FORM 10-Q |
![]() | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
![]() | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 11-2139466 | |
(State or other jurisdiction of incorporation /organization) | (I.R.S. Employer Identification Number) | |
68 South Service Road, Suite 230, Melville, NY | 11747 | |
(Address of principal executive offices) | (Zip Code) |
(631) 962-7000 |
(Registrant’s telephone number, including area code) |
Large accelerated filer | ![]() | Accelerated filer | ![]() |
Non-accelerated filer | ![]() | Smaller reporting company | ![]() |
COMTECH TELECOMMUNICATIONS CORP. INDEX | |||
Page | |||
PART I. FINANCIAL INFORMATION | |||
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II. OTHER INFORMATION | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 4. | |||
Item 6. | |||
April 30, 2016 | July 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 69,112,000 | 150,953,000 | ||||
Accounts receivable, net | 134,054,000 | 69,255,000 | |||||
Inventories, net | 75,324,000 | 62,068,000 | |||||
Prepaid expenses and other current assets | 19,753,000 | 7,396,000 | |||||
Deferred tax asset, net (See Note 12) | — | 11,084,000 | |||||
Total current assets | 298,243,000 | 300,756,000 | |||||
Property, plant and equipment, net | 39,588,000 | 15,370,000 | |||||
Goodwill | 264,503,000 | 137,354,000 | |||||
Intangibles with finite lives, net | 293,561,000 | 20,009,000 | |||||
Deferred financing costs, net | 3,739,000 | — | |||||
Other assets, net | 3,694,000 | 388,000 | |||||
Total assets | $ | 903,328,000 | 473,877,000 | ||||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 24,086,000 | 15,708,000 | ||||
Accrued expenses and other current liabilities | 75,137,000 | 29,470,000 | |||||
Dividends payable | 4,851,000 | 4,839,000 | |||||
Customer advances and deposits | 29,779,000 | 14,320,000 | |||||
Current portion of long-term debt | 14,062,000 | — | |||||
Current portion of capital lease obligations | 3,770,000 | — | |||||
Interest payable | 111,000 | — | |||||
Total current liabilities | 151,796,000 | 64,337,000 | |||||
Non-current portion of long-term debt, net | 328,486,000 | — | |||||
Non-current portion of capital lease obligations | 4,880,000 | — | |||||
Income taxes payable | 3,262,000 | 1,573,000 | |||||
Deferred tax liability, net (See Note 12) | 24,193,000 | 2,925,000 | |||||
Customer advances and deposits, non-current | 6,137,000 | — | |||||
Other liabilities | 4,776,000 | 3,633,000 | |||||
Total liabilities | 523,530,000 | 72,468,000 | |||||
Commitments and contingencies (See Note 19) | |||||||
Stockholders’ equity: | |||||||
Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000 | — | — | |||||
Common stock, par value $.10 per share; authorized 100,000,000 shares; issued 31,204,396 shares and 31,165,401 shares at April 30, 2016 and July 31, 2015, respectively | 3,121,000 | 3,117,000 | |||||
Additional paid-in capital | 430,549,000 | 427,083,000 | |||||
Retained earnings | 387,977,000 | 413,058,000 | |||||
821,647,000 | 843,258,000 | ||||||
Less: | |||||||
Treasury stock, at cost (15,033,317 shares at April 30, 2016 and July 31, 2015) | (441,849,000 | ) | (441,849,000 | ) | |||
Total stockholders’ equity | 379,798,000 | 401,409,000 | |||||
Total liabilities and stockholders’ equity | $ | 903,328,000 | 473,877,000 |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Net sales | $ | 124,187,000 | 71,633,000 | 258,627,000 | 229,826,000 | ||||||||
Cost of sales | 72,796,000 | 39,325,000 | 149,596,000 | 124,318,000 | |||||||||
Gross profit | 51,391,000 | 32,308,000 | 109,031,000 | 105,508,000 | |||||||||
Expenses: | |||||||||||||
Selling, general and administrative | 30,439,000 | 15,005,000 | 60,818,000 | 46,557,000 | |||||||||
Research and development | 12,613,000 | 8,582,000 | 28,216,000 | 28,267,000 | |||||||||
Acquisition plan expenses | 16,960,000 | — | 20,689,000 | — | |||||||||
Amortization of intangibles | 4,776,000 | 1,561,000 | 7,348,000 | 4,682,000 | |||||||||
64,788,000 | 25,148,000 | 117,071,000 | 79,506,000 | ||||||||||
Operating (loss) income | (13,397,000 | ) | 7,160,000 | (8,040,000 | ) | 26,002,000 | |||||||
Other expenses (income): | |||||||||||||
Interest expense and other | 3,473,000 | 72,000 | 3,621,000 | 406,000 | |||||||||
Interest income and other | (5,000 | ) | (107,000 | ) | (227,000 | ) | (281,000 | ) | |||||
(Loss) income before (benefit from) provision for income taxes | (16,865,000 | ) | 7,195,000 | (11,434,000 | ) | 25,877,000 | |||||||
(Benefit from) provision for income taxes | (2,510,000 | ) | 2,235,000 | (994,000 | ) | 8,107,000 | |||||||
Net (loss) income | $ | (14,355,000 | ) | 4,960,000 | (10,440,000 | ) | 17,770,000 | ||||||
Net (loss) income per share (See Note 5): | |||||||||||||
Basic | $ | (0.89 | ) | 0.31 | (0.65 | ) | 1.10 | ||||||
Diluted | $ | (0.89 | ) | 0.30 | (0.65 | ) | 1.08 | ||||||
Weighted average number of common shares outstanding – basic | 16,195,000 | 16,202,000 | 16,184,000 | 16,220,000 | |||||||||
Weighted average number of common and common equivalent shares outstanding – diluted | 16,195,000 | 16,382,000 | 16,184,000 | 16,468,000 | |||||||||
Dividends declared per issued and outstanding common share as of the applicable dividend record date | $ | 0.30 | 0.30 | 0.90 | 0.90 |
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Stockholders' Equity | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||
Balance as of July 31, 2014 | 31,016,469 | $ | 3,102,000 | $ | 421,240,000 | $ | 409,443,000 | 14,857,582 | $ | (436,860,000 | ) | $ | 396,925,000 | |||||||||||||
Equity-classified stock award compensation | — | — | 3,642,000 | — | — | — | 3,642,000 | |||||||||||||||||||
Proceeds from exercise of options | 49,200 | 5,000 | 1,412,000 | — | — | — | 1,417,000 | |||||||||||||||||||
Proceeds from issuance of employee stock purchase plan shares | 25,768 | 2,000 | 705,000 | — | — | — | 707,000 | |||||||||||||||||||
Common stock issued for net settlement of stock-based awards | 60,120 | 6,000 | (426,000 | ) | — | — | — | (420,000 | ) | |||||||||||||||||
Cash dividends declared | — | — | — | (14,567,000 | ) | — | — | (14,567,000 | ) | |||||||||||||||||
Accrual of dividend equivalents | — | — | — | (169,000 | ) | — | — | (169,000 | ) | |||||||||||||||||
Net income tax shortfall from settlement of stock-based awards | — | — | (248,000 | ) | — | — | — | (248,000 | ) | |||||||||||||||||
Reversal of deferred tax asset associated with debt converted to shares of common stock | — | — | (58,000 | ) | — | — | — | (58,000 | ) | |||||||||||||||||
Reversal of deferred tax assets associated with expired and unexercised stock-based awards | — | — | (12,000 | ) | — | — | — | (12,000 | ) | |||||||||||||||||
Repurchases of common stock | — | — | — | — | 175,735 | (4,989,000 | ) | (4,989,000 | ) | |||||||||||||||||
Net income | — | — | — | 17,770,000 | — | — | 17,770,000 | |||||||||||||||||||
Balance as of April 30, 2015 | 31,151,557 | $ | 3,115,000 | $ | 426,255,000 | $ | 412,477,000 | 15,033,317 | $ | (441,849,000 | ) | $ | 399,998,000 | |||||||||||||
Balance as of July 31, 2015 | 31,165,401 | $ | 3,117,000 | $ | 427,083,000 | $ | 413,058,000 | 15,033,317 | $ | (441,849,000 | ) | $ | 401,409,000 | |||||||||||||
Equity-classified stock award compensation | — | — | 3,125,000 | — | — | — | 3,125,000 | |||||||||||||||||||
Proceeds from issuance of employee stock purchase plan shares | 29,070 | 3,000 | 496,000 | — | — | — | 499,000 | |||||||||||||||||||
Common stock issued for net settlement of stock-based awards | 9,925 | 1,000 | (75,000 | ) | — | — | — | (74,000 | ) | |||||||||||||||||
Cash dividends declared | — | — | — | (14,544,000 | ) | — | — | (14,544,000 | ) | |||||||||||||||||
Accrual of dividend equivalents, net of reversal | — | — | — | (97,000 | ) | — | — | (97,000 | ) | |||||||||||||||||
Net income tax shortfall from settlement of stock-based awards | — | — | (25,000 | ) | — | — | — | (25,000 | ) | |||||||||||||||||
Reversal of deferred tax assets associated with expired and unexercised stock-based awards | — | — | (55,000 | ) | — | — | — | (55,000 | ) | |||||||||||||||||
Net loss | — | — | — | (10,440,000 | ) | — | — | (10,440,000 | ) | |||||||||||||||||
Balance as of April 30, 2016 | 31,204,396 | $ | 3,121,000 | $ | 430,549,000 | $ | 387,977,000 | 15,033,317 | $ | (441,849,000 | ) | $ | 379,798,000 |
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||
Nine months ended April 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (10,440,000 | ) | 17,770,000 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
Depreciation and amortization of property, plant and equipment | 6,078,000 | 4,896,000 | |||||
Amortization of intangible assets with finite lives | 7,348,000 | 4,682,000 | |||||
Amortization of stock-based compensation | 3,166,000 | 3,642,000 | |||||
Amortization of deferred financing costs | 292,000 | 65,000 | |||||
(Gain) loss on disposal of property, plant and equipment | (15,000 | ) | 3,000 | ||||
Provision for allowance for doubtful accounts | 670,000 | 315,000 | |||||
Provision for excess and obsolete inventory | 2,022,000 | 1,962,000 | |||||
Excess income tax benefit from stock-based award exercises | (23,000 | ) | (140,000 | ) | |||
Deferred income tax benefit | (516,000 | ) | (1,103,000 | ) | |||
Changes in assets and liabilities, net of effects of business acquisition: | |||||||
Accounts receivable | 23,057,000 | (13,049,000 | ) | ||||
Inventories | 5,068,000 | (8,729,000 | ) | ||||
Prepaid expenses and other current assets | 1,877,000 | (225,000 | ) | ||||
Other assets | (306,000 | ) | (40,000 | ) | |||
Accounts payable | (9,846,000 | ) | (3,882,000 | ) | |||
Accrued expenses and other current liabilities | (4,013,000 | ) | (3,152,000 | ) | |||
Customer advances and deposits | (5,910,000 | ) | 5,063,000 | ||||
Other liabilities, non-current | (882,000 | ) | (608,000 | ) | |||
Interest payable | 82,000 | (29,000 | ) | ||||
Income taxes payable | (5,436,000 | ) | 242,000 | ||||
Net cash provided by operating activities | 12,273,000 | 7,683,000 | |||||
Cash flows from investing activities: | |||||||
Payments for business acquisition, net of cash acquired | (280,535,000 | ) | — | ||||
Purchases of property, plant and equipment | (3,063,000 | ) | (2,833,000 | ) | |||
Net cash used in investing activities | (283,598,000 | ) | (2,833,000 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings of debt | 351,905,000 | — | |||||
Required payments for debt assumed for business acquisition | (134,101,000 | ) | — | ||||
Cash dividends paid | (14,540,000 | ) | (14,581,000 | ) | |||
Payment of deferred financing costs | (10,123,000 | ) | — | ||||
Repayment of long-term debt including capital lease obligations | (3,842,000 | ) | — | ||||
Payment of shelf registration costs | (337,000 | ) | — | ||||
Repurchases of common stock | — | (4,989,000 | ) | ||||
Proceeds from exercises of stock options | — | 1,417,000 | |||||
Proceeds from issuance of employee stock purchase plan shares | 499,000 | 707,000 | |||||
Excess income tax benefit from stock-based award exercises | 23,000 | 140,000 | |||||
Net cash provided by (used in) financing activities | 189,484,000 | (17,306,000 | ) | ||||
Net decrease in cash and cash equivalents | (81,841,000 | ) | (12,456,000 | ) | |||
Cash and cash equivalents at beginning of period | 150,953,000 | 154,500,000 | |||||
Cash and cash equivalents at end of period | $ | 69,112,000 | 142,044,000 | ||||
See accompanying notes to condensed consolidated financial statements. (Continued) |
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) | |||||||
Nine months ended April 30, | |||||||
2016 | 2015 | ||||||
Supplemental cash flow disclosures: | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 2,976,000 | 117,000 | ||||
Income taxes | $ | 4,766,000 | 8,970,000 | ||||
Non-cash investing and financing activities: | |||||||
Accrued fixed asset additions | $ | 125,000 | — | ||||
Cash dividends declared but unpaid (including accrual of dividend equivalents) | $ | 5,265,000 | 5,115,000 | ||||
Accrued deferred financing costs | $ | 139,000 | — | ||||
Accrued shelf registration costs | $ | 20,000 | — |
February 23, 2016 | |||||
Shares of TCS common stock purchased | $ | 318,605,000 | |||
Stock-based awards settled | 21,827,000 | ||||
Aggregate purchase price at fair value | $ | 340,432,000 | |||
Preliminary allocation of aggregate purchase price: | |||||
Cash and cash equivalents | $ | 59,897,000 | |||
Current assets, excluding cash acquired | 115,797,000 | ||||
Deferred tax assets, net, non-current | 72,700,000 | ||||
Property, plant and equipment | 26,720,000 | ||||
Other assets, non-current | 2,641,000 | ||||
Current liabilities (excluding interest accrued on debt) | (87,700,000 | ) | |||
Debt (including interest accrued) | (134,101,000 | ) | |||
Capital lease obligations | (8,993,000 | ) | |||
Other liabilities | (9,156,000 | ) | |||
Net tangible assets at preliminary fair value | $ | 37,805,000 | |||
Identifiable intangible assets, deferred taxes and goodwill: | Estimated Useful Lives | ||||
Customer relationships and backlog | $ | 225,900,000 | 21 to 22 years | ||
Trade names | 20,000,000 | 10 to 20 years | |||
Technology | 35,000,000 | 5 to 15 years | |||
Deferred tax liabilities related to intangible assets acquired | (105,422,000 | ) | |||
Goodwill | 127,149,000 | Indefinite | |||
Preliminary allocation of aggregate purchase price | $ | 340,432,000 |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 130,238,000 | $ | 153,500,000 | $ | 453,475,000 | $ | 499,934,000 | |||||||
Net (loss) income | (21,395,000 | ) | 1,739,000 | (27,694,000 | ) | (16,065,000 | ) | ||||||||
Basic net (loss) income per share | (1.32 | ) | 0.11 | (1.71 | ) | (0.99 | ) | ||||||||
Diluted net (loss) income per share | (1.32 | ) | 0.11 | (1.71 | ) | (0.99 | ) |
• | The elimination of historical sales between Comtech and TCS of $1,569,000 for the three months ended April 30, 2016 and $7,331,000 and $285,000 for the nine months ended April 30, 2016 and 2015, respectively. There were no sales between Comtech and TCS for the three months ended April 30, 2015. |
• | The reduction to capitalized software amortization of $937,000 and $890,000 for the three months ended April 30, 2016 and 2015, respectively, and $3,062,000 and $2,539,000 for the nine months ended April 30, 2016 and 2015, respectively, related to the difference between the historical value and the preliminary estimated fair value of TCS's capitalized software. |
• | The elimination of acquisition plan expenses of $22,464,000 and $25,507,000 for the three and nine months ended April 30, 2016, respectively, and addition of $35,660,000 for the nine months ended April 30, 2015, due to the assumption that all of the acquisition plan expenses were incurred on August 1, 2014. There were no acquisition plan expenses for the three months ended April 30, 2015. |
• | The incremental amortization expense of $1,581,000 and $3,891,000 for the three months ended April 30, 2016 and 2015, respectively, and $7,935,000 and $11,628,000 for the nine months ended April 30, 2016 and 2015, respectively, associated with the increase in acquired other intangible assets. |
• | The reduction in interest expense of $1,836,000 for the three months ended April 30, 2016 and increase in interest expense of $2,165,000 for the three months ended April 30, 2015 and increase in interest expense of $1,731,000 and $6,221,000 for the nine months ended April 30, 2016 and 2015, respectively, due to the assumed August 1, 2014 repayment of TCS's legacy debt and related new borrowings under our Secured Credit Facility which was utilized to partially fund the TCS acquisition. |
• | The reduction to interest income of $124,000 and $158,000 for the three months ended April 30, 2016 and 2015, respectively, and $585,000 and $509,000 for the nine months ended April 30, 2016 and 2015, respectively, due to the assumed cash payments relating to the TCS acquisition. |
• | The related increase or decrease to the provision for income taxes, based on Comtech’s effective tax rate for the respective periods. |
• | FASB ASU No. 2014-08 which changed the definition of discontinued operations and related disclosure requirements. Only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results will be reported as discontinued operations. Continuing involvement will no longer prevent a disposal group from being presented as discontinued operations. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2014-16 which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-01 which eliminates the concept of extraordinary items from GAAP and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-02 which amends current consolidation guidance affecting the evaluation of whether certain legal entities should be consolidated. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-03 which requires that debt issuance costs (which we refer to as deferred financing costs) be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Also, ASU No. 2015-15 was issued in August 2015 and indicates that Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs associated with a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. As discussed further in Note (10) - "Secured Credit Facility," we adopted this ASU during the nine months ended April 30, 2016 and presented on our Condensed Consolidated Balance Sheet as of April 30, 2016 $3,739,000 and $6,231,000 of net deferred financing costs as a non-current asset in the case of our Revolving Loan Facility and a direct deduction from the carrying amount of the non-current portion of the long-term debt related to our Term Loan Facility. |
• | FASB ASU No. 2015-05 which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Our adoption of this ASU did not have any material impact on our consolidated financial statements. |
• | FASB ASU No. 2015-07 which removes the requirements to categorize within the fair value hierarchy, and make certain disclosures related to, investments for which fair value is measured using the net asset value per share practical expedient. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-16 which requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU eliminates the requirement to retrospectively account for the adjustments to provisional amounts in a business combination. As permitted, we adopted this ASU as of February 1, 2016, and will apply this ASU prospectively to our accounting for the TCS acquisition which was completed on February 23, 2016. Our adoption of this ASU did not have any immediate impact on our consolidated financial statements, including disclosures. |
• | FASB ASU No. 2015-17 which requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. As discussed further in Note (12) - "Income Taxes," we adopted this ASU prospectively on August 1, 2015 and reclassified our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted. |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Numerator: | |||||||||||||
Net (loss) income for basic calculation | $ | (14,355,000 | ) | 4,960,000 | (10,440,000 | ) | 17,770,000 | ||||||
Numerator for diluted calculation | $ | (14,355,000 | ) | 4,960,000 | (10,440,000 | ) | 17,770,000 | ||||||
Denominator: | |||||||||||||
Denominator for basic calculation | 16,195,000 | 16,202,000 | 16,184,000 | 16,220,000 | |||||||||
Effect of dilutive securities: | |||||||||||||
Stock-based awards | — | 180,000 | — | 248,000 | |||||||||
Denominator for diluted calculation | 16,195,000 | 16,382,000 | 16,184,000 | 16,468,000 |
April 30, 2016 | July 31, 2015 | ||||||
Billed receivables from commercial and international customers | $ | 60,670,000 | 39,062,000 | ||||
Billed receivables from the U.S. government and its agencies | 29,086,000 | 8,375,000 | |||||
Unbilled receivables from commercial and international customers | 24,164,000 | 21,898,000 | |||||
Unbilled receivables on U.S. government contracts-in-progress | 21,964,000 | 1,126,000 | |||||
