AeroVironment, Inc.
AeroVironment Inc (Form: 10-Q, Received: 03/09/2011 06:03:02)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended January 29, 2011

 

OR

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                       to                       

 

Commission File Number: 001-33261

 


 

AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-2705790

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

181 W. Huntington Drive, Suite 202

 

 

Monrovia, California

 

91016

(Address of principal executive offices)

 

(Zip Code)

 

(626) 357-9983

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if smaller reporting company)

 

 

 

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

 

As of February 25, 2011, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 21,897,478.

 

 

 



Table of Contents

 

AeroVironment, Inc.

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements:

 

 

Consolidated Balance Sheets as of January 29, 2011 (Unaudited) and April 30, 2010

3

 

Consolidated Statements of Income for the three and nine months ended January 29, 2011 (Unaudited) and January 30, 2010 (Unaudited)

4

 

Consolidated Statements of Cash Flows for the nine months ended January 29, 2011 (Unaudited) and January 30, 2010 (Unaudited)

5

 

Notes to Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

17

Item 4.

Controls and Procedures

18

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3.

Defaults Upon Senior Securities

19

Item 4.

Reserved

19

Item 5.

Other Information

19

Item 6.

Exhibits

19

Signatures

20

Exhibit Index

 

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

 

January 29,
2011

 

April 30,
2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

39,099

 

$

28,665

 

Short-term investments

 

122,784

 

135,770

 

Accounts receivable, net of allowance for doubtful accounts of $804 at January 29, 2011 and $745 at April 30, 2010

 

44,452

 

38,645

 

Unbilled receivables and retentions

 

19,569

 

18,710

 

Inventories, net

 

28,880

 

20,928

 

Deferred income taxes

 

1,447

 

956

 

Prepaid expenses and other current assets

 

3,027

 

1,921

 

Total current assets

 

259,258

 

245,595

 

Long-term investments

 

6,207

 

6,515

 

Property and equipment, net

 

18,073

 

20,025

 

Deferred income taxes

 

9,174

 

9,747

 

Other assets

 

181

 

89

 

Total assets

 

$

292,893

 

$

281,971

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

23,167

 

$

20,205

 

Wages and related accruals

 

11,642

 

10,336

 

Income taxes payable

 

1,161

 

6,507

 

Other current liabilities

 

7,577

 

4,473

 

Liability for uncertain tax positions

 

768

 

2,592

 

Total current liabilities

 

44,315

 

44,113

 

Deferred rent

 

1,290

 

1,268

 

Liability for uncertain tax positions

 

3,198

 

3,170

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.0001 par value:

 

 

 

 

 

Authorized shares — 10,000,000

 

 

 

 

 

None issued or outstanding

 

 

 

Common stock, $0.0001 par value:

 

 

 

 

 

Authorized shares — 100,000,000

 

 

 

 

 

Issued and outstanding shares — 21,894,413 at January 29, 2011 and 21,732,413 at April 30, 2010

 

2

 

2

 

Additional paid-in capital

 

118,064

 

115,602

 

Accumulated other comprehensive loss

 

(825

)

(760

)

Retained earnings

 

126,849

 

118,576

 

Total stockholders’ equity

 

244,090

 

233,420

 

Total liabilities and stockholders’ equity

 

$

292,893

 

$

281,971

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

3



Table of Contents

 

AeroVironment, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands except share and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 29,

 

January 30,

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Product sales

 

$

45,996

 

$

25,353

 

$

90,710

 

$

52,716

 

Contract services

 

38,438

 

35,508

 

95,733

 

97,452

 

 

 

84,434

 

60,861

 

186,443

 

150,168

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Product sales

 

25,869

 

15,156

 

55,201

 

31,796

 

Contract services

 

24,436

 

22,224

 

63,302

 

64,527

 

 

 

50,305

 

37,380

 

118,503

 

96,323

 

Gross margin

 

34,129

 

23,481

 

67,940

 

53,845

 

Selling, general and administrative

 

10,578

 

9,833

 

34,634

 

30,828

 

Research and development

 

7,872

 

5,167

 

24,533

 

16,616

 

Income from operations

 

15,679

 

8,481

 

8,773

 

6,401

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

49

 

38

 

215

 

147

 

Income before income taxes

 

15,728

 

8,519

 

8,988

 

6,548

 

Provision for income taxes

 

4,274

 

2,004

 

715

 

1,404

 

Net income

 

$

11,454

 

$

6,515

 

$

8,273

 

$

5,144

 

Earnings per share data:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

$

0.30

 

$

0.38

 

$

0.24

 

Diluted

 

