technologies.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2019 declined slightly in comparison to fiscal 2018. In fiscal 2019, we completed shipments of relatively lower margin MT-2025 satellite transceivers to the U.S. Army.

Included in consolidated cost of sales for fiscal 2019 and 2018 are provisions for excess and obsolete inventory of $6.0 million and $5.6 million, respectively. As discussed in "Item 7. 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 trends.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $128.6 million and $113.9 million for fiscal 2019 and 2018, respectively, representing an increase of $14.7 million, or 12.9%. As a percentage of consolidated net sales, selling, general and administrative expenses were 19.1% and 20.0% for fiscal 2019 and 2018, respectively. The decrease, as a percentage of consolidated net sales, is primarily attributable to the significant increase in our consolidated net sales.

In fiscal 2019, we began a repositioning in our Commercial Solutions segment of certain of our location technology solutions to increase our penetration into the public safety space. In connection with this repositioning, we ceased offering certain solutions, have worked with customers to wind-down certain legacy contracts and have not renewed certain contracts; and in doing so, we incurred $6.4 million of estimated contract settlement costs that were recorded as selling, general and administrative expenses. Additionally, we took steps to reduce our facility footprint and incurred $1.4 million of facility exit costs in our Government Solutions segment. Excluding such costs, our selling, general and administrative expenses for fiscal 2019 would have been $120.8 million, or 18.0% of consolidated net sales.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $9.3 million in fiscal 2019 as compared to $6.9 million in fiscal 2018. Amortization in fiscal 2018 includes the benefit of a $0.4 million reversal of stock-based compensation expense related to certain performance shares previously expected to be earned. Amortization of stock-based compensation is not allocated to our two reportable operating segments.

Research and Development Expenses.Research and development expenses were $56.4 million and $53.9 million for fiscal 2019 and 2018, respectively, representing an increase of $2.5 million, or 4.6%. As a percentage of consolidated net sales, research and development expenses were 8.4% and 9.4% for fiscal 2019 and 2018, respectively.

For fiscal 2019 and 2018, research and development expenses of $48.2 million and $46.0 million, respectively, related to our Commercial Solutions segment, and $7.2 million and $7.0 million, respectively, related to our Government Solutions segment. The remaining research and development expenses of $1.0 million and $0.9 million in fiscal 2019 and 2018, respectively, related to the amortization of stock-based compensation expense.

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During fiscal 2019 and 2018, customers reimbursed us $14.7 million and $16.9 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.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $18.3 million (of which $14.9 million was for the Commercial Solutions segment and $3.4 million was for the Government Solutions segment) for fiscal 2019 and $21.1 million (of which $17.7 million was for the Commercial Solutions segment and $3.4 million was for the Government Solutions segment) for fiscal 2018. The decrease from $21.1 million to $18.3 million was largely the result of certain intangible assets in our Commercial Solutions segment that became fully amortized in fiscal 2018.

Acquisition Plan Expenses. During fiscal 2019, we incurred $5.9 million of total acquisition plan expenses. These expenses are recorded in our Unallocated segment and primarily related to our fiscal 2019 acquisitions of Solacom and the GD NG-911 business, as discussed above.

Operating Income. Operating income for fiscal 2019 was $41.4 million as compared $35.1 million for fiscal 2018. Operating income by reportable segment is shown in the table below:

Fiscal Years Ended July 31,

Percentage of related net sales 10.1 % 11.8 % 9.2 % 4.9 % NA NA 6.2 % 6.2 %

The decrease in our Commercial Solutions segment’s operating income for fiscal 2019, both in dollars and as a percentage of related segment net sales, was driven by the $6.4 million of estimated contract settlement costs, as discussed above. Excluding such charge, operating income in our Commercial Solutions segment for fiscal 2019 would have been $42.5 million, or 11.9% of related segment net sales which was slightly higher than the amount we achieved in fiscal 2018.

The significant increase in our Government Solutions segment’s operating income for fiscal 2019, both in dollars and as a percentage of related segment net sales, was primarily due to significantly higher net sales in this segment, offset in part by $1.4 million of facility exit costs, as discussed above. Excluding such costs, operating income in our Government Solutions segment for fiscal 2019 would have been $30.4 million, or 9.7% of related segment net sales, which was significantly higher than the amount we achieved in fiscal 2018.

