Commitments and Contingencies

12 Months Ended

Jul. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(14) Commitments and Contingencies

(a) Operating Leases

We are obligated under non-cancellable operating lease agreements, including satellite lease expenditures relating to our mobile data communications segment contracts. At July 31, 2011, the future minimum lease payments, net of subleases, under operating leases are as follows:

2012	$  30,057,000
2013	3,369,000
2014	2,682,000
2015	2,502,000
2016	3,245,000
Thereafter	5,328,000
Total	$  47,183,000

Lease expense charged to operations was $6,891,000, $7,665,000 and $7,491,000 in fiscal 2011, 2010 and 2009, respectively. Lease expense excludes satellite lease expenditures incurred of $46,356,000, $35,928,000 and $32,337,000 in fiscal 2011, 2010 and 2009, respectively, relating to our mobile data communications segment. Satellite lease expenditures are allocated to individual contracts and expensed to cost of sales.

We lease our Melville, New York production facility from a partnership controlled by our Chairman, Chief Executive Officer and President. Lease payments made in fiscal 2011 were $621,000. The current lease, originally scheduled to expire in December 2011, was recently renewed and now provides for our use of the premises as they exist through December 2021 with an exercise option for an additional ten-year period. In connection with the lease renewal, our Nominating and Governance Committee of the Board of Directors obtained written reports from three independent commercial real estate firms regarding prevailing rents for comparable facilities. Based on this assessment, and the continued suitability of the facility for our current operations, the annual rent of the facility was reduced to $580,000 for calendar 2012 and is subject to customary adjustments. We have a right of first refusal in the event of a sale of the facility.

(b) United States Government Contracts

U.S. government agencies, including the DCAA, routinely audit costs and performance on contracts, as well as accounting and general business practices. Based on the results of the audit, the U.S. government may adjust contract related costs and fees, including allocated indirect costs. In addition, under U.S. government purchasing regulations, some of our costs may not be reimbursable. Until such audits are completed, the ultimate profit on these contracts cannot be determined; however, it is management's belief that the final contract settlements will not have a material adverse effect on our consolidated financial condition or results of operations.

On May 16, 2011, we were informed by the Defense Contract Audit Agency ("DCAA") that it has selected our BFT-1 contract for a post award audit in accordance with applicable government regulations. Through July 31, 2011, we received $343,921,000 in total orders under our BFT-1 contract. To-date, the DCAA has not proposed any material adjustments and management does not believe that any adjustments are required. If the DCAA determines that a price adjustment for our BFT-1 contract is appropriate, we may be required to reimburse the U.S. government, with interest. These amounts could have a material adverse effect on our results of operations and financial condition.

(c) Legal Proceedings and Other Matters

Patent Infringement Suit

We license our Double Talk^® Carrier-in-Carrier^® technology from a third party. We recently moved to join the third party as a plaintiff in the case against multiple defendants who we believe are infringing upon certain patents that are underlying the technology. One defendant has asserted counterclaims of infringement by and against us and the third party. We believe these counterclaims have no merit and have agreed with the third party to share equally in the cost of defending the matter and enforcing our rights to such licensed technology. In July 2010, we, along with the third party, reached a settlement agreement in principle with one of the defendants, which will likely result in the receipt by us of payment for damages and subsequent royalties to be paid to us. Terms of the tentative settlement agreement and license have not yet been finalized. We intend to continue to pursue our claim against the remaining defendants. A trial date has been set for September 2012. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the final outcome of this action will not have a material adverse effect on our business, results of operations or financial condition.

Dismissal of Previously Filed Lawsuits

We (and our CEO and CFO) were previously named as defendants in two nearly identical purported class action lawsuits (Pompano Beach Police & Firefighters' Retirement System, etc., v. Comtech Telecommunications Corp. et al., 09 Civ. 3007 (SJF/AKT) and Lawing v. Comtech Telecommunications Corp., 09 Civ. 3182 (JFB)) (the "Complaints) alleging violations of the Securities Exchange Act of 1934. In November 2010, the court dismissed the Complaints with prejudice. 

We also were previously named as a defendant in a putative stockholder class action entitled Continuum Capital v. Michael Targoff, et al. (Case No. 110CV175940) which was filed in the California Superior Court for the County of Santa Clara. The lawsuit, which was filed in connection with our proposed merger with CPI (which was terminated in September 2010), alleged we aided and abetted breaches of fiduciary duty allegedly committed by the members of CPI's board of directors.  In October 2010, we were dismissed, without prejudice, as defendant in this case.

Other Proceedings

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

(d) Employment and Change of Control Agreements

We have an employment agreement with our Chairman of the Board, Chief Executive Officer and President. The employment agreement generally provides for an annual salary and bonus award. We have also entered into change of control agreements with certain of our officers. All of the agreements may require payments, in certain circumstances, in the event of a change in control of Comtech.