$

0.52

 

$

0.30

 

$

0.38

 

$

0.23

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

21,594,032

 

21,394,204

 

21,568,541

 

21,352,838

 

Diluted

 

22,096,989

 

21,991,067

 

22,046,479

 

21,952,140

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

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Table of Contents

 

AeroVironment, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

January 29,
2011

 

January 30,
2010

 

Operating activities

 

 

 

 

 

Net income

 

$

8,273

 

$

5,144

 

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

8,105

 

6,465

 

Provision for doubtful accounts

 

59

 

98

 

Deferred income taxes

 

125

 

(196

)

Stock-based compensation

 

1,672

 

1,258

 

Tax benefit from exercise of stock options

 

493

 

1,855

 

Excess tax benefit from stock-based compensation

 

 

(46

)

(Gain) loss on sale of property and equipment

 

(54

)

3

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(5,866

)

1,593

 

Unbilled receivables and retentions

 

(859

)

751

 

Inventories

 

(7,952

)

(18,111

)

Income tax receivable

 

 

243

 

Other assets

 

(1,198

)

(1,905

)

Accounts payable

 

2,962

 

(7,245

)

Other liabilities

 

(2,739

)

(1,497

)

Net cash and cash equivalents provided by (used in) operating activities

 

3,021

 

(11,590

)

Investing activities

 

 

 

 

 

Acquisitions of property and equipment

 

(6,207

)

(7,552

)

Proceeds from the sale of property and equipment

 

108

 

 

Net sales (purchases) of held-to-maturity investments

 

12,986

 

(45,549

)

Net sales of available-for-sale investments

 

200

 

225

 

Net cash and cash equivalents provided by (used in) investing activities

 

7,087

 

(52,876

)

Financing activities

 

 

 

 

 

Excess tax benefit from stock-based compensation

 

 

46

 

Exercise of stock options

 

326

 

762

 

Net cash and cash equivalents provided by financing activities

 

326

 

808

 

Net increase (decrease) in cash and cash equivalents

 

10,434

 

(63,658

)

Cash and cash equivalents at beginning of period

 

28,665

 

116,501

 

Cash and cash equivalents at end of period

 

$

39,099

 

$

52,843

 

 

 

 

 

 

 

Supplemental disclosure:

 

 

 

 

 

Unrealized losses on long-term investments recorded in other comprehensive loss, net of deferred taxes of $43 and $140, respectively

 

$

(65

)

$

(209

)

 

See accompanying notes to consolidated financial statements (unaudited).

 

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Table of Contents

 

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

1. Organization and Significant Accounting Policies

 

Organization

 

AeroVironment, Inc., a Delaware corporation (the “Company”), is engaged in the design, development, production and support of unmanned aircraft systems and efficient energy systems for various industries and governmental agencies.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three and nine months ended January 29, 2011 are not necessarily indicative of the results for the full year ending April 30, 2011. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2010, included in AeroVironment, Inc.’s Annual Report on Form 10-K.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions, including estimates of anticipated contract costs and revenue utilized in the revenue recognition process, that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

The Company’s consolidated financial statements include the assets, liabilities and operating results of wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

 

Segments

 

The Company’s products are sold and divided among two reportable segments to reflect the Company’s strategic goals. Operating segments are defined as components of an enterprise from which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Chief Executive Officer, who reviews the revenue and gross margin results for each of these segments in order to make resource allocation decisions, including the focus of research and development, or R&D, activities and assessing performance. The Company’s reportable segments are business units that offer different products and services and are managed separately.

 

Investments

 

The Company’s investments are accounted for as held-to-maturity and available-for-sale and reported at amortized cost and fair value, respectively.

 

Fair Values of Financial Instruments

 

Fair values of cash and cash equivalents, accounts receivable, unbilled receivables, retentions and accounts payable approximate cost due to the short period of time to maturity.

 

Government Contracts

 

Payments to the Company on government cost reimbursable contracts are based on provisional, or estimated indirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. The final rates, if different from the provisional billing rates, may create an additional receivable or liability for the Company.

 

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Table of Contents

 

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

For example, during the course of its audits, the DCAA may question the Company’s incurred project costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. The Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future.

 

Earnings Per Share

 

Basic earnings per share is computed using the weighted-average number of common shares outstanding, excluding shares of unvested restricted stock. The dilutive effect of potential common shares outstanding is included in diluted earnings per share and excludes any anti-dilutive effects of options and shares of unvested restricted stock.