The increase in unallocated expenses in fiscal 2019 as compared to fiscal 2018 is primarily due to increased business and sales activity, acquisition plan expenses and an increase in amortization of stock-based compensation, offset in part by the benefit related to a legacy TCS intellectual property matter, as discussed above. In addition, unallocated operating expenses for fiscal 2018 include the benefit of the warranty settlement and the sales and use tax settlement, as discussed above. Amortization of stock-based compensation was $11.4 million and $8.6 million, respectively, for fiscal 2019 and 2018. Amortization of stock-based compensation for fiscal 2018 reflects a reversal of $0.4 million of stock-based compensation expense related to certain performance shares that were previously expected to be earned.

Excluding net costs of $10.5 million, consisting of $6.4 million of estimated contract settlement costs, $1.4 million of facility exit costs, $5.9 million of acquisition plan expenses and a $3.2 million benefit related to a legacy TCS intellectual property matter (all of which are discussed above), consolidated operating income for fiscal 2019 would have been $51.8 million, or 7.7% of consolidated net sales. Excluding the aforementioned $1.7 million of favorable adjustments in fiscal 2018, consolidated operating income for fiscal 2018 would have been $33.4 million, or 5.9% of consolidated net sales. The increase from 5.9% to 7.7% reflects the benefit of incremental sales growth and changes in overall spending, as discussed above.

Interest Expense and Other. Interest expense was $9.2 million and $10.2 million for fiscal 2019 and 2018, respectively. Our effective interest rate (including amortization of deferred financing costs) in fiscal 2019 was approximately 5.3%.

Write-off of Deferred Financing Costs. In connection with the establishment of our new Credit Facility in fiscal 2019, we wrote-off $3.2 million of deferred financing costs which primarily related to the term loan portion of our prior credit facility. There was no comparable charge in fiscal 2018.

Interest (Income) and Other. Interest (income) and other for both fiscal 2019 and 2018 was nominal.

Provision for (Benefit from) Income Taxes. The provision for income taxes was $3.9 million for fiscal 2019 as compared to a benefit of $5.1 million for fiscal 2018. Our effective tax rate (excluding discrete tax items) for fiscal 2019 was 23.25% and for 2018 was 27.0%.

During fiscal 2019, we recorded a net discrete tax benefit of $2.9 million, primarily related to: (i) the favorable resolution of the IRS' audit of our fiscal 2016 federal income tax return; (ii) discrete tax benefits for stock-based awards that were settled during fiscal 2019; and (iii) the reversal of tax contingencies no longer required due to the expiration of applicable statutes of limitation. During fiscal 2018, we recorded a net discrete tax benefit of $11.8 million which, as a result of Tax Reform, primarily related to the remeasurement of deferred tax liabilities associated with non-deductible amortization related to intangible assets and discrete tax benefits associated with stock-based awards that were settled in fiscal 2018. These benefits were offset, in part, by the finalization of certain tax deductions in connection with the filing of our federal and state tax returns for fiscal 2017. The decrease from 27.0% to 23.25% is principally attributable to the passage of Tax Reform which reduced the statutory income tax rate from 35.0% to 21.0%. Such decrease was partially offset by non-deductible transaction costs related to the acquisition of Solacom and lower tax deductions for certain executive compensation expenses as a result of Tax Reform.

Net Income. During fiscal 2019, consolidated net income was $25.0 million as compared to $29.8 million during fiscal 2018.

Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both fiscal 2019 and 2018 are shown in the table below (numbers in the table may not foot due to rounding):

Fiscal Years Ended July 31,

Provision for (benefit from) income taxes — 0.3 — — 3.9 (5.4) 3.9 (5.1)

Interest (income) and other 0.1 0.2 — 0.1 — — — 0.3

Write-off of deferred financing costs — — — — 3.2 — 3.2 —

Amortization of stock-based compensation — — — — 11.4 8.6 11.4 8.6

Estimated contract settlement costs 6.4 — — — — — 6.4 —

Settlement of intellectual property litigation — — — — (3.2) — (3.2) —

Acquisition plan expenses — — — — 5.9 — 5.9 —

Facility exit costs — — 1.4 — — — 1.4 —

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, during fiscal 2019 as compared to fiscal 2018 is primarily attributable to higher consolidated net sales and operating income, as discussed above.

The decrease in our Commercial Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, primarily reflects the lower gross profit percentage we achieved in fiscal 2019 and higher research and development expenses, as discussed above.

The significant increase in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was primarily driven by significantly higher net sales, as discussed above.

