>>>
...with confidence.
Embark on your next mission...
>>>
We make important decisions every minute of every day. The soldier, the police
officer, and the first responder must take decisive action. The engineer and the
farmer must determine needed resources. As a society and as individuals, we
must all decide if our actions will result in a better, safer, and cleaner world.
But to embark on that next mission with confidence, we need information—
often critical information—and that’s what we at AeroViroment are providing
everyday to our customers. Whether it’s seeing the danger around the bend
or how far down the road we can help drive the electric vehicle revolution,
our innovative products and services in Unmanned Aircraft Systems
(UAS) and Efficient Energy Systems (EES) are giving our customers
the clarity to decide.
1
Send in your troops...
DEFENSE & SECURITY
When the mission is at stake and lives are on the line, troops on the ground
need a comprehensive, real-time picture of the situation ahead. That’s
why they look to the sky for the actionable intelligence and immediate
response capabilities that AeroVironment’s family of small unmanned
aircraft systems (UAS) provide even in the harshest environments—on
land or at sea. Easy to use and field maintainable, we’ve designed
these systems to integrate with each other and with the needs of the
warfighter. From Raven® to PumaTMAE to Wasp® to Qube®, our small
UAS continue to prove their effectiveness and reliability when it
matters most, giving commanders the confidence to engage.
>>>
SOLUTION
KEY FEATURES
Puma TM AE
GCS –
Transmits
Real-Time
Video & Data
Salt Water &
Land
Gimbaled
Payload
with EO & IR
Cameras
Puma™AE
(All Environment) is a
fully waterproof, small
unmanned aircraft
system designed for
operational flexibility,
superior imagery, and
increased endurance
for both land and
maritime operations.
3
Deliver millions of gallons...
ENERGY
Energy providers can be confident of one thing—producing and
delivering energy requires enormous energy itself. At every stage
of the supply chain, critical outcomes are on the line. From oil
platforms in sensitive ocean waters to thousands of miles of
pipeline traversing pristine wilderness, providers must keep
a vigilant eye on their costs, their infrastructure and the
environment. In the past, manned reconnaissance was often
the only way to see and monitor vast, distributed assets.
Now, by employing AeroVironment’s advanced, turnkey
UAS-based information services, our enterprise customers
are receiving the powerful insight they need when they
need it, giving them the confidence to deliver.
>>>
SOLUTION
KEY FEATURES
Puma TM AE
Precision 3D
Mapping
High
Resolution
Video/Images
Big Data
Analytics for
Prescriptive
Actionable
Information
Qube®
Turnkey information
solutions for high
resolution aerial
mapping, surveying,
infrastructure analysis,
and custom reporting.
5
Manage thousands of acres...
PRECISION AGRICULTURE
Growers must be on the lookout for anything that could affect
the fruit of their labor. Water issues, disease, pest infestations
and myriad other factors can dramatically affect their yields.
To protect their crops and the world’s food supply, farmers
need more than a simple fly-over. They need the type of insight
that AeroVironment can deliver—turnkey remote sensing
and data analytics that are helping farmers more effectively
manage their resources and, in turn, sustainably produce
the food and fiber to better feed and clothe a growing
global population. We call this digital leap in farming the
Next Revolution in Agriculture, and it’s giving farmers
the confidence to grow.
SOLUTION
KEY FEATURES
Puma TM AE
Precision 3D
Mapping
High
Resolution
Video/Images
Big Data
Analytics for
Prescriptive
Actionable
Information
Qube®
>>>
Turnkey information
solutions for high
resolution aerial
mapping, surveying,
infrastructure and crop
analysis, and custom
reporting.
7
SEARCH & RESCUE
When people are lost, hurt and in danger, time can be the
difference between rescue and recovery. Even if first responders
know where to look, rugged terrain, harsh environments and
natural disasters like wildfires and floods can seriously delay
their efforts and pose deadly threats to rescuers themselves.
Search areas can be battlefields, which is why they need
the battle-proven technology and know-how found in all of
AeroVironment's small unmanned aircraft systems, including
Qube®. This highly sophisticated quadcopter, which could be
mistaken for numerous similar looking drones, is anything
but a toy, giving first responders the confidence to search
and find.
>>>
SOLUTION
KEY FEATURES
Qube®
Real-Time
Video and
Data
Rapid
Deployment
Hover & Stare
Qube® is a rugged and
reliable small
unmanned aircraft
system supporting
the needs of first
responders who require
instant, real-time
airborne situational
awareness for a variety
of high value missions.
9
Get there before it’s too late...
Go that extra mile...
EV CHARGING
Today’s drivers are at a technological crossroads. Electric vehicles
are here to stay and speeding faster than ever into our driving
future. One of the major roadblocks that stops many of us from
going down that road is range anxiety. How far we can travel
on a single charge and how quickly we can recharge has been
the challenge, but it’s a challenge we’ve worked successfully
to overcome through our practical and affordable Level 2
charging systems for the home, business and trunk of your
car. It’s as easy as plugging into our new TurboDock™ or
plugging in TurboCord™ that’s included equipment in
Volvo’s new luxury plug-in SUV, giving more drivers the
confidence to go electric and go that extra mile.
>>>
SOLUTION
KEY FEATURES
TurboDockTM
Smartphone
App
Bluetooth-
Enabled
Dual Voltage
– 120 or 240
Volts
TurboDock TM is a smart
commercial/workplace
charging station with
Bluetooth-enabled
access control that
can be configured to
operate at 120 or 240
Volts.
11
Glossary of AeroVironment Products
GOVERNMENT >>>
BUSINESS >>>
Raven®B
Raven B is a lightweight, small unmanned aircraft system
designed for rapid deployment and high mobility for
applications requiring low-altitude intelligence,
surveillance and reconnaissance.
Wasp®AE
Wasp AE (All Environment) is a fully waterproof, small
unmanned aircraft system delivering advanced imagery,
GCS - Transmits
Real-Time Video
& Data
Gimbaled Payload
with EO & IR
Cameras
Lightweight
increased endurance, and portability for both maritime and
land operations using our standard ground control system.
Gimbaled Payload
with EO & IR
Cameras
Salt Water & Land
Lightweight
PumaTMAE
Puma AE (All Environment) is a fully waterproof, small
unmanned aircraft system designed for operational
flexibility, superior imagery, and increased endurance
for both land and maritime operations.
Qube®
Qube is a rugged and reliable small unmanned aircraft
system supporting the needs of first responders who
require instant, real-time airborne situational awareness
for a variety of high value missions.
Switchblade®
Switchblade is designed to protect the warfighter with
its back-packable, non-line-of-sight precision strike
GCS – Transmits
Real-Time Video
& Data
Salt Water & Land
Gimbaled Payload
with EO & IR
Cameras
Real-Time Video
and Data
Rapid Deployment
Hover & Stare
capabilities that minimize collateral effects.
Tube-Launched
One-Man Operation
Force Protection
TurboDockTM
TurboDock is a smart commercial/workplace charging
station with Bluetooth-enabled access control that can
be configured to operate at 120 or 240 Volts.
SmartPhone App
Bluetooth-Enabled
Dual Voltage – 120
or 240 Volts
PosiChargeTM
PosiCharge line of fast charging solutions improves
productivity and reduces operating costs while creating
greener, safer work environments for electric forklifts
Smart Charging
Fleet Tools
and airport ground support equipment.
Zero Plant
Emissions
AV-900EX
The AV-900 EX is the most advanced high power test
system for use in testing and emulating a wide variety
of active and passive DC loads.
Turnkey Geospatial Solutions
Turnkey information solutions for high resolution aerial
mapping, surveying, infrastructure and crop analysis,
and custom reporting.
High Power Testing
Wide Variety of
Control Modes
Accuracy and Speed
Precision 3D
Mapping
High Resolution
Video/Images
Big Data Analytics
for Prescriptive
Actionable
Information
Long-Term,
Seamless Coverage
600 Mile Footprint
Communications
Relay
CONSUMER >>>
Global Observer®
Global Observer is a high altitude, long-endurance
large unmanned aircraft system that combines the best
attributes of satellites and both manned and unmanned
aircraft to deliver seamless coverage affordably.
Digital Data Link (DDL)
Digital Data Link (DDL) is a small, lightweight, broadband
digital network module enabling enhanced command
and control of small UAS and communications.
IP-Based
Low Power
Consumption
Lightweight
Pocket RVT
The Pocket Remote Video Terminal (RVT) provides
the flexibility and freedom to receive video and data
anywhere within the DDL network for a wide range
of military and commercial operations.
Easy-To-Use Touch
Screen Tablet
Real-Time Video
Pocket Size and
Lightweight
TurboCordTM
TurboCord is the smallest UL-listed, dual-voltage charger
on the market and provides the ability to charge an EV
3x faster by simply installing a low cost 240/208V outlet.
EVSE
EVSE-RS is ideal for home or other commercial EV
charging applications and is the preferred charging
station for Nissan, Ford, Fiat, Volvo, Mitsubishi and Kia.
Dual Voltage – 120
or 240 Volts
Lightweight and
Portable
Easy-To-Use
30 Amp – Charge 5
Times Faster
Plug-in and
Hardwire Models
Available
Indoor/Outdoor
Rated – NEMA 3R
UAS=Unmanned Aircraft Systems EV=Electric Vehicle EO=Electrical Optical
IR=Infrared GCS=Ground Control System
13
Dear Stockholders,
Fiscal 2015 was productive for all of
us at AeroVironment as we focused
on innovation, execution and our
commitment to uniquely addressing
our customers’ needs.
We solidified AeroVironment’s place as a pioneer and
market leader in small unmanned aircraft systems
(UAS) and electric vehicle (EV) solutions and made
great progress in preparing for customer adoption
of innovative new solutions in three strategic growth
opportunities. Our dedicated team worked hard and
smart to deliver revenue in-line with our forecast and
exceed our expectations for profitability. Throughout
the year, we advanced our growth portfolio through
careful strategic investments, positioning ourselves
to create large new market opportunities with the
potential to deliver significant stockholder value.
Looking ahead, this focus on investing for growth,
positions AeroVironment for success and long-term
value creation into fiscal 2016 and beyond.
Delivering Solid Financial Results
The great progress our team made in fiscal 2015 is
illustrated by our financial results. During the year we:
>>> Generated gross margin of 40 percent, an
improvement of three percentage points over fiscal
2014 primarily through a favorable mix of products;
>>> Grew revenue by three percent over fiscal 2014; and
>>> Increased cash and investments by $27 million, or
eleven percent, enhancing our ability to invest quickly
and decisively for compelling potential return when
growth opportunities emerge.
Differentiated Solutions with
Leading Market Positions
We develop and deliver innovative solutions to
provide uniquely valuable capabilities to government,
commercial and consumer customers. In addition to
our financial progress in fiscal 2015, we continue to
be the market leader in our core small UAS business,
with the largest installed base in the global defense
industry and a very active development portfolio.
AeroVironment introduced the concept of a family of
small UAS with differentiated platforms optimized for
different missions and interoperable with a common
ground control system, data link, user interface,
training, support and All-Environment capabilities.
Today, forces across the United States Department
of Defense and more than 30 allied governments
have procured and employ our small UAS. Looking
beyond our existing customer footprint, we see long-
term trends toward increased use of small UAS by
our existing customers, emerging opportunities for
maritime adoption and growth among international
customers.
In our Efficient Energy Systems business, during fiscal
2015 we introduced the next generation of smart EV
test systems for research and development (R&D)
laboratories with the AV-900 EX, and we believe our
current and prospective customers will embrace this
new capability. In passenger EV charging solutions
we have deployed nearly 25,000 Level 2 charge
docks throughout North America. We significantly
differentiated our market-leading technology with
our portable TurboCord™ dual-voltage charging
system, that we sell directly to consumers online and
distribute through multiple OEM dealerships, and
which a global automaker adopted in May 2015 for
in-trunk delivery with its new plug-in vehicles. Our
new TurboDock™ Level 2 charging system offers a
similar value to commercial customers for workplace
charging and we are excited about its potential to
expand our footprint further in this growing market.
Investing for Long-Term Value Creation
AeroVironment has a track record of effectively
managing our capital to drive long-term value
creation. Our investment in new UAS solutions and
our deep understanding of the industry represent
strategic advantages in the race to deliver compelling
next-generation solutions to customers, build market
leadership and deliver attractive return on invested
capital to stockholders.
During fiscal 2015, we strategically invested $71 million
in R&D – $46 million in internal R&D and $25 million
in the cost of delivering customer-funded R&D –
primarily in our UAS segment. We are confident these
investments will position AeroVironment better for
tactical missile systems, large UAS and commercial
UAS opportunities. Each of these opportunities
potentially represents more than a billion dollar
market and a compelling return on invested capital.
>>>
In Tactical Missile Systems, we have been delivering
Switchblade® systems and generating revenue from
hardware sales, customer support services and R&D
for several years. We applied incremental fiscal
2015 investments to develop and demonstrate new
Switchblade variants that customers have requested
as a result of viewing demonstrations of Switchblade's
unique capabilities. We expect continued customer
funding in fiscal 2016 and at least one of these variants
to generate initial product revenue, reflecting its
transition from R&D to early customer adoption.
Our strategic investments in fiscal 2015 improved our
position for both Global Observer® high altitude long
endurance (HALE) UAS and Tern Phase III medium
altitude long endurance (MALE) UAS opportunities
and we anticipate the ongoing pursuit of programs
in both categories in our fiscal 2016 base plan. We
remain engaged in active teaming agreements and
customer discussions for Global Observer adoption.
UAS. Each of these three opportunities represents
initial adoption into potential billion-dollar markets.
We see a future full of opportunities to drive
substantial shareholder value through success in
these new markets, and we are positioning ourselves
accordingly. The AeroVironment team built our core
business by developing and transitioning innovative
new solutions to growing production businesses
and we are familiar with the process of new market
adoption. We will remain constructively engaged
with lead adopting customers, which will allow us
to make informed decisions on investments in order
to be first to market with the right solution. This
strategy has positioned us for growth across multiple
opportunities, timeframes and investment levels. As
new opportunities develop in these dynamic emerging
markets, we will continue to be guided by optimizing
our return on invested capital and maximizing
shareholder value.
In addition to our fiscal 2015 investments in commercial
UAS, our planned fiscal 2016 incremental investments
include ongoing development of new hardware
and software solutions and pilot programs with lead
adopters in large markets, similar to our service
agreement with BP. These customer engagements
continue to deliver important successes and valuable
learning and are expanding in terms of applications,
customers and industries.
Every day, people rely on AeroVironment to keep
them moving – from troops serving our country, to
commercial enterprises and to electric vehicle drivers.
We thank our customers for the confidence they place
in us. Our customers’ confidence motivates every
one of us to continue supporting their success today
while developing the next wave of innovative solutions
that will allow them to move forward with confidence
tomorrow.
Building on our Market Leadership
and Creating Value
We are focused on our customers and strengthening
our strong market position in our core small UAS and
Efficient Energy Systems business, as demonstrated
by our leading market share and ongoing competitive
success. Our core business produces strong
profitability, as evidenced by our gross profit, and the
markets for both segments suggest long-term growth
trends.
But our growth strategy for AeroVironment goes far
beyond our core business. In our growth portfolio,
our fiscal 2015 incremental investments solidified the
positions we have been building to compete for and
capture identified tactical missile systems, and large
UAS opportunities. We also made significant progress
in developing a strong position for commercial
enterprise solutions providing actionable information
based on the unique data available from commercial
We thank our employees for their dedication to
customer success and to upholding the values that
make AeroVironment a great place to work. And,
we thank our stockholders for investing their time
and resources in our journey toward an exciting and
enriching future where we realize AeroVironment’s
great potential.
Sincerely,
.
Timothy E. Conver
Chairman,
Chief Executive Officer and President
15
FINANCIAL HIGHLIGHTS
CORPORATE INFORMATION
>>>
Revenue by Segment
In thousands except for share and per share data
Share Price
2013
2014
2015
Fiscal Year Ended April 30, 2015
High
Low
UAS
EES
Total Revenue
$ 194,276
45,876
240,152
$ 208,810
42,893
251,703
$ 220,950
38,448
259,398
Income from Operations
Net Income
EPS Fully Diluted
Total Assets
Stockholders’ Equity
3,802
10,426
0.47
361,604
315,186
12,419
13,718
0.60
384,954
342,467
2,014
2,895
0.13
397,467
348,912
Operating Margin
2%
5%
1%
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 36.50
33.85
30.87
28.92
$ 30.20
27.20
24.73
25.00
Fiscal Year Ended April 30, 2014
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 23.97
26.50
31.50
41.67
$
19.24
20.78
26.14
27.34
Fiscal Year Ended April 30, 2013
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 27.82
24.88
23.70
23.18
$
21.14
21.56
19.25
16.98
EXECUTIVE MANAGEMENT
TEAM
Timothy E. Conver
Chairman,
Chief Executive Officer
and President
Wahid Nawabi
Senior Vice President and
Chief Operating Officer
Raymond Cook
Senior Vice President and
Chief Financial Officer
Cathleen S. Cline
Senior Vice President of
Administration
Kirk Flittie
Vice President and
General Manager,
Unmanned Aircraft Systems
Ken Karklin
Vice President and
General Manager,
Efficient Energy Systems
Doug Scott
Senior Vice President and
General Counsel
BOARD OF DIRECTORS
Timothy E. Conver
Director
Chairman, Chief Executive Officer
and President,
AeroVironment, Inc.
Charles T. Burbage
Lead Independent Director
Former Executive Vice President and
General Manager,
Joint Strike Fighter Program,
Lockheed Martin Corporation
Arnold L. Fishman
Director
Chairman,
Lieberman Research Worldwide
Charles R. Holland
Director
General, USAF (Ret),
Former Commander,
U.S. Special Operations Command
(2000-2003)
Catharine Merigold
Director
Managing Partner,
Vista Ventures
Edward R. Muller
Director
Vice Chairman,
NRG Energy, Inc.
Stephen F. Page
Director
Trustee,
Loyola Marymount University
STOCKHOLDER
INFORMATION
Investor Relations
Steven A. Gitlin
Vice President, Investor Relations
To obtain free copies of this
Overview and 10-K, please
contact AeroVironment’s
Investor Relations Department:
AeroVironment, Inc.
Attn: Investor Relations
900 Innovators Way
Simi Valley, CA 93065
Phone: 626.357.9983, ext. 4510
Facsimile: 626.359.9628
Email: ir@avinc.com
IR website:
http://investor.avinc.com
www.avinc.com
TRANSFER AGENT
American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
SHAREHOLDER SERVICES
800.937.5449
INDEPENDENT REGISTERED
Public Accounting Firm
Ernst & Young LLP
MARKET INFORMATION
The common stock of the Company is
traded on The NASDAQ Stock Market
under the symbol “AVAV.”
Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited
to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially
from the forward-looking statements. Forward-looking statements include our views on future financial results, financing sources, product development, capital
requirements, market growth and the like, and are generally identified by terms such as "may," "will," "should," "could," "targets," "projects," "predicts," "contemplates,"
"anticipates," "believes," "estimates," "expects," "intends," "plans" and similar words. Forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statement. Factors that could cause actual
results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government
funding for defense procurement and R&D programs; changes in the supply and/or demand and/or prices for our products; potential need for changes in our long-term
strategy in response to future development; the activities of competitors; failure of the markets in which we operate to grow; failure to remain a market innovator and
create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; the extensive
regulatory requirements governing our contracts with the U.S. government; product liability, infringement and other claims; and general economic and business
conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities
and Exchange Commission, including our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. We do not intend, and undertake no
obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
© 2015 AeroVironment, Inc. All rights reserved. Any and all third party companies and organizations and their respective service and
trademarks set forth herein, including but not limited to BP, Volvo, Nissan, Ford, Fiat, Mitsubishi and Kia are not affiliated with, endorsing,
guaranteeing or sponsoring AeroVironment, or any AeroVironment affiliate’s, products or services. Any and all such third party service and
trademarks set forth herein are the intellectual property of their respective owners.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:1) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(cid:2)
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended April 30, 2015
For the transition period from
to
Commission file number 001-33261
AEROVIRONMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-2705790
(I.R.S. Employer Identification No.)
181 W. Huntington Drive, Suite 202
Monrovia, CA
(Address of Principal Executive Offices)
91016
(Zip Code)
Registrant’s telephone number, including area code: (626) 357-9983
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:2) No (cid:1)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes (cid:2) No (cid:1)
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 (cid:1) No (cid:2)
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 (cid:1) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
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. (Check One):
Large accelerated filer (cid:2)
Smaller reporting company (cid:2)
Accelerated filer (cid:1)
Non-accelerated filer (cid:2)
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:2) No (cid:1)
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on the
NASDAQ Global Select Market on October 31, 2014 was approximately $629.2 million.
As of June 19, 2015, the issuer had 23,349,051 shares of common stock, par value $0.0001 per share, issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the conclusion of the registrant’s fiscal year ended April 30, 2015, are incorporated
by reference into Part III of this Form 10-K.
AEROVIRONMENT, INC.
INDEX TO FORM 10-K
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
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50
50
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51
53
53
65
66
104
104
105
107
107
107
107
107
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108
1
Forward-Looking Statements
PART I
This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements, which
reflect our current views about future events and financial results. We have made these statements in
reliance on the safe harbor created by the Private Securities Litigation Reform Act of 1995 (set forth in
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward-looking statements
include our views on future financial results, financing sources, product development, capital
requirements, market growth and the like, and are generally identified by terms such as ‘‘may,’’ ‘‘will,’’
‘‘should,’’ ‘‘could,’’ ‘‘targets,’’ ‘‘projects,’’ ‘‘predicts,’’ ‘‘contemplates,’’ ‘‘anticipates,’’ ‘‘believes,’’
‘‘estimates,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘plans’’ and similar words. Forward-looking statements are merely
predictions and therefore inherently subject to uncertainties and other factors which could cause the
actual results to differ materially from the forward-looking statement. These uncertainties and other
factors include, among other things:
(cid:127) unexpected technical and marketing difficulties inherent in major research and product
development efforts;
(cid:127) availability of U.S. government funding for defense procurement and research and development
programs;
(cid:127) the extensive regulatory requirements governing our contracts with the U.S. government and the
results of any audit or investigation of our compliance therewith;
(cid:127) our ability to remain a market innovator and to create new market opportunities;
(cid:127) the potential need for changes in our long-term strategy in response to future developments;
(cid:127) unexpected changes in significant operating expenses, including components and raw materials;
(cid:127) changes in the supply, demand and/or prices for our products and services;
(cid:127) increased competition, including from firms that have substantially greater resources than we
have and in the UAS business from lower-cost consumer drone manufacturers who may seek to
enhance their systems’ capabilities over time;
(cid:127) changes in the regulatory environment; and
(cid:127) general economic and business conditions in the United States and elsewhere in the world.
Set forth below in Item 1A, ‘‘Risk Factors’’ are additional significant uncertainties and other
factors affecting forward-looking statements. The reader should understand that the uncertainties and
other factors identified in this Annual Report are not a comprehensive list of all the uncertainties and
other factors that may affect forward-looking statements. We do not undertake any obligation to update
or revise any forward-looking statements or the list of uncertainties and other factors that could affect
those statements.
Item 1. Business.
Overview
We design, develop, produce, support and operate a technologically-advanced portfolio of products
and services for government agencies, businesses and consumers. We supply unmanned aircraft systems,
or UAS, tactical missile systems and related services primarily to organizations within the U.S.
Department of Defense, or DoD. We also supply charging systems and services for electric vehicles, or
EVs, and power cycling and test systems to commercial, consumer and government customers. We
2
derive the majority of our revenue from these business areas and we believe that the markets for these
solutions have significant growth potential. Additionally, we believe that some of the innovative
potential products and services in our research and development pipeline will emerge as new growth
platforms in the future, creating additional market opportunities.