 

The reconciliation of diluted to basic shares is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 29,
2011

 

January 30,
2010

 

January 29,
2011

 

January 30,
2010

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, excluding unvested restricted stock

 

21,594,032

 

21,394,204

 

21,568,541

 

21,352,838

 

Dilutive effect of employee stock options and unvested restricted stock

 

502,957

 

596,863

 

477,938

 

599,302

 

Denominator for diluted earnings per share

 

22,096,989

 

21,991,067

 

22,046,479

 

21,952,140

 

 

During the three and nine months ended January 29, 2011 and January 30, 2010, certain options and shares of unvested restricted stock were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. The number of options and shares of unvested restricted stock which met this anti-dilutive criterion was approximately 24,000 and 49,000 for the three and nine months ended January 29, 2011, respectively.  The number of options and shares of unvested restricted stock which met this anti-dilutive criterion was approximately 11,000 and 14,000 for the three and nine months ended January 30, 2010, respectively.

 

Recently Issued Accounting Standards

 

In October 2009, the Financial Accounting Standards Board issued an accounting standards update that requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices, eliminates the use of the residual method of allocation, and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue of an arrangement with multiple deliverables. This guidance will be effective for the Company beginning on May 1, 2011, however, early adoption is permitted. The Company does not expect that this new guidance will have a material impact on its consolidated financial statements.

 

2. Investments

 

Investments consist of the following (in thousands):

 

 

 

January 29,
2011

 

April 30,
2010

 

 

 

(In thousands)

 

Short-term investments:

 

 

 

 

 

Held-to-maturity securities:

 

 

 

 

 

U.S. Treasury bills

 

$

122,784

 

$

135,770

 

Total short-term investments

 

$

122,784

 

$

135,770

 

Long-term investments:

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

Auction rate securities

 

$

6,207

 

$

6,515

 

Total long-term investments

 

$

6,207

 

$

6,515

 

 

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Table of Contents

 

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

Held-To-Maturity Securities

 

At January 29, 2011, the balance of held-to-maturity securities consisted of U.S. Treasury bills. Interest earned from these investments is recorded in interest income.

 

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the held-to-maturity investments as of January 29, 2011, were as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury bills

 

$

122,784

 

$

19

 

$

(4

)

$

122,799

 

Total held-to-maturity investments

 

$

122,784

 

$

19

 

$

(4

)

$

122,799

 

 

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the held-to-maturity investments as of April 30, 2010, were as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury bills

 

$

135,770

 

$

5

 

$

(3

)

$

135,772

 

Total held-to-maturity investments

 

$

135,770

 

$

5

 

$

(3

)

$

135,772

 

 

The amortized cost and fair value of the Company’s held-to-maturity securities by contractual maturity at January 29, 2011, were as follows (in thousands):

 

 

 

Cost

 

Fair Value

 

 

 

 

 

 

 

Due within one year

 

$

122,784

 

$

122,799

 

Total

 

$

122,784

 

$

122,799

 

 

Available-For-Sale Securities

 

As of January 29, 2011, the entire balance of available-for-sale securities consisted of four investment grade auction rate municipal bonds with maturities ranging from 9 to 24 years. These investments have characteristics similar to short-term investments, because at pre-determined intervals, generally ranging from 30 to 35 days, there is a new auction process at which the interest rates for these securities are reset to current interest rates. At the end of such period, the Company chooses to roll-over its holdings or redeem the investments for cash. A market maker facilitates the redemption of the securities and the underlying issuers are not required to redeem the investment within 365 days. Interest earned from these investments is recorded in interest income.

 

During the fourth quarter of the fiscal year ended April 30, 2008, the Company began experiencing failed auctions on some of its auction rate securities. A failed auction occurs when a buyer for the securities cannot be obtained and the market maker does not buy the security for its own account. The Company continues to earn interest on the investments that failed to settle at auction at the maximum contractual rate until the next auction occurs. In the event the Company needs to access funds invested in these auction rate securities, the Company may not be able to liquidate these securities at the fair value recorded on January 29, 2011, until a future auction of these securities is successful or a buyer is found outside of the auction process.

 

As a result of the failed auctions, the fair values of these securities are estimated utilizing a discounted cash flow analysis as of January 29, 2011. The analysis considers, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the estimated date upon which the security is expected to have a successful auction.

 

Based on the Company’s ability to access its cash and cash equivalents, expected operating cash flows, and other sources of cash, the Company does not anticipate the current lack of liquidity of these investments will affect its ability to operate the business in the ordinary course. The Company believes the current lack of liquidity of these investments is temporary and expects that the securities will be redeemed or refinanced at some point in the future.  The Company will continue to monitor the value of its auction rate securities at each reporting period for a possible other-than-temporary impairment. The auction rate securities have been in an unrealized loss position for more than 12 months. The Company has the ability and the intent to hold these investments until a recovery of fair value, which may be at maturity, and as of January 29, 2011, it did not consider these investments to be other-than-temporarily impaired.