Total accounts receivable | 135,884,000 | 70,461,000 | |||||
Less allowance for doubtful accounts | 1,830,000 | 1,206,000 | |||||
Accounts receivable, net | $ | 134,054,000 | 69,255,000 |
April 30, 2016 | July 31, 2015 | ||||||
Raw materials and components | $ | 54,956,000 | 51,272,000 | ||||
Work-in-process and finished goods | 36,514,000 | 27,700,000 | |||||
Total inventories | 91,470,000 | 78,972,000 | |||||
Less reserve for excess and obsolete inventories | 16,146,000 | 16,904,000 | |||||
Inventories, net | $ | 75,324,000 | 62,068,000 |
April 30, 2016 | July 31, 2015 | |||||||
Accrued wages and benefits | $ | 21,432,000 | 12,134,000 | |||||
Accrued legal costs | 9,707,000 | 275,000 | ||||||
Accrued warranty obligations | 8,639,000 | 8,638,000 | ||||||
Accrued acquisition-related costs | 8,051,000 | 69,000 | ||||||
Accrued contract costs | 10,941,000 | 749,000 | ||||||
Accrued commissions and royalties | 2,333,000 | 2,398,000 | ||||||
Other | 14,034,000 | 5,207,000 | ||||||
Accrued expenses and other current liabilities | $ | 75,137,000 | $ | 29,470,000 |
Nine months ended April 30, | |||||||
2016 | 2015 | ||||||
Balance at beginning of period | $ | 8,638,000 | 8,618,000 | ||||
Provision for warranty obligations | 3,183,000 | 3,255,000 | |||||
Additions (in connection with the TCS acquisition) | 154,000 | — | |||||
Charges incurred | (3,336,000 | ) | (3,580,000 | ) | |||
Balance at end of period | $ | 8,639,000 | 8,293,000 |
At August 1, 2008 | |||
Total non-cancelable lease obligations | $ | 12,741,000 | |
Less: Estimated sublease income | 8,600,000 | ||
Total net estimated facility exit costs | 4,141,000 | ||
Less: Interest expense to be accreted | 2,041,000 | ||
Present value of estimated facility exit costs | $ | 2,100,000 |
Cumulative Activity Through April 30, 2016 | |||
Present value of estimated facility exit costs at August 1, 2008 | $ | 2,100,000 | |
Cash payments made | (8,628,000 | ) | |
Cash payments received | 8,600,000 | ||
Accreted interest recorded | 1,578,000 | ||
Liability as of April 30, 2016 | 3,650,000 | ||
Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet | 1,350,000 | ||
Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet | $ | 2,300,000 |
As of | |||
April 30, 2016 | |||
Future lease payments to be made | $ | 3,650,000 | |
Interest expense to be accreted in future periods | 462,000 | ||
Total remaining payments | $ | 4,112,000 |
April 30, 2016 | |||||
Term Loan Facility | $ | 246,875,000 | |||
Less unamortized deferred financing costs related to Term Loan Facility | 6,231,000 | ||||
Term Loan Facility, net | 240,644,000 | ||||
Revolving Credit Facility | 101,904,000 | ||||
Amount outstanding under Secured Credit Facility, net | 342,548,000 | ||||
Current portion of long-term debt | 14,062,000 | ||||
Non-current portion of long-term debt | $ | 328,486,000 |
Remainder of fiscal 2016 | $ | 1,144,000 | |
Fiscal 2017 | 3,920,000 | ||
Fiscal 2018 | 2,472,000 | ||
Fiscal 2019 | 1,476,000 | ||
Fiscal 2020 | 305,000 | ||
Total minimum lease payments | 9,317,000 | ||
Less: amounts representing interest | (667,000 | ) | |
Present value of net minimum lease payments | 8,650,000 | ||
Current portion of capital lease obligation | 3,770,000 | ||
Non-current portion of capital lease obligation | $ | 4,880,000 |
April 30, 2016 | ||
Stock options | 2,362,198 | |
Performance shares | 183,665 | |
RSUs and restricted stock | 39,799 | |
Share units | 8,503 | |
Total | 2,594,165 |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Cost of sales | $ | 70,000 | 71,000 | 233,000 | 204,000 | ||||||||
Selling, general and administrative expenses | 875,000 | 1,005,000 | 2,630,000 | 2,963,000 | |||||||||
Research and development expenses | 96,000 | 168,000 | 303,000 | 475,000 | |||||||||
Stock-based compensation expense before income tax benefit | 1,041,000 | 1,244,000 | 3,166,000 | 3,642,000 | |||||||||
Estimated income tax benefit | (391,000 | ) | (432,000 | ) | (1,103,000 | ) | (1,283,000 | ) | |||||
Net stock-based compensation expense | $ | 650,000 | 812,000 | 2,063,000 | 2,359,000 |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Stock options | $ | 591,000 | 778,000 | 1,803,000 | 2,267,000 | ||||||||
Performance shares | 369,000 | 308,000 | 1,093,000 | 883,000 | |||||||||
ESPP | 35,000 | 52,000 | 118,000 | 158,000 | |||||||||
RSUs and restricted stock | 46,000 | 106,000 | 152,000 | 306,000 | |||||||||
Share units | — | — | — | 28,000 | |||||||||
Stock-based compensation expense before income tax benefit | 1,041,000 | 1,244,000 | 3,166,000 | 3,642,000 | |||||||||
Estimated income tax benefit | (391,000 | ) | (432,000 | ) | (1,103,000 | ) | (1,283,000 | ) | |||||
Net stock-based compensation expense | $ | 650,000 | 812,000 | 2,063,000 | 2,359,000 |
Nine months ended April 30, | |||||||
2016 | 2015 | ||||||
Actual income tax benefit recorded for the tax deductions relating to the settlement of stock-based awards | $ | 150,000 | 1,032,000 | ||||
Less: Tax benefit initially recognized on settled stock-based awards vesting subsequent to the adoption of accounting standards that require us to expense stock-based awards | 127,000 | 892,000 | |||||
Excess income tax benefit recorded as an increase to additional paid-in capital | 23,000 | 140,000 | |||||
Less: Tax benefit initially disclosed but not previously recognized on settled equity-classified stock-based awards vesting prior to the adoption of accounting standards that require us to expense stock-based awards | — | — | |||||
Excess income tax benefit from settled equity-classified stock-based awards reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows | $ | 23,000 | 140,000 |
Awards (in Shares) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||
Outstanding at July 31, 2015 | 2,119,683 | $ | 29.33 | ||||||||||
Granted | 480,265 | 28.00 | |||||||||||
Expired/canceled | (182,250 | ) | 29.84 | ||||||||||
Exercised | (19,200 | ) | 27.24 | ||||||||||
Outstanding at October 31, 2015 | 2,398,498 | 29.04 | |||||||||||
Granted | 10,000 | 20.90 | |||||||||||
Expired/canceled | (58,240 | ) | 28.84 | ||||||||||
Outstanding at January 31, 2016 | 2,350,258 | 29.01 | |||||||||||
Granted | 43,000 | 21.50 | |||||||||||
Expired/canceled | (31,060 | ) | 29.34 | ||||||||||
Outstanding at April 30, 2016 | 2,362,198 | $ | 28.87 | 6.70 | $ | 149,000 | |||||||
Exercisable at April 30, 2016 | 1,042,962 | $ | 28.59 | 5.17 | $ | — | |||||||
Vested and expected to vest at April 30, 2016 | 2,287,266 | $ | 28.85 | 6.65 | $ | 142,000 |
Three months ended April 30, | Nine months ended April 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Expected dividend yield | 5.58 | % | 4.09 | % | 4.42 | % | 3.55 | % | ||||
Expected volatility | 35.80 | % | 27.00 | % | 34.39 | % | 28.12 | % | ||||
Risk-free interest rate | 1.39 | % | 1.37 | % | 1.53 | % | 1.61 | % | ||||
Expected life (years) | 5.04 | 5.22 | 5.15 | 5.45 |
Awards (in Shares) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | |||||||||
Outstanding at July 31, 2015 | 224,165 | $ | 28.26 | ||||||||
Granted | 62,440 | 28.35 | |||||||||
Converted to common stock | (6,988 | ) | 25.28 | ||||||||
Forfeited | (45,154 | ) | 28.14 | ||||||||
Outstanding at October 31, 2015 | 234,463 | 28.39 | |||||||||
Converted to common stock | (4,725 | ) | 26.77 | ||||||||
Forfeited | (5,333 | ) | 29.07 | ||||||||
Outstanding at January 31, 2016 | 224,405 | 28.41 | |||||||||
Granted | 9,000 | 21.50 | |||||||||
Forfeited | (1,438 | ) | 28.35 | ||||||||
Outstanding at April 30, 2016 | 231,967 | $ | 28.14 | $ | 5,614,000 | ||||||
Vested at April 30, 2016 | 31,181 | $ | 27.15 | $ | 755,000 | ||||||
Vested and expected to vest at April 30, 2016 | 220,551 | $ | 28.14 | $ | 5,337,000 |
Three months ended April 30, | Nine months ended April 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
United States | ||||||||||||
U.S. government | 41.9 | % | 37.5 | % | 41.8 | % | 29.7 | % | ||||
Domestic | 35.2 | % | 11.9 | % | 26.0 | % | 12.5 | % | ||||
Total United States | 77.1 | % | 49.4 | % | 67.8 | % | 42.2 | % | ||||
International | ||||||||||||
North African country | 0.9 | % | 17.3 | % | 2.6 | % | 15.6 | % | ||||
Other international | 22.0 | % | 33.3 | % | 29.6 | % | 42.2 | % | ||||
Total International | 22.9 | % | 50.6 | % | 32.2 | % | 57.8 | % |
Three months ended April 30, 2016 | ||||||||||||||
Commercial Solutions | Government Solutions | Unallocated | Total | |||||||||||
Net sales | $ | 71,985,000 | 52,202,000 | — | $ | 124,187,000 | ||||||||
Operating income (loss) | $ | 6,560,000 | 5,629,000 | (25,586,000 | ) | $ | (13,397,000 | ) | ||||||
Net income (loss) | $ | 6,437,000 | 5,634,000 | (26,426,000 | ) | $ | (14,355,000 | ) | ||||||
Income taxes | 2,000 | — | (2,512,000 | ) | (2,510,000 | ) | ||||||||
Interest (income) and other expense | 53,000 | (5,000 | ) | (53,000 | ) | (5,000 | ) | |||||||
Interest expense | 68,000 | — | 3,405,000 | 3,473,000 | ||||||||||
Amortization of stock-based compensation | — | — | 1,041,000 | 1,041,000 | ||||||||||
Amortization of intangibles | 3,622,000 | 1,154,000 | — | 4,776,000 | ||||||||||
Depreciation | 2,130,000 | 647,000 | 305,000 | 3,082,000 | ||||||||||
Acquisition plan expenses | — | — | 16,960,000 | 16,960,000 | ||||||||||
Adjusted EBITDA | $ | 12,312,000 | 7,430,000 | (7,280,000 | ) | $ | 12,462,000 | |||||||
Purchases of property, plant and equipment | $ | 1,119,000 | 142,000 | 339,000 | $ | 1,600,000 | ||||||||
Long-lived assets acquired in connection with the TCS acquisition | $ | 353,729,000 | 76,681,000 | 4,359,000 | $ | 434,769,000 | ||||||||
Total assets at April 30, 2016 | $ | 616,247,000 | 209,278,000 | 77,803,000 | $ | 903,328,000 |
Three months ended April 30, 2015 | ||||||||||||||
Commercial Solutions | Government Solutions | Unallocated | Total | |||||||||||
Net sales | $ | 47,531,000 | 24,102,000 | — | $ | 71,633,000 | ||||||||
Operating income (loss) | $ | 3,201,000 | 7,978,000 | (4,019,000 | ) | $ | 7,160,000 | |||||||
Net income (loss) | $ | 3,259,000 | 7,987,000 | (6,286,000 | ) | $ | 4,960,000 | |||||||
Income taxes | (135,000 | ) | — | 2,370,000 | 2,235,000 | |||||||||
Interest (income) and other expense | 5,000 | (9,000 | ) | (103,000 | ) | (107,000 | ) | |||||||
Interest expense | 72,000 | — | — | 72,000 | ||||||||||
Amortization of stock-based compensation | — | — | 1,244,000 | 1,244,000 | ||||||||||
Amortization of intangibles | 1,561,000 | — | — | 1,561,000 | ||||||||||
Depreciation | 1,328,000 | 327,000 | 11,000 | 1,666,000 | ||||||||||
Adjusted EBITDA | $ | 6,090,000 | 8,305,000 | (2,764,000 | ) | $ | 11,631,000 | |||||||
Purchases of property, plant and equipment | $ | 379,000 | 290,000 | 19,000 | $ | 688,000 | ||||||||
Total assets at April 30, 2015 | $ | 244,735,000 | 94,506,000 | 134,554,000 | $ | 473,795,000 |
Nine months ended April 30, 2016 | ||||||||||||||
Commercial Solutions | Government Solutions | Unallocated | Total | |||||||||||
Net sales | $ | 165,657,000 | 92,970,000 | — | $ | 258,627,000 | ||||||||
Operating income (loss) | $ | 14,048,000 | 15,389,000 | (37,477,000 | ) | $ | (8,040,000 | ) | ||||||
Net income (loss) | $ | 13,635,000 | 15,409,000 | (39,484,000 | ) | $ | (10,440,000 | ) | ||||||
Income taxes | 94,000 | — | (1,088,000 | ) | (994,000 | ) | ||||||||
Interest (income) and other expense | 103,000 | (20,000 | ) | (310,000 | ) | (227,000 | ) | |||||||
Interest expense | 216,000 | — | 3,405,000 | 3,621,000 | ||||||||||
Amortization of stock-based compensation | — | — | 3,166,000 | 3,166,000 | ||||||||||
Amortization of intangibles | 6,194,000 | 1,154,000 | — | 7,348,000 | ||||||||||
Depreciation | 4,568,000 | 1,189,000 | 321,000 | 6,078,000 | ||||||||||
Acquisition plan expenses | — | — | 20,689,000 | 20,689,000 | ||||||||||
Adjusted EBITDA | $ | 24,810,000 | 17,732,000 | (13,301,000 | ) | 29,241,000 | ||||||||
Purchases of property, plant and equipment | $ | 2,067,000 | 642,000 | 354,000 | $ | 3,063,000 | ||||||||
Long-lived assets acquired in connection with the TCS acquisition | $ | 353,729,000 | 76,681,000 | 4,359,000 | $ | 434,769,000 | ||||||||
Total assets at April 30, 2016 | $ | 616,247,000 | 209,278,000 | 77,803,000 | $ | 903,328,000 |
Nine months ended April 30, 2015 | ||||||||||||||
Commercial Solutions | Government Solutions | Unallocated | Total | |||||||||||
Net sales | $ | 152,105,000 | 77,721,000 | — | $ | 229,826,000 | ||||||||
Operating income (loss) | $ | 14,460,000 | 23,542,000 | (12,000,000 | ) | $ | 26,002,000 | |||||||
Net income (loss) | $ | 14,390,000 | 23,564,000 | (20,184,000 | ) | $ | 17,770,000 | |||||||
Income taxes | (230,000 | ) | — | 8,337,000 | 8,107,000 | |||||||||
Interest (income) and other expense | 92,000 | (22,000 | ) | (351,000 | ) | (281,000 | ) | |||||||
Interest expense | 208,000 | — | 198,000 | 406,000 | ||||||||||
Amortization of stock-based compensation | — | — | 3,642,000 | 3,642,000 | ||||||||||
Amortization of intangibles | 4,682,000 | — | — | 4,682,000 | ||||||||||
Depreciation | 3,947,000 | 923,000 | 26,000 | 4,896,000 | ||||||||||
Strategic alternatives analysis expenses and other | — | — | 585,000 | 585,000 | ||||||||||
Adjusted EBITDA | $ | 23,089,000 | 24,465,000 | (7,747,000 | ) | $ | 39,807,000 | |||||||
Purchases of property, plant and equipment | $ | 1,965,000 | 802,000 | 66,000 | $ | 2,833,000 | ||||||||
Total assets at April 30, 2015 | $ | 244,735,000 | 94,506,000 | 134,554,000 | $ | 473,795,000 |
Commercial Solutions | Government Solutions | Total | |||||||||
Reallocation to new segments | $ | 102,100,000 | 35,254,000 | $ | 137,354,000 | ||||||
Additions resulting from TCS acquisition | 110,037,000 | 17,112,000 | 127,149,000 | ||||||||
Balance as of April 30, 2016 | $ | 212,137,000 | 52,366,000 | $ | 264,503,000 |
April 30, 2016 | |||||||||||||
Weighted Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Customer relationships | 20.5 | $ | 252,831,000 | 25,154,000 | $ | 227,677,000 | |||||||
Technologies | 12.3 | 82,370,000 | 41,419,000 | 40,951,000 | |||||||||
Trademarks and other | 16.3 | 28,694,000 | 3,761,000 | 24,933,000 | |||||||||
Total | $ | 363,895,000 | 70,334,000 | $ | 293,561,000 |
July 31, 2015 | |||||||||||||
Weighted Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Customer relationships | 10.0 | $ | 29,831,000 | 20,981,000 | $ | 8,850,000 | |||||||
Technologies | 12.1 | 47,370,000 | 39,266,000 | 8,104,000 | |||||||||
Trademarks and other | 20.0 | 5,794,000 | 2,739,000 | 3,055,000 | |||||||||
Total | $ | 82,995,000 | 62,986,000 | $ | 20,009,000 |
2016 | $ | 13,360,000 | |
2017 | 22,786,000 | ||
2018 | 21,150,000 | ||
2019 | 17,230,000 | ||
2020 | 17,230,000 |
• | In December 2009, Vehicle IP, LLC ("Vehicle IP") filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware, seeking monetary damages, fees and expenses and other relief from, among others, our customer Verizon Wireless ("Verizon"), based on the VZ Navigator product, and TCS is defending Verizon against Vehicle IP. In 2013, the District Court granted the defendants’ motion for summary judgment on the basis that the products in question did not infringe plaintiff’s patent. Plaintiff appealed that decision and, in 2014, the U.S. Court of Appeals for the Federal Circuit reversed the district court's claim construction, overturned the district court's grant of summary judgment of noninfringement, and remanded the case for further proceedings. Fact discovery in the case is complete and, currently, expert discovery is ongoing and trial is scheduled to begin in February 2017. |
• | In August 2014, TracBeam, LLC ("TracBeam") brought a patent infringement lawsuit in the U.S. District Court for the Eastern District of Texas seeking monetary damages, fees and expenses and other relief from, among others, TCS’s customers T-Mobile US, Inc. and T-Mobile USA, Inc. (together, "T-Mobile"), based on the defendants’ E9-1-1 service and locator products, and TCS is defending T-Mobile against TracBeam. In August 2015, T-Mobile and a co-defendant filed petitions for Inter Partes Review challenging TracBeam’s patents in the Patent Trial and Appeal Board and subsequently moved to stay the District Court case pending resolution of the Inter Partes Review. That motion is pending with trial scheduled for January 2017. |
• | In 2012, CallWave Communication LLC ("CallWave") brought a patent infringement lawsuit in the U.S. District Court for the District of Delaware seeking monetary damages, fees and expenses and other relief from, among others, Verizon Wireless, or Verizon, based on the defendants’ VZ Family Locator and VZ Navigator, and TCS has agreed to indemnify Verizon with respect to one patent of plaintiff that implicates a TCS product. Currently, a motion to dismiss the complaint on grounds that the asserted patent claims relate to unpatentable subject matter and is therefore invalid is pending before the court. It is anticipated that fact discovery is likely to conclude shortly and that expert discovery, dispositive motions and a trial date will follow later in 2016. |
• | In August 2015, IP Cube Partners Co. Ltd. ("IP Cube") brought a lawsuit in the U.S. District Court for the Southern District of New York seeking damages based on TCS’s alleged breach of contract and fraudulent representation in connection with the sale by TCS to IP Cube in 2012 of two patents for $2,300,000. In September 2015, TCS moved to dismiss the case related to all claims except breach of contract claim and that motion is pending before the court. Discovery commenced in December 2015 and is ongoing and trial is anticipated to begin in November 2016. |
ITEM 2. | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION | |
AND RESULTS OF OPERATIONS |
• | The creation of scale and more diversified earnings, reducing volatility associated with challenging international (including emerging markets) business conditions; |
• | Entry into commercial markets at growth inflection points, including the public safety market which has a growing need for next generation emergency 911 systems that utilize messaging and trusted location technologies; |
• | An enhanced position with existing customers, including the U.S. government, for which Comtech will now be a prime contractor, including for sales of our over-the-horizon microwave systems (troposcatter) products; and |
• | The ability to obtain meaningful cost synergies and better growth prospects. |
• | Commercial Solutions - serves commercial customers and smaller governments, such as state and local governments, that require advanced technologies to meet their needs. This segment also serves certain government customers (including the U.S. government) when they have requirements for off-the-shelf commercial equipment. We believe this segment is a leading provider of satellite communications (such as satellite earth station modems and travel wave tube amplifiers), public safety systems (such as next generation 911 technologies) and enterprise application technologies (such as a messaging and trusted location-based technologies). |
• | Government Solutions - serves large government end-users (including those of foreign countries) that require mission-critical technologies and systems. We believe this segment is a leading provider of command and control applications (such as the design, installation and operation of data networks that integrate computing and communications (both satellite and terrestrial links), ongoing network operation and management support services including telecom expense management, project management and fielding and maintenance solutions related to satellite ground terminals), troposcatter communications (such as digital troposcatter multiplexers, digital over-the-horizon modems, troposcatter systems, and frequency converter systems) and RF power and switching technologies (such as solid-state high-power broadband amplifiers, enhanced position location reporting system (or commonly known as "EPLRS") amplifier assemblies, identification friend or foe amplifiers, and amplifiers used in the counteraction of improvised explosive devices). |