Our success with current products and services stems from our investment in research and
development and our ability to invent and deliver advanced solutions, utilizing proprietary and
commercially available technologies, to help our government, commercial and consumer customers
operate more effectively and efficiently. We develop these highly innovative solutions by working very
closely with our key customers in each segment of our business to solve their most important challenges
related to our areas of expertise. Our core technological capabilities, developed through more than
40 years of innovation, include lightweight aerostructures; power electronics; electric propulsion
systems; efficient electric power generation, conversion, and storage systems; high-density energy
packaging; miniaturization; digital data links or DDL; aircraft sensors; controls integration; and systems
integration and engineering optimization, hybrid propulsion, vertical takeoff fixed wing flight and
autonomy, each coupled with professional field service capabilities.
Our UAS business segment focuses primarily on the design, development, production, marketing,
support and operation of innovative UAS and tactical missile systems and the delivery of UAS-related
services that provide situational awareness, remote sensing, multi-band communications, force
protection and other information and mission effects to increase the safety and effectiveness of our
customers’ operations. Our Efficient Energy Systems, or EES, business segment focuses primarily on
the design, development, production, marketing, support and operation of innovative efficient electric
energy systems that address the growing demand for electric transportation solutions.
Our Strategy
As a technology solutions provider, our strategy is to develop innovative, safe and reliable new
solutions that provide customers with valuable benefits and enable us to create new markets or market
segments, gain market share and grow as market adoption increases. We believe that by introducing
new solutions that provide customers with compelling value we are able to create new markets or
market segments and then grow our positions within those markets or market segments profitably,
instead of entering existing markets and competing against large, incumbent competitors that may
possess advantages in scope, scale, resources and relationships.
We intend to grow our business by maintaining market leadership in UAS, tactical missile systems,
electric vehicle charging systems and power cycling and test systems, and by creating new solutions that
enable us to create and lead new markets. Key components of this strategy include the following:
Expand our market leadership to grow existing markets and create new adjacent markets. Our
small UAS, tactical missile systems, electric vehicle charging systems and power cycling and test systems
enjoy leading positions in their respective markets. We intend to increase the penetration of our small
UAS products and services and tactical missile systems within the U.S. military, the military forces of
allied nations, other government agencies and non-government organizations, including commercial
entities. We believe that the broad adoption of our small UAS by the U.S. military will continue to spur
demand by allied nations, and that our efforts to pursue new applications are creating opportunities
beyond the early adopter military market. We similarly intend to increase the penetration of our
electric vehicle charging systems and services, and our power cycling and test systems, into existing and
new customer segments globally.
Deliver innovative new solutions. Customer-focused innovation is the primary driver of our
growth. We plan to continue pursuing internal and customer-funded research and development to
develop better, more capable products, services and business models, both in response to and in
anticipation of emerging customer needs. In some cases these innovations result in upgrades to existing
3
offerings, expanding their value among existing customers and markets. In other cases these innovations
become entirely new solutions that position us to address new markets, customers and business
opportunities. We believe research and development investments will allow us to deliver innovative new
products and services that address market needs within and outside of our current target markets, and
enable us to create new opportunities for growth. We view strategic partners as a means by which to
further the reach of our innovative solutions through access to new markets, customers and
complementary capabilities.
Foster our entrepreneurial culture and continue to attract, develop and retain highly-skilled
personnel. Our company culture encourages innovation and an entrepreneurial spirit, which helps to
attract and retain highly-skilled professionals. We intend to preserve this culture to encourage the
development of the innovative, highly technical system solutions and business models that give us our
competitive advantage. A core component of our culture is our intent to demonstrate trust and
integrity in all of our interactions, contributing to a positive work environment and engendering loyalty
among our employees and customers. We survey our employees to identify opportunities to increase
employee engagement and to create a better workplace.
Preserve our agility and flexibility. We respond rapidly to evolving markets, solve complicated
customer problems, and deliver new products, services and capabilities quickly, efficiently and
affordably relative to available alternatives. We believe our agility and flexibility help us to strengthen
our relationships with customers and partners. We intend to maintain our agility and flexibility, which
we believe to be important sources of differentiation when we compete against organizations with more
extensive resources.
Effectively manage our growth portfolio for long-term value creation. Our production and
development programs and services provide us with investment opportunities that we believe will
deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each
opportunity independently and within the context of all other investment opportunities to determine its
relative timing and potential, and thereby its priority. This process allows us to make informed
decisions regarding potential growth capital requirements and ensures that we allocate resources based
on relative risks and returns to maximize long-term value creation, which is a key element of our
growth strategy.
Customers
We sell the majority of our UAS and tactical missile systems and services to organizations within
the DoD, including the U.S. Army, Marine Corps, Special Operations Command and Air Force. Our
EES business segment generates revenue from commercial, consumer and, to a lesser extent,
government customers.
During our fiscal year ended April 30, 2015, we generated approximately 47% of our revenue from
the U.S. Army pursuant to orders placed under contract by the U.S. Army on behalf of itself as well as
several other organizations within the DoD. Other U.S. government agencies and government
subcontractors accounted for 33% of our sales revenue, while purchases by foreign, commercial
customers and consumers accounted for the remaining 20% of sales revenue during our fiscal year
ended April 30, 2015.
Technology, Research and Development
Technological Competence and Intellectual Property
Our company was founded by the late Dr. Paul B. MacCready, the former Chairman of our board
of directors and an internationally renowned innovator who was instrumental in establishing our
entrepreneurial and creative culture. This culture has consistently enabled us to attract and retain
4
highly-motivated, talented employees and has established our reputation as an innovative leader in the
industries in which we compete.
The innovations developed by our company and our founder include, among others: the world’s
first effective human-powered and manned solar-powered airplanes; the first modern passenger electric
car, the EV1 prototype for General Motors; the world’s highest flying airplane in level flight, Helios(cid:3),
a solar-powered unmanned aircraft system that reached over 96,000 feet in 2001; and, more recently,
Global Observer, the world’s first liquid hydrogen-fueled unmanned aircraft system; the Nano
Hummingbird(cid:3), the world’s first flapping wing unmanned aircraft system capable of precise hover and
omni-directional flight; and TurboCord(cid:3), the smallest, most portable UL-listed 240-volt EV charger.
The Smithsonian Institution has selected seven vehicles developed by our company or our founder for
its permanent collection. Our history of innovation excellence is the result of our talented, creative and
skilled employees whom we encourage to invent and develop innovative new solutions.
A component of our ongoing innovation is a screening process that helps our business managers
identify early market needs, which assists us in making timely investments into critical technologies
necessary to develop solutions to address these needs. Similarly, we manage new product and business
concepts through a commercialization process that balances spending, resources, time and intellectual
property considerations against market requirements and potential returns on investment. Strongly
linking our technology and business development activities to customer needs in attractive growth
markets constitutes an important element of this process. Throughout the process we revisit our
customer requirement assumptions to evaluate continued investment and to help ensure that our
products and services deliver high value.
As a result of our commitment to research and development, we possess an extensive portfolio of
intellectual property in the form of patents, trade secrets, copyrights and trademarks across a broad
range of UAS and advanced energy technologies. As of April 30, 2015, we had 125 U.S. patents issued;
93 U.S. patent applications pending; 6 active Patent Cooperation Treaty applications; and numerous
foreign patents and applications. In many cases, when appropriate and to preserve confidentiality, we
opt to protect our intellectual property through trade secrets as opposed to filing for patent protection.
The U.S. government has licenses to some of our intellectual property that was specifically
developed in performance of government contracts, and may use or authorize others to use this
intellectual property. In some cases we fund the development of certain intellectual property to
maximize its value and limit its use by potential competitors. While we consider the development and
protection of our intellectual property to be integral to the future success of our business, at this time
we do not believe that a loss or limitation of rights to any particular piece of our intellectual property
would have a material adverse effect on our overall business.
Research, Development and Commercialization Projects
A core component of our business strategy is the development and commercialization of innovative
solutions that we believe can become new products or services that enable us to create large new
markets or accelerate the growth of our current products and services. We invest in an active pipeline
of these commercialization projects that range in maturity from technology validation to early market
adoption. We cannot predict when, if ever, we will successfully commercialize these projects, or the
exact level of capital expenditures they could require, which could be substantial.
For the fiscal years ended April 30, 2015, 2014 and 2013, our internal research and development
spending amounted to 18%, 10% and 15%, of our revenue, respectively, and customer-funded research
and development spending amounted to an additional 14%, 11% and 16%, of our revenue, respectively.
5
Sales and Marketing
Our marketing strategy is based on developing leadership positions in new markets that we create
through the introduction of innovation solutions that improve customer operational effectiveness and
efficiency. Our ability to operate in an agile, flexible manner helps us achieve first mover advantage
and work closely with early customers to achieve successful adoption of our solutions. Once we
establish a market position we work to maintain our leadership position while growing our revenue by
expanding sales and through continuous innovation and customer support. Our reputation for
innovation is a key component of our brand and has been acknowledged through a variety of awards
and recognized in numerous articles in domestic and international publications. We have U.S.
registered trademarks for AeroVironment, EV Solutions, TurboCord, PosiCharge, PosiNet, Global
Observer, Raven, Wasp, Qube and Switchblade, and have submitted several other applications for
trademark registration.
International Sales
We contract with international sales representatives and team with domestic organizations in a
number of foreign markets and believe that these markets represent growth opportunities for our
business. Our international sales accounted for approximately 9%, 14% and 15%, of our revenue for
the fiscal years ended April 30, 2015, 2014 and 2013, respectively.
Competition
We believe that the principal competitive factors in the markets for our products and services
include product performance; safety; features; acquisition cost; lifetime operating cost, including
maintenance and support; ease of use; rapid integration with existing equipment and processes; quality;
reliability; customer support; and brand and reputation.
Manufacturing and Operations
We pursue a lean and efficient production strategy across our business segments, focusing on rapid
prototyping, supply chain management, final assembly, integration, quality and final acceptance testing.
Using concurrent engineering techniques within an integrated product team structure, we rapidly
prototype design concepts and products, while optimizing our designs for manufacturing requirements,
mission capabilities and customer specifications. Within this framework we develop our products with
feedback and input from manufacturing, quality, supply chain management, key suppliers, logistics
personnel and customers. We incorporate this input into product designs in an effort to maximize the
efficiency and quality of our products. As a result, we believe that we significantly reduce the time
required to move a product from its design phase to full-rate production deliveries while achieving high
reliability, quality and yields.
We outsource certain production activities, such as the fabrication of structures, the manufacture of
electronic printed circuit board subassemblies, payload components and the medium to high volume
production of our EV charging products, to qualified suppliers, with many of whom we have long-term
relationships. This outsourcing enables us to focus on final assembly, system integration and test
processes for our products, ensuring high levels of quality and reliability. We forge strong relationships
with key suppliers based on their ability to grow with our production needs and support our growth
plans. We continue to expand upon our suppliers’ expertise to improve our existing products and
develop new solutions. We rely on both single and multiple suppliers for certain components and
subassemblies. See ‘‘Risk Factors—If critical components or raw materials used to manufacture our
products become scarce or unavailable, then we may incur delays in manufacturing and delivery of our
products, which could damage our business’’ for more information. All of our production system
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operations incorporate internal and external quality programs and processes to increase acceptance
rates, reduce lead times and lower cost.
Contract Engineering Services
We actively pursue externally funded projects that help us to strengthen our technological
capabilities. Our UAS business segment submits bids to large research customers such as the Defense
Advanced Research Projects Agency, the U.S. Air Force, the U.S. Army and the U.S. Special
Operations Command for projects that we believe have future commercial application. Contract
engineering services conducted through our EES business segment represent a strategic source of
innovation for us, and a portion of our business involves providing advanced battery module and pack
testing solutions to automotive and battery manufacturers in support of their electric vehicle
development and production programs. Providing these services contributes to the development and
enhancement of our technical competencies. In an effort to manage the ability of our key technical
personnel to support multiple, high-value research and development initiatives, we attempt to limit the
volume of contract engineering projects that we accept. This process enables us to focus these
personnel on projects we believe offer the greatest current and future value to our business.
Contract Mix
The table below shows our revenue for the periods indicated by contract type, including both
government and commercial sales:
Fiscal Year Ended
April 30,
2015
2014
2013
Fixed-price contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost-reimbursable contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85% 85% 75%
15% 15% 25%
Employees
As of April 30, 2015, we had 663 full-time employees, of whom 235 were in research and
development and engineering, 58 were in sales and marketing, 213 were in operations and 157 were
general and administrative personnel. We believe that we have a good relationship with our employees.
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 April 30, 2015 and 2014, our
funded backlog was approximately $64.7 million and $65.9 million, respectively. We expect that
approximately 95% of our funded backlog will be filled during our fiscal year ending April 30, 2016.
In addition to our funded backlog, we had unfunded backlog of $19.1 million and $22.9 million as
of April 30, 2015 and 2014, 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. Unfunded backlog does
not include the remaining potential value associated with a U.S. Army IDIQ-type contract for small
UAS because that contract was awarded to five companies in 2012, including AeroVironment, and we
cannot be certain that we will receive all task orders issued against the contract.
7
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, are renewed, or
new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, do not obligate
the U.S. government to purchase any goods or services. Additionally, all U.S. government contracts
included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S.
government.
Other Information
AeroVironment, Inc. was originally incorporated in the State of California in July 1971 and
reincorporated in Delaware in 2006.
Our principal executive offices are located at 181 W. Huntington Dr., Suite 202, Monrovia,
California 91016. Our telephone number is (626) 357-9983. Our website home page is
http://www.avinc.com. We make our website content available for information purposes only. It should
not be relied upon for investment purposes, nor is it incorporated by reference into this Annual
Report.
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and proxy statements for our annual stockholders’ meetings, as well as any amendments to
those reports, available free of charge through our website as soon as reasonably practical after we
electronically file that material with, or furnish it to, the Securities and Exchange Commission, or SEC.
You can learn more about us by reviewing our SEC filings. Our SEC reports can be accessed through
the investor relations page of our web site at http://investor.avinc.com. These reports may also be
obtained at the SEC’s public reference room at 100 F. Street, N.E., Washington, DC 20549. The SEC
also maintains a web site at www.sec.gov that contains our reports, proxy statements and other
information regarding us.
Unmanned Aircraft Systems
Our UAS business segment addresses the increasing economic and security value of network-
centric intelligence, surveillance and reconnaissance, or ISR, communications and remote sensing, with
innovative UAS and tactical missile system solutions.
Industry Background
Small UAS
The market for small UAS has grown significantly over the last decade driven largely by the
demands associated with the global threat environment and the resulting procurement by military
customers, the early adopters for this technology. Small UAS now represent an accepted and enduring
capability for the military. The U.S. military’s transformation into a smaller, more agile force that
operates via a network of observation, communication and precision targeting technologies accelerated
following the terrorist attacks of September 11, 2001, as it required improved, distributed observation
and targeting of enemy combatants who operate in small groups, often embedded in dense population
centers or dispersed in remote locations. We believe that UAS, which range from large systems, such as
Northrop Grumman’s Global Hawk and General Atomics’ Predator, Sky Warrior, Reaper and Gray Eagle,
to small systems, such as our Raven, Wasp AE, Puma AE and Shrike, serve as integral components of
today’s military force. These systems provide critical observation and communications capabilities
serving the increasing demand for actionable intelligence, while reducing risk to individual
‘‘warfighters.’’ Small UAS can provide real-time observation and communication capabilities to the
small units who control them. As airspace regulations in the U.S. and other nations evolve to
8
accommodate the commercial use of small UAS, we are pioneering the application of small UAS
technology in new markets such as energy, precision agriculture, natural resource management and
public safety. We expect further growth through the introduction of UAS technology and services to
these emerging commercial applications.
Large UAS
We believe a market opportunity exists for large UAS that can fly for long periods of time to
perform continuous remote sensing and communications relay missions in an affordable manner over
great distances. The emergence of distributed military threats in geographic areas with limited
communications infrastructure has prompted U.S. military forces to deploy solutions to manage the
increasing volume of data generated by their operations in those areas. Existing solutions such as
communications satellites and manned and unmanned aircraft address some of this emerging demand
for bandwidth, but do so at relatively high financial and resource costs. Given the nature of
asymmetrical warfare, with embedded military adversaries operating in population centers, rural areas
and remote locations, the ability to observe areas of interest on a continuous basis with high resolution
sensors remains a critical and largely unmet need. Geosynchronous satellites provide fixed, continuous
communications relay capabilities to much of the globe, but they operate nearly 25,000 miles from the
surface of the earth, therefore limiting the bandwidth they can provide and requiring relatively larger,
higher power ground stations. Remote sensing satellites typically operate at lower altitudes, but are
unable to maintain geosynchronous positions, meaning they are moving with respect to the surface of
the earth, resulting in a limited presence over specific areas of interest and significant periods of time
during which they are not present over those areas. UAS that are capable of operating in an affordable
manner for extended periods of time over an area of interest without gaps in availability while carrying
a communications relay or observation payload could help to satisfy this need. Additionally, UAS that
can operate for longer durations from smaller naval vessels could enable military forces to project
power on a more distributed and flexible basis.
Tactical Missile Systems
The development of weapons capable of rapid deployment and precision strike while minimizing
the risk to surrounding civilians, property and operators accelerated in recent years due to advances in
enabling technologies. Weapons such as laser-guided missiles, ‘‘smart’’ bombs and GPS-guided artillery
shells have dramatically improved the accuracy of strikes against hostile targets. When ground forces
find themselves engaged in a firefight or near a target, their ability to deploy and use a precision
weapon system quickly and easily can mean the difference between mission success and failure. Such a
rapidly deployable solution could also address emerging requirements for use in other types of
situations and from a variety of sea, air and land platforms. We believe that embedding a precision
lethal payload into a remotely controlled, man-portable delivery system provides warfighters with a
valuable and more cost-effective alternative to existing airborne and land-based missile systems.
Our UAS Solutions
We supply our UAS products and services to multiple customers inside and outside of the United
States. For the fiscal years ended April 30, 2015, 2014 and 2013, our UAS segment products and
services accounted for 85%, 83% and 81%, of our revenue, respectively.
Small UAS Products
Our small UAS, including Raven, Wasp AE, Puma AE and Shrike, are designed to operate reliably
a few hundred feet above the ground in a wide range of environmental conditions, providing a valuable
vantage point from which to deliver valuable information. Military forces employ our small UAS to
deliver intelligence, surveillance and reconnaissance, or ISR, and communications, including real-time
9
tactical reconnaissance, tracking, combat assessment and geographic data, directly to the small tactical
unit or individual operator, thereby increasing flexibility in mission planning and execution. In
commercial applications, we operate our small UAS as part of a turnkey information solution to deliver
advanced analysis and prescriptive actions that can reduce costs, enhance safety and increase revenue.
Our small UAS wirelessly transmit critical live video and other information generated by their payload
of electro-optical, infrared or other sensors directly to a hand-held ground control unit, enabling the
operator to view and capture images, during the day or at night, on the control unit. Certain sensors
generate a volume of data significantly larger than wireless bandwidth can accommodate, requiring
downloading once the air vehicle has landed. Our ground control systems allow the operator to control
the aircraft by programming it for GPS-based autonomous navigation using operator-designated
way-points or by manual flight operation. The ground control systems are designed for durability and
ease of use in harsh environments and incorporate a user-friendly, intuitive user interface. All of our
small UAS currently in production for military customers operate from our common ground control
system.
All of our small UAS are designed to be portable by a single person, assembled without tools in
less than five minutes and launched and operated by one or two people, with limited training required.
The efficient and reliable electric motors used in all of our small UAS are powered by modular battery
packs that can be replaced quickly, enabling rapid return to flight. All of our small UAS, other than
Switchblade, which we consider a tactical missile system, are designed to be reusable for up to
hundreds of flights under normal operating circumstances and can be recovered through an
autonomous landing feature that enables a controlled descent to a designated location.
In military applications, our small UAS enable tactical commanders to observe around the next
corner, to the next intersection or past a ridgeline in real-time. This information facilitates faster, safer
movement through urban, rural and mountainous environments and can enable troops to be proactive
based on field intelligence rather than reactive to attack. Moreover, by providing this information, our
systems reduce the risk to warfighters and to the surrounding population by providing the ability to
tailor the military response to the threat. U.S. military personnel regularly use our small UAS, such as
Raven, for missions such as force protection, combat observation and damage assessment. These
reusable systems are easy to transport, assemble and operate and are relatively quiet when flying at
typical operational altitudes of 200 to 300 feet above ground level, the result of our efficient electric
propulsion systems. Furthermore, their small size makes them difficult to see from the ground. In
addition, the low cost of our small UAS relative to larger systems and alternatives makes it practical for
customers to deploy these assets directly to warfighters.
In emerging commercial applications, our small UAS enable companies to manage valuable natural
resources such as endangered species and delicate habitats, more effectively and safely than previously
possible. Our commercial information services, consisting of trained operators, advanced sensors, cloud-
based data processing and application-specific analysis, provide our customers with more accurate and
timely information regarding their infrastructure, such as pipelines, roads and bridges, and can provide
companies with agriculture operations with more accurate and timely information regarding their crops.
Better and more timely information can translate into more efficient maintenance activities that prevent
downtime, in the case of the energy industry, and more efficient use of scarce resources such as water,
for agriculture.
Our small UAS offering also includes spare equipment, alternative payload modules, batteries,
chargers, repair services and customer support. We provide training by our highly-skilled instructors,
who typically have extensive military experience, and continuous refurbishment and repair services for
our products. By maintaining close contact with our customers and users in the field, we gather critical
feedback on our products and incorporate that information into ongoing product development and
research and development efforts. This approach enables us to improve our solutions in response to,
and in anticipation of, evolving customer needs.
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Each system in our small UAS portfolio typically includes multiple aircraft, our common and
interoperable hand-held ground control system and an array of spare parts and accessories. Our current
small UAS portfolio consists of the following aircraft:
Small
UAS
Product
Wingspan Weight
(lbs.)
(ft.)
Recovery
Standard
Sensors
Puma AE
9.2
14 Vertical autonomous
landing capable (ground
or water)
Raven
4.5
4.5 Vertical autonomous
landing capable
Wasp AE
3.3
2.8 Vertical autonomous
landing capable (ground
or water)
Shrike
3.0
5.5 Vertical takeoff and
landing
Mechanical pan, tilt,
zoom and digital zoom
electro-optical and
infrared
Mechanical pan, tilt,
zoom and digital zoom
electro-optical and
infrared
Mechanical pan, tilt,
zoom and digital zoom
electro-optical and
infrared
Mechanical pan, tilt,
zoom and digital zoom
electro-optical and
infrared
Range
(mi.)(1)
Flight Time
(min.)(1)
9.0
210
6.0
60 - 90
3.0
50
3.0
40
(1) Represents point-to-point minimum customer- mandated specifications for all operating conditions.
In optimal conditions, the performance of our products may significantly exceed these
specifications. Our DDL relay can enable operational modes that can extend range significantly.
The ground control system serves as the primary interface between the operator and the aircraft,
and allows the operator to control the direction, speed and altitude of the aircraft as well as the
orientation of the sensors to view the visual information they produce through real-time, streaming
video and metadata. Our common ground control system interfaces with each of our air vehicles,
except Qube, providing a common user interface with each of our air vehicles. In addition to the
thousands of air vehicles delivered to our customers, thousands of ground control systems are also in
our customers’ hands.