 

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Table of Contents

 

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the available-for-sale investments as of January 29, 2011, were as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

Auction rate securities

 

$

7,575

 

$

 

$

(1,368

)

$

6,207

 

Total available-for-sale investments

 

$

7,575

 

$

 

$

(1,368

)

$

6,207

 

 

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the available-for-sale investments as of April 30, 2010, were as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

Auction rate securities

 

$

7,775

 

$

 

$

(1,260

)

$

6,515

 

Total available-for-sale investments

 

$

7,775

 

$

 

$

(1,260

)

$

6,515

 

 

The amortized cost and fair value of the Company’s auction rate securities by contractual maturity at January 29, 2011, were as follows (in thousands):

 

 

 

Cost

 

Fair Value

 

 

 

 

 

 

 

Due after five through 10 years

 

$

1,975

 

$

1,745

 

Due after 10 years

 

5,600

 

4,462

 

Total

 

$

7,575

 

$

6,207

 

 

3. Inventories, net

 

Inventories consist of the following (in thousands):

 

 

 

January 29,
2011

 

April 30,
2010

 

Raw materials

 

$

10,588

 

$

6,629

 

Work in process

 

7,189

 

6,336

 

Finished goods

 

12,343

 

9,154

 

Inventories, gross

 

30,120

 

22,119

 

Reserve for inventory obsolescence

 

(1,240

)

(1,191

)

Inventories, net

 

$

28,880

 

$

20,928

 

 

4. Fair Value Measurements

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:

 

·                 Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.

·                 Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.

·                 Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.

 

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AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

The Company’s financial assets measured at fair value on a recurring basis at January 29, 2011, were as follows (in thousands):

 

 

 

Fair Value Measurement Using

 

Description

 

Quoted prices in
active markets

for identical assets
(Level 1)

 

Significant
other
observable
inputs
(Level 2)

 

Significant
unobservable
inputs
(Level 3)

 

Total

 

Auction rate securities

 

$

 

$

 

$

6,207

 

$

6,207

 

Total

 

$

 

$

 

$

6,207

 

$

6,207

 

 

Due to the auction failures of the Company’s auction rate securities that began in the fourth quarter of fiscal 2008, there are still no quoted prices in active markets for identical assets as of January 29, 2011.  Therefore, the Company has classified its auction rate securities as Level 3 financial assets.  The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in thousands):

 

 

 

Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)

 

Description

 

Auction Rate Securities

 

Balance at April 30, 2010

 

$

6,515

 

Transfers to Level 3

 

 

Total gains (losses) (realized or unrealized)

 

 

 

Included in earnings

 

 

Included in other comprehensive loss

 

(108

)

Settlements

 

(200

)

Balance at January 29, 2011

 

$

6,207

 

The amount of total gains or (losses) for the period included in earnings (or change in net assets) attributable to the change in unrealized gains or losses relating to assets still held at January 29, 2011

 

$

 

 

The auction rate securities are valued using a discounted cash flow model.  The analysis considers, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the estimated date upon which the security is expected to have a successful auction.

 

Based on the Company’s ability to access its cash and cash equivalents, expected operating cash flows, and other sources of cash, the Company does not anticipate the current lack of liquidity on these investments will affect its ability to operate the business in the ordinary course. The Company believes the current lack of liquidity of these investments is temporary and expects that the securities will be redeemed or refinanced at some point in the future, allowing the Company to recover the original cost of $7.6 million.  The Company will continue to monitor the value of its auction rate securities at each reporting period for a possible other-than-temporary impairment.

 

5. Other Comprehensive Income

 

The components of comprehensive income are as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 29,

 

January 30,

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,454

 

$

6,515

 

$

8,273

 

$

5,144

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized losses on long-term investments

 

(50

)

(140

)

(65

)

(209

)

Comprehensive income

 

$

11,404

 

$

6,375

 

$

8,208

 

$

4,935

 

 

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Table of Contents

 

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

6. Warranty Reserves

 

The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred.  The warranty reserve is included in other current liabilities. The related expense is included in cost of sales.  Warranty reserve activity is summarized as follows for the three and nine months ended January 29, 2011 and January 30, 2010 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 29,

 

January 30,

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

834

 

$

586

 

$

804

 

$

523

 

Warranty expense

 

425

 

356

 

966

 

1,057

 

Warranty costs incurred

 

(222

)

(278

)

(733

)

(916

)

Ending balance

 

$

1,037

 

$

664

 

$

1,037

 

$

664

 

 

7. Customer-Funded Research & Development

 

Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales when the corresponding revenue is recognized, which is generally as the R&D services are performed. Revenue from customer-funded R&D was approximately $8.7 million and $30.3 million for the three and nine months ended January 29, 2011, respectively. Revenue from customer-funded R&D was approximately $16.3 million and $64.1 million for the three and nine months ended January 30, 2010, respectively.