Reconciliations of our GAAP consolidated operating income, net income and net income per diluted share for fiscal 2019 and 2018 to the corresponding non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding):

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported $ 41.4 $ 25.0 $ 1.03

Estimated contract settlement costs 6.4 4.9 0.20

Settlement of intellectual property litigation (3.2) (2.5) (0.10)

Acquisition plan expenses 5.9 4.5 0.19

Write-off of deferred financing costs — 2.5 0.10

Net discrete tax benefit — (2.9) (0.12)

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported $ 35.1 $ 29.8 $ 1.24

Net discrete tax benefit — (11.8) (0.49)

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses and facility exit costs and strategic alternative analysis expenses and other. Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is also a measure frequently requested by our investors and analysts. We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, in assessing our performance and comparability of our results with other companies. Our Non-GAAP measures for consolidated operating income, net income and net income per diluted share reflect the GAAP measures as reported, adjusted for certain items as described. These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the above tables, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings.

Liquidity and Capital Resources

Our cash and cash equivalents were $47.9 million at July 31, 2020 as compared to $45.6 million at July 31, 2019, an increase of $2.3 million. The increase in cash and cash equivalents during fiscal 2020 was driven by the following:

•Net cash provided by operating activities was $52.8 million and $68.0 million for fiscal 2020 and 2019, respectively. The period-over-period decrease in cash flow from operating activities reflects lower net sales and overall changes in net working capital requirements, principally the timing of shipments, billings and payments. Cash flow from operating activities in fiscal 2020 reflects higher outflows for acquisition plan expenses.

•Net cash used in investing activities for fiscal 2020 was $20.2 million as compared to $44.7 million for fiscal 2019. During fiscal 2020, we paid $13.0 million of cash primarily related to our acquisitions of CGC and NG-911, net of cash acquired. In fiscal 2019, we paid $35.9 million of cash in connection with our acquisitions of Solacom and the GD NG-911 business, net of cash acquired. The remaining portion of net cash used in both periods primarily relates to expenditures for property, plant and equipment upgrades and enhancements.

•Net cash used in financing activities was $30.3 million and $21.3 million, respectively, for fiscal 2020 and 2019. During fiscal 2019, we entered into a Credit Facility and repaid in full the outstanding borrowings under our Prior Credit Facility. During fiscal 2020, we made net payments under our Credit Facility of $15.5 million. During fiscal 2020 and 2019, we paid $10.0 million and $9.8 million, respectively, in cash dividends to our stockholders. We also made $5.3 million and $5.0 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during fiscal 2020 and 2019, respectively.

The Credit Facility is discussed below and in "Notes to Consolidated Financial Statements - Note (8) - Credit Facility" included in "Part II - Item 8. - Financial Statements and Supplementary Data" included in this Annual Report on Form 10-K.

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

As of July 31, 2020, our material short-term cash requirements primarily consist of: (i) interest payments under our Credit Facility; (ii) payments related to lease commitments; (iii) our ongoing working capital needs, including income tax payments; and (iv) payment of accrued quarterly dividends. As discussed further below, we have other material short-term cash requirements related to our pending acquisitions of Gilat and UHP.

In December 2018, we filed a $400.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt. The shelf registration statement was declared effective by the SEC as of December 14, 2018.

As of July 31, 2020, we were authorized to repurchase up to an additional $8.7 million of our common stock, pursuant to a $100.0 million stock repurchase program. On September 29, 2020, our Board of Directors authorized a new $100.0 million stock repurchase program, which replaced our prior program. The new $100.0 million stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws. There were no repurchases of our common stock during fiscal 2020 and 2019.

On September 24, 2019, December 4, 2019, March 4, 2020 and June 3, 2020, our Board of Directors declared a dividend of $0.10 per common share, which was paid on November 15, 2019, February 14, 2020, May 15, 2020 and August 14, 2020, respectively.

Our material long-term cash requirements primarily consist of mandatory interest payments pursuant to our Credit Facility and lease commitments.

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

Although it is difficult 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.