The Qube is an unmanned aircraft system tailored to the needs of first response professionals such
as law enforcement, search and rescue and fire department personnel. Based on the Shrike platform,
the Qube incorporates an advanced touch screen interface to control the system and view the
information produced by the air vehicle’s onboard sensors. Portable and easy to assemble, operate and
stow, the Qube is designed to provide rapid airborne information within one kilometer of its launch
point in situations where time is short and risk is high.
Our line of miniature gimbaled sensor payloads provides small UAS operators with enhanced
observation and target tracking functionality. Our DDL is integrated into Puma AE, Raven and Wasp
AE, Shrike and Qube systems, enhancing their capabilities, and ultimately, the utility of our small UAS
by enabling more efficient radio spectrum utilization and communications security. Small UAS
incorporating our DDL offer many more channels as compared to our analog link, increasing the
number of air vehicles that can operate in a given area. Additionally, our DDL enables each air vehicle
to operate as an Internet-Protocol addressable hub capable of routing and relaying video, voice and
data to and from multiple other nodes on this ad hoc network. This capability enables beyond
line-of-sight operation of our small UAS, further enhancing their value proposition to our customers.
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UAS Logistics Services
In support of our small UAS we offer a suite of services that help to ensure the successful
operation of our products by our customers. These services generate incremental revenue for the
company and provide us with continuous feedback to understand the utility of our systems, anticipate
our customers’ needs and develop additional customer insights. We believe that this ongoing feedback
loop enables us to continue to provide our customers with innovative solutions that help them succeed.
We provide spare parts as well as repair, refurbishment and replacement services through our services
operation. We designed our services operation to minimize supply chain delays and support our
customers with spare parts, replacement aircraft and support whenever and wherever they need them.
One of our facilities also serves as the primary depot for repairs and spare parts.
We provide comprehensive training services to support all of our small UAS. Our highly-skilled
instructors typically have extensive military experience. We deploy training teams throughout the
continental United States and abroad to support our customers’ wide variety of training needs on both
production and development-stage systems.
UAS Mission Services
Customers who require the information generated by our small UAS but who may not wish to
purchase, operate and support the equipment themselves can contract with us for turnkey mission
services. We deploy qualified operators to locations around the world to provide UAS-generated video,
still images and geographic location information to support numerous types of missions.
UAS Contract Engineering Services
We provide contract engineering services in support of customer-funded research and development
projects, delivering new value-added technology solutions to our customers. These types of projects
typically involve developing new system solutions and technology or new capabilities for existing
solutions that we introduce as retrofits or upgrades. We recognize customer-funded research and
development projects as revenue.
UAS Technology, Research and Development
Our primary areas of technological competence represent the sum of numerous technical skills and
capabilities that help to differentiate our approach and product offerings. The following list highlights a
number of our key UAS technological capabilities:
(cid:127) lightweight, low speed aerostructures and aerodynamic design;
(cid:127) miniaturized avionics and micro/nano unmanned aircraft systems;
(cid:127) image stabilization and target tracking;
(cid:127) autonomous systems;
(cid:127) payload design, development, miniaturization and integration;
(cid:127) electric, hydrogen and hybrid propulsion systems and high-pressure-ratio turbochargers;
(cid:127) high altitude long endurance flight operations;
(cid:127) fluid dynamics;
(cid:127) miniature, low power wireless digital communications;
(cid:127) vertical takeoff and landing fixed-wing flight unmanned aircraft systems; and
(cid:127) system integration and optimization.
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Four of our UAS and tactical missile systems development initiatives are described below:
Tactical Missile System Variants. We pioneered a rapidly deployable, high-precision
tactical missile system, called Switchblade, for defensive use by ground forces. Switchblade is
now employed by the U.S. military to provide force protection to its soldiers overseas. During
a multitude of demonstrations over the course of several years, multiple potential customers
requested modifications to Switchblade to accommodate their specific mission requirements.
We performed a number of successful demonstrations and are now developing several variants
to Switchblade for new customers and applications, including deployment from sea and air
vehicles. We believe these new variants have the potential to expand our tactical missile
systems opportunities significantly.
Tern Medium Altitude Long Endurance Unmanned Aircraft System. The Defense Advanced
Research Projects Agency, or DARPA, awarded us one of two phase II contracts to develop a
new category of unmanned aircraft system capable of operating over long distances and for
long durations from small naval vessels such as destroyers. We assembled a team of industry
leading partners to design and develop our proposed solution for the Tern requirement and
we anticipate DARPA to down-select for a phase III award decision during the 2015 calendar
year. If successful, Tern has the potential to establish a new category of unmanned aircraft
system that would enable naval forces to project power more flexibly and more effectively.
Commercial Unmanned Aircraft Systems-Based Information Services.
In the same way our
small UAS provide on-demand situational awareness to military customers, we can employ our
small UAS with advanced sensors to scan vast or inaccessible infrastructure, plants or wildlife,
then process and analyze the resulting data to produce actionable information for a wide
variety of companies in industries that include energy, agriculture and natural resource
management. We have deployed this capability with early adopters and continue to gain
knowledge and experience that will enable us to further our leading market position as
airspace regulations evolve to permit what could be a large market.
Global Observer. Global Observer is our high-altitude, long-endurance unmanned aircraft
system under development to address the need for affordable, 24-hour, 365-days-a-year
persistent communications and ISR. Each Global Observer aircraft is designed to operate at
up to 65,000 feet for up to a week before landing. A complete system would include at least
two aircraft, one flying over a designated area and the other in preparation for takeoff or in
transit to or from the designated area, which would alternate positions approximately every
week to maintain an uninterrupted presence. Global Observer is the continuation of years of
research with both our own and U.S. government development funding. We developed and
tested the system under a three-and-one-half-year joint capabilities technology demonstration
program, or JCTD, sponsored by several agencies of the U.S. government. We expect the
efficiency and endurance of this unmanned aircraft system, three to four times the longest
flight time of existing payload-capable fixed-wing aerial options, to provide for dramatically
lower operating and total life cycle costs for missions where long distance persistent
communications or surveillance is critical. The Global Observer platform is intended to be the
low-cost equivalent of a 12-mile-high, redeployable satellite, providing a potential footprint of
coverage of up to 600 miles in diameter and capable of providing a broad array of services,
including high-speed broadband data, video and voice relay and ISR. We expect these
capabilities to provide the foundation for multiple high-value applications including
communications relay and ISR missions for defense and homeland security, storm tracking,
telecommunications infrastructure, wildfire detection/tracking and disaster recovery services.
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The first Global Observer aircraft developed in the JCTD successfully completed
extensive ground testing and then eight test flights at Edwards Air Force Base in California
between August 2010 and March 2011, with the last three flights using its liquid hydrogen-
fueled propulsion system. More than 18 hours into its ninth flight, after reaching 30,000 feet
altitude, the aircraft experienced a mishap that resulted in it impacting the ground on an
uninhabited portion of the base and being damaged beyond repair. Our internal analysis
quickly determined the cause of the mishap and we subsequently developed and successfully
tested a solution designed to prevent it from happening in the future.
UAS Sales and Marketing
We organize our U.S. UAS business development team members by market and customer and we
locate team members in close proximity to the customers they support, where possible. Our program
managers are organized by product and focus on designing optimal solutions and contract fulfillment,
as well as internalizing feedback from customers and users. By maintaining assigned points of contact
with our customers, we believe that we are able to maintain our relationships, service existing contracts
effectively and gain vital feedback to improve our responsiveness and product offerings.
UAS Manufacturing and Operations
Continued investment in infrastructure has established our manufacturing capability to meet
demand with scalable capacity. We have the manufacturing infrastructure to produce UAS products at
high rates, support initial low rate production for new UAS development programs and tactical missile
systems and execute initial low-rate production of large UAS. By drawing upon experienced personnel
across various manufacturing industries including aerospace, automotive and volume commodities, we
have instituted lean production systems and leverage our International Organization for
Standardization, or ISO, certification, integrated supply chain strategy, document control systems, and
process control methodologies for high volume, efficient production. Presently, we perform small UAS
manufacturing at the 85,000 square foot manufacturing facility we established in 2005. This
ISO 9001:2008 certified manufacturing facility is designed to accommodate demand of up to
1,000 aircraft per month. ISO 9001:2008 refers to a set of voluntary standards for quality management
systems. These standards are established by the ISO to govern quality management systems used
worldwide. Companies that receive ISO certification have passed audits performed by a Registrar
Accreditation Board-certified auditing company. These audits evaluate the effectiveness of companies’
quality management systems and their compliance with ISO standards. Some companies and
government agencies view ISO certification as a positive factor in supplier assessments. Our
105,000 square foot facility housing the Global Observer and Tern programs is equipped with
specialized testing and production capabilities to enable low rate production of these unique systems.
UAS Competition
The market for military small UAS continues to evolve in response to changing technologies,
shifting customer needs and expectations and the potential introduction of new products. We believe
that a number of established domestic and international defense contractors have developed or are
developing small UAS that will continue to compete directly with our products. Some of these
contractors have significantly greater financial and other resources than we possess. Our current
principal small UAS competitors include Elbit Systems Ltd., L-3 Communications Holdings, Inc. and
Lockheed Martin Corporation. We do not view large UAS such as Northrop Grumman Corporation’s
Global Hawk, General Atomics, Inc.’s Predator and its derivatives, The Boeing Company’s ScanEagle
and Textron Inc.’s Shadow as direct competitors to our small UAS because they perform different
missions, do not typically deliver their information directly to front-line ground forces and are not
hand-launched and controlled. However, we cannot be certain that these platforms will not become
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direct competitors in the future. The market for long endurance UAS is in an early stage of
development. As a result, this category is not well defined and is characterized by multiple potential
solutions. An existing contractor that claims to provide long endurance UAS is Northrop Grumman
Corporation with its Global Hawk. Several aerospace and defense contractors are pursuing this market
opportunity with proposed very long duration UAS, including The Boeing Company, Qinetiq
Group PLC, Aurora Flight Sciences Corporation, Lockheed Martin Corporation and Northrop
Grumman Corporation. Some internet technology companies have acquired small firms that focus on
this type of capability and represent potential future competitors. Companies pursuing airships as a
solution for this market include Lockheed Martin Corporation and Northrop Grumman Corporation.
Companies pursuing satellites as a solution for this market include The Boeing Company, Lockheed
Martin Corporation, General Dynamics Corporation, EADS N.V., Ball Corporation and Orbital
Sciences Corporation.
The suppliers of UAS mission services include some competitors in the small UAS market as well
as companies focused on delivering UAS related services. UAS manufacturers such as The Boeing
Company’s Insitu Business and Textron Inc.’s AAI Corporation currently provide UAS mission services
to military customers while other companies such as ISR Group Inc. and VT Group plc focus on
providing UAS related services.
The market for tactical missile systems is in an early stage of development, but it is evolving
rapidly. Potential competitors in this market include Textron Inc. and Lockheed Martin Corporation.
The market for commercial UAS products and services is in an early stage of development, but is
evolving rapidly, generating a great deal of interest as government regulations evolve to accommodate
commercial UAS operations in the National Airspace System and in the airspace of other countries.
Given the breadth of applications and the diversity of industries that could benefit from UAS
technology, a growing number of potential competitors in this market include consumer drone
manufacturers who seek to enhance their systems’ capabilities over time; other small UAS
manufacturers, including large aerospace companies; aerial surveying and mapping service providers;
ground-based surveying and mapping service providers; satellite imagery providers and specialty system
manufacturers and service providers aiming to address specific market segments. The emerging
non-military market is attracting numerous additional competitors given perceived lower barriers to
entry and a much more fragmented marketplace as compared to the military market. Potential
additional competitors include start-up companies providing low cost solutions.
We believe that the principal competitive factors in the markets for our UAS products and services
include product performance, features, acquisition cost, lifetime operating cost, including maintenance
and support, ease of use, integration with existing equipment and processes, quality, reliability,
customer support, brand and reputation.
UAS Regulation
Due to the fact that we contract with the DoD and other agencies of the U.S. government, we are
subject to extensive federal regulations, including the Federal Acquisition Regulations, Defense Federal
Acquisitions Regulations, Truth in Negotiations Act, Foreign Corrupt Practices Act, False Claims Act
and the regulations promulgated under the DoD Industrial Security Manual, which establishes the
security guidelines for classified programs and facilities as well as individual security clearances. The
federal government audits and reviews our performance on contracts, pricing practices, cost structure,
and compliance with applicable laws, regulations and standards. Like most government contractors, our
contracts are audited and reviewed on a continual basis by federal agencies, including the Defense
Contract Management Agency, or DCMA, and the Defense Contract Audit Agency, or DCAA.
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Certain of these regulations impose substantial penalties for violations, including suspension or
debarment from government contracting or subcontracting for a period of time. We monitor all of our
contracts and contractual efforts to minimize the possibility of any violation of these regulations.
In addition, we are subject to industry-specific regulations due to the nature of the products and
services we provide.
For example, we are subject to further U.S. government regulation, including by the FAA, which
regulates airspace for all air vehicles in the U.S. National Airspace System, by the National
Telecommunications and Information Administration and the Federal Communications Commission,
which regulate the wireless communications upon which our UAS depend in the United States, and
under the International Traffic in Arms Regulations, which regulates the export of controlled technical
data, defense articles and defense services. In 2006, the FAA issued a clarification of its existing policies
stating that, in order to engage in public use of small UAS in the U.S. National Airspace System, a
public (government) operator must obtain a Certificate of Authorization, or COA, from the FAA or fly
in restricted airspace. The FAA’s COA approval process requires that the public operator certify the
airworthiness of the aircraft for its intended purpose, that a collision with another aircraft or other
airspace user is extremely improbable, that the small unmanned aircraft system complies with
appropriate cloud and terrain clearances and that the operator or spotter of the small unmanned
aircraft system is generally within one half-mile laterally and 400 feet vertically of the small unmanned
aircraft system while in operation. Furthermore, the FAA’s clarification of existing policy states that the
rules for radio-controlled hobby aircraft do not apply to public or commercial use of small UAS. In
2012, the U.S. Congress mandated that the FAA develop rules that provide for the integration of small
UAS into the U.S. National Airspace System by September 30, 2015.
The FAA issued the first restricted type certificate for the commercial operation of an unmanned
aircraft over American soil to our Puma AE system in 2014. Under a COA, we are operating Puma AE
systems in the Prudhoe Bay area of Alaska to support a major oil and gas customer. The Secretary of
Transportation has the authority to determine whether an airworthiness certificate is required for a
UAS to operate safely in the U.S. National Airspace System. On September 25, 2014 the FAA began
issuing case-by-case authorization for certain unmanned aircraft to perform commercial operations
prior to the finalization of the rules providing for the integration of small UAS into the U.S. National
Airspace System. As of May 11, 2015 the FAA had granted us four exemptions for the use of our
Puma AE and Shrike systems for agriculture, aerial survey, and patrol operations and for inspections of
fixed infrastructures in controlled environments. On February 15, 2015 the FAA proposed a framework
of regulations that would allow routine use of certain small unmanned aircraft systems (UAS) in the
U.S. National Airspace System. The FAA proposal offers safety rules for small UAS (under 55 pounds)
conducting non-recreational operations. The rule would limit flights to daylight and visual-line-of-sight
operations. The rule also addresses height restrictions, operator certification, optional use of a visual
observer, aircraft registration and marking, and operational limits. The FAA requested and is reviewing
public comments to the notice of proposed rulemaking with the intent of proposing final rules at some
point in the future. Until the FAA finalizes the rules respecting UAS in the U.S. National Airspace
System, the prior rules remain in effect.
Furthermore, our non-U.S. operations are subject to the laws and regulations of foreign
jurisdictions, which may include regulations that are more stringent than those imposed by the U.S.
government on our U.S. operations.
UAS Government Contracting Process
We sell the significant majority of our small UAS products and services as the prime contractor
under contracts with the U.S. government. Certain important aspects of our government contracts are
described below.
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UAS Bidding Process
Most of our current government contracts were awarded through a competitive bidding process.
The U.S. government awards competitive-bid contracts based on proposal evaluation criteria established
by the procuring agency. Competitive-bid contracts are awarded after a formal bid and proposal
competition among providers. Interested contractors prepare a bid and proposal in response to the
agency’s request for proposal or request for information. A bid and proposal is usually prepared in a
short time period in response to a deadline and requires the extensive involvement of numerous
technical and administrative personnel. Following award, competitive-bid contracts may be challenged
by unsuccessful bidders.
UAS Funding
The funding of U.S. government programs is subject to congressional appropriations. Although
multi-year contracts may be authorized in connection with major procurements, Congress generally
appropriates funds on a fiscal year basis, even though a program may continue for many years.
Consequently, programs are often only partially funded initially, and additional funds are committed
only as Congress makes further appropriations.
The U.S. military funds its contracts for our full-rate production UAS either through operational
needs statements or as programs of record. Operational needs statements represent allocations of
discretionary spending or reallocations of funding from other government programs. Funding for our
production of initial Raven system deliveries, for example, was provided through operational needs
statements. We define a program of record as a program which, after undergoing extensive DoD review
and product testing, is included in the five-year government budget cycle, meaning that funding will be
allocated for purchases under these contracts during the five-year cycle, absent affirmative action by the
customer or Congress to change the budgeted amount. Funding for these programs is subject to annual
approval.
UAS Material Government Contract Provisions
All contracts with the U.S. government contain provisions, and are subject to laws and regulations,
that give the government rights and remedies not typically found in commercial contracts, including
rights that allow the government to:
(cid:127) terminate existing contracts for convenience, which affords the U.S. government the right to
terminate the contract in whole or in part anytime it wants for any reason or no reason, as well
as for default;
(cid:127) reduce or modify contracts or subcontracts, if its requirements or budgetary constraints change;
(cid:127) cancel multi-year contracts and related orders, if funds for contract performance for any
subsequent year become unavailable;
(cid:127) claim rights in products and systems produced by its contractors if the contract is cost
reimbursable and the contractor produces the products or systems during the performance of the
contract;
(cid:127) adjust contract costs and fees on the basis of audits completed by its agencies;
(cid:127) suspend or debar a contractor from doing business with the U.S. government; and
(cid:127) control or prohibit the export of products.
Generally, government contracts are subject to oversight audits by government representatives.
Compensation in the event of a termination, if any, is limited to work completed at the time of
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termination. In the event of termination for convenience, the contractor may receive a certain
allowance for profit on the work performed.
UAS Government Contract Categories
We have three types of government contracts, each of which involves a different payment
methodology and level of risk related to the cost of performance. These basic types of contracts are
typically referred to as fixed-price contracts, cost reimbursable contracts, including cost-plus-fixed fee,
cost-plus-award fee, and cost-plus-incentive fee, and time-and-materials contracts.
In some cases, depending on the urgency of the project and the complexity of the contract
negotiation, we will enter into a Letter Contract prior to finalizing the terms of a definitive fixed-price,
cost reimbursable or time-and-materials definitive contract. A Letter Contract is a written preliminary
contractual instrument that provides limited initial funding and authorizes us to begin immediately
manufacturing supplies or performing services while negotiating the definitive terms of the
procurement.
Fixed-Price. These contracts are not subject to adjustment by reason of costs incurred in
the performance of the contract. With this type of contract, we assume the risk that we will
not be able to perform at a cost below the fixed-price, except for costs incurred because of
contract changes ordered by the customer. Upon the U.S. government’s termination of a
fixed-price contract, generally we would be entitled to payment for items delivered to and
accepted by the U.S. government and, if the termination is at the U.S. government’s
convenience, for payment of fair compensation for work performed plus the costs of settling
and paying claims by any terminated subcontractors, other settlement expenses and a
reasonable allowance for profit on the costs incurred.
Cost Reimbursable. Cost reimbursable contracts include cost-plus-fixed fee contracts,
cost-plus-award fee contracts and cost-plus-incentive fee contracts. Under each type of
contract, we assume the risk that we may not be able to recover costs if they are not allowable
under the contract terms or applicable regulations, or if the costs exceed the contract funding.
(cid:127) Cost-plus-fixed fee contracts are cost reimbursable contracts that provide for payment
of a negotiated fee that is fixed at the inception of the contract. This fixed fee does not
vary with actual cost of the contract, but may be adjusted as a result of changes in the
work to be performed under the contract. This contract type poses less risk of loss than
a fixed-price contract, but our ability to win future contracts from the procuring agency
may be adversely affected if we fail to perform within the maximum cost set forth in
the contract.
(cid:127) A cost-plus-award fee contract is a cost reimbursable contract that provides for a fee
consisting of a base amount, which may be zero, fixed at inception of the contract and
an award amount, based upon the government’s satisfaction with the performance
under the contract. With this type of contract, we assume the risk that we may not
receive the award fee, or only a portion of it, if we do not perform satisfactorily.
(cid:127) A cost-plus-incentive fee contract is a cost reimbursable contract that provides for an
initially negotiated fee to be adjusted later by a formula based on the relationship of
total allowable costs to total target costs.
We typically experience lower profit margins and lower risk under cost reimbursable
contracts than under fixed-price contracts. Upon the termination of a cost reimbursable
contract, generally we would be entitled to reimbursement of our allowable costs and, if the
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termination is at the U.S. government’s convenience, a total fee proportionate to the
percentage of work completed under the contract.
Time-and-Materials. Under a time-and-materials contract, our compensation is based on
a fixed hourly rate established for specified labor or skill categories. We are paid at the
established hourly rates for the hours we expend performing the work specified in the
contract. Labor costs, overhead, general and administrative costs and profit are included in the
fixed hourly rate. Materials, subcontractors, travel and other direct costs are reimbursed at
actual costs plus an amount for material handling. We make critical pricing assumptions and
decisions when developing and proposing time-and-materials labor rates. We risk reduced
profitability if our actual costs exceed the costs incorporated into the fixed hourly labor rate.
One variation of a standard time-and-materials contract is a time-and-materials, award fee
contract. Under this type of contract, a positive or negative incentive can be earned based on
achievement against specific performance metrics.
UAS Indefinite Delivery Indefinite Quantity Contract Form
The U.S. government frequently uses IDIQ contracts and IDIQ-type contract forms, such as cost
reimbursable and fixed price contracts with multiple one-year options, to obtain fixed-price, cost
reimbursable and time-and-materials contractual commitments to provide products or services over a
period of time pursuant to established general terms and conditions. At the time of the award of an
IDIQ contract or IDIQ-type contract, the U.S. government generally commits to purchase only a
minimal amount of products or services from the contractor to whom such contract is awarded.
After award of an IDIQ contract the U.S. government may issue task orders for specific services or
products it needs. The competitive process to obtain task orders under an award contract is limited to
the pre-selected contractors. If an IDIQ contract has a single prime contractor, then the award of task
orders is limited to that contractor. If the contract has multiple prime contractors, then the award of
the task order is competitively determined among only those prime contractors.
IDIQ and IDIQ-type contracts typically have multi-year terms and unfunded ceiling amounts that
enable, but do not commit, the U.S. government to purchase substantial amounts of products and
services from one or more contractors.
Efficient Energy Systems
Our EES business segment addresses the increasing economic, environmental and energy security
value of electric transportation with solutions for developing, manufacturing and charging electric
vehicles.
Industry Background
Electric Vehicle Charging Systems
Plug-in electric vehicles or PEVs and advanced hybrid electric vehicles or HEVs require on-board
battery packs to provide the electricity that powers their operation. These battery packs vary in
chemistry, size, weight, shape, and energy storage capacity. As drivers operate electric vehicles, their
battery packs discharge electricity similar to the way an internal combustion vehicle’s gasoline tank
supplies fuel to the engine as it is driven. Upon discharging the battery pack, the driver of an electric
vehicle must either replace it with a fully charged pack, if it is removable, or recharge the pack while it
remains in the vehicle. Because of the differences in battery sizes and composition, as well as the
manner in which each vehicle is operated and the type of electric service available, a variety of charging
systems exist to support these vehicles. These charging systems range from relatively slow charging
devices that require many hours to completely recharge a battery pack to very fast chargers that can do
so in minutes.