 

8. Income Taxes

 

For the three and nine months ended January 29, 2011, the Company recorded a provision for income taxes of $4.3 million and $0.7 million, respectively, yielding an effective tax rate of 27.2% and 8.0%, respectively. The variance from statutory rates for the three and nine months ended January 29, 2011 was primarily driven by two factors:  first, a reduction in the liability for uncertain tax positions of $1.7 million related to the conclusion of the examination of the Company’s fiscal 2003 and 2004 tax returns in May of 2010; and second, the reinstatement of federal R&D tax credits in December of 2010.

 

For the three and nine months ended January 30, 2010, the Company recorded a provision for income taxes of $2.0 million and $1.4 million, respectively, yielding an effective tax rate of 23.5% and 21.4%, respectively. The variance from statutory rates is primarily due to R&D tax credits.

 

9. Segment Data

 

The Company’s product segments are as follows:

 

·                                           Unmanned Aircraft Systems (“UAS”) — The UAS segment consists primarily of the design, development, production and support of unmanned aircraft systems solutions.

 

·                                           Efficient Energy Systems (“EES”) — The EES segment consists primarily of the design, development, production and support of system solutions for the electric transportation markets.

 

The accounting policies of the segments are the same as those described in Note 1, “Organization and Significant Accounting Policies.” The operating segments do not make sales to each other. Depreciation and amortization related to the manufacturing of goods is included in gross margin for the segments. The Company does not discretely allocate assets to its operating segments, nor does the CODM evaluate operating segments using discrete asset information. Consequently, the Company operates its financial systems as a single segment for accounting and control purposes, maintains a single indirect rate structure across all segments, has no inter-segment sales or corporate elimination transactions, and maintains limited financial statement information by segment.

 

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AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

 

The segment results are as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 29,

 

January 30,

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenue:

 

 

 

 

 

 

 

 

 

UAS

 

$

71,733

 

$

55,089

 

$

158,796

 

$

132,089

 

EES

 

12,701

 

5,772

 

27,647

 

18,079

 

Total

 

84,434

 

60,861

 

186,443

 

150,168

 

Gross margin:

 

 

 

 

 

 

 

 

 

UAS

 

29,003

 

21,125

 

56,807

 

45,926

 

EES

 

5,126

 

2,356

 

11,133

 

7,919

 

Total

 

34,129

 

23,481

 

67,940

 

53,845

 

Selling, general and administrative

 

10,578

 

9,833

 

34,634

 

30,828

 

Research and development

 

7,872

 

5,167

 

24,533

 

16,616

 

Income from operations

 

15,679

 

8,481

 

8,773

 

6,401

 

Interest income

 

49

 

38

 

215

 

147

 

Income before income taxes

 

$

15,728

 

$

8,519

 

$

8,988

 

$

6,548

 

 

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Table of Contents

 

ITEM 2.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, our management’s beliefs and assumptions made by our management. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A, “Risk Factors.”

 

Unless required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.

 

Critical Accounting Policies and Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, inventories and reserves for excess and obsolescence, long-term investments, self-insured liabilities, accounting for stock-based awards, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

 

There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements from those disclosed in the Form 10-K for the fiscal year ended April 30, 2010.

 

Fiscal Periods

 

Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday.  Our 2011 fiscal year ends on April 30, 2011 and our fiscal quarters end on July 31, 2010, October 30, 2010 and January 29, 2011.

 

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Results of Operations

 

Our operating segments are Unmanned Aircraft Systems, or UAS, and Efficient Energy Systems, or EES. The accounting policies for each of these segments are the same. In addition, a significant portion of our research and development, or R&D, selling, general and administrative, or SG&A, and general overhead resources are shared across our segments.