Impact of Pending Acquisitions of Gilat and UHP on our Liquidity

As discussed throughout this Annual Report on Form 10-K, we may have short-term cash requirements of approximately $402.9 million and $5.0 million, respectively, related to our pending acquisitions of Gilat and UHP. If we are required to complete these acquisitions, we anticipate funding these acquisitions by redeploying a portion of the combined companies existing unrestricted cash and cash equivalents, and by drawing on a new Gilat Acquisition Related Credit Facility to be provided by Citibank, N.A., Manufacturers and Traders Trust Company (“M&T Bank”), Santander Bank, N.A., BMO Harris Bank, N.A. (“Bank of Montreal”), Regions Bank, Israel Discount Bank of New York and Goldman Sachs Bank USA. This new facility would replace our existing Credit Facility (which is discussed below) and allow us to refinance our existing debt of approximately $149.5 million as of July 31, 2020. The exact terms of this facility are expected to be finalized upon completion of the Gilat acquisition, if it occurs. If we are required to close the Gilat acquisition, total net debt of the combined companies would be expected to approximate $525.0 million as compared to Comtech's net debt of $101.7 million as of July 31, 2020.

We believe that Gilat’s business has been materially impacted by COVID-19 and in August 2020 Gilat publicly reported a net loss of $16.0 million and negative Adjusted EBITDA (as Gilat defines it) of $4.9 million for the six-months ended June 30, 2020. If the pending acquisition of Gilat is completed and Gilat continues to experience net losses and negative Adjusted EBITDA we may be unable to meet future debt service obligations.

Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders, replacing our prior Credit Agreement dated as of February 23, 2016 (as amended by that certain First Amendment, dated as of June 6, 2017 (the "Prior Credit Facility")).

The Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million; (ii) an accordion feature allowing us to borrow up to an additional $250.0 million; (iii) a $35.0 million letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25.0 million.

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). If we issue new unsecured debt in excess of $5.0 million with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

The proceeds of the Credit Facility were used, in part, to repay in full the outstanding borrowings under the Prior Credit Facility, and additional proceeds of the Credit Facility are expected to be used by us for working capital and other general corporate purposes. As of July 31, 2020, the amount outstanding under our Credit Facility was $149.5 million, which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet. At July 31, 2020, we had $3.1 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During fiscal 2020, we had outstanding balances under the Credit Facility ranging from $125.0 million to $174.0 million.

Borrowings under the Credit Facility shall be either: (i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate. Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

The Credit Facility contains customary representations, warranties and affirmative covenants. The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

The Credit Facility provides for, among other things: (i) no scheduled payments of principal until maturity; (ii) a maximum Secured Leverage Ratio of 3.75x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50x TTM Adjusted EBITDA, each with no step downs; and (iii) a Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

As of July 31, 2020, our Secured Leverage Ratio was 1.99x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of July 31, 2020 was 14.40x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

The obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Guarantors"). As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into the first amendment to the Credit Facility. The purpose of the amendment is to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility and the Prior Credit Facility, which have been documented and filed with the SEC.

Off-Balance Sheet Arrangements

As of July 31, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Commitments

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as of July 31, 2020, will materially adversely affect our liquidity.

At July 31, 2020, cash payments due under long-term obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:

Obligations Due by Fiscal Years or Maturity Date (in thousands)

As discussed further in "Notes to Consolidated Financial Statements - Note (8) - Credit Facility" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, our Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million; (ii) an accordion feature allowing us to borrow up to an additional $250.0 million; (iii) a $35.0 million letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25.0 million. The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). In addition, if we issue new unsecured debt in excess of $5.0 million with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As discussed further in "Notes to Consolidated Financial Statements - Note (9) - Leases" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, in September 2020, we signed a 15-year lease commencing in December 2020 for a facility in Chandler, Arizona to support our anticipated growth and long-term business goals for our satellite earth station product line. We anticipate that all existing Tempe, Arizona locations will be fully relocated to this new facility by February 2021. Such amounts are not included in the above table.

As discussed further in "Notes to Consolidated Financial Statements - Note (16) - Stockholders’ Equity" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, on September 29, 2020, our Board of Directors declared a dividend of $0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020. Future Common Stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

At July 31, 2020, we have approximately $3.1 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts. Such amounts are not included in the above table.

As discussed further in the above section entitled "Impact of Pending Acquisitions of Gilat and UHP on our Liquidity,"we have short-term cash commitments of $402.9 million and $5.0 million, respectively to fund the acquisitions of Gilat and UHP. These cash commitments and related transaction expenses 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 certain losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims. It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims in the Comtech legacy business and the unique facts and circumstances involved in each particular agreement.