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Passenger and Fleet Electric Vehicle Charging Systems
Numerous factors contribute to a growing interest among consumers, governments and automakers
in vehicles that do not rely solely on fossil fuels. These factors include:
(cid:127) concerns regarding the environmental impact of resource extraction and carbon emissions
associated with fossil fuel-based transportation;
(cid:127) awareness of the geopolitical and economic costs associated with the current dependence on
petroleum imports;
(cid:127) anticipation of future energy price volatility;
(cid:127) the increasing demand for automobiles in large, rapidly growing markets such as China and
India and the resulting anticipated growth in demand for fossil fuels; and
(cid:127) government and private investments in ‘‘clean’’ technologies.
In response to these factors most major automotive manufacturers around the world are
developing and introducing modern PEVs for everyday consumer and fleet transportation. Vehicles in
this class incorporate battery electric drive systems either in a dedicated format in which an onboard
battery pack supplies electricity to one or more electric motors, or in an advanced hybrid design, in
which an onboard battery pack provides electricity to an electric motor, and a small onboard internal
combustion engine recharges the battery as needed. A PEV requires that its battery pack be recharged
from an external power source or be replaced with a fully charged battery pack. An advanced HEV
does not require recharging from an external power source because an onboard gasoline powered
internal combustion engine recharges the battery pack, but using an external power source can
minimize gasoline consumption and vehicle carbon emissions.
Most EVs recharge using external systems installed at home, work and at public places such as
shopping centers, supermarkets, highway rest stops, and locations similar to gasoline refueling stations.
With a growing number of new consumer electric vehicle models now deployed, and additional models
scheduled to follow, there exists demand for charging infrastructure to enable their safe, reliable and
practical recharging.
The rate at which a passenger electric vehicle battery pack can be recharged depends on a number
of factors including battery type, size, ambient temperature, the capacity of the vehicle’s onboard
controller to convert electricity to the proper format for storage in a battery pack, its ability to receive
high current charging and the amount of power available. Electric vehicle charging systems may be
segmented into three general categories.
Level
Infrastructure Requirement
Recharge Time
Level 1 . . . . . . . . . . . . . . . . . . .
Power cord with safety features
that plugs into a dedicated
120-volt AC outlet
Capable of slow recharge that
could require up to 24 hours or
more for certain battery packs
Level 2, known as Electric Vehicle
Supply Equipment
. . . . . . . . . . . A hard-wired or portable device
that requires professional
installation of a dedicated 240-volt
AC circuit
Level 3, DC or fast/quick charge . Typically requires installation onto
a three-phase, 480-volt AC circuit
Capable of fully recharging most
battery packs in two to six hours
Capable of fully recharging
battery packs designed to accept
such a charge in minutes
We believe that broad adoption of passenger electric vehicles requires a mix of these types of
charging systems, distributed so as to make them accessible to drivers when and where they need them.
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The adoption of passenger electric vehicles also necessitates supporting services, such as: experienced
electrical assessment and installation, the integration of PEVs and charging systems into smart grids
and the ability to monitor and manage the use of electricity and provide for various payment methods
and plans such as subscription and credit card point-of-sale.
Industrial Electric Vehicle Charging Systems
Industrial electric vehicles have been in use extensively for decades. In industrial environments
such as factories, distribution centers and airports, fast charge technology, which charges a battery with
a high electrical current while the battery remains in the vehicle, eliminates the need for frequent
battery changing and a dedicated battery room. This approach increases productivity, reduces operating
costs and improves facility safety. The earliest adopters of fast charge technology include the
automotive and air transportation industries. Large food and retail industry customers now also utilize
fast charge technology.
Industrial electric vehicles rely on large onboard batteries that can consume up to 17 cubic feet
and weigh up to 3,500 pounds. In multi-shift fleet operations, traditional slow charging systems require
users to exchange vehicle batteries throughout the day because these batteries discharge their energy
through vehicle usage and there is insufficient vehicle downtime to recharge them during a shift. As a
result, drivers must leave their work areas when the battery reaches a low state of charge and drive to a
dedicated battery changing room, which often occupies valuable floor space and is frequently located
far from a driver’s work area. The driver, or in some cases a dedicated battery attendant, must then
remove the battery from the vehicle, place it on a storage rack, connect it to a conventional battery
charger, identify a fully-charged battery, move it into the vehicle’s battery compartment and reconnect
the battery to the motor before the driver may return to the work area. These battery changes take
place every day in facilities around the world, resulting in reduced material movement and increased
operating costs. Furthermore, depending on the type of battery, conventional battery chargers can
require up to eight hours to recharge the battery, which then must cool for up to an additional eight
hours before it is ready to be used again. Consequently, depending on vehicle usage and the number of
shifts in an operation, a fleet may require more than one battery per vehicle, which necessitates
additional storage space, chargers and maintenance time. Moreover, the high levels of heat generated
by conventional battery chargers during their normal use can cause excessive evaporation of the water
contained in the battery and damage to the battery’s components. Over time, this evaporation of fluid
and damage to components result in battery degradation and adversely affect the battery’s life.
Power Cycling and Test Systems
Developers and manufacturers of electric and hybrid electric vehicles typically conduct a variety of
tests on the electric propulsion and energy storage systems that convert electricity to motion. These
tests include simulating the consumption, conversion and storage of electricity through a range of
operating scenarios, and include long-term testing to simulate the rigors of real-world driving.
Developers of battery packs, electric motors and fuel cells also test their devices to validate design
hypotheses and identify potential operating issues. Customers include commercial, government, military
and university research and development labs as well as commercial manufacturing facilities.
Our EES Solutions
EES Products
Our EES business segment produces electric transportation and industrial productivity solutions for
commercial, consumer and government customers, develops new potential electric transportation
solutions and performs contract engineering services. These solutions consist of: electric vehicle
charging systems, services and related solutions for plug-in passenger and fleet vehicles, PosiCharge
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industrial electric vehicle charging systems for electric material handling vehicles and airport ground
support equipment, and power cycling and test systems for developers and manufacturers of EVs as
well as battery packs, electric motors and fuel cells. For the fiscal years ended April 30, 2015, 2014 and
2013, EES sales accounted for 15%, 17% and 19%, respectively, of our revenue. We believe that the
markets for our electric vehicle charging systems and power cycling and test systems continue to
develop and that continued diversification of our customer base and the increasing adoption of electric
vehicles will support increased penetration into target markets.
Passenger and Fleet Electric Vehicle Charging Systems
In response to automakers’ introductions of PEVs and broader trends favoring electric
transportation, we have developed solutions to support the adoption and use of PEVs by nearly every
major automaker and many startups worldwide. Our initial EV charging technology emerged from our
development of the GM Impact, the first modern EV. Over two decades we improved the technology,
deployed it to industrial markets, and adapted it for the current generation of EVs. We believe that
most EV drivers will charge their vehicles overnight at their homes. Those without a charging location
at home or who make trips beyond the range of their vehicle’s battery pack will require public charging
infrastructure. Our strategy is to offer a full solution of charging infrastructure, including TurboCord
portable dual voltage level 2 charging cords, overnight home chargers, public chargers, public fast
chargers, installation services, data collection systems and communications through multiple wired and
wireless data communications options. We offer an integrated solution designed to enable the broad
adoption and the practical use of PEVs and HEVs.
A component of our strategy is to develop relationships across multiple channels that lever our
strengths and provide complementary pathways to market. We have announced several such agreements
to date with leading auto manufacturers, electric utilities and state and municipal governments.
We believe these relationships represent a valuable position from which to expand our charging
infrastructure footprint. We continue to work with automakers, utilities and government agencies at
multiple levels as well as with private industry to explore business models and to promote our solutions.
In addition to the thousands of level 2 charging systems we have deployed in North America, we
have also deployed PEV fast charging systems, which we view as a powerful tool that can help enable
the broader adoption of PEVs.
Passenger and Fleet Electric Vehicle Charging Services
We have established broad geographic coverage in North America to provide installation and
repair services for our growing footprint of passenger and fleet electric vehicle charging systems. We
identify, qualify, select, train, certify and monitor the performance of these contractors and equip them
with proprietary tools, expertise and web-based information systems to facilitate the successful
installation and support of our charging systems as this market opportunity grows. Our 24-hour
customer service center provides support to answer customer inquiries and promote a high level of
customer satisfaction.
In addition to supplying and installing stand-alone passenger and fleet EV charging systems that
do not communicate with a network, we also supply and install charging systems that possess the ability
to connect wirelessly with a web-accessible, centralized database for two-way communication and asset
management. This capability enables us to provide an integrated, networked solution to support
subscriber and utility business models. Our charging systems incorporate meters that provide electricity
consumption information for analysis and revenue generation and permit remote management.
The appearance of our products and services can readily be customized to support our partners’
marketing programs. This capability is designed to enable automakers, utilities, government agencies
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and other businesses to deliver a branded solution to their customers that will enhance their customer
relationships.
PosiCharge Industrial Electric Vehicle Charging System
Developed from our work on electric and HEVs and advanced battery systems in the 1990s,
PosiCharge industrial electric vehicle charging systems quickly and safely recharge industrial electric
vehicle batteries while the batteries remain in the vehicle during regularly scheduled breaks and at
other times when the vehicle is not in use. By eliminating battery changing, PosiCharge systems
improve supply chain productivity by returning time to the vehicle operator to complete more work.
Furthermore, because of their advanced efficient energy capabilities, PosiCharge systems can reduce the
amount of electricity required to support industrial electric vehicles by several hundred dollars per year
per vehicle, as compared to less efficient conventional battery chargers. Many customers who
implement our charging systems in their facilities are able to re-purpose the battery changing room
floor space for more productive activities and create a safer working environment, as drivers or battery
attendants no longer need to exchange large lead-acid batteries continually.
The proprietary battery charging algorithms built into PosiCharge systems, which are tailored to
battery type, brand and size, maximize the rate at which they deliver energy into the battery while
minimizing heat generation and its damaging effects on the battery’s internal components. We
developed these algorithms over years of advanced battery testing and usage. We believe our work to
develop these algorithms contributed to the major battery manufacturers offering warranties for the use
of their batteries with our charging systems, which provided a critical assurance to customers that our
rapid charging systems would not harm their batteries. In combination with a weekly equalization
charge that balances all the cells within the battery pack, our ‘‘intelligent’’ charging process enhances
the performance of batteries. We believe that competing rapid and conventional charging systems,
which lack our current and voltage regulating tailored charge algorithms and monitoring capabilities,
may actually contribute to lower battery performance and lifespan, ultimately resulting in higher battery
costs and degraded vehicle performance.
Our PosiCharge offering is focused on providing smart, efficient products to enhance the charging
process and help customers maximize the life and performance of their industrial fleets by managing
and extending the lives of their batteries, and thereby increasing the productivity of their drivers.
Power Cycling and Test Systems
We supply a line of power cycling and test systems to research and development organizations that
focus on electric propulsion systems, electric generation systems and electricity storage systems.
Customers employ these systems to test batteries, electric motors, electric and hybrid drivetrains and
fuel cell systems.
Our line of DC test systems has the flexibility to perform a variety of electric load tests. With a
power range (+/(cid:4)5kW to +/(cid:4)800kW) of bi-directional DC equipment, our power cycling and test
systems can handle a wide variety of DC supply or load requirements—from lead acid to the latest
lithium-ion battery chemistries to fuel cells with integrated power electronics. In addition, these systems
can emulate any drive train component, enabling the testing of individual components or partial drive
trains accurately and realistically, and allowing hardware-in-the-loop testing. We also offer flexible
software control options via the C language Remote Operation System and Windows-based languages
such as LabVIEW or CAN.
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EES Technology, Research and Development
The following list highlights a number of our key EES technological capabilities:
(cid:127) battery management and testing;
(cid:127) power electronics and controls;
(cid:127) efficient electric drive systems and controls;
(cid:127) high-density energy packaging;
(cid:127) efficient electric power generation, storage and management;
(cid:127) charging algorithms and thermal management;
(cid:127) on/off grid controls and controls integration;
(cid:127) system integration and optimization; and
(cid:127) web-based real-time data collection and reporting.
EES Sales and Marketing
Passenger and Fleet Electric Vehicle Charging Systems
As the market for PEVs evolves, we are pursuing numerous potential sales channels for our
products and services. We continue to seek to partner with auto manufacturers, utilities, government
agencies and others to position ourselves for an increase in demand for charging solutions associated
with electric and HEV adoption. We also sell our charging products to consumers, both directly and via
major retailers. We have a broad network of licensed electrical contractors whom we train and certify
to install and service home and public charging systems. To enable this installation and service network
we have developed an e-commerce platform to integrate customers’ orders, inventory management,
dispatching and provisioning, billing and product and service traceability. This platform, along with our
broad network, is designed to support our growth as we pursue numerous electric vehicle charging
opportunities.
Industrial Electric Vehicle Charging Systems
We primarily sell our PosiCharge industrial electric vehicle charging systems through a dedicated,
direct sales force complemented by a network of resellers and industrial battery and lift-truck dealers.
The sales team targets large entities with the potential for domestic and international enterprise
adoption of our solutions. The sales team also coordinates distribution of PosiCharge systems through
battery and lift-truck dealers. These dealers’ relationships with, and proximity to, our customers’
facilities enable them to sell our solutions and provide post-sale service to our customers. We believe
that these dealers are well suited to address the large number of smaller and geographically dispersed
customers with industrial vehicle fleets. When evaluating a facility for its ability to benefit from
PosiCharge systems, we typically perform a detailed analysis of the customer’s operations. This analysis
allows us to quantify the benefit projected for a PosiCharge system implementation, helping customers
to determine for themselves if the business case is sufficiently compelling.
Power Cycling and Test Systems
We sell our power cycling and test systems through a dedicated, direct sales force and through a
network of international distributors and representatives who have access to the research and
development and manufacturing organizations that procure and use these types of systems. Given the
distances involved, we enable and often rely on our international distributors to provide service in
support of our customers.
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EES Manufacturing and Operations
We perform assembly and testing of our power cycling and test systems at a 20,000 square foot,
ISO 9001:2008 and ISO14001:2004 certified facility. We designed this facility for flexibility, using a work
cell model for final assembly, and have included fixtures optimized for final testing. We utilize contract
manufacturing for the production of the majority of our PosiCharge industrial electric vehicle charging
systems. We have also implemented a contract manufacturing strategy to support our passenger and
fleet electric and HEV charging systems business opportunity.
EES Competition
Competitors in the emerging market for passenger and fleet electric and HEV charging systems
include focused charging system suppliers such as ChargePoint, Inc. and ClipperCreek, Inc. and large
industrial electrical device suppliers such as Bosch Automotive Service Solutions LLC, Delta
Electronics, Inc., Eaton Corporation, General Electric Company, Leviton Manufacturing Co., Inc.,
Schneider Electric SA, The ABB Group and Siemens AG.
The primary direct competitors to PosiCharge systems are other fast charge suppliers, including
Aker Wade Power Technologies LLC, Minit-Charger and PowerDesigners, LLC. Some of the major
industrial motive battery suppliers have aligned themselves with fast charge suppliers. In addition, our
PosiCharge systems compete against the traditional method of battery changing. Competitors in this
area include suppliers of battery changing equipment and infrastructure, designers of battery changing
rooms, battery manufacturers and dealers who may experience reduced sales volume because
PosiCharge systems reduce or eliminate the need for extra batteries.
Direct competitors for our power cycling and test systems include Bitrode Corporation and
Digatron Power Electronics.
We believe that the principal competitive factors in the markets for our products and services
include product performance, safety, features, acquisition cost, lifetime operating cost, including
maintenance and support, ease of use, integration with existing equipment, quality, reliability, customer
support, brand and reputation.
For additional financial information with respect to our UAS and EES segments, please see
Note 18 to our consolidated financial statements, which are included in Item 8, ‘‘Financial Statements
and Supplementary Data’’ of this Annual Report.
Item 1A. Risk Factors.
General Business Risks
We rely heavily on sales to the U.S. government, particularly to agencies of the Department of Defense.
Historically, a significant portion of our total sales and substantially all of our small UAS sales
have been to the U.S. government and its agencies. Sales to the U.S. government, either as a prime
contractor or subcontractor, represented approximately 80% of our revenue for the fiscal year ended
April 30, 2015. The DoD, our principal U.S. government customer, accounted for approximately 59%
of our revenue for the fiscal year ended April 30, 2015. We believe that the success and growth of our
business for the foreseeable future will continue to depend to a significant degree on our ability to win
government contracts, in particular from the DoD. Many of our government customers are subject to
budgetary constraints and our continued performance under these contracts, or award of additional
contracts from these agencies, could be jeopardized by spending reductions, including constraints on
government spending imposed by the Budget Control Act of 2011, or budget cutbacks at these
agencies. The funding of U.S. government programs is uncertain and dependent on continued
congressional appropriations and administrative allotment of funds based on an annual budgeting
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process. We cannot assure you that current levels of congressional funding for our products and
services will continue and that our business will not decline. Furthermore, all of our contracts with the
U.S. government are terminable by the U.S. government at will. A significant decline in government
expenditures generally, or with respect to programs for which we provide products, could adversely
affect our business and prospects. Our operating results may also be negatively impacted by other
developments that affect these government programs generally, including the following:
(cid:127) changes in government programs that are related to our products and services;
(cid:127) adoption of new laws or regulations relating to government contracting or changes to existing
laws or regulations;
(cid:127) changes in political or public support for security and defense programs;
(cid:127) delays or changes in the government appropriations and budget process;
(cid:127) uncertainties associated with the current global threat environment and other geo-political
matters; and
(cid:127) delays in the payment of our invoices by government payment offices.
These developments and other factors could cause governmental agencies to reduce their
purchases under existing contracts, to exercise their rights to terminate contracts at-will or to abstain
from renewing contracts, any of which would cause our revenue to decline and could otherwise harm
our business, financial condition and results of operations.
Military transformation and changes in overseas operational levels may affect future procurement priorities
and existing programs, which could limit demand for our UAS.
Over the last decade, operational activity in Afghanistan and Iraq led to adoption and an increase
in demand for our small UAS. More recently, the U.S. military has reduced its presence and
operational activity in Afghanistan and Iraq, reducing demand for certain of our small UAS products
from prior levels. We cannot predict whether the reduction in overseas operational levels will continue,
how future procurement priorities related to defense transformation will be impacted or how changes
in the threat environment will impact opportunities for our small UAS business in terms of existing,
additional or replacement programs. If defense transformation or overseas operations cease or slow
down, then our business, financial condition and results of operations could be impacted.
We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
Our UAS, EV charging systems and other energy technologies are sold in new and rapidly evolving
markets. The commercial UAS market and EV markets are in early stages of customer adoption.
Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately
predict the extent to which demand for our products will increase, if at all. The challenges, risks and
uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability
to do the following:
(cid:127) generate sufficient revenue to maintain profitability;
(cid:127) acquire and maintain market share;
(cid:127) achieve or manage growth in our operations;
(cid:127) develop and renew contracts;
(cid:127) attract and retain additional engineers and other highly-qualified personnel;
(cid:127) successfully develop and commercially market new products;
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(cid:127) adapt to new or changing policies and spending priorities of governments and government
agencies; and
(cid:127) access additional capital when required and on reasonable terms.
If we fail to address these and other challenges, risks and uncertainties successfully, our business,
results of operations and financial condition would be materially harmed.
We face competition from other firms, many of which have substantially greater resources.
The defense industry is highly competitive and generally characterized by intense competition to
win contracts. Our current principal small UAS competitors include Elbit Systems Ltd., L-3
Communications Holdings Inc. and Lockheed Martin Corporation. We do not view large UAS such as
Northrop Grumman Corporation’s Global Hawk, General Atomics, Inc.’s Predator and related products,
The Boeing Company’s ScanEagle and Textron Inc.’s Shadow as direct competitors because they
perform different missions, do not typically deliver their information directly to front-line ground
forces, and are not hand launched and controlled. However, we cannot be certain that these platforms
will not become direct competitors in the future. Some of these firms have substantially greater
financial, management, research and marketing resources than we have. Our UAS services business also
faces competition from smaller businesses that can provide training and logistics services for multiple
UAS platforms, including our small UAS.
The primary direct competitors to our PosiCharge industrial EV charging system business are other
fast charge suppliers, including Aker Wade Power Technologies LLC, PowerDesigners, LLC and Minit-
Charger as well as industrial battery manufacturers that distribute fast charging systems from these
suppliers. The primary direct competitors to our power cycling and test system business are other test
system suppliers, including Bitrode Corporation and Digatron Firing Circuits. Our primary competitors
in the emerging market for passenger and fleet EV charging systems include charging system suppliers
such as ChargePoint, Inc. and ClipperCreek, Inc. and large industrial electrical device suppliers such as
Bosch Automotive Service Solutions LLC, Delta Electronics, Inc., Eaton Corporation, General Electric
Company, Leviton Manufacturing Co., Inc., Schneider Electric SA, the ABB Group and Siemens AG.
Our EV charging system installation and support services business faces competition from local licensed
electricians as well as larger electrical service providers.
Our competitors may be able to provide customers with different or greater capabilities or benefits
than we can provide in areas such as technical qualifications, past contract performance, geographic
presence, price and the availability of key professional personnel, including those with security
clearances. Furthermore, many of our competitors may be able to utilize their substantially greater
resources and economies of scale to develop competing products and technologies, manufacture in high
volumes more efficiently, divert sales away from us by winning broader contracts or hire away our
employees by offering more lucrative compensation packages. Small business competitors in our
services businesses may be able to offer more cost competitive services, due to their lower overhead
costs, and take advantage of small business incentive and set-aside programs for which we are
ineligible. In the event that the market for small UAS or EV charging systems and services expands, we
expect that competition will intensify as additional competitors enter the market and current
competitors expand their product lines. In order to secure contracts successfully when competing with
larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower
aggregate payments to us over the life of the contract, which could adversely affect our margins. In
addition, larger diversified competitors serving as prime contractors may be able to supply underlying
products and services from affiliated entities, which would prevent us from competing for
subcontracting opportunities on these contracts. Our failure to compete effectively with respect to any
of these or other factors could have a material adverse effect on our business, prospects, financial
condition or operating results.
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If the UAS, tactical missile systems, and EV charging markets do not experience significant growth, if we
cannot expand our customer base or if our products do not achieve broad acceptance, then we may not be
able to achieve our anticipated level of growth.
For the fiscal year ended April 30, 2015, our UAS and EES businesses accounted for 85% and
15% of our total revenue, respectively. We cannot accurately predict the future growth rates or sizes of
these markets. Demand for our products may not increase, or may decrease, either generally or in
specific markets, for particular types of products or during particular time periods. We believe the
market for EV charging is nascent. Moreover, there are only a limited number of major programs
under which the U.S. military, our primary customer, is currently funding the development or purchase
of our UAS and tactical missile systems. Although we are seeking to expand our UAS customer base to
include foreign governments, domestic non-military agencies and commercial customers, we cannot
assure you that our efforts will be successful. The expansion of the UAS, tactical missile systems, and
EV charging system markets in general, and the market for our products in particular, depends on a
number of factors, including the following:
(cid:127) customer satisfaction with these types of systems as solutions;
(cid:127) the cost, performance and reliability of our products and products offered by our competitors;
(cid:127) customer perceptions regarding the effectiveness and value of these types of systems;
(cid:127) the availability and adoption of EVs and HEVs;
(cid:127) limitations on our ability to market our UAS products and services outside the United States
due to U.S. government regulations;
(cid:127) obtaining timely regulatory approvals, including, with respect to our small UAS business, access
to airspace and wireless spectrum; and, with respect to our EV charging business, obtaining
proper certifications and licenses to offer and perform electrical installation work and continuing
compliance with industry standards; and
(cid:127) marketing efforts and publicity regarding these types of systems.