 

The following table sets forth our revenue and gross margin generated by each operating segment for the periods indicated (in thousands):

 

Three Months Ended January 29, 2011 Compared to Three Months Ended January 30, 2010

 

 

 

Three Months Ended

 

 

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

Revenue:

 

 

 

 

 

UAS

 

$

 71,733

 

$

 55,089

 

EES

 

12,701

 

5,772

 

Total

 

84,434

 

60,861

 

Gross margin:

 

 

 

 

 

UAS

 

29,003

 

21,125

 

EES

 

5,126

 

2,356

 

Total

 

34,129

 

23,481

 

Selling, general and administrative

 

10,578

 

9,833

 

Research and development

 

7,872

 

5,167

 

Income from operations

 

15,679

 

8,481

 

Interest income

 

49

 

38

 

Income before income taxes

 

$

 15,278

 

$

 8,519

 

 

Revenue. Revenue for the three months ended January 29, 2011 was $84.4 million, as compared to $60.9 million for the three months ended January 30, 2010, representing an increase of $23.6 million, or 39%.  UAS revenue increased by $16.6 million to $71.7 million for the three months ended January 29, 2011, primarily due to an increase in UAS product deliveries of $15.8 million and service revenue of $8.6 million, partially offset by a decrease in customer-funded R&D work of $7.7 million. The increase in UAS product deliveries and service revenue was primarily due to increased deliveries of digital Puma® All Environment unmanned aircraft systems, or Puma AE systems, and retrofits of Raven B systems with our Digital Data Link, or DDL, technology.  The decrease in customer-funded R&D work was primarily due to decreased activity on the Global Observer program.  EES revenue increased by $6.9 million, or 120%, to $12.7 million for the three months ended January 29, 2011.  The increase in EES revenue was primarily due to increased product deliveries of electric vehicle test systems and the initial rollout of electric charging docks to automobile dealerships and consumers.

 

Cost of Sales. Cost of sales for the three months ended January 29, 2011 was $50.3 million, as compared to $37.4 million for the three months ended January 30, 2010, representing an increase of $12.9 million, or 35%. The increase in cost of sales was caused primarily by increases in UAS cost of sales of $8.8 million and EES cost of sales of $4.1 million due to increased revenues.

 

Gross Margin. Gross margin for the three months ended January 29, 2011 was $34.1 million, as compared to $23.5 million for the three months ended January 30, 2010, representing an increase of $10.6 million, or 45%. UAS gross margin increased $7.9 million, or 37%, to $29.0 million for the three months ended January 29, 2011. As a percentage of revenue, gross margin for UAS increased from 38% to 40%.  EES gross margin increased $2.8 million, or 118%, to $5.1 million for the three months ended January 29, 2011.  As a percentage of revenue, EES gross margin decreased from 41% to 40%.

 

Selling, General and Administrative .   SG&A expense for the three months ended January 29, 2011 was $10.6 million, or 13% of revenue, compared to SG&A expense of $9.8 million, or 16% of revenue, for the three months ended January 30, 2010.  SG&A expense increased $0.8 million primarily due to higher marketing and business development costs and higher administrative infrastructure costs.

 

Research and Development. R&D expense for the three months ended January 29, 2011 was $7.9 million, or 9% of revenue, compared to R&D expense of $5.2 million, or 8% of revenue, for the three months ended January 30, 2010.  R&D expense increased $2.7 million primarily due to increased investment in various UAS and EES technology development initiatives.

 

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Table of Contents

 

Interest Income. Interest income for the three months ended January 29, 2011 and January 30, 2010 remained unchanged at $0.1 million.

 

Income Tax Expense. Our effective income tax rate was 27.2% for the three months ended January 29, 2011, as compared to 23.5% for the three months ended January 30, 2010. The increase was primarily due to higher taxable income.

 

Nine Months Ended January 29, 2011 Compared to Nine Months Ended January 30, 2010

 

 

 

Nine Months Ended

 

 

 

January 29,

 

January 30,

 

 

 

2011

 

2010

 

Revenue:

 

 

 

 

 

UAS

 

$

158,796

 

$

132,089

 

EES

 

27,647

 

18,079

 

Total

 

186,443

 

150,168

 

Gross margin:

 

 

 

 

 

UAS

 

56,807

 

45,926

 

EES

 

11,133

 

7,919

 

Total

 

67,940

 

53,845

 

Selling, general and administrative

 

34,634

 

30,828

 

Research and development

 

24,533

 

16,616

 

Income from operations

 

8,773

 

6,401

 

Interest income

 

215

 

147

 

Income before income taxes

 

$

8,988

 

$

6,548

 

 