As discussed further in "Notes toConsolidated Financial Statements - Note (13) - Commitments and Contingencies," included in "Part II - Item 8.- Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, TCS is subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters. Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification. As a result, pending or future claims asserted against us by a party that we have agreed to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

We have change in control agreements, severance agreements and indemnification agreements with certain of our executive officers and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or an involuntary termination of employment without cause.

Our Consolidated Balance Sheet at July 31, 2020 includes total liabilities of $8.3 million for uncertain tax positions, including interest, any or all of which may result in a 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 ("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 the FASB, which are known as Accounting Standards Updates ("ASUs").

As further discussed in "Notes to Consolidated Financial Statements – Note (1)(o) - Adoption of Accounting Standards and Updates" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K, during fiscal 2020, we adopted:

•FASB ASU No. 2016-02 Leases (Topic 842). See "Notes to Consolidated Financial Statements – Note (9) - Leases" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K for further information.

•FASB ASU No. 2017-11, which provides guidance on the accounting for certain financial instruments with embedded features that result in the strike price of the instrument or embedded conversion option being reduced on the basis of the pricing of future equity offerings (commonly referred to as "down round" features). On August 1, 2019, we adopted this ASU. Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any financial instruments with such "down round" features.

•FASB ASU No. 2017-12, which expands and refines hedge accounting for both non-financial and financial risk components and simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. On August 1, 2019, we adopted this ASU. Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

•FASB ASU No. 2018-07, which expands the scope of ASC 718 to include certain share-based payment transactions for acquiring goods and services from nonemployees. On August 1, 2019, we adopted this ASU. Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any outstanding share-based awards with nonemployees that required remeasurement.

•FASB ASU No. 2018-16, which expands the list of eligible U.S. benchmark interest rates permitted in the application of hedge accounting due to broad concerns about the long-term sustainability of the LIBO Rate. This ASU adds the Overnight Index Swap ("OIS") rate, based on the Secured Overnight Financing Rate ("SOFR"), as an eligible U.S. benchmark interest rate. On August 1, 2019, we adopted this ASU. Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

In addition, the following FASB ASUs have been issued and incorporated into the FASB ASC and have not yet been adopted by us as of July 31, 2020:

•FASB ASU No. 2016-13 issued in June 2016 and ASU No. 2018-19 issued in November 2018, which require the measurement of expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions and reasonable and supportable forecasts. In April 2019, FASB ASU No. 2019-04 was issued to provide clarification guidance in the following areas: (i) accrued interest; (ii) recoveries; (iii) projections of the interest rate environment; (iv) consideration of prepayments; and (v) other topics. In May 2019, FASB ASU No. 2019-05 was issued to provide entities with an option to irrevocably elect the fair value option applied on an instrument by instrument basis for eligible instruments. In November 2019, FASB ASU No. 2019-11 was issued to provide clarification guidance in the following areas: (i) expected recoveries for purchased financial assets with credit deterioration; (ii) transition relief for troubled debt restructurings; (iii) disclosures related to accrued interest receivables; (iv) financial assets secured by collateral maintenance provisions; and (v) conforming amendment to subtopic 805-20. In February 2020, FASB ASU No. 2020-02 was issued to address questions primarily regarding documentation and company policies. In March 2020, FASB ASU No. 2020-03 was issued to provide clarification guidance in the following areas: (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses; and (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded. On August 1, 2020, we adopted these ASUs on a modified-retrospective basis.Such adoption did not have a material impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2018-13, issued in August 2018, which modifies the disclosure requirements for fair value measurements in Topic 820. On August 1, 2020, we adopted this ASU.Our adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2018-15, issued in August 2018, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2018-17, issued in October 2018, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making fee is a variable interest. On August 1, 2020, we adopted this ASU.Our adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2018-18, issued in November 2018, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The ASU also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. On August 1, 2020, we adopted this ASU.Our adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2019-08, issued in November 2019, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award. On August 1, 2020, we adopted this ASU.Our adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

•FASB ASU No. 2019-12, issued in December 2019 is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020 (our fiscal year beginning on August 1, 2021) and interim periods therein, with early adoption permitted. We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.