Even if UAS, tactical missile systems, and EV charging systems gain wide market acceptance, our
products may not adequately address market requirements and may not continue to gain market
acceptance. If these types of systems generally, or our products specifically, do not gain wide market
acceptance, then we may not be able to achieve our anticipated level of growth and our revenue and
results of operations would suffer.
If critical components or raw materials used to manufacture our products become scarce or unavailable, then
we may incur delays in manufacturing and delivery of our products, which could damage our business.
We obtain hardware components, various subsystems and systems from a limited group of
suppliers. We do not have long-term agreements with any of these suppliers that obligate them to
continue to sell components, subsystems, systems or products to us. Our reliance on these suppliers
involves significant risks and uncertainties, including whether our suppliers will provide an adequate
supply of required components, subsystems, or systems of sufficient quality, will increase prices for the
components, subsystems or systems and will perform their obligations on a timely basis.
In addition, certain raw materials and components used in the manufacture of our products are
periodically subject to supply shortages, and our business is subject to the risk of price increases and
periodic delays in delivery. Similarly, the market for electronic components is subject to cyclical
reductions in supply. If we are unable to obtain components from third-party suppliers in the quantities
and of the quality that we require, on a timely basis and at acceptable prices, then we may not be able
to deliver our products on a timely or cost-effective basis to our customers, which could cause
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customers to terminate their contracts with us, increase our costs and seriously harm our business,
results of operations and financial condition. Moreover, if any of our suppliers become financially
unstable, then we may have to find new suppliers. It may take several months to locate alternative
suppliers, if required, or to redesign our products to accommodate components from different
suppliers. We may experience significant delays in manufacturing and shipping our products to
customers and incur additional development, manufacturing and other costs to establish alternative
sources of supply if we lose any of these sources or are required to redesign our products. We cannot
predict if we will be able to obtain replacement components within the time frames that we require at
an affordable cost, if at all.
Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively
impact our operating results.
Until recently, we have focused on selling our small UAS to the U.S. military, our industrial EV
fast charging and test systems to large industrial EV fleet operators primarily in North America, our
power cycling and test systems primarily to research and development facilities in North America, and
our EV charging systems to domestic commercial customers, distributors and consumers. We have,
however, expanded our UAS sales into other government and commercial markets, and our industrial
EV charging and power cycling and test systems and EV charging systems sales into international
markets. Our efforts to expand our product offerings beyond our traditional markets may divert
management resources from existing operations and require us to commit significant financial resources
to unproven businesses that may not generate additional sales, either of which could significantly impair
our operating results.
Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations
put on the use of small UAS in response to public privacy concerns, may prevent us from expanding the sales
of our small UAS to non-military customers in the United States.
The regulation of small UAS for commercial use in the United States is undergoing substantial
change and the ultimate treatment is uncertain. In 2006, the FAA issued a clarification of its existing
policies stating that, in order to engage in commercial use of small UAS in the U.S. National Airspace
System, a public operator must obtain a COA from the FAA, or fly in restricted airspace. The FAA’s
COA approval process requires that the public operator certify the airworthiness of the aircraft for its
intended purpose, that a collision with another aircraft or other airspace user is extremely improbable,
that the small unmanned aircraft system complies with appropriate cloud and terrain clearances and
that the operator or spotter of the small unmanned aircraft system is generally within one half-mile
laterally and 400 feet vertically of the small unmanned aircraft system while in operation. Furthermore,
the FAA’s clarification of existing policy stated that the rules for radio-controlled hobby aircraft do not
apply to public or commercial use of small UAS.
On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing
various deadlines for the FAA to allow expanded use of small UAS for both public and commercial
applications. In response to this direction, the FAA and the DOJ established an agreement on May 14,
2012 that, if implemented in a timely and efficient manner, may allow more use of small UAS by U.S.
law enforcement agencies. In February 2015, the FAA released for public comment its proposed
framework of regulations that would allow routine use of certain small UAS (under 55 pounds) in the
U.S. National Airspace System. The proposed regulations provide safety rules for small UAS
conducting non-recreational operations and contain various limitations and restrictions for such
operations. While the public comment period has expired for the proposed regulations, we cannot
predict what allowances and restrictions the final regulations will contain or when the final regulations
will be effective. Additionally, we cannot assure you that these actions will result in the expanded use
of our small UAS by law enforcement or other non-military government agencies or commercial entities
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and we may not be able to expand our sales of small UAS beyond our military customers, which could
harm our business prospects.
In addition, there exists public concern regarding the privacy implications of U.S. commercial and
law enforcement use of small UAS. This concern has included calls to develop explicit written policies
and procedures establishing usage limitations. We cannot assure you that the response from regulatory
agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of
small UAS by non-military customers.
The markets in which we compete are characterized by rapid technological change, which requires us to
develop new products and product enhancements, and could render our existing products obsolete.
Continuing technological changes in the market for our products could make our products less
competitive or obsolete, either generally or for particular applications. Our future success will depend
upon our ability to develop and introduce a variety of new capabilities and enhancements to our
existing product offerings, as well as introduce a variety of new product offerings, to address the
changing needs of the markets in which we offer our products. Delays in introducing new products and
enhancements, the failure to choose correctly among technical alternatives or the failure to offer
innovative products or enhancements at competitive prices may cause existing and potential customers
to purchase our competitors’ products.
If we are unable to devote adequate resources to develop new products or cannot otherwise
successfully develop new products or enhancements that meet customer requirements on a timely basis,
our products could lose market share, our revenue and profits could decline, and we could experience
operating losses.
The EV charging industry is especially dynamic. For example, a single fast charge connector
communication protocol standard for the U.S. market has not yet been established, although other
standards are emerging throughout the world. If we are unable to accurately anticipate fast charge
standards that are adopted in our potential markets or develop products that meet such standards
quickly enough to meet customer requirements, our EV charging systems could lose market share, our
revenue and profits could decline, and we could experience operating losses.
We expect to incur substantial research and development costs and devote significant resources to identifying
and commercializing new products and services, which could significantly reduce our profitability and may
never result in revenue to us.
Our future growth depends on penetrating new markets, adapting existing products to new
applications, and introducing new products and services that achieve market acceptance. We plan to
incur substantial research and development costs as part of our efforts to design, develop and
commercialize new products and services and enhance existing products. We spent $46.5 million, or
18% of our revenue, in our fiscal year ended April 30, 2015 on research and development activities. We
believe that there are significant investment opportunities in a number of business areas. Because we
account for research and development as an operating expense, these expenditures will adversely affect
our earnings in the future. Further, our research and development programs may not produce
successful results, and our new products and services may not achieve market acceptance, create
additional revenue or become profitable, which could materially harm our business, prospects, financial
results and liquidity.
If we are unable to manage the increasing complexity of our business or achieve or manage our expected
growth, our business could be adversely affected.
The complexity of our business has increased significantly over the last several years. We have
expanded the number of business areas being pursued, shifting from primarily a U.S. government
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focused business to a business that includes substantial international product sales and added
commercial services. This increased complexity and our expected growth has placed, and will continue
to place, a strain on our management and our administrative, operational and financial infrastructure.
We anticipate further growth of headcount and facilities will be required to address expansion in our
product offerings and the geographic scope of our customer base. However, if we are unsuccessful in
our efforts, our business could decline. Our success will depend in part upon the ability of our senior
management to manage our increased complexity and expected growth effectively. To do so, we must
continue to hire, train, manage and integrate a significant number of qualified managers and engineers.
If our new employees perform poorly, or if we are unsuccessful in hiring, training, managing and
integrating these new employees, or retaining these or our existing employees, then our business may
suffer.
To support our expected growth, we must continue to improve our operational, financial and
management information systems. If we are unable to manage our growth while maintaining our quality
of service, or if new systems that we implement to assist in managing our growth do not produce the
expected benefits, then our business, prospects, financial condition or operating results could be
adversely affected.
Our earnings and profit margins may decrease based on the mix of our contracts and programs and other
factors related to our contracts.
In general, we perform our production work under fixed-price contracts and our repair and
customer-funded research and development work under cost-plus-fee contracts. Under fixed-price
contracts, we perform services under a contract at a stipulated price. Under cost-plus-fee contracts,
which are subject to a contract ceiling amount, we are reimbursed for allowable costs and paid a fee,
which may be fixed or performance based. We typically experience lower profit margins under cost-
plus-fee contracts than under fixed-price contracts, though fixed-price contracts involve higher risks. In
general, if the volume of services we perform under cost-plus-fee contracts increases relative to the
volume of services we perform under fixed-price contracts, we expect that our operating margin will
suffer. In addition, our earnings and margins may decrease depending on the costs we incur in contract
performance, our achievement of other contract performance objectives and the stage of our
performance at which our right to receive fees, particularly under incentive and award fee contracts, is
finally determined.
We use estimates in accounting for many of our programs and changes in our estimates could adversely affect
our future financial results.
Contract accounting requires judgments relative to assessing risks, including risks associated with
estimating contract revenues and costs, assumptions for schedule and technical issues, customer-
directed delays and reductions in scheduled deliveries, and unfavorable resolutions of claims and
contractual matters. Due to the size and nature of many of our contracts, the estimation of total
revenues and cost at completion is complicated and subject to many variables. For example, we must
make assumptions regarding the length of time to complete the contract because costs also include
expected increases in wages and prices for materials; consider whether the intent of entering into
multiple contracts was effectively to enter into a single project in order to determine whether such
contracts should be combined or segmented; consider incentives or penalties related to performance on
contracts in estimating sales and profit rates, and record them when there is sufficient information for
us to assess anticipated performance; and use estimates of award fees in estimating sales and profit
rates based on actual and anticipated awards. Because of the significance of the judgments and
estimation processes described above, it is likely that materially different amounts could be recorded if
we used different assumptions or if the underlying circumstances were to change. Changes in
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underlying assumptions, circumstances or estimates may adversely affect our future results of operations
and financial condition.
Our senior management and key employees are important to our customer relationships and overall business.
We believe that our success depends in part on the continued contributions of our senior
management and key employees. We rely on our executive officers, senior management and key
employees to generate business and execute programs successfully. In addition, the relationships and
reputation that members of our management team and key employees have established and maintain
with government defense personnel contribute to our ability to maintain good customer relations and to
identify new business opportunities. We do not have employment agreements with any of our executive
officers or key employees, and these individuals could terminate their employment with us at any time.
The loss of any of our executive officers, members of our senior management team or key employees
could significantly delay or prevent the achievement of our business objectives and could materially
harm our business and customer relationships and impair our ability to identify and secure new
contracts and otherwise manage our business.
We must recruit and retain highly-skilled employees to succeed in our competitive business.
We depend on our ability to recruit and retain employees who have advanced engineering and
technical services skills and who work well with our customers. These employees are in great demand
and are likely to remain a limited resource in the foreseeable future. If we are unable to recruit and
retain a sufficient number of these employees, then our ability to maintain our competitiveness and
grow our business could be negatively affected. In addition, because of the highly technical nature of
our products, the loss of any significant number of our existing engineering personnel could have a
material adverse effect on our business and operating results. Moreover, some of our U.S. government
contracts contain provisions requiring us to staff a program with certain personnel the customer
considers key to our successful performance under the contract. In the event we are unable to provide
these key personnel or acceptable substitutes, the customer may terminate the contract.
Our business may be dependent upon our employees obtaining and maintaining required security clearances,
as well as our ability to obtain security clearances for the facilities in which we perform sensitive government
work.
Certain of our U.S. government contracts require our employees to maintain various levels of
security clearances, and we are required to maintain certain facility security clearances complying with
DoD requirements. The DoD has strict security clearance requirements for personnel who work on
classified programs. Obtaining and maintaining security clearances for employees involves a lengthy
process, and it is difficult to identify, recruit and retain employees who already hold security clearances.
If our employees are unable to obtain security clearances in a timely manner, or at all, or if our
employees who hold security clearances are unable to maintain the clearances or terminate employment
with us, then a customer requiring classified work could terminate the contract or decide not to renew
it upon its expiration. In addition, we expect that many of the contracts on which we will bid will
require us to demonstrate our ability to obtain facility security clearances and employ personnel with
specified types of security clearances. To the extent we are not able to obtain facility security clearances
or engage employees with the required security clearances for a particular contract, we may not be able
to bid on or win new contracts, or effectively rebid on expiring contracts.
Cost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect
our future business.
Fixed-price contracts (including both government and commercial contracts) represented
approximately 85% of our revenue for the fiscal year ended April 30, 2015. If we fail to anticipate
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technical problems, estimate costs accurately or control costs during our performance of fixed-price
contracts, then we may incur losses on these contracts because we absorb any costs in excess of the
fixed price. Under cost-plus-fee contracts, if costs exceed the contract ceiling or are not allowable under
the provisions of the contract or applicable regulations, then we may not be able to obtain
reimbursement for all such costs. Under time and materials contracts, we are paid for labor at
negotiated hourly billing rates and for certain expenses. Because many of our contracts involve
advanced designs and innovative technologies, we may experience unforeseen technological difficulties
and cost overruns. Under each type of contract, if we are unable to control the costs we incur in
performing under the contract, then our financial condition and results of operations could be
materially adversely affected. Cost overruns also may adversely affect our ability to sustain existing
programs and obtain future contract awards.
Our products and services are complex and could have unknown defects or errors, which may give rise to
claims against us, diminish our brand or divert our resources from other purposes.
Our UAS rely on complex avionics, sensors, user-friendly interfaces and tightly-integrated,
electromechanical designs to accomplish their missions, and our EV charging and power cycling and
test systems often rely upon the application of intellectual property for which there may have been little
or no prior commercial application. Despite testing, our products have contained defects and errors
and may in the future contain defects, errors or performance problems when first introduced, when
new versions or enhancements are released, or even after these products have been used by our
customers for a period of time. These problems could result in expensive and time-consuming design
modifications or warranty charges, delays in the introduction of new products or enhancements,
significant increases in our service and maintenance costs, exposure to liability for damages, damaged
customer relationships and harm to our reputation, any of which could materially harm our results of
operations and ability to achieve market acceptance. In addition, increased development and warranty
costs could be substantial and could reduce our operating margins.
The existence of any defects, errors, or failures in our products or the misuse of our products
could also lead to product liability claims or lawsuits against us. A defect, error or failure in one of our
UAS could result in injury, death or property damage and significantly damage our reputation and
support for our UAS in general. We anticipate this risk will grow as our UAS begin to be used in U.S.
domestic airspace and urban areas. While our PosiCharge industrial EV charging systems include
certain safety mechanisms, these systems can deliver up to 600 amps of current in their application, and
the failure, malfunction or misuse of these systems could result in injury or death. Our passenger and
fleet electric and HEV charging systems and power cycling and test systems also have the potential to
cause injury, death or property damage in the event that they are misused, malfunction or fail to
operate properly due to unknown defects or errors.
Although we maintain insurance policies, we cannot provide assurance that this insurance will be
adequate to protect us from all material judgments and expenses related to potential future claims or
that these levels of insurance will be available in the future at economical prices or at all. A successful
product liability claim could result in substantial cost to us. Even if we are fully insured as it relates to
a claim, the claim could nevertheless diminish our brand and divert management’s attention and
resources, which could have a negative impact on our business, financial condition and results of
operations.
Our future profitability may be dependent upon achieving cost reductions and projected economies of scale
from increasing manufacturing quantities of our products. Failing to achieve such reductions in
manufacturing costs and projected economies of scale could materially adversely affect our business.
We have limited experience manufacturing our EV charging systems and small UAS in high
volume. We do not know whether or when we will be able to develop efficient, low-cost manufacturing
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capabilities and processes that will enable us to manufacture (or contract for the manufacture of) these
products in commercial quantities while meeting the volume, speed, quality, price, engineering, design
and production standards required to successfully market our products. Our failure to develop such
manufacturing processes and capabilities in locations that can efficiently service our markets would
have a material adverse effect on our business, financial condition, results of operations and prospects.
Historically, we have produced PosiCharge industrial EV charging systems and power cycling and test
systems only in limited production quantities. Our future profitability is, in part, dependent upon
achieving increased savings from volume purchases of raw materials and component parts, achieving
acceptable manufacturing yield and capitalizing on machinery efficiencies. We expect our suppliers to
experience a sharp increase in demand for their products. As a result, we may not have reliable access
to supplies that we require or be able to purchase such materials or components at cost effective prices.
There is no assurance that we will ever be in a position to realize any material, labor and machinery
cost reductions associated with higher purchasing power and higher production levels. Failure to
achieve these cost reductions could adversely impact our business and financial results.
We face significant risks in overseeing our outsourcing of manufacturing processes as well as in the
management of our inventory, and failure to properly oversee our manufacturing processes or to effectively
manage our inventory levels may result in product recalls or supply imbalances that could harm our business.
We have contracted for the manufacture of certain EV charging systems with contract
manufacturers. We sell these units directly and through distributors, as well as through our own online
sales channels. We face significant risks if our contract manufacturers do not perform as expected. If
we fail to effectively oversee the manufacturing process, including the work performed by our contract
manufacturers, we could suffer from product recalls, poorly performing products and higher than
anticipated warranty costs.
In connection with our manufacturing operations, we maintain a finished goods inventory of EV
charging units in various locations, including with third party logistics providers. In addition, we also
maintain a variety of parts and components in inventory to allow us to customize our UAS products for
specific customer requirements, which parts are subject to obsolescence and expiration. Due to the
long-lead time for obtaining certain UAS product components and the manufacturing cycles, we need
to make forecasts of demand and commit significant resources towards manufacturing our products. As
such, we are subject to significant risks in managing the inventory needs of our business during the
year, including estimating the appropriate demand for our products. Should orders and market
conditions differ significantly from our estimates, our future results of operations could be materially
adversely affected. In the future, we may be required to record write-downs of finished products and
materials on-hand and/or additional charges for excess purchase commitments as a result of future
changes in our sales forecasts or customer orders.
Due to the volatile and flammable nature of certain components of our products and equipment, fires or
explosions may disrupt our business or cause significant injuries, which could adversely affect our financial
results.
The development and manufacture of certain of our products involves the handling of a variety of
explosive and flammable materials as well as high power equipment. From time to time, these activities
may result in incidents that could cause us to temporarily shut down or otherwise disrupt some
manufacturing processes, causing production delays and resulting in liability for workplace injuries
and/or fatalities. We have safety and loss prevention programs that require detailed reviews of process
changes and new operations, along with routine safety audits of operations involving explosive
materials, to mitigate such incidents, as well as a variety of insurance policies. However, we cannot
ensure that we will not experience such incidents in the future or that any such incidents will not result
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in production delays or otherwise have a material adverse effect on our business and financial
condition.
The operation of UAS in urban environments may be subject to risks, such as accidental collisions and
transmission interference, which may limit demand for our UAS in such environments and harm our business
and operating results.
Urban environments may present certain challenges to the operators of UAS. UAS may
accidentally collide with other aircraft, persons or property, which could result in injury, death or
property damage and significantly damage the reputation of and support for UAS in general. As the
usage of UAS has increased, particularly by military customers, the danger of such collisions has
increased. Furthermore, the incorporation of our DDL technology into our UAS has increased the
number of vehicles which can operate simultaneously in a given area and with this increase has come
an increase in the risk of accidental collision. In addition, obstructions to effective transmissions in
urban environments, such as large buildings, may limit the ability of the operator to utilize the aircraft
for its intended purpose. The risks or limitations of operating UAS in urban environments may limit
their value in such environments, which may limit demand for our UAS and consequently materially
harm our business and operating results.
Compliance with the SEC’s conflict minerals regulations may increase our costs and adversely impact the
supply-chain for our UAS and EES products.
In August 2012, the SEC adopted disclosure rules regarding a company’s use of conflict minerals
in its products with substantial supply chain verification requirements in the event that the conflict
minerals come from, or could have come from, the Democratic Republic of the Congo or adjoining
countries. These new rules and verification requirements will impose additional costs on us and on our
suppliers, including costs related to determining the source of conflict minerals used in our products,
which will adversely affect our results of operations. We are dependent on information supplied by our
first tier suppliers in conducting due diligence into the origins of conflict minerals in our products and
in complying with our SEC reporting obligations. To the extent that information we receive from our
suppliers is inaccurate or inadequate, we may not be able to conclude that our products are conflict
mineral-free. We may face challenges in satisfying our customers who may require that our products be
certified as conflict mineral-free, which could place us at a competitive disadvantage and could harm
our business. These regulations could also have the effect of limiting the pool of suppliers from which
we source items containing conflict minerals, and we may be unable to obtain conflict-free minerals at
competitive prices, if at all, which could increase our costs and adversely affect our results of
operations.
As a manufacturer of electrical vehicle charging products and provider of electrical installation services to
consumers, we are subject to various government regulations and may be subject to additional regulations in
the future, violation of which could subject us to sanctions or otherwise harm our business. In addition, we
could be the subject of future product liability suits or product recalls, which could harm our business.
As a manufacturer of consumer products, we are subject to significant government regulations,
including, in the United States, under The Consumer Products Safety Act, as well as under product
safety and consumer protection statutes in our international markets. In addition, certain of our
electrical contracting services are subject to regulation by various government authorities. While we
take all the steps we believe are necessary to comply with these regulations, there can be no assurance
that we will be in compliance in the future. Failure to comply could result in sanctions that could have
a negative impact on our business, financial condition and results of operations.
We may also be subject to involuntary product recalls or may voluntarily conduct a product recall.
The costs associated with any future product recalls could be significant. In addition, any product recall,
35
regardless of direct costs of the recall, may harm consumer perceptions of our products and have a
negative impact on our future revenues and results of operations.
Governments and regulatory agencies in the markets where we manufacture and sell products may
enact additional regulations relating to product safety and consumer protection in the future, and may
also increase the penalties for failure to comply with product safety and consumer protection
regulations. In addition, one or more of our customers might require changes in our products, such as
the non-use of certain materials, in the future. Complying with any such additional regulations or
requirements could impose increased costs on our business. Similarly, increased penalties for non-
compliance could subject us to greater expenses in the event any of our products were found to not
comply with such regulations. Such increased costs or penalties could harm our business.
In addition to government regulation, products that have been or may be developed by us may
expose us to potential liability from personal injury or property damage claims by the users of such
products. There can be no assurance that a claim will not be brought against us in the future. Any
successful claim could significantly harm our business, financial condition and results of operations.
Our quarterly operating results may vary widely.
Our quarterly revenue, cash flow and operating results have and may continue to fluctuate
significantly in the future due to a number of factors, including the following:
(cid:127) fluctuations in revenue derived from government contracts, including cost-plus-fee contracts and
contracts with a performance-based fee structure;
(cid:127) the size and timing of orders from military and other governmental agencies, including increased
purchase requests from government customers for equipment and materials in connection with
the U.S. government’s fiscal year end, which may affect our quarterly operating results;
(cid:127) the mix of products that we sell in the period;
(cid:127) seasonal fluctuations in customer demand for some of our products or services;
(cid:127) unanticipated costs incurred in the introduction of new products;
(cid:127) fluctuations in the adoption of our products in new markets;
(cid:127) changes in the level of tax credits available for research and development spending;
(cid:127) cancellations, delays or contract amendments by our governmental agency customers;
(cid:127) changes in policy or budgetary measures that adversely affect our governmental agency
customers;
(cid:127) the cost of complying with various regulatory requirements applicable to our business and the
potential penalties or sanctions that could be imposed for non-compliance; and
(cid:127) our ability to obtain the necessary export licenses for sales of our products and services to
international customers.