Revenue. Revenue for the nine months ended January 29, 2011 was $186.4 million, as compared to $150.2 million for the nine months ended January 30, 2010, representing an increase of $36.3 million, or 24%.  UAS revenue increased $26.7 million, or 20%, to $158.8 million for the nine months ended January 29, 2011, primarily due to increased UAS product deliveries of $31.2 million and service revenue of $28.8 million, partially offset by lower customer-funded R&D work of $33.2 million.  The increase in product deliveries was primarily due to increased deliveries of Raven B and Puma AE systems with our DDL technology. The increase in UAS service revenue was primarily due to increased retrofits of Raven B systems with our DDL technology.  The decrease in UAS customer-funded R&D revenue was primarily due to decreased activity on the Global Observer program.  EES revenue increased by $9.6 million, or 53%, to $27.6 million for the nine months ended January 29, 2011.  The increase in EES revenue was primarily due to increased product deliveries of industrial electric vehicle charging and electrical vehicle test systems, as well as the initial rollout of electric charging docks to automobile dealerships and consumers.

 

Cost of Sales. Cost of sales for the nine months ended January 29, 2011 was $118.5 million, as compared to $96.3 million for the nine months ended January 30, 2010, representing an increase of $22.2 million, or 23%. The increase in cost of sales was caused by higher UAS cost of sales of $15.8 million and EES cost of sales of $6.4 million due to increased revenues.

 

Gross Margin. Gross margin for the nine months ended January 29, 2011 was $67.9 million, as compared to $53.8 million for the nine months ended January 30, 2010, representing an increase of $14.1million, or 26%. UAS gross margin increased $10.9 million, or 24%, to $56.8 million for the nine months ended January 29, 2011. As a percentage of revenue, gross margin for UAS increased from 35% to 36%.  EES gross margin increased $3.2 million, or 41%, to $11.1 million for the nine months ended January 29, 2011.  As a percentage of revenue, EES gross margin decreased from 44% to 40%, due to higher manufacturing overhead support costs to increase production capability and capacity.

 

Selling, General and Administrative .   SG&A expense for the nine months ended January 29, 2011 was $34.6 million, or 19% of revenue, compared to SG&A expense of $30.8 million, or 21% of revenue, for the nine months ended January 30, 2010.  SG&A expense increased $3.8 million primarily due to higher marketing and business development costs and higher administrative infrastructure costs.

 

Research and Development. R&D expense for the nine months ended January 29, 2011 was $24.5 million, or 13% of revenue, compared to R&D expense of $16.6 million, or 11% of revenue, for the nine months ended January 30, 2010.  The increase in R&D expense of $7.9 million was primarily due to increased investment in various UAS and EES technology development initiatives.

 

Interest Income. Interest income for the nine months ended January 29, 2011 was $0.2 million, compared to $0.1 million for the nine months ended January 30, 2010.

 

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Table of Contents

 

Income Tax Expense. Our effective income tax rate was 8.0% for the nine months ended January 29, 2011, as compared to 21.4% for the nine months ended January 30, 2010.  The decrease in the effective tax rate was primarily due to higher federal R&D tax credits.

 

Backlog .   We define funded backlog as unfilled firm orders for products and services for which funding currently is appropriated to us under the contract by the customer. As of January 29, 2011 and April 30, 2010, our funded backlog was approximately $103.8 million and $72.3 million, respectively.

 

In addition to our funded backlog, we also had unfunded backlog of $170.5 million and $269.4 million as of January 29, 2011 and April 30, 2010, respectively.  We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with multiple one-year options, and indefinite delivery indefinite quantity, or IDIQ, contracts. Unfunded backlog does not obligate the U.S. government to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts.

 

Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed, or new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, do not currently obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. government.

 

Liquidity and Capital Resources

 

We currently have no material cash commitments, except for normal recurring trade payables, accrued expenses and ongoing research and development costs, all of which we anticipate funding through our existing working capital and funds provided by operating activities. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. In addition, we do not currently anticipate significant investment in property, plant and equipment, and we believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure and debt service requirements, if any, during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or obtain additional financing.  The global credit situation has imposed high levels of volatility and disruption in the capital markets, severely diminished liquidity and credit availability, and increased counterparty risk. Nevertheless, we anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

 

Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting product development efforts, introducing new products and enhancing existing products and services, and promoting market acceptance and adoption of our products and services. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense and electric vehicle industries and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. To the extent we require additional funding, we cannot be certain that such funding will be available to us on acceptable terms, or at all.  Although we are currently not a party to any agreement or letter of intent with respect to potential investment in, or acquisitions of, businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing.

 

Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most major economies.  As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads.  Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers.  These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending.  Continued turbulence in the U.S. and international markets and economies and prolonged declines in business and consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to access the capital markets to meet liquidity needs. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current instability of financial institutions, we cannot be assured that we will not experience losses on these deposits.