Three months ended April 30, | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||
Commercial Solutions | Government Solutions | Consolidated | ||||||||||||||||
U.S. government | 21.4 | % | 38.1 | % | 70.1 | % | 36.3 | % | 41.9 | % | 37.5 | % | ||||||
Domestic | 51.3 | % | 14.6 | % | 13.1 | % | 6.6 | % | 35.2 | % | 11.9 | % | ||||||
Total U.S. | 72.7 | % | 52.7 | % | 83.2 | % | 42.9 | % | 77.1 | % | 49.4 | % | ||||||
International | 27.3 | % | 47.3 | % | 16.8 | % | 57.1 | % | 22.9 | % | 50.6 | % | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Three months ended April 30, | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||
($ in millions) | Commercial Solutions | Government Solutions | Unallocated | Consolidated | ||||||||||||||||||||||
Operating income (loss) | $ | 6.6 | 3.2 | 5.6 | 8.0 | (25.6 | ) | (4.0 | ) | $ | (13.4 | ) | 7.2 | |||||||||||||
Percentage of related net sales | 9.2 | % | 6.7 | % | 10.7 | % | 33.2 | % | NA | NA | (10.8 | )% | 10.1 | % |
Three months ended April 30, | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||
($ in millions) | Commercial Solutions | Government Solutions | Unallocated | Consolidated | ||||||||||||||||||||||
Net income (loss) | $ | 6.4 | 3.3 | 5.6 | 8.0 | (26.4 | ) | (6.3 | ) | $ | (14.4 | ) | 5.0 | |||||||||||||
Income taxes | — | (0.1 | ) | — | — | (2.5 | ) | 2.4 | (2.5 | ) | 2.2 | |||||||||||||||
Interest (income) and other expense | 0.1 | — | — | — | (0.1 | ) | (0.1 | ) | — | (0.1 | ) | |||||||||||||||
Interest expense | 0.1 | 0.1 | — | — | 3.4 | — | 3.5 | 0.1 | ||||||||||||||||||
Amortization of stock-based compensation | — | — | — | — | 1.0 | 1.2 | 1.0 | 1.2 | ||||||||||||||||||
Amortization of intangibles | 3.6 | 1.6 | 1.2 | — | — | — | 4.8 | 1.6 | ||||||||||||||||||
Depreciation | 2.1 | 1.3 | 0.6 | 0.3 | 0.3 | — | 3.1 | 1.7 | ||||||||||||||||||
Acquisition plan expenses | — | — | — | — | 17.0 | — | 17.0 | — | ||||||||||||||||||
Adjusted EBITDA | $ | 12.3 | 6.1 | 7.4 | 8.3 | (7.3 | ) | (2.8 | ) | $ | 12.5 | 11.6 | ||||||||||||||
Percentage of related net sales | 17.1 | % | 12.8 | % | 14.2 | % | 34.4 | % | NA | NA | 10.0 | % | 16.2 | % |
Nine months ended April 30, | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||
Commercial Solutions | Government Solutions | Consolidated | ||||||||||||||||
U.S. government | 27.8 | % | 28.8 | % | 66.6 | % | 31.6 | % | 41.8 | % | 29.7 | % | ||||||
Domestic | 33.4 | % | 15.7 | % | 12.8 | % | 6.2 | % | 26.0 | % | 12.5 | % | ||||||
Total U.S. | 61.2 | % | 44.5 | % | 79.4 | % | 37.8 | % | 67.8 | % | 42.2 | % | ||||||
International | 38.8 | % | 55.5 | % | 20.6 | % | 62.2 | % | 32.2 | % | 57.8 | % | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Nine months ended April 30, | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||
($ in millions) | Commercial Solutions | Government Solutions | Unallocated | Consolidated | ||||||||||||||||||||||
Operating income (loss) | $ | 14.0 | 14.5 | 15.4 | 23.5 | (37.5 | ) | (12.0 | ) | $ | (8.0 | ) | 26.0 | |||||||||||||
Percentage of related net sales | 8.4 | % | 9.5 | % | 16.6 | % | 30.2 | % | NA | NA | (3.1 | )% | 11.3 | % |
Nine months ended April 30, | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||
($ in millions) | Commercial Solutions | Government Solutions | Unallocated | Consolidated | ||||||||||||||||||||||
Net income (loss) | $ | 13.6 | 14.4 | 15.4 | 23.6 | (39.5 | ) | (20.2 | ) | $ | (10.4 | ) | 17.8 | |||||||||||||
Income taxes | 0.1 | (0.2 | ) | — | — | (1.1 | ) | 8.3 | (1.0 | ) | 8.1 | |||||||||||||||
Interest (income) and other expense | 0.1 | 0.1 | — | — | (0.3 | ) | (0.4 | ) | (0.2 | ) | (0.3 | ) | ||||||||||||||
Interest expense | 0.2 | 0.2 | — | — | 3.4 | 0.2 | 3.6 | 0.4 | ||||||||||||||||||
Amortization of stock-based compensation | — | — | — | — | 3.2 | 3.6 | 3.2 | 3.6 | ||||||||||||||||||
Amortization of intangibles | 6.2 | 4.7 | 1.2 | — | — | — | 7.3 | 4.7 | ||||||||||||||||||
Depreciation | 4.6 | 3.9 | 1.2 | 0.9 | 0.3 | — | 6.1 | 4.9 | ||||||||||||||||||
Acquisition plan expenses | — | — | — | — | 20.7 | — | 20.7 | — | ||||||||||||||||||
Strategic alternatives analysis | — | — | — | — | — | 0.6 | — | 0.6 | ||||||||||||||||||
Adjusted EBITDA | $ | 24.8 | 23.1 | 17.7 | 24.5 | (13.3 | ) | (7.7 | ) | $ | 29.2 | 39.8 | ||||||||||||||
Percentage of related net sales | 15.0 | % | 15.2 | % | 19.0 | % | 31.5 | % | NA | NA | 11.3 | % | 17.3 | % |
• | Net cash provided by operating activities was approximately $12.3 million for the nine months ended April 30, 2016 as compared to $7.7 million for the nine months ended April 30, 2015. The period-over-period increase in cash flow from operating activities is attributable to overall changes in net working capital requirements and the timing of billings and payments. Net cash provided by operating activities during the nine months ended April 30, 2016 would have been significantly higher had we not incurred significant acquisition plan expenses related to our TCS acquisition. |
• | Net cash used in investing activities for the nine months ended April 30, 2016 was approximately $283.6 million as compared to $2.8 million for the nine months ended April 30, 2015. During the nine months ended April 30, 2016, we paid $280.5 million of cash in connection with the acquisition of TCS, which is net of cash acquired. |
• | Net cash provided by financing activities was approximately $189.5 million for the nine months ended April 30, 2016 as compared to net cash used of $17.3 million for the nine months ended April 30, 2015. The significant period-over-period increase in cash flow from financing activities is primarily attributable to the $351.9 million proceeds received from the borrowings under a $400.0 million Secured Credit Facility, partially offset by a payment of $134.1 million for debt assumed in connection with the acquisition of TCS. This TCS debt was paid on the closing date of the acquisition or, in the case of TCS's 7.75% convertible senior notes, shortly after we closed the acquisition. During the nine months ended April 30, 2016, we also paid $10.1 million of debt issuance costs associated with the Secured Credit Facility and made our first mandatory principal payment. During the nine months ended April 30, 2016 and 2015, we paid $14.5 million and $14.6 million, respectively, in cash dividends to our shareholders. |
Obligations Due by Fiscal Years or Maturity Date (in thousands) | ||||||||||||||||
Total | Remainder of 2016 | 2017 and 2018 | 2019 and 2020 | After 2020 | ||||||||||||
Secured Credit Facility, including interest | $ | 417,525 | 4,854 | 66,800 | 75,488 | 270,383 | ||||||||||
Operating lease commitments | 57,647 | 3,760 | 24,132 | 14,442 | 15,313 | |||||||||||
Capital lease obligations | 9,317 | 1,144 | 6,392 | 1,781 | — | |||||||||||
Net contractual cash obligations | $ | 484,489 | 9,758 | 97,324 | 91,711 | 285,696 |
• | FASB ASU No. 2014-08 which changed the definition of discontinued operations and related disclosure requirements. Only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results will be reported as discontinued operations. Continuing involvement will no longer prevent a disposal group from being presented as discontinued operations. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2014-16 which requires an entity that issues or invests in hybrid financial instruments, issued in the form of a share, to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances and including the embedded derivative feature that is being evaluated for separate accounting from the host contract. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-01 which eliminates the concept of extraordinary items from GAAP and expands the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-02 which amends current consolidation guidance affecting the evaluation of whether certain legal entities should be consolidated. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-03 which requires that debt issuance costs (which we refer to as deferred financing costs) be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Also, ASU No. 2015-15 was issued in August 2015 and indicates that Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs associated with a line of credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings. As discussed further in Note (10) - "Secured Credit Facilities" included in “Part I — Item 1. — Notes to Condensed Consolidated Financial Statements,” we adopted this ASU during the nine months ended April 30, 2016 and presented on our Condensed Consolidated Balance Sheet as of April 30, 2016 $3.7 million and $6.2 million of net deferred financing costs as a non-current asset in the case of our Revolving Loan Facility and a direct deduction from the carrying amount of the non-current portion of the long-term debt related to our Term Loan Facility. |
• | FASB ASU No. 2015-05 which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Our adoption of this ASU did not have any material impact on our consolidated financial statements. |
• | FASB ASU No. 2015-07 which removes the requirements to categorize within the fair value hierarchy, and make certain disclosures related to, investments for which fair value is measured using the net asset value per share practical expedient. Our adoption of this ASU did not have any impact on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2015-16 which requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. We adopted this ASU as of February 1, 2016 and will apply this ASU to our accounting for the TCS acquisition, which was completed on February 23, 2016. Our adoption of this ASU did not have any immediate impact on our consolidated financial statements, including disclosures. |
• | FASB ASU No. 2015-17 which requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. As discussed further in Note (12) - "Income Taxes" included in “Part I — Item 1. — Notes to Condensed Consolidated Financial Statements,” we adopted this ASU prospectively on August 1, 2015 and reclassified our net deferred tax assets and liabilities to the net non-current deferred tax asset in our Condensed Consolidated Balance Sheet beginning as of October 31, 2015. No prior periods were retrospectively adjusted. |
• | FASB ASU No. 2014-09, issued in May 2014, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides a single revenue recognition model for contracts with customers. The core principle of the new standard is that a company should record revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, ASU No. 2015-14 was issued to defer the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period (our fiscal year beginning on August 1, 2018), and can be adopted either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period (our fiscal year beginning on August 1, 2017). We are evaluating which transition approach to use and the impact of this ASU on our consolidated financial statements, including financial reporting and disclosures. |
• | FASB ASU No. 2014-12, issued in June 2014, which requires that a performance target which affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award at the grant date. This ASU is effective in our first quarter of fiscal 2017, and can be adopted either (a) prospectively to all awards granted or modified after the effective date, or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As we currently do not have share-based awards outstanding with a performance target that could be achieved after the requisite service period, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption. |
• | FASB ASU No. 2014-15, issued in August 2014, which provides guidance about management's responsibility to evaluate whether there is a substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016 (our fiscal year ending on July 31, 2017). Early adoption is permitted. As we currently do not believe that there is a substantial doubt about our ability to continue as a going concern, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption. |
• | FASB ASU No. 2015-11, issued in July 2015, which simplifies the guidance on the subsequent measurement of inventory other than inventory measured using the last-in, first out or the retail inventory method. This ASU requires in-scope inventory to be subsequently measured at the lower of cost and net realizable value, the latter of which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years (our fiscal year beginning on August 1, 2017), and should be applied prospectively with earlier adoption permitted as of the beginning of an interim or annual reporting period. We are evaluating the impact of this ASU on our consolidated financial statements. |
• | FASB ASU No. 2016-01, issued January 2016, is an update to ASC 825 "Financial Instruments" and changes the treatment for available for sale equity investments by recognizing unrealized fair value changes directly in net income, and no longer in other comprehensive income. In addition, the impairment assessment of equity securities without readily determinable fair values is simplified by allowing a qualitative assessment. The ASU eliminates the disclosure requirement of methods and assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet. Additional disclosure of financial assets and financial liabilities by measurement category and form is also required. This ASU is effective for fiscal years beginning after December 15, 2017 (our fiscal year beginning on August 1, 2018), including interim periods within those fiscal years and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Early adoption of the provisions affecting us is not permitted. As we currently do not hold investments in available for sale securities, we do not expect this ASU to impact our consolidated financial statements or disclosures upon adoption. |
• | FASB ASU No. 2016-02, issued in February 2016, which requires lessees to recognize the following for all leases (with the exception of short-term leases): (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, initially measured at the present value of the lease payments; and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (our fiscal year beginning in August 1, 2019) and should be applied with a modified retrospective approach with early adoption permitted. We are evaluating the impact of this ASU on our consolidated financial statements and or disclosures. |
• | FASB ASU No. 2016-09, issued in March 2016, which relates to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. This ASU also clarifies the statement of cash flows presentation for certain components of share-based awards. The effective date for the standard is for interim and annual reporting periods beginning after December 15, 2016 (our fiscal year beginning on August 1, 2017). Early adoption is permitted. We are currently assessing the timing of adoption of this ASU and the impact it will have on our consolidated financial statements and related disclosures. |
• | Difficulty in forecasting our results of operations - It is difficult to accurately forecast our results of operations as we cannot predict the severity or the duration of the current adverse economic environment or the impact it will have on our current and prospective customers. If our current or prospective customers materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we anticipate, our business outlook will prove to be inaccurate. |
• | Additional reductions in telecommunications equipment and systems spending may occur - Our businesses have been negatively affected by uncertain economic environments in the overall market and, more specifically, in the telecommunications sector. Our customers have reduced their budgets for spending on telecommunications equipment and systems and in some cases postponed or reduced the purchase of our products and systems. As a result of the ongoing difficult global economic environment, our customers may reduce their spending on telecommunications equipment and systems which would negatively impact both of our reporting operating segments. If this occurs, it would adversely affect our business outlook, net sales, profitability and the recoverability of our assets, including intangible assets such as goodwill. |
• | Our customers may not be able to obtain financing - Although many of our products are relatively inexpensive when compared to the total systems or networks that they are incorporated into, our sales are affected by our customers’ ability to obtain the financing they may require to build out their total systems or networks and fund ongoing operations. Many of our emerging market customers obtain financing for network build-outs from European commercial banks and/or governments. Our customers’ inability to obtain sufficient financing would adversely affect our net sales. In addition, if the current economic environment and lack of financing results in insolvencies for our customers, it would adversely impact the recoverability of our accounts receivable which would, in turn, adversely impact our results of operations. |
• | We may not be able to manage organizational changes associated with the TCS Acquisition - As of February 1, 2016, in connection with the acquisition of TCS, we reorganized our business into two reporting operating segments: Commercial Solutions and Government Solutions. We may further change our business and organizational structure and streamline and further consolidate certain business processes to achieve greater operating efficiencies. We will face operational and administrative challenges as we work to integrate TCS’ operations into our business. In particular, the acquisition of TCS has significantly expanded the types of products and services that we sell, expanded the businesses in which we engage, and increased the number of facilities we operate, thereby presenting us with significant challenges in managing the substantial increase in scale of our business. These challenges include the integration of a large number of systems, both operational and administrative. We may not be able to successfully manage these organizational changes and the unanticipated disruption to our business that might result from these changes could have a material adverse effect on our business, results of operation and financial condition. In addition, the diversion of our management’s attention to these matters and away from other business concerns could have a material adverse effect on our business, results of operation and financial condition. |
• | We may not realize the benefits of merger integration costs - Although we expect to realize strategic, operational and financial benefits as a result of the acquisition of TCS, we cannot provide assurance that such benefits will be achieved at all or, if achieved, to what extent. In particular, the success of the acquisition of TCS depends, in part, on our ability to realize anticipated efficiencies and cost savings, primarily through the elimination of redundant functions and the integration of certain operations. No assurance can be given that we will be able to achieve these efficiencies and cost savings within the anticipated time frame, or at all. |
• | We may experience a loss or adverse effect on customer relationships - The acquisition of TCS may adversely affect the relationships that the combined company has with its customers, service providers and employees. We may experience a loss of, or changes to, TCS’s relationships with its customers or Comtech’s legacy customers, which could negatively impact our business outlook. Accordingly, we may be unable to achieve the same growth, revenues and profitability that TCS has achieved in the past or that it could achieve on a standalone basis or that we expect it to generate for us in the future. Our growth depends in part on expanding relationships with key distribution channels for TCS products such as Next Generation 911 solutions. If we are unable to expand our relationships or lose any existing relationship, it could have a material adverse effect on our business, results of operation and financial condition. |