Changes in the volume of products and services provided under existing contracts and the number
of contracts commenced, completed or terminated during any quarter may cause significant variations
in our cash flow from operations because a relatively large amount of our expenses are fixed. We incur
significant operating expenses during the start-up and early stages of large contracts and typically do
not receive corresponding payments in that same quarter. We may also incur significant or
unanticipated expenses when contracts expire or are terminated or are not renewed. In addition,
payments due to us from government agencies may be delayed due to billing cycles or as a result of
failures of governmental budgets to gain congressional and presidential approval in a timely manner.
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Shortfalls in available external research and development funding could adversely affect us.
We depend on our research and development activities to develop the core technologies used in
our UAS and EES products and for the development of our future products. A portion of our research
and development activities depends on funding by commercial companies and the U.S. government.
U.S. government and commercial spending levels can be impacted by a number of variables, including
general economic conditions, specific companies’ financial performance and competition for U.S.
government funding with other U.S. government-sponsored programs in the budget formulation and
appropriation processes. Moreover, the U.S., state and local governments provide energy rebates and
incentives to commercial companies, which directly impact the amount of research and development
that companies appropriate for energy systems. To the extent that these energy rebates and incentives
are reduced or eliminated, company funding for research and development could be reduced. Any
reductions in available research and development funding could harm our business, financial condition
and operating results.
Variability and cyclicality in the market for electric industrial vehicles could adversely affect us.
Our PosiCharge industrial EV charging system products are purchased primarily by operators of
fleets of electric industrial vehicles, such as forklift trucks and airport ground support equipment.
Consequently, our ability to remain profitable depends in part on the varying conditions in the market
for electric industrial vehicles. This market is subject to variability as it moves in response to cycles in
the overall business environment and it is also particularly sensitive to the industrial, food and
beverage, retail and air travel sectors, which generate a significant portion of the demand for such
vehicles. Sales of electric industrial vehicles have historically been cyclical, with demand affected by
such economic factors as industrial production, construction levels, demand for consumer and durable
goods, interest rates and fuel costs. A significant decline in demand for electric industrial vehicles could
adversely affect our revenue and prospects, which would harm our business, financial condition and
operating results.
Our success in the emerging market for passenger and fleet electric and HEV charging systems will depend on
numerous factors which are out of our control.
The passenger and fleet electric and HEV charging systems market is expected to grow rapidly,
along with innovations in fast charging technologies. However, because the passenger electric and fleet
charging systems market is relatively new, there is no guarantee that there will be strong consumer
demand for charging systems. Demand for such systems could also be directly impacted by fuel costs; if
fuel costs were to significantly decrease, the demand for EVs and charging systems could decline. If
there is little consumer demand for our passenger electric and fleet charging systems, our revenue and
prospects could be adversely affected, which would harm our business, financial and operating results.
The rate of EV adoption is difficult to predict and has been slower than many in the industry have
predicted to date.
Our industrial EV charging systems business is dependent upon our relationships with third parties with
whom we do not have exclusive arrangements.
To remain competitive in the market for industrial EV charging systems, we must maintain our
access to potential customers and ensure that the service needs of our customers are met adequately.
In many cases, we rely on battery and industrial vehicle dealers for access to potential industrial EV
charging system customers. Currently, several of our industrial EV charging system competitors are
working with battery manufacturers to sell fast charging systems and batteries together. Cooperative
agreements between our competitors and battery manufacturers could restrict our access to battery
dealers and potential industrial EV charging systems customers, adversely affecting our revenue and
prospects. Additionally, we rely on outside service providers to perform post-sale services for our
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PosiCharge industrial EV charging system customers. If these service providers fail to perform these
services as required or discontinue their business with us, then we could lose customers to competitors,
which would harm our business, financial condition and operating results.
Our electric and HEV charging system business is dependent upon our development of relationships with
automakers, auto dealers, utilities and other participants in the electric and HEV and electricity delivery
markets.
We have been selected by several major automakers to support the rollout of new model EVs
across the United States with our home charging system. Accordingly, we depend upon those
relationships and the success of the home charging rollout to those new model EV owners to expand
our charging system footprint in the United States and worldwide. If one or more of our partnerships
with those major automakers terminates prematurely, and we cannot establish similar relationships with
other entities with direct access to EV owners and drivers, we may not be able to develop a sustainable
market for our home charging system, which may delay the commercialization of our charging systems
or jeopardize the long-term success of this product line. We believe that the success and growth of our
passenger and fleet EV charging system business for the foreseeable future will also depend on our
ability to develop similar working relationships with other automakers, as well as auto dealers, utilities,
and other participants in the electric and HEV and electricity delivery markets in the United States and
internationally. While we have been working with other automakers and utilities to explore business
models and to promote our solutions, there is no guarantee that we will be successful in doing so.
Our work for the U.S. government and international governments may expose us to security risks.
As a U.S. government contractor, we face various security threats, including cyber security attacks
on our information technology infrastructure, attempts to gain access to our proprietary, financial,
banking or classified information as well as threats to the physical security of our facilities and
employees. Although we utilize various procedures and controls to monitor and mitigate these threats,
there can be no assurance that these procedures and controls will be sufficient to prevent disruptions,
the unauthorized release of confidential technical, financial or banking information or corruption of
data. Accordingly, any significant operational delays, or any destruction, manipulation or improper use
of our data, information systems or networks could adversely affect our financial results and damage
the reputation for our products and services. If we or our partners are subject to data security
breaches, we may have a loss in sales or increased costs arising from the restoration or implementation
of additional security measures, either of which could materially and adversely affect our business and
financial results.
In addition, we work in international locations where there are high security risks, which could
result in harm to our employees and contractors or substantial costs. Some of our services are
performed in or adjacent to high-risk locations, such as Iraq and Afghanistan, where the country or
location is suffering from political, social or economic issues, or war or civil unrest. In those locations
where we have employees or operations, we may incur substantial costs to maintain the safety of our
personnel. Despite these precautions, the safety of our personnel in these locations may continue to be
at risk, and we may in the future suffer the loss of employees and contractors, which could harm our
business and operating results.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our
stockholders.
We operate in emerging and rapidly evolving markets, which makes our prospects difficult to
evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have
38
the capital resources to meet our future capital needs. If this occurs, then we may need additional
financing to pursue our business strategies, including to:
(cid:127) hire additional engineers and other personnel;
(cid:127) develop new or enhance existing products;
(cid:127) enhance our operating infrastructure;
(cid:127) fund working capital requirements;
(cid:127) acquire complementary businesses or technologies; or
(cid:127) otherwise respond to competitive pressures.
If we raise additional funds through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders could be significantly diluted, and these newly-issued
securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot
assure you that additional financing will be available on terms favorable to us, or at all. Our former
line of credit contained, and future debt financing may contain, covenants or other provisions that limit
our operational or financial flexibility. In addition, certain of our customers require that we obtain
letters of credit to support our obligations under some of our contracts.
Our investment portfolio includes investments in auction rate securities. Failures in the auctions for these
securities affect our liquidity, coupled with deterioration in credit ratings of issuers of such securities and/or
third parties insuring such investments may require us to adjust the carrying value of our investment through
an impairment of earnings.
As of April 30, 2015, our $2.8 million of long-term investments, recorded at fair value, consisted
entirely of auction rate municipal bonds with maturities that range from approximately 4 to 19 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, we choose to
roll-over our 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.
Since fiscal 2008, we have experienced failed auctions of our auction rate securities and there is no
assurance that auctions on the remaining auction rate securities in our investment portfolio will succeed
in the future. As a result, our ability to liquidate our investments in the near term may be limited, and
our ability to recover the carrying value of our investments may be limited. An auction failure means
that the parties wishing to sell securities were not able to do so. As of June 19, 2015, including the
securities involved in failed auctions, we held approximately $2.8 million of these auction rate
securities, all of which carry investment grade ratings. These investments are subject to general credit,
liquidity, market and interest rate risks, which may be exacerbated by problems in the global credit
markets. These and other related factors have affected various sectors of the financial markets and
caused credit and liquidity issues. If the issuers of these securities are unable to successfully close
future auctions or their credit ratings deteriorate, we may in the future be required to record an
impairment charge on these investments. We currently believe these securities are not permanently
impaired, primarily due to the government backing of the underlying securities. However, it could take
until the final maturity of the underlying notes (up to 19 years) to realize our investments’ purchase
price of $3.2 million. Based on our ability to access our cash and cash equivalents, expected operating
cash flows, and our other sources of cash, we do not anticipate that the current lack of liquidity on
these investments will affect our ability to continue to operate our business in the ordinary course,
however we can provide no assurance as to when these investments will again become liquid or as to
whether we may ultimately have to recognize an impairment charge with respect to these investments.
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Our investment in common shares issued by CybAero AB may suffer reduced returns or losses which could
adversely affect our financial condition and results of operation.
Our investment portfolio includes common shares issued by CybAero AB, or CybAero, a publicly
traded company in Sweden that develops and manufactures unmanned aerial vehicles. The value of the
shares fluctuates with equity markets, the Swedish economy, the value of the Swedish Kronor and the
performance of CybAero. In times of economic weakness or a decline in CybAero’s performance, the
market value and liquidity of the shares may decline, which may in turn adversely affect our financial
condition and results of operations.
Unstable market and economic conditions may have serious adverse consequences on our business, financial
condition and stock price.
As widely reported, global credit and financial markets have experienced extreme disruptions in
recent years, including severely diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates and uncertainty about
economic stability. There can be no assurance that renewed deterioration in credit and financial
markets and confidence in economic conditions will not occur. Our general business strategy may be
adversely affected by any economic downturn, volatile business environment or continued unpredictable
and unstable market conditions. If the current equity and credit markets deteriorate, or do not
improve, it may make any necessary debt or equity financing more difficult, more costly and more
dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could
have a material adverse effect on our growth strategy, financial performance and stock price and could
require us to delay or abandon implementing business initiatives. These events and the continuing
market upheavals could adversely affect our business in a number of ways, including:
Potential Deferment of Purchases and Orders by Customers: Uncertainty about current and future
global economic conditions may cause governments, including the U.S. government, which is our largest
customer, consumers and businesses to modify, defer or cancel purchases in response to tighter credit,
decreased cash availability and declining consumer confidence. Accordingly, future demand for our
products could differ materially from our current expectations. Additionally, if customers are not
successful in generating sufficient revenue or are precluded from securing financing, they may not be
able to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current
and/or potential customers to pay us for our products may adversely affect our earnings and cash flow.
Negative Impact from Increased Financial Pressures on Key Suppliers: Our ability to meet
customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality
materials, parts and components from our suppliers. Certain of our hardware components and various
subsystems are available only from a limited group of suppliers. If certain key suppliers were to become
capacity constrained or insolvent as a result of a market downturn, then we may have to find new
suppliers. We may experience significant delays in manufacturing and shipping our products to
customers and incur additional development, manufacturing and other costs to establish alternative
sources of supply if we lose any of these sources or are required to redesign our products. We cannot
predict if we will be able to obtain replacement components within the time frames that we require at
an affordable cost, if at all. In addition, credit constraints of key suppliers could result in accelerated
payment of accounts payable by us, impacting our cash flow.
Customers’ Inability to Obtain Financing to Make Purchases from Us and/or Maintain Their Business:
Some of our customers may require substantial financing in order to fund their operations and make
purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of
our products, or otherwise meet their payment obligations to us could adversely impact our financial
condition and results of operations. In addition, if a market downturn results in insolvencies for our
customers, it could adversely impact our financial condition and results of operations.
40
Our international business poses potentially greater risks than our domestic business.
We derived approximately 9% of our revenue from international sales during the fiscal year ended
April 30, 2015. We expect to derive an increasing portion of our revenue from international sales. Our
international revenue and operations are subject to a number of material risks, including the following:
(cid:127) the unavailability of, or difficulties in obtaining any, necessary governmental authorizations for
the export of our products to certain foreign jurisdictions;
(cid:127) regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions,
sell certain products or repatriate profits to the United States;
(cid:127) the complexity and necessity of using foreign representatives and consultants;
(cid:127) the complexities of operating a business in an international location through a subsidiary or joint
venture structure that may include foreign business partners, subcontractors and suppliers;
(cid:127) difficulties in enforcing agreements and collecting receivables through foreign legal systems and
other relevant legal issues, including fewer legal protections for intellectual property;
(cid:127) potential fluctuations in foreign economies and in the value of foreign currencies and interest
rates;
(cid:127) potential preferences by prospective customers to purchase from local (non-U.S.) sources;
(cid:127) general economic and political conditions in the markets in which we operate;
(cid:127) laws or regulations relating to non-U.S. military contracts that favor purchases from non-U.S.
manufacturers over U.S. manufacturers;
(cid:127) the imposition of tariffs, embargoes, export controls and other trade restrictions; and
(cid:127) different and changing legal and regulatory requirements, including those pertaining to data
protection and privacy, employment law, intellectual property and contracts in the jurisdictions
in which we currently operate or may operate in the future.
Negative developments in any of these areas in one or more countries could result in a reduction
in demand for our products, the cancellation or delay of orders already placed, threats to our
intellectual property, difficulty in collecting receivables and a higher cost of doing business, any of
which could negatively impact our business, financial condition or results of operations. Moreover, our
sales, including sales to customers outside the United States, are denominated in dollars, and
downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our
products more expensive than other products, which could harm our business.
We could be prohibited from shipping our products to certain countries if we are unable to obtain U.S.
government authorization regarding the export of our products, or if current or future export laws limit or
otherwise restrict our business.
We must comply with U.S. laws regulating the export of our products. In some cases, explicit
authorization from the U.S. government is needed to export our products. The export regulations and
the governing policies applicable to our business are subject to change. We cannot provide assurance
that such export authorizations will be available for our products in the future. Compliance with these
laws has not significantly limited our operations or our sales in the recent past, but could significantly
limit them in the future. We maintain an export compliance program but there are risks that the
compliance controls may be ineffective. AeroVironment has voluntarily disclosed export violations to
the U.S. Department of State. Non-compliance with applicable export regulations exposes us to fines,
penalties and sanctions. If we cannot obtain required government approvals under applicable
regulations or if our export compliance program is not effective, we may not be able to sell our
41
products in certain international jurisdictions, which could adversely affect our financial condition and
results of operations.
Potential future acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our
business, dilute stockholder value and impair our financial results.
We intend to consider strategic acquisitions that would add to our customer base, technological
capabilities or system offerings. Acquisitions involve numerous risks, any of which could harm our
business, including the following:
(cid:127) difficulties in integrating the operations, technologies, products, existing contracts, accounting
and personnel of the target company and realizing the anticipated synergies of the combined
businesses;
(cid:127) difficulties in supporting and transitioning customers, if any, of the target company;
(cid:127) diversion of financial and management resources from existing operations;
(cid:127) the price we pay or other resources that we devote may exceed the value we realize, or the value
we could have realized if we had allocated the purchase price or other resources to another
opportunity;
(cid:127) risks of entering new markets in which we have limited or no experience;
(cid:127) potential loss of key employees, customers and strategic alliances from either our current
business or the target company’s business;
(cid:127) assumption of unanticipated problems or latent liabilities, such as problems with the quality of
the target company’s products or its regulatory compliance; and
(cid:127) inability to generate sufficient revenue to offset acquisition costs.
Acquisitions also frequently result in the recording of goodwill and other intangible assets which
are subject to potential impairments in the future that could harm our financial results. In addition, if
we finance acquisitions by issuing equity, or securities convertible into equity, then our existing
stockholders may be diluted, which could lower the market price of our common stock. If we finance
acquisitions through debt, then such future debt financing may contain covenants or other provisions
that limit our operational or financial flexibility.
If we fail to properly evaluate acquisitions or investments, then we may not achieve the anticipated
benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. The failure to
successfully evaluate and execute acquisitions or investments or otherwise adequately address these
risks could materially harm our business and financial results.
Environmental laws and regulations and unforeseen costs could impact our future earnings.
The manufacture and sale of our products in certain states and countries may subject us to
environmental and other regulations. For example, we obtain a significant number of our electronics
components from companies located in East Asia, where environmental rules may be less stringent than
in the United States. Over time, the countries where these companies are located may adopt more
stringent environmental regulations, resulting in an increase in our manufacturing costs. Given the
increasing focus on environmental compliance by regulators and the general public, any incidence of
non-compliance could result in damage to our reputation beyond the fines and other sanctions that
could be imposed. Furthermore, certain environmental laws, including the U.S. Comprehensive,
Environmental Response, Compensation and Liability Act of 1980, impose strict, joint and several
liability on current and previous owners or operators of real property for the cost of removal or
remediation of hazardous substances and impose liability for damages to natural resources. These laws
42
often impose liability even if the owner or operator did not know of, or was not responsible for, the
release of such hazardous substances. These environmental laws also assess liability on persons who
arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are
later found to be contaminated. Such persons can be responsible for cleanup costs even if they never
owned or operated the contaminated facility. Although we have never been named a responsible party
at a contaminated site, we could be named a potentially responsible party in the future. We cannot
assure you that such existing laws or future laws will not have a material adverse effect on our future
earnings or results of operations.
Our business is subject to federal, state and international laws regarding data protection and privacy, and a
privacy breach could damage our reputation, expose us to litigation risk and adversely affect our business.
In connection with our business, we collect, process and retain certain sensitive and confidential
customer information. As a result, we are subject to increasingly rigorous federal, state and
international laws regarding privacy and data protection. Compliance with these constantly evolving
laws may cause us to incur significant costs or require changes to our business practices, which could
reduce our revenue. If we fail to comply with these laws, proceedings may be brought against us by
governmental entities or others or penalties may be imposed on us, either of which could have a
material adverse effect on our business, results of operations and financial condition. While we rely, in
part, on security services and software provided by outside vendors to protect sensitive and confidential
customer information, there is no guarantee that the protections that we or our outside vendors have
implemented will prevent security breaches. In addition, we have access to certain of our customers’
proprietary systems that contain sensitive information and are liable to such customers for damages
caused by or employees’ and agents’ misuse of or access to such systems, including damages resulting
from security breaches to such customers’ systems caused by us. Any actual, threatened or perceived
security breach that could result in misappropriation, loss or other unauthorized disclosure of sensitive
or confidential customer information could harm our reputation and relationship with customers,
expose us to litigation risk and liability and adversely affect our business.
Our business and operations are subject to the risks of earthquakes and other natural catastrophic events.
Our corporate headquarters, research and development and manufacturing operations are located
in Southern California, a region known for seismic activity and wild fires. A significant natural disaster,
such as an earthquake, fire or other catastrophic event, could severely affect our ability to conduct
normal business operations, and as a result, our future operating results could be materially and
adversely affected.
Risks Related to Our U.S. Government Contracts
We are subject to extensive government regulation, and our failure to comply with applicable regulations could
subject us to penalties that may restrict our ability to conduct our business.
As a contractor to the U.S. government, we are subject to and must comply with various
government regulations that impact our revenue, operating costs, profit margins and the internal
organization and operation of our business. The most significant regulations and regulatory authorities
affecting our business include the following:
(cid:127) the Federal Acquisition Regulations and supplemental agency regulations, which
comprehensively regulate the formation and administration of, and performance under, U.S.
government contracts;
(cid:127) the Truth in Negotiations Act, which requires certification and disclosure of all factual cost and
pricing data in connection with contract negotiations;
43
(cid:127) the False Claims Act and the False Statements Act, which impose penalties for payments made
on the basis of false facts provided to the government and on the basis of false statements made
to the government, respectively;
(cid:127) the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of
value to a foreign official to help obtain, retain or direct business, or obtain any unfair
advantage;
(cid:127) the National Telecommunications and Information Administration and the Federal
Communications Commission, which regulate the wireless spectrum allocations upon which UAS
depend for operation and data transmission in the United States;
(cid:127) the Federal Aviation Administration, which regulates the use of airspace for all aircraft,
including UAS operation in the United States;
(cid:127) the International Traffic in Arms Regulations, which regulate the export of controlled technical
data, defense articles and defense services and restrict from which countries we may purchase
materials and services used in the production of certain of our products; and
(cid:127) laws, regulations and executive orders restricting the use and dissemination of information
classified for national security purposes and the exportation of certain products and technical
data.
Also, we need special security clearances and regulatory approvals to continue working on certain
of our projects with the U.S. government. Classified programs generally will require that we comply
with various executive orders, federal laws and regulations and customer security requirements that may
include restrictions on how we develop, store, protect and share information, and may require our
employees and facilities to obtain government security clearances. Our failure to comply with applicable
regulations, rules and approvals or misconduct by any of our employees could result in the imposition
of fines and penalties, the loss of security clearances, the loss of our government contracts or our
suspension or debarment from contracting with the U.S. government generally, any of which would
harm our business, financial condition and results of operations. We are also subject to certain
regulations of comparable government agencies in other countries, and our failure to comply with these
non-U.S. regulations could also harm our business, financial condition or results of operations.
Our business could be adversely affected by a negative audit or investigation by the U.S. government.
U.S. government agencies, primarily the DCAA and the DCMA, routinely audit and investigate
government contractors. These agencies review a contractor’s performance under its contracts, cost
structure and compliance with applicable laws, regulations and standards. These agencies also may
review the adequacy of, and a contractor’s compliance with, its internal control systems and policies,
including the contractor’s purchasing, quality, accounting, property, estimating, compensation and
management information systems.
Like most government contractors, our contracts are audited and reviewed on a continual basis by
the DCMA and the DCAA. Audits for costs incurred on work performed after fiscal year 2005 have
not yet been completed. In addition, non-audit reviews or investigations by the government may still be
conducted on all of our government contracts. Any costs found to be improperly allocated to a specific
cost reimbursement contract will not be reimbursed, while such costs already reimbursed must be
refunded. If an audit or investigation of our business were to uncover improper or illegal activities,
then we could be subject to civil and criminal penalties and administrative sanctions, including
termination of contracts, suspension of payments, fines and suspension or debarment from doing
business with the U.S. government. We could suffer serious harm to our reputation if allegations of
impropriety or illegal acts were made against us, even if the allegations were inaccurate. In addition,
responding to governmental audits or investigations may involve significant expense and divert
44
management attention. If any of the foregoing were to occur, our financial condition and operating
results could be materially adversely affected.
Moreover, if any of our administrative processes and business systems are found not to comply
with the applicable requirements, we may be subjected to increased government scrutiny or required to
obtain additional governmental approvals that could delay or otherwise adversely affect our ability to
compete for or perform contracts. An unfavorable outcome to such an audit or investigation by the
DCAA, U.S. Department of Justice or DOJ, or other government agency, could materially adversely
affect our competitive position, affect our ability to obtain new government business, and obtain the
maximum price for our products and services, and result in a substantial reduction of our revenues.
If we were suspended or debarred from contracting with the federal government generally, or any
specific agency, if our reputation or relationship with government agencies were impaired, or if the
government otherwise ceased doing business with us or significantly decreased the amount of business
it does with us, our revenue and operating results would be materially harmed. For example, in
February 2010, we were notified by the DOJ that it had initiated a civil investigation into our cost
charging practices with respect to government contracts. We resolved these claims with the DOJ in
October 2013. Under the settlement agreement, we reimbursed the government for an amount
erroneously charged to the government in our FY2006 incurred cost claim submittal.