•FASB ASU No. 2020-01, issued in January 2020, clarifies the interactions between Topics 321, 323 and 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU is effective for fiscal years beginning after December 15, 2020 (our fiscal year beginning on August 1, 2021) and interim periods therein. We are evaluating the impact of this ASU on our consolidated financial statements and disclosures; however, we do not expect the adoption to have any effect given that we have not historically had equity method investments or purchased options and forward contracts to acquire investments.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from borrowings under our Credit Facility. Based on the amount of outstanding debt under our Credit Facility, a hypothetical change in interest rates by 10% would change interest expense by approximately $0.3 million over a one-year period. Although we do not currently use interest rate derivative instruments to manage exposure to interest rate changes, we may choose to do so in the future in connection with our Credit Facility.

Our earnings and cash flows are also subject to fluctuations due to changes in interest rates on our investment of available cash balances. As of July 31, 2020, we had cash and cash equivalents of $47.9 million, which consisted of cash and highly-liquid money market deposit accounts. Many of these investments are subject to fluctuations in interest rates, which could impact our results. Based on our investment portfolio balance as of July 31, 2020, a hypothetical change in interest rates of 10% would have a nominal impact on interest income over a one-year period. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of Independent Registered Public Accounting Firm, Consolidated Financial Statements, Notes to Consolidated Financial Statements and Related Financial Schedule are listed in the Index to Consolidated Financial Statements and Schedule annexed hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out by us under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure. 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.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of July 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework (2013). Based on our assessment, we determined that, as of July 31, 2020, our internal control over financial reporting was effective based on those criteria.

Deloitte and Touche LLP, our independent registered public accounting firm, has performed an audit of our internal control over financial reporting as of July 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO. This audit is required to be performed in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our independent auditors were given unrestricted access to all financial records and related data. Deloitte’s audit reports appear on pages F-2 and F-3 of this annual report.

Changes In Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended July 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Certain information concerning directors and officers is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders (the "Proxy Statement") which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding securities authorized for issuance under equity compensation plans and certain information regarding security ownership of certain beneficial owners and management is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information regarding principal accountant fees and services is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(3) Exhibits required by Item 601 of Regulation S-K are listed below.

ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit

21 Subsidiaries of the Registrant

23.1 Consent of Independent Registered Public Accounting Firm

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

* Management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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.

September 29, 2020 By: /s/Fred Kornberg

(Date) Fred Kornberg, Chairman of the Boardand Chief Executive Officer

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

Signature Title

September 29, 2020 /s/Fred Kornberg Chairman of the Board

(Date) Fred Kornberg Chief Executive Officer

(Principal Executive Officer)

September 29, 2020 /s/Michael A. Bondi Chief Financial Officer

(Date) Michael A. Bondi (Principal Financial and Accounting Officer)

September 29, 2020 /s/Edwin Kantor Director

(Date) Edwin Kantor

September 29, 2020 /s/Ira S. Kaplan Director

(Date) Ira S. Kaplan

September 29, 2020 /s/Lisa Lesavoy Director

(Date) Lisa Lesavoy

September 29, 2020 /s/Robert G. Paul Director

(Date) Robert G. Paul

September 29, 2020 /s/Dr. Yacov A. Shamash Director

(Date) Dr. Yacov A. Shamash

September 29, 2020 /s/Lawrence J. Waldman Director

(Date) Lawrence J. Waldman

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

Index to Consolidated Financial Statements and Schedule

Page

Reports of Independent Registered Public Accounting Firms F-2

Consolidated Financial Statements:

Notes to Consolidated Financial Statements F-10

Additional Financial Information Pursuant to the Requirements of Form 10-K:

Schedule II – Valuation and Qualifying Accounts and Reserves S-1

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Comtech Telecommunications Corp.

Melville, New York

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Comtech Telecommunications Corp. and subsidiaries (the "Company") as of July 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the three years in the period ended July 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 29, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

Critical Audit Matter Description

The Company’s determination of revenue recognition for specific identified material contracts accounted for over time involves estimating the total costs needed to complete the specific identified contracts and updating those estimates throughout the life of those specific identified contracts. This requires management to make significant estimates related to forecasts of future costs for the identified specific contracts. Changes in these estimates for the identified specific contracts could have a significant impact on either the timing or amount of revenue recognition for the year or both.

F - 2

Given the significant judgment and estimates used in management’s projections, auditing the Company’s estimates at completion and estimates to completion involved especially subjective judgment.

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

◦Evaluated whether the contract was properly included in management’s calculation of overtime revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.

◦Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

◦Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.

◦Evaluated the estimates of total cost and profit for the

▪Performing a retrospective review by comparing the estimated margins at contract inception to the actual margins as of year-end in order to assess management’s ability to accurately estimate costs.