• | we may be required to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows for other purposes, including business development efforts, capital expenditures, dividends or strategic acquisitions; |
• | if we are not be able to generate sufficient cash flows to meet our substantial debt service obligations or to fund our other liquidity needs, we may have to take actions such as selling assets or raising additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, or restructuring our debt; |
• | we may not be able to fund future working capital, capital investments and other business activities; |
• | we may not be able to pay dividends or make certain other distributions; |
• | we may become more vulnerable in the event of a downturn in our business or a worsening of general economic or industry-specific conditions; and |
• | our flexibility in planning for, or reacting to, changes in our business and industry may be limited, thereby placing us at a competitive disadvantage compared to our competitors that have less indebtedness. |
• | properly evaluate the technology; |
• | accurately forecast the financial impact of the transaction, including accounting charges and transaction expenses; |
• | integrate the technologies, products and services, research and development, sales and marketing, support and other operations; |
• | integrate and retain key management personnel and other key employees; |
• | retain and cross-sell to acquired customers; and |
• | combine potentially different corporate cultures. |
• | divert management’s attention away from the operation of our businesses; |
• | result in significant goodwill and intangibles write-offs in the event an acquisition or investment does not meet expectations; and |
• | increase expenses, including expenses of managing the growth of such acquired businesses. |
• | unexpected contract or project terminations or suspensions; |
• | unpredictable order placements, reductions, delays or cancellations; |
• | higher than expected final costs, particularly relating to software and hardware development, for work performed under contracts where we commit to specified deliveries for a fixed-price; and |
• | unpredictable cash collections of unbilled receivables that may be subject to acceptance of contract deliverables by the customer and contract close out procedures, including government audit and approval of final indirect rates. |
• | We may not be able to continue to structure our international contracts to reduce risk - We attempt to reduce the risk of doing business in foreign countries by seeking subcontracts with large systems suppliers, contracts denominated in U.S. dollars, advance or milestone payments and irrevocable letters of credit in our favor. However, we may not be able to reduce the economic risk of doing business in foreign countries in all instances. In such cases, billed and unbilled receivables relating to international sales are subject to increased collectability risk and may result in significant write-offs, which could have a material adverse effect on our business, results of operation and financial condition. In addition, foreign defense contracts generally contain provisions relating to termination at the convenience of the government. |
• | We rely on a limited number of international sales agents - In some countries, we rely upon one or a small number of sales agents, exposing us to risks relating to our contracts with, and related performance of, those agents. We attempt to reduce our risk with respect to sales agents by establishing additional foreign sales offices where it is practical and by engaging, where practicable, more than one independent sales representative in a territory. It is our policy to require all sales agents to operate in compliance with applicable laws, rules and regulations. Violations of any of these laws, rules or regulations, and other business practices that are regarded as unethical, could interrupt the sales of our products and services, result in the cancellation of orders or the termination of customer relationships, and could damage our reputation, any of which developments could have a material adverse effect on our business, results of operation and financial condition. |
• | We currently price virtually all of our products in U.S. dollars - Today, virtually all of our sales are denominated in U.S. dollars. During fiscal 2015, the U.S. dollar strengthened significantly against many international currencies. As such, many of our international customers experienced a drop in their purchasing power as it relates to their ability to purchase our products. To date, we have not materially changed our selling prices and have experienced lower sales volumes. It is possible, that the strength in the U.S. dollar will continue or that it will further increase against many international currencies. If this occurs, our customers may reduce their spending or postpone purchases of our products and services to a greater extent than we currently anticipate which could have a material adverse effect on our business, results of operation and financial condition. |
• | Disrupt the proper functioning of these networks, data center facilities and systems and therefore our operations and/or those of certain of our customers; |
• | Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; |
• | Compromise national security and other sensitive government functions; |
• | Require significant management attention and resources to remedy the damages that result; and |
• | Damage our reputation with our customers (particularly agencies of the U.S. government) and the public generally. |
• | We must obtain various licenses from the FCC - We operate FCC licensed teleports that are subject to the Communications Act of 1934, as amended, or the FCC Act, and the rules and regulations of the FCC. We cannot guarantee that the FCC will grant renewals when our existing licenses expire, nor are we assured that the FCC will not adopt new or modified technical requirements that will require us to incur expenditures to modify or upgrade our equipment as a condition of retaining our licenses. We may, in the future, be required to seek FCC or other government approval if foreign ownership of our stock exceeds certain specified criteria. Failure to comply with these policies could result in an order to divest the offending foreign ownership, fines, denial of license renewal and/or license revocation proceedings against the licensee by the FCC, or denial of certain contracts from other U.S. government agencies. |
• | We are dependent on the allocation and availability of frequency spectrum - Adverse regulatory changes related to the allocation and availability of frequency spectrum and in the military standards and specifications that define the current satellite networking environment, could materially harm our business by: (i) restricting development efforts by us and our customers, (ii) making our current products less attractive or obsolete, or (iii) increasing the opportunity for additional competition. The increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards and reassign bandwidth for these products and services. The reduced number of available frequencies for other products and services and the time delays inherent in the government approval process of new products and services have caused, and may continue to cause, our customers to cancel, postpone or reschedule their installation of communications systems including their satellite, over-the-horizon microwave, or terrestrial line-of-sight microwave communication systems. This, in turn, could have a material adverse effect on our sales of products to our customers. Changes in, or our failure to comply with, applicable laws and regulations could materially adversely harm our business, results of operation, and financial condition. |
• | Our future growth is dependent on developing NG911 compliant products - The FCC requires that certain location information be provided to network operators for public safety answering points when a subscriber makes a 911 call. Technical failures, greater regulation by federal, state or foreign governments or regulatory authorities, time delays or the significant costs associated with developing or installing improved location technology could slow down or stop the deployment of our mobile location products. If deployment of improved location technology is delayed, stopped or never occurs, market acceptance of our products and services may be materially adversely affected. Because we rely on some third-party location technology instead of developing all of the technology ourselves, we have little or no influence over its improvement. The technology employed with NG911 services generally anticipates a migration to internet-protocol (“IP”) based communication. Since many companies are proficient in IP-based communication protocols, the barriers to entry to providing NG911 products and services are lower than exist for the traditional switch-based protocols. If we are unable to develop unique and proprietary solutions that are superior to and more cost effective than other market offers, our 911 business could get replaced by new market entrants, resulting in a material adverse effect on our business, results of operation and financial condition. |
• | Under the FCC’s mandate, our 911 business is dependent on state and local governments - Under the FCC’s mandate, wireless carriers are required to provide 911 services only if state and local governments request the service. As part of a state or local government’s decision to request 911, they have the authority to develop cost recovery mechanisms. However, cost recovery is no longer a condition to wireless carriers’ obligation to deploy the service. If state and local governments do not widely request that 911 services be provided or we become subject to significant pressures from wireless carriers with respect to pricing of 911 services, our 911 business would be harmed and future growth of our business would be reduced. |
• | We must adhere to existing and potentially new privacy rules related to mobile-location based services - We believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information, could affect our customers’ ability to use and share data, potentially reducing our ability to utilize this information for the purpose of continued improvement of the overall mobile subscriber experience. In order for mobile location products and services to function properly, wireless carriers must locate their subscribers and store information on each subscriber’s location. Although data regarding the location of the wireless user resides only on the wireless carrier’s systems, users may not feel comfortable with the idea that the wireless carrier knows and can track their location. Carriers will need to obtain subscribers’ permission to gather and use the subscribers’ personal information, or they may not be able to provide customized mobile location services which those subscribers might otherwise desire. If subscribers view mobile location services as an annoyance or a threat to their privacy, that could reduce demand for our products and services and have a material adverse effect on our business, results of operation and financial condition. |
• | We may face increased costs to compliance with health and safety of mobile devices - If wireless handsets pose health and safety risks, we may be subject to new regulations and demand for our products and services may decrease. Media reports have suggested that certain radio frequency emissions from wireless handsets may be linked to various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Concerns over radio frequency emissions may have the effect of discouraging the use of wireless handsets, which would decrease demand for our services. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless handsets. In addition, interest groups have requested that the FCC investigate claims that wireless technologies pose health concerns and cause interference with airbags, hearing aids and other medical devices. There also are some safety risks associated with the use of wireless handsets while driving. Concerns over these safety risks and the effect of any legislation that may be adopted in response to these risks could limit our ability to market and sell our products and services. |
• | The regulatory environment for VOIP services is developing - The FCC has determined that VoIP services are not subject to the same regulatory scheme as traditional wireline and wireless telephone services. If the regulatory environment for VoIP services evolves in a manner other than the way we anticipate, our 911 business would be significantly harmed and future growth of our business would be significantly reduced. For example, the regulatory scheme for wireless and wireline service providers requires those carriers to allow service providers such as us to have access to certain databases that make the delivery of a 911 call possible. No such requirements exist for VoIP service providers so carriers could prevent us from continuing to provide VoIP 911 service by denying us access to the required databases. |
• | If we identify a material weakness in the future, our costs will unexpectedly increase - Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules, we are required to furnish a report of management’s assessment of the effectiveness of our internal controls as part of our Annual Report on Form 10-K. Our independent registered public accountants are required to attest to and provide a separate opinion. To issue our report, we document our internal control design and the testing processes that support our evaluation and conclusion, and then we test and evaluate the results. There can be no assurance, however, that we will be able to remediate material weaknesses, if any, that may be identified in future periods, or maintain all of the controls necessary for continued compliance. There likewise can be no assurance that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies. In fiscal 2016, we anticipate transitioning from the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 1992 Internal Control - Integrated Framework to the COSO 2013 Internal Control - Integrated Framework. In accordance with the rules and regulations related to Sarbanes-Oxley Act of 2002, we intend to take a one-year exemption related to the controls of TCS. We have begun the process of implementing new controls related to TCS, and in the future, we may identify significant deficiencies or material weaknesses and incur additional costs. |
• | Stock-based compensation accounting standards could negatively impact our stock - Since our inception, we have used stock-based awards as a fundamental component of our employee compensation packages. We believe that stock-based awards directly motivate our employees to maximize long-term stockholder value and, through the use of long-term vesting, encourage employees to remain with us. We apply the provisions of Accounting Standards Codification (“ASC”) 718, “Compensation - Stock Compensation,” which requires us to record compensation expense in our statement of operations for employee and director stock-based awards using a fair value method. The ongoing application of this standard has had a significant effect on our reported earnings, and could adversely impact our ability to provide accurate guidance on our future reported financial results due to the variability of the factors used to estimate the value of stock-based awards (including long-term performance shares which are subject to the achievement of three-year goals which are based on several performance metrics). The ongoing application of this standard could impact the future value of our common stock and may result in greater stock price volatility. To the extent that this accounting standard makes it less attractive to grant stock-based awards to employees, we may incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, each of which could have a material adverse effect on our business, results of operation and financial condition. |
• | We must adopt new complex revenue recognition rules - The accounting rules and regulations that we must comply with are complex. Accounting rules and regulations are continually changing in ways that could materially impact our financial statements. The FASB has recently issued new guidance for revenue recognition. The new guidance replaces the prior revenue recognition guidance in its entirety. We have not yet selected a transition method and continue to evaluate the impact that this guidance will have on our business, results of operation and financial condition. Regardless of the transition method, the application of this new guidance may result in certain adjustments to our financial statements, which could have a material adverse effect on our net income. Because of the uncertainty of the estimates, judgments and assumptions associated with our accounting policies, we cannot provide any assurances that we will not make subsequent significant adjustments to our consolidated financial statements. |
• | Changes in securities laws, regulations and financial reporting standards are increasing our costs - The Sarbanes-Oxley Act of 2002 required changes in some of our corporate governance, public disclosure and compliance practices. These changes have resulted in increased costs. The SEC has promulgated and proposed new rules on a variety of subjects including the requirement to use the interactive data format eXtensible Business Reporting Language (commonly referred to as “XBRL”) in our financial statements, which we began including in our quarterly reports filed with the SEC in the first quarter of fiscal 2011, and the possibility that we would be required to adopt International Financial Reporting Standards (“IFRS”). In April 2016, as part of its Disclosure Effectiveness Initiative, the SEC published a concept release which considers various business and financial disclosures that public companies make in investor reports and seeks the public’s input on ways to further improve that disclosure. The issues raised by the SEC in the concept release have the potential to dramatically change the way in which companies prepare and deliver disclosure to investors and the burdens of preparing that disclosure. In August 2012, the SEC adopted new rules establishing additional disclosure, supply chain verification and reporting requirements regarding a public company’s use of Conflict Minerals procured from Covered Countries (as both of those terms are defined by the SEC). These SEC rules and reporting requirements have resulted in us incurring additional costs to document and perform supplier due diligence. As these rules impact our suppliers, the availability of raw materials used in our operations could be negatively impacted and/or raw material prices could increase. Further, if we are unable to certify that our products are conflict free, we may face challenges with our customers, which could place us at a competitive disadvantage and could harm our reputation. |