Subsequent to the DOJ investigation referenced above and in part based on the same facts
involved in the DOJ investigation, the DCMA disallowed a portion of our executive compensation and
other costs included in our FY2006 incurred cost claim and sought interest and penalties from us. The
parties have resolved most of these claims. However, we are vigorously defending our position on the
government’s remaining claims for the FY2006 incurred cost claim as well as the claims the government
has raised regarding the company’s FY2007 and FY2008 incurred cost claims, which we have appealed
to the Armed Services Board of Contract Appeals. Based on our current understanding of the facts and
the amount in dispute, we believe that the outcome of these disputes will not have a material impact
on our business.
Some of our contracts with the U.S. government allow it to use inventions developed under the contracts and
to disclose technical data to third parties, which could harm our ability to compete.
Some of our contracts allow the U.S. government to use, royalty-free, or have others use,
inventions developed under those contracts on behalf of the government. Some of the contracts allow
the federal government to disclose technical data without constraining the recipient on how those data
are used. The ability of third parties to use patents and technical data for government purposes creates
the possibility that the government could attempt to establish alternative suppliers or to negotiate with
us to reduce our prices. The potential that the government may release some of the technical data
without constraint creates the possibility that third parties may be able to use this data to compete with
us, which could have a material adverse effect on our business, results of operations or financial
condition.
U.S. government contracts are generally not fully funded at inception and contain certain provisions that may
be unfavorable to us, which could prevent us from realizing our contract backlog and materially harm our
business and results of operations.
U.S. government contracts typically involve long lead times for design and development, and are
subject to significant changes in contract scheduling. Congress generally appropriates funds on a fiscal
year basis even though a program may continue for several years. Consequently, programs are often
only partially funded initially, and additional funds are committed only as Congress makes further
appropriations. The termination or reduction of funding for a government program would result in a
loss of anticipated future revenue attributable to that program.
45
The actual receipt of revenue on awards included in backlog may never occur or may change
because a program schedule could change or the program could be canceled, or a contract could be
reduced, modified or terminated early.
In addition, U.S. government contracts generally contain provisions permitting termination, in
whole or in part, at the government’s convenience or for contractor default. Since a substantial majority
of our revenue is dependent on the procurement, performance and payment under our U.S.
government contracts, the termination of one or more critical government contracts could have a
negative impact on our results of operations and financial condition. Termination arising out of our
default could expose us to liability and have a material adverse effect on our ability to re-compete for
future contracts and orders. Moreover, several of our contracts with the U.S. government do not
contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental
damages and consequential damages. These provisions could cause substantial liability for us, especially
given the use to which our products may be put.
U.S. government contracts are subject to a competitive bidding process that can consume significant resources
without generating any revenue.
U.S. government contracts are frequently awarded only after formal, protracted competitive
bidding processes and, in many cases, unsuccessful bidders for U.S. government contracts are provided
the opportunity to protest contract awards through various agency, administrative and judicial channels.
We derive significant revenue from U.S. government contracts that were awarded through a competitive
bidding process. Much of the UAS business that we expect to seek in the foreseeable future likely will
be awarded through competitive bidding. Competitive bidding presents a number of risks, including the
following:
(cid:127) the need to bid on programs in advance of the completion of their design, which may result in
unforeseen technological difficulties and cost overruns;
(cid:127) the substantial cost and managerial time and effort that must be spent to prepare bids and
proposals for contracts that may not be awarded to us;
(cid:127) the need to estimate accurately the resources and cost structure that will be required to service
any contract we are awarded; and
(cid:127) the expense and delay that may arise if our competitors protest or challenge contract awards
made to us pursuant to competitive bidding, and the risk that any such protest or challenge
could result in the delay of our contract performance, the distraction of management, the
resubmission of bids on modified specifications, or in termination, reduction or modification of
the awarded contract.
We may not be provided the opportunity to bid on contracts that are held by other companies and
are scheduled to expire if the government extends the existing contract. If we are unable to win
particular contracts that are awarded through a competitive bidding process, then we may not be able
to operate for a number of years in the market for goods and services that are provided under those
contracts. If we are unable to win new contract awards over any extended period consistently, then our
business and prospects will be adversely affected.
We are subject to procurement rules and regulations, which increase our performance and compliance costs
under our U.S. government contracts.
We must comply with, and are affected by, laws and regulations relating to the formation,
administration and performance of U.S. government contracts. These laws and regulations, among
other things, require certification and disclosure of all cost and pricing data in connection with contract
negotiation, define allowable and unallowable costs and otherwise govern our right to reimbursement
46
under certain cost-based U.S. government contracts, and restrict the use and dissemination of classified
information and the exportation of certain products and technical data. These requirements, although
customary in U.S. government contracts, increase our performance and compliance costs. These costs
might increase in the future, reducing our margins, which could have a negative effect on our financial
condition. Although we believe we have procedures in place to comply with these regulations and
requirements, the regulations and requirements are complex and change frequently. Failure to comply
with these regulations and requirements under certain circumstances could lead to suspension or
debarment from U.S. government contracting or subcontracting for a period of time and could have a
negative effect on our reputation and ability to receive other U.S. government contract awards in the
future.
Risks Related to Our Intellectual Property
If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary
rights, our business, financial condition, and results of operations could be materially harmed.
Our success depends, in large part, on our ability to protect our intellectual property and other
proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair
competition laws, as well as license agreements and other contractual provisions, to protect our
intellectual property and other proprietary rights. However, a significant portion of our technology is
not patented, and we may be unable or may not seek to obtain patent protection for this technology. In
addition, the U.S. government has licenses under certain of our patents and certain other intellectual
property that are developed or used in performance of government contracts, and it may use or
authorize others to use such patents and intellectual property for government and other purposes.
Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of
intellectual property rights offer only limited protection, may not provide us with any competitive
advantages, and may be challenged by third parties. The laws of countries other than the United States
may be even less protective of intellectual property rights. Accordingly, despite our efforts, we may be
unable to prevent third parties from infringing upon or misappropriating our intellectual property or
otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse
engineer our products or portions of our products or otherwise obtain and use our intellectual
property. Moreover, many of our employees have access to our trade secrets and other intellectual
property. If one or more of these employees leave us to work for one of our competitors, then they
may disseminate this proprietary information, which may as a result damage our competitive position.
If we fail to protect our intellectual property and other proprietary rights, then our business, results of
operations or financial condition could be materially harmed. From time to time, we have initiated
lawsuits to protect our intellectual property and other proprietary rights. Pursuing these claims is time
consuming and expensive and could adversely impact our results of operations.
In addition, affirmatively defending our intellectual property rights and investigating whether we
are pursuing a product or service development that may violate the rights of others may entail
significant expense. Any of our intellectual property rights may be challenged by others or invalidated
through administrative processes or litigation. If we resort to legal proceedings to enforce our
intellectual property rights or to determine the validity and scope of the intellectual property or other
proprietary rights of others, then the proceedings could result in significant expense to us and divert
the attention and efforts of our management and technical employees, even if we prevail.
We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly,
time-consuming and limit our ability to use certain technologies in the future.
We may become subject to claims that our technologies infringe upon the intellectual property or
other proprietary rights of third parties. Any claims, with or without merit, could be time-consuming
and expensive, and could divert our management’s attention away from the execution of our business
47
plan. Moreover, any settlement or adverse judgment resulting from these claims could require us to pay
substantial amounts or obtain a license to continue to use the disputed technology, or otherwise restrict
or prohibit our use of the technology. We cannot assure you that we would be able to obtain a license
from the third party asserting the claim on commercially reasonable terms, if at all, that we would be
able to develop alternative technology on a timely basis, if at all, or that we would be able to obtain a
license to use a suitable alternative technology to permit us to continue offering, and our customers to
continue using, our affected product. An adverse determination also could prevent us from offering our
products to others. Infringement claims asserted against us may have a material adverse effect on our
business, results of operations or financial condition.
Risks Relating to Securities Markets and Investment in Our Stock
The price of our common stock may fluctuate significantly.
The market prices for securities of emerging technology companies have historically been highly
volatile, and the market has from time to time experienced significant price and volume fluctuations
that are unrelated to the operating performance of particular companies. The market price of our
common stock may fluctuate significantly in response to a number of factors, most of which we cannot
control, including the following:
(cid:127) U.S. government spending levels, both generally and by our particular customers;
(cid:127) the volume of operational activity by the U.S. military;
(cid:127) delays in the payment of our invoices by government payment offices, resulting in potentially
reduced earnings during a particular fiscal quarter;
(cid:127) announcements of new products or technologies, commercial relationships or other events
relating to us or our industry or our competitors;
(cid:127) failure of any of our key products to gain market acceptance;
(cid:127) variations in our quarterly operating results;
(cid:127) perceptions of the prospects for the markets in which we compete;
(cid:127) changes in general economic conditions;
(cid:127) changes in securities analysts’ estimates of our financial performance;
(cid:127) regulatory developments in the United States and foreign countries;
(cid:127) fluctuations in stock market prices and trading volumes of similar companies;
(cid:127) news about the markets in which we compete or regarding our competitors;
(cid:127) terrorist acts or military action related to international conflicts, wars or otherwise;
(cid:127) sales of large blocks of our common stock, including sales by our executive officers, directors
and significant stockholders; and
(cid:127) additions or departures of key personnel.
In addition, the equity markets in general, and NASDAQ in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of companies. Further, the market prices of securities of emerging technology companies
have been particularly volatile. These broad market and industry factors may affect the market price of
our common stock adversely, regardless of our operating performance. In the past, following periods of
volatility in the market price of a company’s securities, securities class action litigation often has been
48
instituted against that company. This type of litigation, if instituted against us, could result in
substantial costs and a diversion of management’s attention and resources.
Our management, whose interests may not be aligned with yours, is able to exert significant influence over all
matters requiring stockholder approval.
As of June 19, 2015, our directors, executive officers and their affiliates collectively beneficially
owned 3,583,925 shares, or approximately 15%, of our total outstanding shares of common stock.
Accordingly, our directors and executive officers as a group may be able to exert significant influence
over matters requiring stockholder approval, including the election of directors. The interests of our
directors and executive officers may not be fully aligned with yours. Although there is no agreement
among our directors and executive officers with respect to the voting of their shares, this concentration
of ownership may delay, defer or even prevent a change in control of our company, and make
transactions more difficult or impossible without the support of all or some of our directors and
executive officers. These transactions might include proxy contests, tender offers, mergers or other
purchases of common stock that could give you the opportunity to realize a premium over the
then-prevailing market price for shares of our common stock.
Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition
by a third party, which could make it more difficult to acquire us and limit your ability to sell your shares at
a premium.
Our certificate of incorporation and bylaws contain certain provisions that reduce the probability of
a change of control or acquisition of our company, even if such a transaction would be beneficial to
our stockholders. These provisions include, but are not limited to:
(cid:127) The ability of our board of directors to issue preferred stock in one or more series of with such
rights, obligations and preferences as the board may determine, without further vote or action by
our stockholders;
(cid:127) Advanced notice procedures for stockholders to nominate candidates for election to the board of
directors and for stockholders to submit proposals for consideration at a meeting of
stockholders;
(cid:127) The absence of cumulative voting rights for our stockholders;
(cid:127) The classification of our board of directors, which effectively prevents stockholders from electing
a majority of the directors at any one annual meeting of stockholders;
(cid:127) The limitation that directors may be removed only for cause by the affirmative vote of the
holders of 662⁄3% of the total voting power of all of our outstanding securities entitled to vote in
the election of directors, voting together as a single class; and
(cid:127) Restrictions on the ability of our stockholders to call a special meeting of stockholders.
We are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain
exceptions, prohibits ‘‘business combinations’’ between a publicly-held Delaware corporation and an
‘‘interested stockholder,’’ which is generally defined as a stockholder who becomes a beneficial owner
of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date
that such stockholder became an interested stockholder. This statute, as well as the provisions in our
organizational documents, could have the effect of delaying, deterring or preventing certain potential
acquisitions or a change in control of us.
49
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
All of our facilities are leased. Our corporate headquarters are located in Monrovia, California
where we lease approximately 13,000 square feet under an agreement expiring in September 2015. We
have several other leased facilities in California, Alabama and Virginia that are used for administration,
research and development, logistics and manufacturing and have a total of approximately 489,000
square feet. Such leases expire between the end of 2015 and 2021.
Item 3. Legal Proceedings.
We are not currently a party to any material legal proceedings. We are, however, subject to
lawsuits, government investigations, audits and other legal proceedings from time to time in the
ordinary course of our business. It is not possible to predict the outcome of any legal proceeding with
any certainty. The outcome or costs we incur in connection with a legal proceeding could adversely
impact our operating results and financial position.
Item 4. Mine Safety Disclosure.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
PART II
of Equity Securities.
Common Stock
The following table sets forth, for the periods indicated, the high and low sales prices for our
common stock from May 1, 2014 through April 30, 2015. The following quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Fiscal Year Ended April 30,
2015
2014
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . .
$36.50
$33.85
$30.87
$28.92
$30.20
$27.20
$24.73
$25.00
$23.97
$26.50
$31.50
$41.67
$19.24
$20.78
$26.14
$27.34
On June 19, 2015, the closing sales price of our common stock as reported on the NASDAQ
Global Select Market was $27.23 per share. As of June 19, 2015, there were 62 holders of record of
our common stock.
Dividends
To date we have retained all earnings for use in the operation and expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. Any future determination related
to dividend policy will be made at the discretion of our board of directors and will depend upon,
among other factors, our results of operations, financial condition, capital requirements, capital
allocation policy, expected return on invested capital, contractual restrictions and such other factors as
our board of directors deems relevant.
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Stock Price Performance Graph
The following graph shows a comparison of cumulative returns on our common stock, based on
the market price of the common stock, with the cumulative total returns of companies in the Russell
2000 Index and the SPADES Index.
Cumulative Total Return
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
AeroVironment Stock
Russell 2000 Index
SPADES Index
25JUN201506022825
The following table shows the value of $100 invested on April 30, 2010 in AeroVironment, Inc.,
the Russell 2000 Index and the SPADES Index.
Performance Graph Table ($)
April 30,
2010
April 30,
2011
April 30,
2012
April 30,
2013
April 30,
2014
April 30,
2015
AeroVironment Stock . . . . . . . . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . . . . . . . .
SPADES Index . . . . . . . . . . . . . . . . . . . . . .
100
100
100
109
121
108
93
114
105
74
132
123
129
157
171
98
170
189
The stock price performance shown on the graph above is not necessarily indicative of future price
performance. Factual material was obtained from sources believed to be reliable, but we are not
responsible for any errors or omissions contained therein. No portions of this graph shall be deemed
incorporated by reference into any filing under the Securities Act, or the Exchange Act through any
general statement incorporating by reference in its entirety the report in which this graph appears,
except to the extent that we specifically incorporate this graph or a portion of it by reference. In
addition, this graph shall not be deemed filed under either the Securities Act or the Exchange Act.
52
Item 6. Selected Consolidated Financial Data.
The following selected financial data should be read in conjunction with our consolidated financial
statements. The information set forth below is not necessarily indicative of results of future operations,
and should be read in conjunction with Item 7, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’’ and the consolidated financial statements and notes thereto
included in Item 8, ‘‘Financial Statements and Supplementary Data’’ of this Annual Report in order to
understand fully factors that may affect the comparability of the financial data presented below.
Year Ended April 30,
2015
2014
2013
2012
2011
(In thousands, except per share data)
Consolidated Income Statement Data:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
$259,398
2,895
$
$251,703
$ 13,718
$240,152
$ 10,426
$325,008
$ 30,451
$292,503
$ 25,909
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares
$
$
0.13
0.13
$
$
0.61
0.60
$
$
0.47
0.47
$
$
1.40
1.36
$
$
1.20
1.17
outstanding (basic): . . . . . . . . . . . . . . . . .
22,869
22,354
22,070
21,783
21,591
Weighted average common shares
outstanding (diluted): . . . . . . . . . . . . . . . .
23,146
22,719
22,390
22,315
22,081
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . .
$397,467
1,820
$
$384,954
4,752
$
$361,604
4,231
$
$369,151
6,854
$
$331,747
6,175
$
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The following discussion of our financial condition and results of operations should be read in
conjunction with our ‘‘Selected Consolidated Financial Data’’ and our consolidated financial statements
and notes thereto included herein as Item 8. This discussion contains forward-looking statements. Refer
to ‘‘Forward-Looking Statements’’ on page 2 and ‘‘Risk Factors’’ beginning on page 25, for a discussion
of the uncertainties, risks and assumptions associated with these statements.
Overview
We design, develop, produce, support and operate a technologically-advanced portfolio of products.
We supply unmanned aircraft systems, or UAS, tactical missile systems and services primarily to
organizations within the U.S. Department of Defense, or DoD. We also supply charging systems and
services for electric vehicles and power cycling and test systems to commercial, consumer and
government customers. We derive the majority of our revenue from these business areas and we believe
that the markets for these solutions have significant growth potential. Additionally, we believe that
some of the innovative potential products in our research and development pipeline will emerge as new
growth platforms in the future, creating additional market opportunities.
The success we have achieved with our current products and services stems from our investment in
research and development and our ability to invent and deliver advanced solutions, utilizing our
proprietary technologies, to help our government, commercial and consumer customers operate more
effectively and efficiently. We develop these highly innovative solutions by working very closely with our
key customers in each segment of our business and solving their most important challenges related to
our areas of expertise. Our core technological capabilities, developed through more than 40 years of
innovation, include lightweight aerostructures, power electronics, electric propulsion systems, efficient
53
electric power generation, conversion, and storage systems, high-density energy packaging,
miniaturization, DDL, aircraft payloads, controls integration, systems integration and engineering
optimization coupled with professional field service capabilities.
Our UAS business segment focuses primarily on the design, development, production, support and
operation of innovative UAS and tactical missile systems that provide situational awareness, multi-band
communications, force protection and other mission effects to increase the security and effectiveness of
our customers’ operations. Our Efficient Energy Systems, or EES, business segment focuses primarily
on the design, development, production, marketing, support and operation of innovative efficient
electric energy systems that address the growing demand for electric transportation solutions.
Revenue
We generate our revenue primarily from the sale, support and operation of our small UAS, tactical
missile systems, electric vehicle charging systems and power cycling and test systems solutions. Support
for our small UAS customers includes training, spare parts, product repair, product replacement, and
the customer-contracted operation of our small UAS by our personnel. We refer to these support
activities, in conjunction with customer-funded R&D, as our services operation. We derive most of our
small UAS revenue from fixed-price and cost-plus-fee contracts with the U.S. government, and most of
our electric vehicle charging systems and power cycling and test systems revenue from sales and service
to commercial customers.
Cost of Sales
Cost of sales consists of direct costs and allocated indirect costs. Direct costs include labor,
materials, travel, subcontracts and other costs directly related to the execution of a specific contract.
Indirect costs include overhead expenses, fringe benefits and other costs that are not directly charged
to a specific contract.
Gross Margin
Gross margin is equal to revenue minus cost of sales. We use gross margin as a financial metric to
help us understand trends in our direct costs and allocated indirect costs when compared to the
revenue we generate.
Research and Development Expense
Research and development, or R&D, is an integral part of our business model. We normally
conduct significant internally funded R&D. Our research and development activities focus specifically
on creating capabilities that support our existing product portfolio as well as new solutions.
Selling, General and Administrative
Our selling, general and administrative expenses, or SG&A, include salaries and other expenses
related to selling, marketing and proposal activities, and other administrative costs. Some SG&A
expenses relate to market and business development activities that support both ongoing business areas
as well as new and emerging market areas. These activities can be directly associated with developing
requirements for and applications of capabilities created in our R&D activities. SG&A is an important
financial metric that we analyze to help us evaluate the contribution of our selling, marketing and
proposal activities to revenue generation.
54
Other Income and Expenses
Other income and expenses includes interest income, interest expense, changes in fair value of
certain financial investments, gains/losses on sale of available-for-sale equity securities and losses from
equity method investments.
Income Tax Expense
Our effective tax rates are substantially lower than the statutory rates primarily due to research
and development tax credits.
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, 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.
We believe the following critical accounting estimates affect our more significant judgments and
estimates used in preparing our consolidated financial statements. See Note 1 of the Notes to
Consolidated Financial Statements for our Organization and Significant Accounting Policies. There
have been no material changes made to the critical accounting estimates during the periods presented
in the consolidated financial statements.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the
recognition of revenue in any accounting period. Material differences in the amount of revenue in any
given period may result if these judgments or estimates prove to be incorrect or if management’s
estimates change on the basis of development of the business or market conditions. Management
judgments and estimates have been applied consistently and have been reliable historically. We believe
that there are two key factors which impact the reliability of management’s estimates. The first of those
key factors is that the terms of our contracts are typically less than six months. The short-term nature
of such contracts reduces the risk that material changes in accounting estimates will occur on the basis
of market conditions or other factors. The second key factor is that we have hundreds of contracts in
any given accounting period, which reduces the risk that any one change in an accounting estimate on
one or several contracts would have a material impact on our consolidated financial statements or our
two reporting segments’ measures of profit.
The substantial majority of our revenue is generated pursuant to written contractual arrangements
to design, develop, manufacture and/or modify complex products, and to provide related engineering,
technical and other services according to customer specifications. These contracts may be fixed price or
cost-reimbursable. We consider all contracts for treatment in accordance with authoritative guidance for
contracts with multiple deliverables.
55
Revenue from product sales not under contractual arrangement is recognized at the time title and
the risk and rewards of ownership pass, which typically occurs when the products are shipped and
collection is reasonably assured.
Revenue and profits on fixed-price contracts are recognized using percentage-of-completion
methods of accounting. Revenue and profits on fixed-price production contracts, whose units are
produced and delivered in a continuous or sequential process, are recorded as units are delivered based
on their selling prices, or the units-of-delivery method. Revenue and profits on other fixed-price
contracts with significant engineering as well as production requirements are recorded based on the
ratio of total actual incurred costs to date to the total estimated costs for each contract, or the
cost-to-cost method. Under percentage-of-completion methods of accounting, a single estimated total
profit margin is used to recognize profit for each contract over its entire period of performance, which
can exceed one year. Accounting for revenue and profits on a fixed-price contract requires the
preparation of estimates of (1) the total contract revenue, (2) the total costs at completion, which is
equal to the sum of the actual incurred costs to date on the contract and the estimated costs to
complete the contract’s statement of work and (3) the measurement of progress towards completion.
The estimated profit or loss at completion on a contract is equal to the difference between the total
estimated contract revenue and the total estimated cost at completion. Under the units-of-delivery
method, sales on a fixed-price type contract are recorded as the units are delivered during the period
based on their contractual selling prices. Under the cost-to-cost method, sales on a fixed-price type
contract are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total
estimated costs at completion, multiplied by (A) the total estimated contract revenue, less (B) the
cumulative sales recognized in prior periods. The profit recorded on a contract in any period using
either the units-of-delivery method or cost-to-cost method is equal to (X) the current estimated total
profit margin multiplied by the cumulative sales recognized, less (Y) the amount of cumulative profit
previously recorded for the contract. In the case of a contract for which the total estimated costs
exceed the total estimated revenue, a loss arises, and a provision for the entire loss is recorded in the
period that it becomes evident. The unrecoverable costs on a loss contract that are expected to be
incurred in future periods are recorded in the program cost.
Revenue and profits on cost-reimbursable type contracts are recognized as costs are incurred on
the contract, at an amount equal to the costs plus the estimated profit on those costs. The estimated
profit on a cost-reimbursable contract is generally fixed or variable based on the contractual fee
arrangement.