 

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Table of Contents

 

Our working capital requirements vary by contract type. On cost-plus-fee programs, we typically bill our incurred costs and fees monthly as work progresses, and therefore working capital investment is minimal. On fixed-price contracts, we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin.

 

Cash Flows

 

The following table provides our cash flow data for the nine months ended January 29, 2011 and January 30, 2010 (in thousands):

 

 

 

Nine Months Ended

 

 

 

January 29,
2011

 

January 30,
2010

 

 

 

(Unaudited)

 

Net cash provided by (used in) operating activities

 

$

3,021

 

$

(11,590

)

Net cash provided by (used in) investing activities

 

$

7,087

 

$

(52,876

)

Net cash provided by financing activities

 

$

326

 

$

808

 

 

Cash Provided by Operating Activities. Net cash provided by operating activities for the nine months ended January 29, 2011 increased by $14.6 million to $3.0 million, compared to net cash used in operating activities of $11.6 million for the nine months ended January 30, 2010. This increase in net cash provided by operating activities was primarily due to lower working capital needs of $10.5 million, higher income of $3.1million, and higher depreciation of $1.6 million.

 

Cash Provided by Investing Activities. Net cash provided by investing activities increased by $60.0 million to $7.1 million for the nine months ended January 29, 2011, compared to net cash used in investing activities of $52.9 million for the nine months ended January 30, 2010. The increase in net cash provided by investing activities was primarily due to net sales of investments of $58.5 million and lower acquisitions of property and equipment of $1.3 million.

 

Cash Provided by Financing Activities. Net cash provided by financing activities decreased by $0.5 million to $0.3 million for the nine months ended January 29, 2011, compared to $0.8 million for the nine months ended January 30, 2010.  During the three months ended January 29, 2011, we received proceeds from stock option exercises of $0.3 million.

 

Off-Balance Sheet Arrangements

 

During the third quarter, there were no material changes in our off-balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Form 10-K for the fiscal year ended April 30, 2010.

 

Inflation

 

Our operations have not been, and we do not expect them to be, materially affected by inflation. Historically, we have been successful in adjusting prices to our customers to reflect changes in our material and labor costs.

 

New Accounting Standards

 

Please refer to Note 1 “Organization and Significant Accounting Policies” to our unaudited consolidated financial statements in Part I, Item 1 of this quarterly report for a discussion of new accounting pronouncements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, and foreign currency exchange rates.

 

Interest Rate Risk

 

It is our policy not to enter into interest rate derivative financial instruments. We do not currently have any significant interest rate exposure.

 

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Table of Contents

 

Foreign Currency Exchange Rate Risk

 

Since a significant part of our sales and expenses are denominated in U.S. dollars, we have not experienced significant foreign exchange gains or losses to date, and do not expect to incur significant foreign exchange gains or losses in the future. We occasionally engage in forward contracts in foreign currencies to limit our exposure on non-U.S. dollar transactions.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

 

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended January 29, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently a party to any material legal proceedings. We are, however, subject to lawsuits from time to time in the ordinary course of business.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2010.  Please refer to that section for disclosures regarding the risks and uncertainties related to our business.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. RESERVED

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit
Number

 

Description

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: March 8, 2011

 

AEROVIRONMENT, INC.

 

 

 

 

By:

/s/ Timothy E. Conver

 

 

Timothy E. Conver

 

 

Chairman, Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

/s/ Jikun Kim

 

 

Jikun Kim

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

20


Exhibit 31.1

 

Certification of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

 

I, Timothy E. Conver, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of AeroVironment, Inc.;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)               Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)               All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 8, 2011

 

 

/s/ Timothy E. Conver

 

Timothy E. Conver

 

Chairman, Chief Executive Officer and President

 


Exhibit 31.2

 

Certification of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

 

I, Jikun Kim, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of AeroVironment, Inc.;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)               Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)               All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 8, 2011

 

 

/s/ Jikun Kim

 

Jikun Kim

 

Senior Vice President and Chief Financial Officer

 


Exhibit 32

 

Certification

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), each of the undersigned officers of AeroVironment, Inc., a Delaware corporation (the “Company”), does hereby certify, to each such officer’s knowledge, that:

 

The Quarterly Report on Form 10-Q for the quarter ended January 29, 2011 (the “Periodic Report”) of the Company fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Timothy E. Conver

 

Timothy E. Conver

 

Chairman, Chief Executive Officer and President

 

 

 

 

 

/s/ Jikun Kim

 

Jikun Kim

 

Senior Vice President and Chief Financial Officer

 

Dated: March 8, 2011

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.