• | The loss of key technical or management personnel could adversely affect our business - Our future success depends on the continued contributions of key technical management personnel. Many of our key technical management personnel would be difficult to replace, and are not subject to employment or non-competition agreements. We currently have research and development employees in areas that are located a great distance away from our U.S. headquarters. Managing remote product development operations is difficult and we may not be able to manage the employees in these remote centers successfully. Our expected growth and future success will depend, in large part, upon our ability to attract and retain highly qualified engineering, sales and marketing personnel. Competition for such personnel from other companies, academic institutions, government entities and other organizations is intense. Although we believe that we have been successful to date in recruiting and retaining key personnel, we may not be successful in attracting and retaining the personnel we will need to grow and operate profitably. Also, the management skills that have been appropriate for us in the past may not continue to be appropriate if we grow and diversify. |
• | We may not be able to improve our processes and systems to keep pace with anticipated growth - The future growth of our business may place significant demands on our managerial, operational and financial resources. In order to manage that growth, we must be prepared to improve and expand our management, operational and financial systems and controls. We also need to continue to recruit and retain personnel and train and manage our employee base. We must carefully manage research and development capabilities and production and inventory levels to meet product demand, new product introductions and product and technology transitions. If we are not able to timely and effectively manage our growth and maintain the quality standards required by our existing and potential customers, it could have a material adverse effect on our business, results of operation and financial condition. |
• | Our markets are highly competitive and there can be no assurance that we can continue our success - The markets for our products are highly competitive. There can be no assurance that we will be able to continue to compete successfully or that our competitors will not develop new technologies and products that are more effective than our own. We expect the Department of Defense’s increased use of commercial off-the-shelf products and components in military equipment will encourage new competitors to enter the market. Also, although the implementation of advanced telecommunications services is in its early stages in many developing countries, we believe competition will continue to intensify as businesses and foreign governments realize the market potential of telecommunications services. Many of our competitors have financial, technical, marketing, sales and distribution resources greater than ours. |
• | We may not be able to obtain sufficient components to meet expected demand - Our dependence on component availability, government furnished equipment, subcontractors and key suppliers, including the core manufacturing expertise of our high-volume technology manufacturing center located in Tempe, Arizona, exposes us to risk. Although we obtain certain components and subsystems from a single source or a limited number of sources, we believe that most components and subsystems are available from alternative suppliers and subcontractors. A significant interruption in the delivery of such items, however, could have a material adverse effect on our business, results of operation and financial condition. In addition, if our high-volume technology manufacturing center located in Tempe, Arizona is unable to produce sufficient product or maintain quality, it could have a material adverse effect on our business, results of operation and financial condition. |
• | Our ability to maintain affordable credit insurance may become more difficult - In the normal course of our business, we purchase credit insurance to mitigate some of our domestic and international credit risk. Although credit insurance remains generally available, upon renewal, it may become more expensive to obtain or may not be available for existing or new customers in certain international markets and it might require higher deductibles than in the past. If we acquire a company with a different customer base, we may not be able to obtain credit insurance for those sales. As such, there can be no assurance that, in the future, we will be able to obtain credit insurance on a basis consistent with our past practices. |
• | The loss of mapping and third party content - The wireless data services provided to our customers are dependent on real-time, continuous feeds from map data, points of interest data, traffic information, gas prices, theater, event and weather information from vendors and others. Any disruption of this third party content from our satellite feeds or backup landline feeds or other disruption could result in delays in our subscribers’ ability to receive information. We obtain this data that we sell to our customers from companies owned by current and potential competitors, who may act in a manner that is not in our best interest. If our suppliers of this data or content were to enter into exclusive relationships with other providers of location-based services or were to discontinue providing such information and we were unable to replace them cost effectively, or at all, our ability to provide the services of our wireless applications business would be materially adversely affected. Our gross margins may also be materially adversely affected if the cost of third party data and content increases substantially. |
• | Third party data centers or third party networks may fail - Many products and services of our advanced communication solutions, in particular our public safety and enterprise technology solutions, are provided through a combination of our servers, which we house at third party data centers, and the networks of our wireless carrier partners. As such, our business relies to a significant degree on the efficient and uninterrupted operation of the third party data centers we use. Our hosted data centers are currently located in third party facilities located in the Irvine and San Francisco, California areas, and we may use others as required. We also use third party data center facilities in the Phoenix, Arizona area to provide for disaster recovery. Network failures, disruptions or capacity constraints in our third party data center facilities or in our servers maintained at their location could affect the performance of the products and services of our wireless applications and 911 business and harm our reputation and our revenue. The ability of our subscribers to receive critical location and business information requires timely and uninterrupted connections with our wireless network carriers. Any disruption from our satellite feeds or backup landline feeds could also result in delays in our subscribers’ ability to receive information. |
• | We must integrate our technologies and routinely upgrade them - We may not be able to upgrade our location-based services platform to support certain advanced features and functionality without obtaining technology licenses from third parties. Obtaining these licenses may be costly and may delay the introduction of such features and functionality, and these licenses may not be available on commercially favorable terms, or at all. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions, or materials and components could prevent us from achieving contractual obligations. In addition, our products cannot be tested and proven in all situations and are otherwise subject to unforeseen problems. The inability to offer advanced features or functionality, or a delay in our ability to upgrade our location-based services platform, may materially adversely affect demand for our products and services and, consequently, have a material adverse effect on our business, results of operation and financial condition. |
• | We rely upon “open-source” software - We have incorporated some types of open source software into our products, allowing us to enhance certain solutions without incurring substantial additional research and development costs. Thus far, we have encountered no unanticipated material problems arising from our use of open source software. However, as the use of open source software becomes more widespread, certain open source technology could become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products, which could have a material adverse effect on our business, results of operation and financial condition. |
• | our ability to successfully integrate TCS and manage our combined company; |
• | strategic transactions, such as acquisitions and divestures; |
• | issuance of potentially dilutive equity or equity-type securities; |
• | issuance of debt; |
• | future announcements concerning us or our competitors; |
• | receipt or non-receipt of substantial orders for products and services; |
• | quality deficiencies in services or products; |
• | results of technological innovations; |
• | new commercial products; |
• | changes in recommendations of securities analysts; |
• | government regulations; |
• | changes in the status or outcome of government audits; |
• | proprietary rights or product or patent litigation; |
• | changes in U.S. government policies; |
• | changes in economic conditions generally, particularly in the telecommunications sector; |
• | changes in securities market conditions, generally; |
• | changes in the status of litigation and legal matters (including changes in the status of export matters); |
• | cyber-attacks; |
• | energy blackouts; |
• | acts of terrorism or war; |
• | inflation or deflation; and |
• | rumors or allegations regarding our financial disclosures or practices. |
(a) | Exhibits |
Date: | June 8, 2016 | By: /s/ Dr. Stanton D. Sloane |
Dr. Stanton D. Sloane | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | June 8, 2016 | By: /s/ Michael D. Porcelain |
Michael D. Porcelain | ||
Senior Vice President and | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Comtech Telecommunications Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Dr. Stanton D. Sloane | |
Dr. Stanton D. Sloane President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Comtech Telecommunications Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Michael D. Porcelain | |
Michael D. Porcelain Senior Vice President and Chief Financial Officer |
/s/ Dr. Stanton D. Sloane | |
Dr. Stanton D. Sloane President and Chief Executive Officer |
/s/ Michael D. Porcelain | |
Michael D. Porcelain Senior Vice President and Chief Financial Officer |
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M,$UP0V5H:4AZ
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Apr. 30, 2016 |
Jun. 03, 2016 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Apr. 30, 2016 | |
Current Fiscal Year End Date | --07-31 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2016 | |
Entity Registrant Name | COMTECH TELECOMMUNICATIONS CORP /DE/ | |
Entity Central Index Key | 0000023197 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 16,171,079 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Stockholders’ equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
Preferred stock, shares authorized (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 31,204,396 | 31,165,401 |
Treasury stock, shares (in shares) | 15,033,317 | 15,033,317 |
Condensed Consolidated Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
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Apr. 30, 2016 |
Apr. 30, 2015 |
Apr. 30, 2016 |
Apr. 30, 2015 |
|
Income Statement [Abstract] | ||||
Net sales | $ 124,187,000 | $ 71,633,000 | $ 258,627,000 | $ 229,826,000 |
Cost of sales | 72,796,000 | 39,325,000 | 149,596,000 | 124,318,000 |
Gross profit | 51,391,000 | 32,308,000 | 109,031,000 | 105,508,000 |
Expenses: | ||||
Selling, general and administrative | 30,439,000 | 15,005,000 | 60,818,000 | 46,557,000 |
Research and development | 12,613,000 | 8,582,000 | 28,216,000 | 28,267,000 |
Acquisition plan expenses | 16,960,000 | 0 | 20,689,000 | 0 |
Amortization of intangibles | 4,776,000 | 1,561,000 | 7,348,000 | 4,682,000 |
Total operating expenses | 64,788,000 | 25,148,000 | 117,071,000 | 79,506,000 |
Operating (loss) income | (13,397,000) | 7,160,000 | (8,040,000) | 26,002,000 |
Other expenses (income): | ||||
Interest expense and other | 3,473,000 | 72,000 | 3,621,000 | 406,000 |
Interest income and other | (5,000) | (107,000) | (227,000) | (281,000) |
(Loss) income before (benefit from) provision for income taxes | (16,865,000) | 7,195,000 | (11,434,000) | 25,877,000 |
(Benefit from) provision for income taxes | (2,510,000) | 2,235,000 | (994,000) | 8,107,000 |
Net (loss) income | $ (14,355,000) | $ 4,960,000 | $ (10,440,000) | $ 17,770,000 |
Net (loss) income per share (See Note 5): | ||||
Basic (in dollars per share) | $ (0.89) | $ 0.31 | $ (0.65) | $ 1.10 |
Diluted (in dollars per share) | $ (0.89) | $ 0.30 | $ (0.65) | $ 1.08 |
Weighted average number of common shares outstanding – basic (in shares) | 16,195,000 | 16,202,000 | 16,184,000 | 16,220,000 |
Weighted average number of common and common equivalent shares outstanding – diluted (in shares) | 16,195,000 | 16,382,000 | 16,184,000 | 16,468,000 |
Dividends declared per issued and outstanding common share as of the applicable dividend record date (in dollars per share) | $ 0.30 | $ 0.30 | $ 0.90 | $ 0.90 |
General |
9 Months Ended |
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Apr. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
General | General The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and subsidiaries (“Comtech,” “we,” “us,” or “our”) as of and for the three and nine months ended April 30, 2016 and for the three and nine months ended April 30, 2015 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates. Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission (“SEC”), for the fiscal year ended July 31, 2015 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC. Certain prior year amounts have been reclassified to conform to current year presentation. |
Acquisition |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition | Acquisition In connection with our focused acquisition plan, on February 23, 2016, we completed the acquisition of TeleCommunication Systems, Inc. ("TCS"), pursuant to the Agreement and Plan of Merger, dated as of November 22, 2015 (the “Merger Agreement”), among Comtech, TCS and Typhoon Acquisition Corp., a Maryland corporation and a direct, wholly owned subsidiary of Comtech (“Merger Sub”). TCS is a leading provider of commercial solutions such as public safety systems and enterprise application technologies and government solutions such as command and control (also known as Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (“C4ISR”) applications). The TCS acquisition resulted in Comtech entering complementary markets and expanding our domestic and international commercial offerings. TCS is now a wholly-owned subsidiary of Comtech. The acquisition has a preliminary aggregate purchase price for accounting purposes of approximately $340,432,000 (also referred to as the transaction equity value) and an enterprise value of approximately $423,629,000. The fair value of consideration transferred in connection with the TCS acquisition was approximately $280,535,000 in cash, which is net of $59,897,000 of cash acquired. We have funded and expect to fully fund the acquisition (including approximately $48,000,000 of transaction and merger related expenditures) and have repaid $134,101,000 of debt assumed in connection with the acquisition by redeploying a significant amount of our combined cash and cash equivalents, with the remaining funds coming from, as discussed further in Note (10) - "Secured Credit Facility," a $400,000,000 Secured Credit Facility (the "Secured Credit Facility.") We have incurred and expect to incur transaction and merger related expenditures totaling $48,000,000, which includes significant amounts for: (i) change-in-control payments, (ii) severance, (iii) costs associated with establishing our Secured Credit Facility, and (iv) professional fees for financial and legal advisors for both Comtech and TCS. For the three and nine months ended April 30, 2016, acquisition plan expenses were approximately $16,960,000 and $20,689,000, respectively, and primarily related to the TCS acquisition. We expect to record an additional expense of approximately $3,900,000 during the fourth quarter of fiscal 2016. The remaining transaction and merger related expenditures have been accounted for by TCS prior to its acquisition by Comtech or have been capitalized (such as deferred financing costs) on our Condensed Consolidated Balance Sheet as of April 30, 2016. Our consolidated financial results for the three and nine months ended April 30, 2016 include approximately $65,957,000 of net sales from TCS operations. Given the immediate integration of TCS into our business, it is not practicable to determine the earnings contributions of TCS during the three and nine months ended April 30, 2016. We are accounting for the TCS acquisition under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations." The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value at February 23, 2016, pursuant to the business combination accounting rules. Acquisition-related transaction costs are not included as components of consideration transferred but are expensed in the period incurred. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in connection with the TCS acquisition, based on the current best estimates of management:
The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives. The preliminary fair value of technologies and trade names was based on the discounted capitalization of royalty expense saved because we now own the assets. The estimated fair value of customer relationships and backlog was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Government Solutions and Commercial Solutions segments based on specific identification and, while generally not deductible for income tax purposes, certain goodwill related to previous business combinations by TCS will be deductible for income tax purposes. The allocation of the preliminary aggregate purchase price for TCS was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date). The primary areas of the purchase price allocation for TCS not yet finalized include income taxes, pre-acquisition contingencies for TCS’s intellectual property matters that existed as of the acquisition date (see “Notes to Condensed Consolidated Financial Statements - Note (19) “Legal Matters and Proceedings”) and residual goodwill. The unaudited pro forma financial information in the table below, for the three months ended April 30, 2016, combines the historical results of Comtech for the three months ended April 30, 2016 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the three months ended March 31, 2016, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the nine months ended April 30, 2016, combines the historical results of Comtech for the nine months ended April 30, 2016 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the nine months ended March 31, 2016, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the three months ended April 30, 2015, combines the historical results of Comtech for the three months ended April 30, 2015 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the three months ended March 31, 2015, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the nine months ended April 30, 2015, combines the historical results of Comtech for the nine months ended April 30, 2015 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the nine months ended March 31, 2015, as if the acquisition had occurred on August 1, 2014.