▪Inquiring and corroborating the estimates to complete and the estimates at completion with the Project Manager (i.e., someone outside of Finance/Accounting) to understand significant variances in costs and completeness of the estimates at completion and estimates to completion.

▪Testing the estimates to complete through a combination of tests of details, in which we selected individual costs within the estimate to complete and obtained supporting documentation, and where we developed an expectation of the estimate to complete and compared it to the recorded balance.

◦Tested the accuracy and completeness of costs incurred during the current fiscal year. This testing included agreeing labor costs to employee timesheets and agreeing the labor rate to either rates agreed upon with the customer in the contract or rates from the Company's payroll records.

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

/s/ DELOITTE & TOUCHE LLP

Jericho, New York

September 29, 2020

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

F - 3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

Comtech Telecommunications Corp.

Melville, New York

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Comtech Telecommunications Corp. and subsidiaries (the "Company") as of July 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2020, of the Company and our report dated September 29, 2020, expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Jericho, New York

September 29, 2020

F - 4

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Consolidated Balance Sheets

As of July 31, 2020 and 2019

Current assets:

Operating lease right-of-use assets, net 30,033,000 —

Liabilities and Stockholders’ Equity

Current liabilities:

Operating lease liabilities, current 8,247,000 —

Finance lease and other obligations, current 57,000 757,000

Operating lease liabilities, non-current 24,109,000 —

Commitments and contingencies (See Note 13)

Stockholders’ equity:

Less:

See accompanying notes to consolidated financial statements.

F - 5

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Consolidated Statements of Operations

Fiscal Years Ended July 31, 2020, 2019 and 2018

Expenses:

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

Other expenses (income):

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

Net income per share:

See accompanying notes to consolidated financial statements.

F - 6

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Fiscal Years Ended July 31, 2020, 2019 and 2018

Shares Amount Shares Amount

Equity-classified stock award compensation — — 8,605,000 — — — 8,605,000

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

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

See accompanying notes to consolidated financial statements.

F - 7

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Fiscal Years Ended July 31, 2020, 2019 and 2018

Cash flows from operating activities:

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

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

Loss on disposal of property, plant and equipment — 144,000 79,000

Changes in assets and liabilities, net of effects of business acquisitions:

Cash flows from investing activities:

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

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

Payment for acquisition of NG-911 Inc. (781,000) — —

Cash flows from financing activities:

Payment of deferred financing costs — (1,813,000) —

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

(Continued)

F - 8

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Fiscal Years Ended July 31, 2020, 2019 and 2018

Supplemental cash flow disclosure

Cash paid (received) during the year for:

Non-cash investing and financing activities:

Finance lease and other obligations incurred $ — — 1,306,000

Issuance (forfeiture) of restricted stock $ — 1,000 (1,000)

Accruals related to acquisitions $ 1,157,000 — —

See accompanying notes to consolidated financial statements.

F - 9

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting and Reporting Policies

(a)Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our"), all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation.

(b)Nature of Business

We design, develop, produce and market innovative products, systems and services for advanced communications solutions. We conduct our business through two reportable operating segments: Commercial Solutions and Government Solutions.

Our business is highly competitive and characterized by rapid technological change. Our growth and financial position depends on our ability to keep pace with such changes and developments and to respond to the sophisticated requirements of an increasing variety of secure wireless communications technology users, among other things. Many of our competitors are substantially larger, and have significantly greater financial, marketing and operating resources and broader product lines than our own. A significant technological or sales breakthrough by others, including smaller competitors or new companies, could have a material adverse effect on our business. In addition, certain of our customers have technological capabilities in our product areas and could choose to replace our products with their own.

International sales expose us to certain risks, including barriers to trade, fluctuations in foreign currency exchange rates (which may make our products less price competitive), political and economic instability, availability of suitable export financing, export license requirements, tariff regulations, and other United States ("U.S.") and foreign regulations that may apply to the export of our products, as well as the generally greater difficulties of doing business abroad. We attempt to reduce the risk of doing business in foreign countries by seeking contracts denominated in U.S. dollars, advance or milestone payments, credit insurance and irrevocable letters of credit in our favor.

F - 10

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(c)Revenue Recognition

CMTL US Equity

CMTL · 10-K · period ended 2020-07-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

CMTL US Equity☆

CMTL · 10-K · period ended 2020-07-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

CMTL US Equity