The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and cash paid had taken place as of August 1, 2014. The pro forma financial information includes adjustments for:
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Adoption of Accounting Standards and Updates |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||
Adoption of Accounting Standards and Updates | Adoption of Accounting Standards and Updates We are required to prepare our condensed consolidated financial statements in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) which is the source for all authoritative U.S. generally accepted accounting principles commonly referred to as “GAAP.” The ASC is subject to updates by the FASB, which are known as Accounting Standards Updates (“ASUs”). During the nine months ended April 30, 2016, we adopted:
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Fair Value Measurements and Financial Instruments |
9 Months Ended |
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Apr. 30, 2016 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements and Financial Instruments | Fair Value Measurements and Financial Instruments As of April 30, 2016 and July 31, 2015, we had approximately $2,132,000 and $3,130,000, respectively, consisting primarily of money market mutual funds which are classified as cash and cash equivalents in our Condensed Consolidated Balance Sheets. These money market mutual funds are recorded at their fair value. FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, using the fair value hierarchy described in FASB ASC 820, we valued our money market mutual funds using Level 1 inputs that were based on quoted market prices. The carrying amounts of our other current financial assets and our current financial liabilities, including receivables, accounts payable, accrued expenses and the current portion of our capital lease obligations and our Secured Credit Facility, approximate their fair values due to their short-term maturities. The fair value of outstanding liabilities pursuant to our long-term Secured Credit Facility as of April 30, 2016 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of the fiscal quarter for which financial statements have most recently been delivered. We believe the fair value of our non-current portion of capital lease obligations, which currently has stated blended interest rates of 5.7%, would not be materially different than its $4,880,000 carrying value as of April 30, 2016. As of April 30, 2016 and July 31, 2015, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820. |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share Our basic earnings per share (“EPS”) is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")), outstanding during each respective period. Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, if dilutive, outstanding during each respective period. Pursuant to FASB ASC 260, "Earnings Per Share," equity-classified stock-based awards that are subject to performance conditions are not considered in our diluted EPS calculations until the respective performance conditions have been satisfied. When calculating our diluted earnings per share, we consider (i) the amount an employee must pay upon assumed exercise of stock-based awards; (ii) the amount of stock-based compensation cost attributed to future services and not yet recognized; and (iii) the amount of excess tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of in-the-money stock-based awards. This excess tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial reporting purposes. There were no repurchases of our common stock during the three and nine months ended April 30, 2016. Weighted average basic and diluted shares outstanding for the three and nine months ended April 30, 2015 reflects a reduction of approximately 83,000 and 27,000 shares as a result of the repurchase of our common shares during the respective periods. See Note (18) - "Stockholders' Equity" for more information on our stock repurchase program. Weighted average stock options and RSUs outstanding to purchase 2,362,000 and 685,000 shares for the three months ended April 30, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Weighted average stock options and RSUs outstanding to purchase 2,365,000 and 477,000 shares for the nine months ended April 30, 2016 and 2015, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Our EPS calculations exclude 149,000 and 124,000 weighted average RSUs with performance measures (which we refer to as performance shares) outstanding for the three months ended April 30, 2016 and 2015, respectively, and 144,000 and 118,000 weighted average performance shares outstanding for the nine months ended April 30, 2016 and 2015, respectively, as the respective performance conditions have not yet been satisfied. However, the compensation expense related to these awards is included in net (loss) income (the numerator) for EPS calculations for each respective period. The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
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Accounts Receivable |
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Accounts Receivable Additional Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable | Accounts Receivable Accounts receivable consist of the following at:
Unbilled receivables relate to contracts-in-progress for which revenue has been recognized but we have not yet billed the customer for work performed. We had $118,000 of retainage included in unbilled receivables at April 30, 2016 and virtually no retainage at July 31, 2015 and in the opinion of management, a majority of the total unbilled receivables at April 30, 2016 will be billed and collected within one year. Of the unbilled receivables from commercial and international customers at April 30, 2016 and July 31, 2015, $6,922,000 and $20,256,000, respectively, relates to our two large over-the-horizon microwave system contracts with our large U.S. prime contractor customer (all of which related to our North African country end-customer). As of April 30, 2016, the U.S. government (and its agencies) and Verizon Communications Inc. (through various divisions) represented 37.6% and 10.1%, respectively of total accounts receivable. As of July 31, 2015, the U.S. government (and its agencies) and one large U.S. prime contractor customer (the majority of which related our North African country end-customer) represented 13.5% and 36.3%, respectively of total accounts receivable. |
Inventories |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories Inventories consist of the following at:
At April 30, 2016 and July 31, 2015, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $2,606,000 and $2,261,000, respectively. At April 30, 2016 and July 31, 2015, $1,234,000 and $609,000, respectively, of the inventory balance above related to contracts from third party commercial customers who outsource their manufacturing to us. |
Accrued Expenses and Other Current Liabilities |
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Accrued Liabilities, Current [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses and Other Current Liabilities | Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following at:
Included in accrued acquisition-related costs in the above table as of April 30, 2016 was $7,067,000 of change-in-control payments and $984,000 of professional fees for financial and legal advisors. Accrued legal costs in the above table as of April 30, 2016 includes $4,500,000 of preliminary estimated losses and $3,529,000 of legal fees related to TCS's intellectual property matters and contract disputes, which are discussed further in the "Legacy TCS Intellectual Property Matters" section of Note (19) - "Legal Proceedings and Other Matters." Accrued contract costs in the above table include direct and indirect costs on contracts as well as estimates owed for invoices not yet received from vendors or reflected in accounts payable. Accrued warranty obligations relate to estimated liabilities for warranty coverage that we provide to our customers. We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs. Changes in our product warranty liability were as follows:
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Radyne Acquisition-Related Restructuring Plan |
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Radyne Acquisition Related Restructuring Plan [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Radyne Acquisition-Related Restructuring Plan | Radyne Acquisition-Related Restructuring Plan In connection with our August 1, 2008 acquisition of Radyne, we adopted a restructuring plan for which we recorded $2,713,000 of estimated restructuring costs. Of this amount, $613,000 related to severance for Radyne employees which was paid in fiscal 2009. The remaining estimated amounts relate to facility exit costs and were determined as follows:
Our total non-cancelable lease obligations were based on the actual lease term which runs from November 1, 2008 through October 31, 2018. We estimated sublease income based on (i) the terms of a fully executed sublease agreement that expired on October 31, 2015, and (ii) our assessment of future uncertainties relating to the commercial real estate market. Based on our assessment of commercial real estate market conditions, we currently believe that it is not probable that we will be able to sublease the facility for the remainder lease term. As such, in accordance with grandfathered accounting standards that were not incorporated into the FASB’s ASC, we recorded these costs, at fair value, as assumed liabilities as of August 1, 2008, with a corresponding increase to goodwill. As of April 30, 2016, the amount of the acquisition-related restructuring reserve is as follows:
As of July 31, 2015, the present value of the estimated facility exit costs was $4,235,000. During the nine months ended April 30, 2016, we made cash payments of $1,124,000 and we received cash payments of $323,000. Interest accreted for the three and nine months ended April 30, 2016 and 2015 was $68,000 and $216,000, respectively, and $71,000 and $206,000, respectively, and is included in interest expense for each respective fiscal period. Future cash payments associated with our restructuring plan are summarized below:
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Secured Credit Facility |
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Line of Credit Facility [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Credit Facility | Credit Facility On February 23, 2016, in connection with our acquisition of TCS, we entered into a $400,000,000 secured credit facility (the "Secured Credit Facility) with a syndicate of lenders. The Secured Credit Facility provides a senior secured term loan A facility of $250,000,000 (the “Term Loan Facility”) and a senior secured revolving loan facility of up to $150,000,000, including a $25,000,000 letter of credit sublimit (the “Revolving Loan Facility”) and, together, with the Term Loan Facility, matures in five years, on February 23, 2021. The proceeds of these borrowings were used to finance in part our acquisition of TCS, including the repayment of certain existing indebtedness of TCS. As of April 30, 2016, amounts outstanding under our Secured Credit Facility, net, were as follows:
Interest expense, including amortization of deferred financing costs, for both the three and nine months ended April 30, 2016 related to the Secured Credit Facility was 2,981,000 and reflects a blended current weighted interest rate of approximately 5.0%. Interest expense recorded during the nine months ended April 30, 2015 was $198,000, all of which related to a $100,000,000 committed revolving credit facility that expired on October 31, 2014. There was no interest expense recorded during the three months ended April 30, 2015. At April 30, 2016, we had $2,352,000 of standby letters of credit outstanding related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. The Revolving Loan Facility will be used for working capital and other general corporate purposes of the Company and its subsidiaries, including the issuance of letters of credit. Borrowings under the Secured Credit Facility, pursuant to terms defined in the Secured Credit Facility, shall be either (i) ABR borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50% per annum and (c) the Adjusted LIBO Rate on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum (provided that if the LIBO Rate is less than 1.00%, then the LIBO Rate shall be deemed to be 1.00%), plus (y) the Applicable Rate , 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 (provided that if the LIBO Rate is less than 1.00%, then the LIBO Rate shall be deemed to be 1.00%) plus (y) the Applicable Rate. The Applicable Rate is determined based on a pricing grid that is dependent upon our leverage ratio as of the end of the fiscal quarter for which financial statements have most recently been delivered. The Secured Credit Facility contains customary representations, warranties and affirmative covenants and customary negative covenants, subject to negotiated exceptions, on (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 Secured 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 Secured Credit Facility in connection with the further syndication of up to $15,000,000 of the principal amount of the Secured Credit Facility. The obligations under the Secured Credit Facility are guaranteed by certain of our domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security for amount outstanding under our Secured Credit Facility and the guarantees thereof, we and our Subsidiary Guarantors have granted to an 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. Capitalized terms used but not defined herein have the meanings set forth for such terms in the credit agreement, dated as of February 23, 2016, pursuant to which the Secured Credit Facility is documented and which has been filed with the SEC. |
Capital Lease Obligations |
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Capital Lease Obligations | Capital Lease Obligations We lease certain equipment under capital leases, the majority of which we assumed in connection with our acquisition of TCS. The net book value of the leased assets which collateralize the capital lease obligation was $9,975,000 as of April 30, 2016, and consisted primarily of machinery and equipment. As of April 30, 2016, our capital lease obligations reflect a blended interest rate of approximately 5.3%. Our capital leases generally contain provisions whereby we can purchase the equipment at the end of the lease for a one dollar buyout. Depreciation of leased assets is included in depreciation expense. Future minimum payments under capital lease obligations consisted of the following at April 30, 2016:
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Income Taxes |
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Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes At April 30, 2016 and July 31, 2015, total unrecognized tax benefits were $8,811,000 and $2,796,000, respectively, including interest of $59,000 and $68,000, respectively. At April 30, 2016 and July 31, 2015, $3,262,000 and $1,573,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable in our Condensed Consolidated Balance Sheets. At April 30, 2016 and July 31, 2015, the remaining unrecognized tax benefits of $5,549,000 and $1,223,000, respectively, were presented as an offset to the associated non-current deferred tax asset in our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits at April 30, 2016 and July 31, 2015, $7,974,000 and $2,138,000, respectively, net of the reversal of the federal benefit recognized as deferred tax assets relating to state reserves, excluding interest, would positively impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. Our policy is to recognize interest and penalties relating to uncertain tax positions in income tax expense. On August 1, 2015, we adopted FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” on a prospective basis. TCS adopted FASB ASU No. 2015-17 during 2015 on a prospective basis. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. At April 30, 2016, this ASU resulted in a reclassification of our net deferred tax assets and liabilities to the net non-current deferred tax liability in our Condensed Consolidated Balance Sheet. No prior periods were retrospectively adjusted. During the quarter ended April 30, 2016, the Internal Revenue Service ("IRS") continued to audit our federal income tax return for fiscal 2014. Our federal income tax returns for fiscal 2013 and 2015 are also subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2011 are subject to audit. TCS’s federal income tax returns for calendar year 2013 and 2014 are subject to potential future IRS audit. None of TCS’s state income tax returns prior to calendar year 2011 are subject to audit. In addition to income tax audits, TCS is subject to ongoing state and local tax audits by the Washington State Department of Revenue and the City of Seattle. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition. |
Stock-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock Based Compensation Overview We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the “Plan”) and our 2001 Employee Stock Purchase Plan (the “ESPP”), as amended and restated, and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) RSUs, (iii) performance shares, (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, “share units”) and (vi) stock appreciation rights (“SARs”), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations. The aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 8,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a shareholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and ESPP with new shares. As of April 30, 2016, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 7,737,852 shares (net of 3,157,309 expired and canceled awards), of which an aggregate of 5,143,687 have been exercised or converted into common stock, substantially all of which related to stock options. As of April 30, 2016, the following stock-based awards, by award type, were outstanding:
Our ESPP provides for the issuance of shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. In December 2015, our shareholders approved an amendment to increase the number of shares authorized under the ESPP from 675,000 to 800,000. Through April 30, 2016, we have cumulatively issued 618,123 shares of our common stock to participating employees in connection with our ESPP. Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At April 30, 2016, unrecognized stock-based compensation of $7,941,000, net of estimated forfeitures of $743,000, is expected to be recognized over a weighted average period of 2.9 years. Total stock-based compensation capitalized and included in ending inventory at April 30, 2016 and July 31, 2015 was $51,000 and $92,000, respectively. Stock-based compensation expense, by award type, is summarized as follows:
ESPP stock-based compensation expense primarily relates to the 15% discount offered to employees participating in the ESPP. The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded as part of our non-current deferred tax liability in our Condensed Consolidated Balance Sheet as of April 30, 2016. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting. The following table reconciles the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards to the excess income tax benefit reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows:
As of April 30, 2016 and July 31, 2015, the amount of hypothetical tax benefits related to stock-based awards, recorded as a component of additional paid-in capital, was $17,139,000 and $17,220,000, respectively. These amounts represent the initial hypothetical tax benefit of $8,593,000 determined upon adoption of ASC 718 (which reflects our estimate of cumulative actual tax deductions for awards issued and settled prior to August 1, 2005), adjusted for actual excess income tax benefits or shortfalls since that date. During the nine months ended April 30, 2016, we recorded an $81,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which primarily represents net income tax shortfalls recognized from the settlement of stock-based awards and the reversal of unrealized deferred tax assets associated with certain vested equity-classified stock-based awards that expired during the respective period. During the nine months ended April 30, 2015, we recorded a $260,000 reduction to additional paid-in capital and accumulated hypothetical tax benefits, which primarily represents net income tax shortfalls recognized from the settlement of stock-based awards during the respective period. Stock Options The following table summarizes the Plan's activity during the nine months ended April 30, 2016:
Stock options outstanding as of April 30, 2016 have exercise prices ranging between $20.90 - $33.94. There were no stock options exercised during the three months ended April 30, 2016. The total intrinsic value relating to stock options exercised during the three months ended April 30, 2015 was $265,000. The total intrinsic value relating to stock options exercised during the nine months ended April 30, 2016 and 2015 was $32,000 and $2,224,000, respectively. Stock options granted during the nine months ended April 30, 2016 and 2015 had exercise prices equal to the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years. During the nine months ended April 30, 2016 and 2015, at the election of certain holders of vested stock options, 19,200 and 293,988 stock options, respectively, were net settled upon exercise. As a result, 706 and 47,532 net shares of our common stock were issued after reduction of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements during the nine months ended April 30, 2016 and 2015, respectively. The estimated per-share weighted average grant-date fair value of stock options granted during the three and nine months ended April 30, 2016 was $3.95 and $5.55, respectively, and $4.53 and $6.13, respectively, during the three and nine months ended April 30, 2015, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant, which was $1.20 per share for grants in the nine months ended April 30, 2016 and 2015. We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term. The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns. Assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock-based awards. Performance Shares, RSUs, Restricted Stock and Share Unit Awards The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
The total intrinsic value relating to fully-vested awards converted into our common stock during the nine months ended April 30, 2016 and 2015 was $275,000 and $504,000, respectively. Performance shares granted to employees prior to fiscal 2014 vest over a 5.3 year period, beginning on the date of grant if pre-established performance goals are attained, and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration. The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained or as specified pursuant to the Plan and related agreements. As of April 30, 2016, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level. RSUs and restricted stock granted to non-employee directors have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration. Share units are vested when issued and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. No share units granted to date have been converted into common stock. The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive. RSUs and performance shares granted in fiscal 2012 are not entitled to dividend equivalents. RSUs, performance shares and restricted stock granted in fiscal 2013 through 2016 are entitled to dividend equivalents unless forfeited before vesting occurs; however, performance shares granted in fiscal 2013 were not entitled to such dividend equivalents until our Board of Directors determined that the pre-established performance goals were met. Share units granted prior to fiscal 2014 are not entitled to dividend equivalents. Share units granted in fiscal 2014 and thereafter are entitled to dividend equivalents while the underlying shares are unissued. Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of conversion of the underlying shares into our common stock. During the nine months ended April 30, 2016, we accrued $97,000 of dividend equivalents and paid out $8,000 when certain awards were converted to common stock. As of April 30, 2016 and July 31, 2015, accrued dividend equivalents were $414,000 and $325,000, respectively, of which $247,000 and $306,000, respectively, were included in other liabilities with the remainder included in accrued expenses and other current liabilities in our Condensed Consolidated Balance Sheets for the respective periods. Such amounts were recorded as a reduction to retained earnings. Cash payments to remit employees' minimum statutory tax withholding requirements related to the net settlement of stock-based awards for the nine months ended April 30, 2016 and 2015 were $74,000 and $420,000, respectively, which is reported as a cash outflow from operating activities in our Condensed Consolidated Statements of Cash Flows for each respective period. |
Customer and Geographic Information |
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Geographic Areas, Revenues from External Customers [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer and Geographic Information | Customer and Geographic Information Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:
Sales to U.S. government customers include the Department of Defense ("DoD") and intelligence and civilian agencies, as well as sales directly to or through prime contractors. International sales for the three months ended April 30, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $28,417,000 and $36,243,000, respectively. International sales for the nine months ended April 30, 2016 and 2015 (which include sales to U.S. domestic companies for inclusion in products that will be sold to international customers) were $83,401,000 and $132,767,000, respectively. For the three and nine months ended April 30, 2016, except for the U.S. government, no other customer or individual country (including sales to U.S. domestic companies for inclusion in products that will be sold to a foreign country) represented more than 10% of consolidated net sales. For the three and nine months ended April 30, 2015, sales to a U.S. prime contractor represented approximately 17.0% and 15.2% of total net sales, respectively. Almost all of these sales relate to our North African country end-customer. |
Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280, “Segment Reporting,” is based on the way that the chief operating decision maker ("CODM") organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. As of April 30, 2016, our chief operating decision maker, for purposes of FASB ASC 280, is our President and Chief Executive Officer ("CEO"). Beginning with our third quarter of fiscal 2016, we began managing our business in two reportable segments: Commercial Solutions and Government Solutions. Our Commercial Solutions segment serves commercial customers and smaller government customers, such as state and local governments, that require advanced communications technologies to meet their needs. This segment also serves certain government customers (including the U.S. government) when they have requirements for off-the-shelf commercial equipment. Commercial solutions products include satellite earth station communications equipment such as modems and traveling wave tube amplifiers, public safety technologies including those that are utilized in next generation 911 systems and enterprise technologies such as trusted location and text-messaging platforms. Our Government Solutions segment serves large U.S. and foreign government end-users who require mission critical technologies and systems. Government solutions products include command and control technologies (such as remote sensing tracking systems, rugged solid state drives, land mobile products, and quick deploy satellite systems), troposcatter technologies systems (such as digital troposcatter multiplexers, digital over-the-horizon modems, troposcatter systems, and frequency converter systems), and RF power and switching technologies products (such as solid-state high-power narrow and broadband amplifiers, enhanced position location reporting system "EPLRS") amplifier assemblies, identification friend or foe amplifiers, and amplifiers used in the counteraction of improvised explosive devices). Our CODM primarily uses a metric that we refer to as Adjusted EBITDA to measure an operating segment’s performance and to make decisions about resources to be allocated. Our Adjusted EBITDA metric does not consider any allocation of the following: income taxes, interest income and other expense, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, acquisition plan expenses or strategic alternatives analysis expenses and other. These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Adjusted EBITDA is used by management in assessing the Company's operating results. The Company's definition of Adjusted EBITDA may differ from the definition of EBITDA used by other companies (including TCS prior to our acquisition) and may not be comparable to similarly titled measures used by other companies. Operating segment information, along with a reconciliation of segment net income and consolidated net income to Adjusted EBITDA is presented in the tables below:
Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs. In addition, unallocated expenses for the three and nine months ended April 30, 2016 include $16,960,000 and $20,689,000, respectively, of transaction costs primarily related to our acquisition of TCS. Unallocated expenses for the nine months ended April 30, 2015 include $585,000 of expenses related to our strategic alternatives analysis which we concluded in December 2014. There were no such expenses during the three months ended April 30, 2015. Unallocated expenses also include amortization of stock-based compensation of $1,041,000, and $3,166,000, respectively, for the three and nine months ended April 30, 2016 and $1,244,000 and $3,642,000, respectively, for the three and nine months ended April 30, 2015. Interest expense for the three and nine months ended April 30, 2016 includes $2,981,000 related to our Secured Credit Facility, as further discussed in Note (10) - "Secured Credit Facility," including the amortization of deferred financing costs. The nine months ended April 30, 2015 includes interest on a committed $100,000,000 secured revolving credit facility that expired on October 31, 2014 and amortization of deferred financing costs, neither of which is allocated to the operating segments. Unallocated assets at April 30, 2016 consist principally of cash, income taxes receivable, corporate property, plant and equipment and deferred financing costs. Intersegment sales for the three months ended April 30, 2016 and 2015 by the Commercial Solutions segment to the Government Solutions segment were $2,198,000 and $1,073,000, respectively. Intersegment sales for the nine months ended April 30, 2016 and 2015 by the Commercial Solutions segment to the Government Solutions segment were $4,082,000 and $3,378,000, respectively. There were no sales by the Government Solutions segment to the Commercial Solutions segment for any of these three or nine month periods. Substantially all of our long-lived assets are located in the U.S. and all intersegment sales are eliminated in consolidation and are excluded from the tables above. |
Goodwill |
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Goodwill [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | Goodwill The following table represents the amount of goodwill by reportable operating segment, including the changes in the net carrying value of goodwill for the nine months ended April 30, 2016:
As discussed further in Note (15) - "Segment Information," in connection with the TCS acquisition, we announced a new organizational structure in which our CODM began managing our business in two reportable operating segments: Commercial Solutions and Government Solutions. These two reportable operating segments each constitute a reporting unit as such term is defined in FASB ASC 350 "Intangibles - Goodwill and Other." Prior to February 1, 2016, our business was managed through three reportable operating segments (Telecommunications Transmission, RF Microwave Amplifiers and Mobile Data Communications). In connection with our new organizational structure, we performed a “Before Reorganization” and an “After Reorganization” interim goodwill impairment test during our three months ended April 30, 2016. No impairment of goodwill resulted from our change to our two reportable operating segment structure. As a result, the carrying value of our goodwill of $137,354,000 as of January 31, 2016 was reallocated to our new reporting units based on their relative fair values. As discussed further in Note (2) - “Acquisition,” the goodwill resulting from the TCS acquisition was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date). In accordance with FASB ASC 350, “Intangibles - Goodwill and Other,” 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 Step One, we would do a Step Two test which compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess. We are required to perform the next annual goodwill impairment analysis on August 1, 2016 (the start of our fiscal 2017). This test will include an evaluation of the substantial goodwill that relates to the TCS acquisition. During interim periods, if our expected financial results materially decline below our initial expectations or if other events and circumstances change which indicate the potential for impairment (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 interim impairment charges if we perform and fail an interim test. Any impairment charges that we may record in the future could be material to our results of operations and financial condition. |
Intangible Assets |
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Finite-Lived Intangible Assets, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | Intangible Assets Intangible assets with finite lives as of April 30, 2016 and July 31, 2015 are as follows:
The weighted average amortization period in the above table excludes fully amortized intangible assets. Amortization expense for the three months ended April 30, 2016 and 2015 was $4,776,000 and $1,561,000, respectively. Amortization expense for the nine months ended April 30, 2016 and 2015 was $7,348,000 and $4,682,000, respectively. As of April 30, 2016, as further discussed in Note (2) - "Acquisition," intangible assets include newly acquired intangibles resulting from the TCS acquisition. The amount of the purchase price for TCS allocated to intangible assets with finite lives was based upon a preliminary valuation and estimates and assumptions that are subject to change within the measurement period (not to exceed one year from the date of acquisition). The estimated amortization expense consists of the following for the fiscal years ending July 31:
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Stockholders' Equity |
9 Months Ended |
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Apr. 30, 2016 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity | Stockholders’ Equity Stock Repurchase Program As of April 30, 2016 and June 8, 2016, we were authorized to repurchase up to an additional $8,664,000 of our common stock, pursuant to our current $100,000,000 stock repurchase program. Our stock repurchase program has no time restrictions and repurchases may be made in open-market or privately negotiated transactions and may be made pursuant to SEC Rule 10b5-1 trading plans. There were no repurchases of our common stock during the nine months ended April 30, 2016. During the nine months ended April 30, 2015, we repurchased 175,735 shares of our common stock in open-market transactions with an average price per share of $28.39 and at an aggregate cost of $4,989,000 (including transaction costs). Dividends The current targeted dividend amount that was established by our Board of Directors for fiscal 2016 is $1.20 per common share. During the nine months ended April 30, 2016, our Board of Directors declared quarterly dividends of $0.30 per common share on September 28, 2015, December 9, 2015 and March 10, 2016, which were paid to shareholders on November 20, 2015, February 17, 2016, and May 20, 2016, respectively. On June 8, 2016, our Board of Directors declared a dividend of $0.30 per common share, payable on August 19, 2016, to shareholders of record at the close of business on July 18, 2016. |
Legal Proceedings and Other Matters |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||
Legal Proceedings and Other Matters | Legal Proceedings and Other Matters Legacy TCS Intellectual Property Matters TCS is a party to a number of legal proceedings and a contract dispute, in each case, relating to customers seeking indemnification under contractual arrangements for claims and other costs associated with defending lawsuits alleging infringement of patents through the customers' use of TCS’s products and services, including in combination with products and services of other vendors. In some cases, TCS has agreed to assume the defense of lawsuits and in other situations, TCS did not believe that its technology was infringing or that certain customers were entitled to indemnification. Due to the inherent difficulty of predicting the outcome of these legacy TCS intellectual property legal proceedings and contract disputes, it is difficult to estimate the amount or range of reasonably possible losses. Ongoing legal expenses associated with defending these legacy TCS intellectual property legal proceedings and contract disputes and their ultimate resolution could have a material adverse effect on our future consolidated results of operations, financial position, or cash flows. We believe it is probable that TCS will incur a loss related to these matters. Although we are unable to precisely predict the effects of these legal proceedings on our financial condition, results of operations, or cash flows, our Condensed Consolidated Balance Sheet as of April 30, 2016 reflects $4,500,000 of accrued liabilities related to these intellectual property legal proceedings and contract disputes which are described further below:
TCS Acquisition-Related Lawsuits Prior to the closing of our acquisition of TCS, five complaints were filed in Maryland state court against TCS, members of the TCS Board of Directors, Comtech, and a wholly owned subsidiary of Comtech formed to effect the acquisition. All of the complaints raised similar putative class claims against TCS, members of the TCS Board, Comtech and its subsidiary, alleging breaches of fiduciary duty by members of the TCS Board in connection with the acquisition, and allege that some or all of TCS, Comtech and its subsidiary aided and abetted the purported breaches of fiduciary duty. On March 22, 2016, the court dismissed three of the five cases with prejudice, and on April 12, 2016, counsel for the plaintiffs in the other two actions filed a Notice of Dismissal. As such, all pending litigation with respect to the TCS acquisition is ended. Other Proceedings There are certain other pending and threatened legal actions which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations. |
Acquisition (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed | The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed in connection with the TCS acquisition, based on the current best estimates of management:
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Business Acquisition, Pro Forma Information | The unaudited pro forma financial information in the table below, for the three months ended April 30, 2016, combines the historical results of Comtech for the three months ended April 30, 2016 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the three months ended March 31, 2016, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the nine months ended April 30, 2016, combines the historical results of Comtech for the nine months ended April 30, 2016 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the nine months ended March 31, 2016, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the three months ended April 30, 2015, combines the historical results of Comtech for the three months ended April 30, 2015 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the three months ended March 31, 2015, as if the acquisition had occurred on August 1, 2014. The unaudited pro forma financial information in the table below, for the nine months ended April 30, 2015, combines the historical results of Comtech for the nine months ended April 30, 2015 and, due to the differences in the companies’ reporting periods, the historical results of TCS for the nine months ended March 31, 2015, as if the acquisition had occurred on August 1, 2014.
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of numerators and denominators used in basic and diluted EPS calculations | The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
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Accounts Receivable (Tables) |
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Accounts Receivable Additional Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts receivable | Accounts receivable consist of the following at:
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Inventories (Tables) |
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Inventories | Inventories consist of the following at:
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Accrued Expenses and Other Current Liabilities (Tables) |
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Accrued expenses and other current liabilities | Accrued expenses and other current liabilities consist of the following at:
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Product warranty rollforward | Changes in our product warranty liability were as follows:
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Radyne Acquisition-Related Restructuring Plan (Tables) |
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Radyne Acquisition Related Restructuring Plan [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Determination of estimated facility exit costs table | The remaining estimated amounts relate to facility exit costs and were determined as follows:
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Summary of acquisition-related restructuring liabilities | As of April 30, 2016, the amount of the acquisition-related restructuring reserve is as follows:
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Summary of future cash payments associated with estimated facility exit costs | Future cash payments associated with our restructuring plan are summarized below:
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Secured Credit Facility (Tables) |
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Schedule of Line of Credit Facilities | As of April 30, 2016, amounts outstanding under our Secured Credit Facility, net, were as follows:
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Capital Lease Obligations (Tables) |
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Schedule of Future Minimum Lease Payments for Capital Leases | Future minimum payments under capital lease obligations consisted of the following at April 30, 2016:
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Stock-Based Compensation (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock-based Awards Outstanding by Award Type | As of April 30, 2016, the following stock-based awards, by award type, were outstanding:
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Stock-based compensation for awards detailing where recorded in Condensed Consolidated Statement of Operations | Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
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Summary of net stock-based compensation expense by award type | Stock-based compensation expense, by award type, is summarized as follows:
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Components of actual Income tax benefit recognized for tax deductions relating to settlement of stock-based awards | The following table reconciles the actual income tax benefit recognized for tax deductions relating to the settlement of stock-based awards to the excess income tax benefit reported as a cash flow from financing activities in our Condensed Consolidated Statements of Cash Flows:
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Summary of the Plan's activity relating to stock options | The following table summarizes the Plan's activity during the nine months ended April 30, 2016:
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Certain weighted average assumptions used to estimate the fair value of stock-based awards | The estimated per-share weighted average grant-date fair value of stock options granted during the three and nine months ended April 30, 2016 was $3.95 and $5.55, respectively, and $4.53 and $6.13, respectively, during the three and nine months ended April 30, 2015, which was determined using the Black-Scholes option pricing model, and included the following weighted average assumptions:
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Summary of the Plan's activity relating to performance shares, RSUs, restricted stock and share units | The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
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Customer and Geographic Information (Tables) |
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Geographic Areas, Revenues from External Customers [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net sales, as a percentage, by geography and customer type | Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:
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Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information | Operating segment information, along with a reconciliation of segment net income and consolidated net income to Adjusted EBITDA is presented in the tables below:
|
Goodwill (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill by segment | The following table represents the amount of goodwill by reportable operating segment, including the changes in the net carrying value of goodwill for the nine months ended April 30, 2016:
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Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Finite-Lived Intangible Assets, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets with finite lives | Intangible assets with finite lives as of April 30, 2016 and July 31, 2015 are as follows:
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | The estimated amortization expense consists of the following for the fiscal years ending July 31:
|
Acquisition Pro Forma Information (Details) - TeleCommunication Systems, Inc. - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
Apr. 30, 2016 |
Apr. 30, 2015 |
|
Business Acquisition [Line Items] | ||||
Net sales | $ 130,238,000 | $ 153,500,000 | $ 453,475,000 | $ 499,934,000 |
Net (loss) income | $ (21,395,000) | $ 1,739,000 | $ (27,694,000) | $ (16,065,000) |
Basic net income per share (in dollars per share) | $ (1.32) | $ 0.11 | $ (1.71) | $ (0.99) |
Diluted net income per share (in dollars per share) | $ (1.32) | $ 0.11 | $ (1.71) | $ (0.99) |
Pro Forma [Member] | ||||
Business Acquisition [Line Items] | ||||
Elimination of sales | $ 1,569,000 | $ 0 | $ 7,331,000 | $ 285,000 |
Reduction to capitalized software amortization | 937,000 | 890,000 | 3,062,000 | 2,539,000 |
(Elimination) addition of acquisition plan expenses | (22,464,000) | 0 | (25,507,000) | 35,660,000 |
Incremental amortization expense associated with the increase in acquired other intangible assets | 1,581,000 | 3,891,000 | 7,935,000 | 11,628,000 |
(Reduction) increase in interest expense | (1,836,000) | 2,165,000 | 1,731,000 | 6,221,000 |
Reduction to interest income | $ 124,000 | $ 158,000 | $ 585,000 | $ 509,000 |
Adoption of Accounting Standards and Updates Secured Credit Facilities (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Debt Instrument [Line Items] | ||
Net deferred financing cost recorded as a non-current asset | $ 3,739,000 | $ 0 |
Secured Credit Facility | Term Loan Facility [Member] | ||
Debt Instrument [Line Items] | ||
Net deferred financing cost recorded as a direct deduction of non-current portion of debt | $ 6,231,000 |
Fair Value Measurements and Financial Instruments (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Amount invested in money market mutual funds disclosed at fair value | $ 2,132,000 | $ 3,130,000 |
Non-current capital leases, weighted average interest rate (percent) | 5.70% | |
Non-current portion of capital lease obligations | $ 4,880,000 | $ 0 |
Inventories (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials and components | $ 54,956,000 | $ 51,272,000 |
Work-in-process and finished goods | 36,514,000 | 27,700,000 |
Total inventories | 91,470,000 | 78,972,000 |
Less reserve for excess and obsolete inventories | 16,146,000 | 16,904,000 |
Inventories, net | 75,324,000 | 62,068,000 |
Inventory directly related to long-term contracts | 2,606,000 | 2,261,000 |
Inventory related to contracts from third party commercial customers who outsource their manufacturing to us | $ 1,234,000 | $ 609,000 |
Accrued Expenses and Other Current Liabilities (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
Apr. 30, 2015 |
Jul. 31, 2014 |
---|---|---|---|---|
Business Acquisition [Line Items] | ||||
Accrued wages and benefits | $ 21,432,000 | $ 12,134,000 | ||
Accrued legal costs | 9,707,000 | 275,000 | ||
Accrued warranty obligations | 8,639,000 | 8,638,000 | $ 8,293,000 | $ 8,618,000 |
Accrued acquisition-related costs | 8,051,000 | 69,000 | ||
Accrued contract costs | 10,941,000 | 749,000 | ||
Accrued commissions and royalties | 2,333,000 | 2,398,000 | ||
Other | 14,034,000 | 5,207,000 | ||
Accrued expenses and other current liabilities | 75,137,000 | $ 29,470,000 | ||
TeleCommunication Systems, Inc. | ||||
Business Acquisition [Line Items] | ||||
Change-in-control payments | 7,067,000 | |||
Acquisition-related professional fees | 984,000 | |||
TeleCommunication Systems, Inc. | Legacy TCS IP Matters [Member] | ||||
Business Acquisition [Line Items] | ||||
Accrued legal costs | 3,529,000 | |||
Preliminary estimated losses from intellectual property matters and contract disputes | $ 4,500,000 |
Accrued Expenses and Other Current Liabilities - Product Warranty Rollforward (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
|
Accrued Liabilities, Current [Abstract] | ||
Minimum coverage period of product warranty from the date of shipment | 1 year | |
Changes in Product Warranty Liability | ||
Accrued warranty obligations, as of the beginning of the period | $ 8,638,000 | $ 8,618,000 |
Provision for warranty obligations | 3,183,000 | 3,255,000 |
Additions (in connection with the TCS acquisition) | 154,000 | 0 |
Charges incurred | (3,336,000) | (3,580,000) |
Accrued warranty obligations, as of the end of the period | $ 8,639,000 | $ 8,293,000 |
Radyne Acquisition-Related Restructuring Plan - Summary of Radyne Acquisition Related Restructuring Plan (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
Aug. 01, 2008 |
Jul. 31, 2008 |
---|---|---|---|---|
Radyne Acquisition Related Restructuring Plan [Abstract] | ||||
Business acquisition restructuring costs | $ 2,713,000 | |||
Business acquisition restructuring costs related to severance for employees | 613,000 | |||
Total non-cancelable lease obligations | 12,741,000 | |||
Less: Estimated sublease income | 8,600,000 | |||
Total net estimated facility exit costs | 4,141,000 | |||
Less: Interest expense to be accreted | 2,041,000 | |||
Present value of estimated facility exit costs | $ 3,650,000 | $ 4,235,000 | $ 2,100,000 | $ 2,100,000 |
Radyne Acquisition-Related Restructuring Plan - Activity of Facility Related Exit Costs (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 93 Months Ended | ||
---|---|---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
Apr. 30, 2016 |
Apr. 30, 2015 |
Apr. 30, 2016 |
|
Restructuring Reserve [Roll Forward] | |||||
Present value of estimated facility-related exit costs, beginning balance | $ 4,235,000 | $ 2,100,000 | |||
Cash payments made | (1,124,000) | (8,628,000) | |||
Cash payments received | 323,000 | 8,600,000 | |||
Accreted interest recorded | $ 68,000 | $ 71,000 | 216,000 | $ 206,000 | 1,578,000 |
Present value of estimated facility-related exit costs, ending balance | 3,650,000 | 3,650,000 | 3,650,000 | ||
Amount recorded as accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet | 1,350,000 | 1,350,000 | 1,350,000 | ||
Amount recorded as other liabilities in the Condensed Consolidated Balance Sheet | $ 2,300,000 | $ 2,300,000 | $ 2,300,000 |
Radyne Acquisition-Related Restructuring Plan - Details of Future Cash Payments (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
Aug. 01, 2008 |
Jul. 31, 2008 |
---|---|---|---|---|
Radyne Acquisition Related Restructuring Plan [Abstract] | ||||
Future lease payments to be made | $ 3,650,000 | $ 4,235,000 | $ 2,100,000 | $ 2,100,000 |
Interest expense to be accreted in future periods | 462,000 | |||
Total remaining payments | $ 4,112,000 |
Capital Lease Obligations (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Capital Leases [Abstract] | ||
Net book value of the leased assets | $ 9,975,000 | |
Blended interest rate | 5.30% | |
Remainder of fiscal 2016 | $ 1,144,000 | |
Fiscal 2017 | 3,920,000 | |
Fiscal 2018 | 2,472,000 | |
Fiscal 2019 | 1,476,000 | |
Fiscal 2020 | 305,000 | |
Total minimum lease payments | 9,317,000 | |
Less: amounts representing interest | (667,000) | |
Present value of net minimum lease payments | 8,650,000 | |
Current portion of capital lease obligations | 3,770,000 | $ 0 |
Non-current portion of capital lease obligations | $ 4,880,000 | $ 0 |
Income Taxes (Details) - USD ($) |
Apr. 30, 2016 |
Jul. 31, 2015 |
---|---|---|
Income Tax Contingency [Line Items] | ||
Unrecognized tax benefits | $ 8,811,000 | $ 2,796,000 |
Interest accrued relating to income taxes | 59,000 | 68,000 |
Unrecognized tax benefits that would positively impact our effective tax rate, if recognized | 7,974,000 | 2,138,000 |
An offset to the non-current deferred tax assets | ||
Income Tax Contingency [Line Items] | ||
Unrecognized tax benefits | 5,549,000 | 1,223,000 |
Noncurrent Income Taxes Payable | ||
Income Tax Contingency [Line Items] | ||
Unrecognized tax benefits | $ 3,262,000 | $ 1,573,000 |
Goodwill (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 30, 2016
USD ($)
operating_segment
|
Jan. 31, 2016
USD ($)
operating_segment
|
Feb. 23, 2016
USD ($)
|
Jul. 31, 2015
USD ($)
|
|
Goodwill [Line Items] | ||||
Number of Reportable Segments | operating_segment | 2 | 3 | ||
Reallocation to new segments | $ 137,354,000 | |||
Goodwill | 264,503,000 | $ 137,354,000 | $ 137,354,000 | |
Additions resulting from TCS acquisition | ||||
Goodwill [Line Items] | ||||
Goodwill | 127,149,000 | $ 127,149,000 | ||
Commercial Solutions Segment | ||||
Goodwill [Line Items] | ||||
Reallocation to new segments | 102,100,000 | |||
Goodwill | 212,137,000 | |||
Commercial Solutions Segment | Additions resulting from TCS acquisition | ||||
Goodwill [Line Items] | ||||
Goodwill | 110,037,000 | |||
Government Solutions Segment | ||||
Goodwill [Line Items] | ||||
Reallocation to new segments | 35,254,000 | |||
Goodwill | 52,366,000 | |||
Government Solutions Segment | Additions resulting from TCS acquisition | ||||
Goodwill [Line Items] | ||||
Goodwill | $ 17,112,000 |
Intangible Assets (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
Apr. 30, 2016 |
Apr. 30, 2015 |
Jul. 31, 2015 |
|
Finite-Lived Intangible Assets [Line Items] | |||||
Gross carrying amount | $ 363,895,000 | $ 363,895,000 | $ 82,995,000 | ||
Accumulated amortization | 70,334,000 | 70,334,000 | 62,986,000 | ||
Net carrying amount | 293,561,000 | 293,561,000 | $ 20,009,000 | ||
Amortization of intangibles | 4,776,000 | $ 1,561,000 | 7,348,000 | $ 4,682,000 | |
Amortization expense - year one | 13,360,000 | 13,360,000 | |||
Amortization expense - year two | 22,786,000 | 22,786,000 | |||
Amortization expense - year three | 21,150,000 | 21,150,000 | |||
Amortization expense - year four | 17,230,000 | 17,230,000 | |||
Amortization expense - year five | 17,230,000 | $ 17,230,000 | |||
Customer Relationships | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Weighted average amortization period | 20 years 6 months | 10 years | |||
Gross carrying amount | 252,831,000 | $ 252,831,000 | $ 29,831,000 | ||
Accumulated amortization | 25,154,000 | 25,154,000 | 20,981,000 | ||
Net carrying amount | 227,677,000 | $ 227,677,000 | $ 8,850,000 | ||
Technologies | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Weighted average amortization period | 12 years 3 months 18 days | 12 years 1 month 6 days | |||
Gross carrying amount | 82,370,000 | $ 82,370,000 | $ 47,370,000 | ||
Accumulated amortization | 41,419,000 | 41,419,000 | 39,266,000 | ||
Net carrying amount | 40,951,000 | $ 40,951,000 | $ 8,104,000 | ||
Trademarks and other | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Weighted average amortization period | 16 years 3 months 18 days | 20 years | |||
Gross carrying amount | 28,694,000 | $ 28,694,000 | $ 5,794,000 | ||
Accumulated amortization | 3,761,000 | 3,761,000 | 2,739,000 | ||
Net carrying amount | $ 24,933,000 | $ 24,933,000 | $ 3,055,000 |
Legal Proceedings and Other Matters Commitments and Contingencies (Details) |
1 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Apr. 12, 2016
claims
|
Mar. 22, 2016
claims
|
Aug. 31, 2015
USD ($)
patent
|
Jul. 31, 2012
patent
|
Apr. 30, 2016
USD ($)
|
Feb. 22, 2016
claims
|
|
Legacy TCS IP Matters [Member] | ||||||
Loss Contingencies [Line Items] | ||||||
Estimate of possible loss | $ | $ 4,500,000 | |||||
CallWave Communications LLC [Member] | Pending Litigation [Member] | ||||||
Loss Contingencies [Line Items] | ||||||
Number of patents allegedly infringed | patent | 1 | |||||
IP Cube Partners Co. Ltd. [Member] | Pending Litigation [Member] | ||||||
Loss Contingencies [Line Items] | ||||||
Number of patents allegedly infringed | patent | 2 | |||||
Damages sought | $ | $ 2,300,000 | |||||
TCS Acquisition Related Lawsuits [Member] | ||||||
Loss Contingencies [Line Items] | ||||||
Number of complaints | claims | 5 | |||||
Number of complaints dismissed | claims | 2 | 3 |
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