We review cost performance and estimates to complete at least quarterly and in many cases more
frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion
and estimated profit or loss are often required as work progresses under a contract, as experience is
gained and as more information is obtained, even though the scope of work required under the
contract may not change, or if contract modifications occur. The impact of revisions in profit estimates
for all types of contracts are recognized on a cumulative catch-up basis in the period in which the
revisions are made. During the fiscal years ended April 30, 2015, 2014 and 2013, changes in accounting
estimates on fixed-price contracts recognized using the percentage of completion method of accounting
are presented below. Amounts representing contract change orders or claims are included in revenue
only when they can be reliably estimated and their realization is probable. Incentives or penalties and
awards applicable to performance on contracts are considered in estimating revenue and profit rates,
and are recorded when there is sufficient information to assess anticipated contract performance.
56
For the years ended April 30, 2015, 2014 and 2013, favorable and unfavorable cumulative catch-up
adjustments included in cost of sales were as follows (in thousands):
Gross favorable adjustments . . . . . . . . . . . . . . . . . . . . . .
Gross unfavorable adjustments . . . . . . . . . . . . . . . . . . . .
$
885
(1,017)
$ 699
(337)
$1,874
(106)
Net adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (132) $ 362
$1,768
Year Ended April 30,
2015
2014
2013
For the year ended April 30, 2015, favorable cumulative catch-up adjustments of $0.9 million were
primarily due to final cost adjustments on 28 contracts, which individually were not material. For the
same period, unfavorable cumulative catch-up adjustments of $1.0 million were primarily related to
higher than expected costs on 170 contracts, which individually were not material.
For the year ended April 30, 2014, favorable cumulative catch-up adjustments of $0.7 million were
primarily due to final cost adjustments on 274 contracts, which individually were not material. For the
same period, unfavorable cumulative catch-up adjustments of $0.3 million were primarily related to
higher than expected costs on eight contracts, which individually were not material.
For the year ended April 30, 2013, favorable cumulative catch-up adjustments of $1.9 million were
due to final cost adjustments on 12 contracts, which individually were not material. For the same
period, unfavorable cumulative catch-up adjustments of $0.1 million were primarily related to higher
than expected costs on six contracts, which individually were not material.
Inventories and Reserve for Excess and Obsolescence
Our policy for valuation of inventory, including the determination of obsolete or excess inventory,
requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a
review of, among other factors, an estimate of future demand for products within specific time
horizons, valuation of existing inventory, as well as product lifecycle and product development plans.
Inventory reserves are also provided to cover risks arising from slow-moving items. We write down our
inventory for estimated obsolescence or unmarketable inventory equal to the difference between the
cost of inventory and the estimated market value based on assumptions about future demand and
market conditions. We may be required to record additional inventory write-downs if actual market
conditions are less favorable than those projected by our management.
Self-Insured Liability
We are self-insured for employee medical claims, subject to individual and aggregate stop-loss
policies. We estimate a liability for claims filed and incurred but not reported based upon recent claims
experience and an analysis of the average period of time between the occurrence of a claim and the
time it is reported to and paid by us. We perform an annual evaluation of this policy and have
determined that for all prior years during which this policy has been in effect there have been cost
advantages to this policy, as compared to obtaining commercially available employee medical insurance.
However, actual results may differ materially from those estimated and could have a material impact
on our consolidated financial statements.
Impairment of Long-Lived Assets
We review the recoverability of long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. The estimated future cash
flows are based upon, among other things, assumptions about expected future operating performance,
and may differ from actual cash flows. If the sum of the projected undiscounted cash flows (excluding
interest) is less than the carrying value of the assets, the assets will be written down to the estimated
fair value in the period in which the determination is made.
57
Long-Term Incentive Awards
We grant long-term incentive awards and we establish a target payout at the beginning of each
performance period. The actual payout at the end of the performance period is calculated based upon
our achievement of such targets. Payouts are made in cash and restricted stock units. Upon vesting of
the restricted stock units, we have the discretion to settle the restricted stock units in cash or stock.
The cash component of the award is accounted for as a liability. The equity component is
accounted for as a stock-based liability as the restricted stock units may be settled in cash or stock. At
each reporting period, we reassess the probability of achieving the performance targets. The estimation
of whether the performance targets will be achieved requires judgment, and to the extent actual results
or updated estimates differ from our current estimates, the cumulative effect on current and prior
periods of those changes will be recorded in the period estimates are revised.
Income Taxes
We are required to estimate our income taxes, which includes estimating our current income taxes
as well as measuring the temporary differences resulting from different treatment of items for tax and
accounting purposes. We currently have significant deferred assets, which are subject to periodic
recoverability assessments. Realizing our deferred tax assets principally depends on our achieving
projected future taxable income. We may change our judgments regarding future profitability due to
future market conditions and other factors, which may result in recording a valuation allowance against
those deferred tax assets.
We have various foreign subsidiaries to conduct or support our business outside the United States.
We do not provide for U.S. income taxes on undistributed earnings for our foreign subsidiaries as
management expects the foreign earnings will be indefinitely reinvested in such foreign jurisdictions.
Fiscal Periods
Our fiscal year ends on April 30. 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
13 weeks. Our first three quarters end on a Saturday.
Results of Operations
The following table sets forth certain historical consolidated income statement data expressed in
dollars (in thousands) and as a percentage of revenue for the periods indicated. Certain amounts may
not sum due to rounding.
Fiscal Year Ended April 30,
2015
2014
2013
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$259,398
155,130
100% $251,703
60% 158,090
100% $240,152
63% 147,616
100%
61%
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Research and development
104,268
55,763
46,491
40% 93,613
21% 55,679
18% 25,515
37% 92,536
22% 51,520
10% 37,214
Income from operations . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . .
2,014
882
(1,003)
1,893
(1,002)
1% 12,419
0%
855
0% 1,622
1% 14,896
0% 1,178
5% 3,802
0%
726
1% 6,245
6% 10,773
347
0%
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,895
1% $ 13,718
5% $ 10,426
39%
21%
15%
2%
0%
3%
4%
0%
4%
58
The following table sets forth our revenue, costs of sales and gross margin generated by each
operating segment for the periods indicated:
Fiscal Year Ended April 30,
2015
2014
2013
(In thousands)
Revenue:
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$220,950
38,448
$208,810
42,893
$194,276
45,876
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$259,398
$251,703
$240,152
Cost of sales:
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$128,233
26,897
$127,992
30,098
$115,194
32,422
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$155,130
$158,090
$147,616
Gross margin:
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92,717
11,551
$ 80,818
12,795
$ 79,082
13,454
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,268
$ 93,613
$ 92,536
Fiscal Year Ended April 30, 2015 Compared to Fiscal Year Ended April 30, 2014
Revenue. Revenue for the fiscal year ended April 30, 2015 was $259.4 million, as compared to
$251.7 million for the fiscal year ended April 30, 2014, representing an increase of $7.7 million, or 3%.
The increase in revenue was due to an increase in product deliveries of $10.0 million offset by a
decrease in service revenue of $2.3 million. UAS revenue increased $12.1 million, or 6%, to
$221.0 million for the fiscal year ended April 30, 2015, primarily due to increased product deliveries of
$12.2 million and an increase in customer-funded R&D of $8.6 million, offset by a decrease in service
revenue of $8.6 million. The increase in product deliveries was primarily due to increased product
deliveries of Wasp systems. The increase in customer-funded R&D was primarily due to phase two of
the Tern program and a Switchblade derivative program. The decrease in service revenue was primarily
due to decreased repair activities in small UAS and Switchblade services. EES revenue decreased
$4.4 million, or 10%, to $38.4 million for the fiscal year ended April 30, 2015, primarily due to
decreased product deliveries of our industrial fast charge systems and passenger electric vehicle
charging systems.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2015 was $155.1 million, as
compared to $158.1 million for the fiscal year ended April 30, 2014, representing a decrease of
$3.0 million, or 2%. As a percentage of revenue, cost of sales decreased from 63% to 60%. The
decrease in cost of sales was a result of a decrease in product cost of sales of $0.3 million and service
costs of sales of $2.7 million. UAS cost of sales increased $0.2 million to $128.2 million for the fiscal
year ended April 30, 2015. As a percentage of revenue, cost of sales for UAS decreased from 61% to
58%, primarily due to a favorable product mix. EES cost of sales decreased $3.2 million, or 11%, to
$26.9 million for the fiscal year ended April 30, 2015 due to a decrease in sales volume. As a
percentage of revenue, cost of sales for EES remained at 70%.
Gross Margin. Gross margin for the fiscal year ended April 30, 2015 was $104.3 million, as
compared to $93.6 million for the fiscal year ended April 30, 2014, representing an increase of
$10.7 million, or 11%. The increase in gross margin was due to an increase in product margin of
$10.4 million and service margin of $0.3 million. The increase in product margin was primarily due to
an increase in product deliveries. As a percentage of revenue, gross margin increased from 37% to
59
40%. UAS gross margin increased $11.9 million, or 15%, to $92.7 million for the fiscal year ended
April 30, 2015, primarily due to a favorable product mix. As a percentage of revenue, gross margin for
UAS increased from 39% to 42%. EES gross margin decreased $1.2 million, or 10%, to $11.6 million
for the fiscal year ended April 30, 2015, primarily due to a decrease in sales volume. As a percentage
of revenue, EES gross margin remained at 30%.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2015 was
$55.8 million, or 21% of revenue, compared to SG&A expense of $55.7 million, or 22% of revenue, for
the fiscal year ended April 30, 2014.
Research and Development. R&D expense for the fiscal year ended April 30, 2015 was
$46.5 million, or 18% of revenue, compared to R&D expense of $25.5 million, or 10% of revenue, for
the fiscal year ended April 30, 2014. R&D expense increased primarily due to increased development
activities for certain strategic initiatives.
Interest Income.
Interest income for the fiscal years ended April 30, 2015 and 2014 was
$0.9 million.
Other Expense. Other expense for the fiscal year ended April 30, 2015 was $1.0 million, as
compared to other income of $1.6 million for the fiscal year ended April 30, 2014. The decrease is
primarily due to a reduction in the fair value of the conversion feature of our investment in convertible
bonds and related sales of equity securities.
Income Taxes. Our effective income tax rate was (52.9)% for the fiscal year ended April 30, 2015,
as compared to an effective income tax rate of 7.9% for the fiscal year ended April 30, 2014. The
variance in the effective income tax rate was primarily due to lower pre-tax income and federal R&D
tax credits.
Fiscal Year Ended April 30, 2014 Compared to Fiscal Year Ended April 30, 2013
Revenue. Revenue for the fiscal year ended April 30, 2014 was $251.7 million, as compared to
$240.2 million for the fiscal year ended April 30, 2013, representing an increase of $11.5 million, or
5%. The increase in revenue was due to an increase in product deliveries of $55.2 million offset by
lower service revenue of $43.6 million. UAS revenue increased $14.5 million, or 7%, to $208.8 million
for the fiscal year ended April 30, 2014, primarily due to higher product deliveries of $57.0 million
offset by decreases in logistics service revenue of $33.2 million and customer-funded R&D work of
$9.3 million. The increase in product deliveries was primarily due to higher product deliveries of Puma
AE systems and spares and low-rate production of Switchblade systems. The decrease in logistics
service revenue was primarily due to reduced logistics services for our small UAS system. The decrease
in customer-funded R&D was primarily due to the transition of the Switchblade program from a
developmental program into low-rate production. EES revenue decreased $3.0 million, or 7%, to
$42.9 million for the fiscal year ended April 30, 2014, primarily due to decreased product deliveries of
our electric vehicle test systems partially offset by increased deliveries of industrial fast charge systems
and passenger electric vehicle charging systems.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2014 was $158.1 million, as
compared to $147.6 million for the fiscal year ended April 30, 2013, representing an increase of
$10.5 million, or 7%. As a percentage of revenue, cost of sales increased from 61% to 63%. The
increase in cost of sales was a result of higher product costs of $33.5 million due to higher product
deliveries including transition costs related to new products entering low-rate production, offset by
lower cost of services of $23.0 million due to a reduction in logistic services and lower customer-funded
R&D work as products transitioned into low-rate production. UAS cost of sales increased $12.8 million,
or 11%, to $128.0 million for the fiscal year ended April 30, 2014, primarily due to an increase in sales
volume. As a percentage of revenue, cost of sales for UAS increased from 59% to 61%. EES cost of
60
sales decreased $2.3 million, or 7%, to $30.1 million for the fiscal year ended April 30, 2014 due to
lower sales volume. As a percentage of revenue, cost of sales for EES decreased from 71% to 70%.
Gross Margin. Gross margin for the fiscal year ended April 30, 2014 was $93.6 million, as
compared to $92.5 million for the fiscal year ended April 30, 2013, representing an increase of
$1.1 million, or 1%. The increase in gross margin was due to higher product margins of $21.7 million
offset by lower service revenue margins of $20.6 million. As a percentage of revenue, gross margin
decreased from 39% to 37%. UAS gross margin increased $1.7 million, or 2%, to $80.8 million for the
fiscal year ended April 30, 2014, primarily due to an increase in sales volume. As a percentage of
revenue, gross margin for UAS decreased from 41% to 39%. EES gross margin decreased $0.7 million,
or 5%, to $12.8 million for the fiscal year ended April 30, 2014. As a percentage of revenue, EES gross
margin increased from 29% to 30%.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2014 was
$55.7 million, or 22% of revenue, compared to SG&A expense of $51.5 million, or 21% of revenue, for
the fiscal year ended April 30, 2013. SG&A expense increased by $4.2 million primarily due to
impairment costs of Tier-II related assets and higher incentive compensation as a result of achieving
certain measures of financial performance.
Research and Development. R&D expense for the fiscal year ended April 30, 2014 was
$25.5 million, or 10% of revenue, compared to R&D expense of $37.2 million, or 15% of revenue, for
the fiscal year ended April 30, 2013. R&D expense decreased primarily due to decreased investments in
various technology development initiatives.
Interest Income.
Interest income for the fiscal year ended April 30, 2014 was $0.9 million, as
compared to $0.7 million for the fiscal year ended April 30, 2013.
Other Income. Other income for the fiscal year ended April 30, 2014 was $1.6 million, as
compared to $6.2 million for the fiscal year ended April 30, 2013. Other income primarily represents
the change in fair value of the conversion feature of our investment in convertible bonds.
Income Tax Expense. Our effective income tax expense rate was 7.9% for the fiscal year ended
April 30, 2014, as compared to an effective income expense tax rate of 3.2% for the fiscal year ended
April 30, 2013. The increase in the effective income tax expense rate was primarily due to higher
taxable income and lower R&D tax credits.
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. 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
marketing 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
61
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. In addition, we may also need to seek additional equity funding or debt financing if we
become a party to any agreement or letter of intent for potential investments in, or acquisitions of,
businesses, services or technologies.
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 as of:
Net cash provided by operating activities . . . . . . . . .
Net cash (used in) provided by investing activities . . .
Net cash provided by financing activities . . . . . . . . . .
Fiscal Year Ended April 30,
2015
2014
2013
(In thousands)
$ 39,413
$34,005
$(23,820) $10,438
$ 7,194
$
848
$ 29,244
$(18,344)
212
$
Cash Provided by Operating Activities. Net cash provided by operating activities for the fiscal year
ended April 30, 2015 increased by $5.4 million to $39.4 million, compared to net cash provided by
operating activities of $34.0 million for the fiscal year ended April 30, 2014. This increase in net cash
provided by operating activities was primarily due to higher working capital generated of $16.1 million,
a higher loss on disposal of fixed assets of $3.7 million and a change in fair value of the CybAero notes
of $1.7 million, partially offset by lower net income of $10.8 million, lower impairment of long-lived
assets of $2.9 million, lower tax benefits of $2.3 million and lower depreciation expense of $0.8 million.
Net cash provided by operating activities for the fiscal year ended April 30, 2014 increased by
$4.8 million to $34.0 million, compared to net cash provided by operating activities of $29.2 million for
the fiscal year ended April 30, 2013. This increase in net cash provided by operating activities was
primarily due to the change in fair value of the CybAero notes of $4.4 million, impairment of Tier-II
related assets of $3.3 million, higher net income of $3.3 million and higher working capital generated of
$2.9 million, partially offset by higher deferred income taxes of $7.0 million and lower depreciation
expense of $1.8 million.
Cash (Used in) Provided by Investing Activities. Net cash used in investing activities increased by
$34.3 million to $23.8 million for the fiscal year ended April 30, 2015, compared to net cash provided
by investing activities of $10.4 million for the fiscal year ended April 30, 2014. The increase in net cash
used in investing activities was primarily due to higher net purchases of held-to-maturity investments of
$46.2 million, partially offset by higher sales of available-for-sale investments of $9.7 million and lower
capital expenditures of $1.9 million. During the fiscal years ended April 30, 2015, 2014 and 2013, we
used cash to purchase property and equipment totaling $5.3 million, $7.1 million and $11.8 million,
respectively.
Net cash provided by investing activities increased by $28.7 million to $10.4 million for the fiscal
year ended April 30, 2014, compared to net cash used in investing activities of $18.3 million for the
fiscal year ended April 30, 2013. The increase in net cash provided by investing activities was primarily
due to lower net purchases of U.S. government securities and municipal bonds of $21.1 million and
62
lower capital expenditures of $4.7 million. During the fiscal years ended April 30, 2014, 2013 and 2012,
we used cash to purchase property and equipment totaling $7.1 million, $11.8 million and $15.0 million,
respectively.
Cash Provided by Financing Activities. Net cash provided by financing activities decreased by
$6.3 million to $0.8 million for the fiscal year ended April 30, 2015, compared to net cash provided by
financing activities of $7.2 million for the fiscal year ended April 30, 2014. The decrease was primarily
due to lower exercises of stock options of $6.0 million.
Net cash provided by financing activities increased by $7.0 million to $7.2 million for the fiscal year
ended April 30, 2014, compared to net cash provided by financing activities of $0.2 million for the fiscal
year ended April 30, 2013. The increase was primarily due to higher exercises of stock options of
$6.4 million and higher excess tax benefits from stock-based compensation of $0.6 million.
Contractual Obligations
The following table describes our commitments to settle contractual obligations as of April 30,
2015:
Payments Due By Period
Total
Less Than
1 Year
Operating lease obligations . . . . . . . . . . . . . .
Purchase obligations(1) . . . . . . . . . . . . . . . . .
$12,172
28,324
$ 3,720
28,324
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40,496
$32,044
1 to 3 Years
3 to 5 Years
(In thousands)
More Than
5 Years
$4,045
—
$4,045
$3,109
—
$3,109
$1,298
—
$1,298
(1) Consists of all cancelable and non-cancelable purchase orders as of April 30, 2015.
Off-Balance Sheet Arrangements
As of April 30, 2015, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of
the SEC’s Regulation S-K.
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
In July 2013, the Financial Accounting Standards Board or FASB, issued Accounting Standards
Update or ASU, No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a
consensus of the Emerging Issues Task Force). This ASU addresses when unrecognized tax benefits
should be presented as reductions to deferred tax assets for net operating loss carryforwards in the
financial statements. This ASU is effective prospectively for fiscal years, and interim periods within
those years, beginning after December 15, 2013. Early adoption and retrospective application is
permitted. The adoption of this guidance did not have a material impact on our consolidated financial
statements.
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity. This ASU changes the threshold for a disposal to qualify as a
63
discontinued operation. To be considered a discontinued operation a disposal now must represent a
strategic shift that has or will have a major effect on an entity’s operations and financial results. This
ASU also requires new disclosures for individually material disposal transactions that do not meet the
definition of a discontinued operation. This update will be applied prospectively and is effective for
annual periods, and interim periods within those years, beginning after December 15, 2014. Early
adoption is permitted provided the disposal was not previously disclosed. The adoption of this guidance
did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to
determine when and how revenue is recognized. The core principle is that a company should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services.
This ASU is effective for annual periods beginning after December 15, 2017 and shall be applied either
retrospectively to each period presented or as a cumulative-effect adjustment as of the date of
adoption. We are evaluating the potential impact of this adoption on our consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task
Force). This ASU clarifies that a performance target that affects vesting and that could be achieved
after the requisite service period be treated as a performance condition. A reporting entity should
apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect
vesting to account for such awards. As such, the performance target should not be reflected in
estimating the grant-date fair value of the award. Compensation cost should be recognized in the
period in which it becomes probable that the performance target will be achieved and should represent
the compensation cost attributable to the period(s) for which the requisite service has already been
rendered. This ASU is effective for annual periods, and interim periods within those years, beginning
after December 15, 2015. Early adoption is permitted. This ASU may be applied 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. The adoption of
this guidance is not expected to have a material impact on our consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual
Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of
Extraordinary Items. This ASU is part of the FASB’s initiative to reduce complexity in accounting
standards. This ASU eliminates from U.S. GAAP the concept of extraordinary items, which were
previously required to be segregated from the results of ordinary operations and shown separately in
the income statement, net of tax, after income from continuing operations. Entities were also required
to disclose applicable income taxes for the extraordinary item and either present or disclose
earnings-per-share data applicable to the extraordinary item. Items which are considered both unusual
and infrequent will now be presented separately within income from continuing operations in the
income statement or disclosed in notes to the financial statements. This update is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Companies may
apply the ASU prospectively, or may also apply the amendments retrospectively to all prior periods
presented in the financial statements. Early adoption is permitted provided that the guidance is applied
from the beginning of the fiscal year of adoption. The adoption of this guidance will not have a
material impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to
the Consolidation Analysis. This ASU changes the analysis that reporting entities must perform to
64
determine if certain types of legal entities should be consolidated. Specifically, the ASU focuses on
1) the variable interest entity, or VIE, evaluation of limited partnerships and similar legal entities,
2) eliminating the presumption that general partners should consolidate a limited partnership, 3) the
consolidation analysis of reporting entities that are involved with VIEs, and 4) scope exceptions from
consolidation guidance for reporting entities with interests in legal entities that are required to comply
with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the
Investment Company Act of 1940 for registered money market funds. This update is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption
is permitted, including adoption in an interim period. If the ASU is adopted in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The ASU may be applied using a modified retrospective approach by recording a cumulative-effect
adjustment as of the beginning of the fiscal year of adoption. A reporting entity also may apply the
amendments retrospectively. We are evaluating the potential impact of this adoption on our
consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This
ASU adds explicit guidance into U.S. GAAP regarding a customer’s accounting for fees paid in a cloud
computing arrangement. The ASU 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. This update is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2015. Early adoption is permitted. A reporting entity should apply the amendments either
(1) prospectively to all arrangements entered into or materially modified after the effective date or
(2) retrospectively. We are evaluating the potential impact of this adoption on our consolidated
financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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.
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. We occasionally engage in forward
contracts in foreign currencies to limit our exposure on non-U.S. dollar transactions.
65
Item 8. Financial Statements and Supplementary Data.
AeroVironment, Inc.
Audited Consolidated Financial Statements
Index to Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at April 30, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended April 30, 2015, 2014 and 2013 . . . . . . .
Page
67
68
69
Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2015, 2014
and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Consolidated Statements of Stockholders’ Equity for the Years Ended April 30, 2015, 2014 and
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended April 30, 2015, 2014 and 2013 . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Results of Operations (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
72
73
99
Supplementary Data
Financial Statement Schedule: Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . .
103
All other schedules are omitted because they are not applicable, not required or the information
required is included in the Consolidated Financial Statements, including the notes thereto.
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
AeroVironment, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of AeroVironment, Inc. and
subsidiaries as of April 30, 2015 and 2014, and the related consolidated statements of income,
comprehensive income, stockholders’ equity and cash flows for each of the three years in the period
ended April 30, 2015. Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These consolidated financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AeroVironment, Inc. and subsidiaries at
April 30, 2015 and 2014, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 2015, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 20 to the consolidated financial statements, the April 30, 2014 and 2013
consolidated statements of cash flows have been restated to correct for an error in the classification of
the amortization of the premium on held to maturity investments from investing activities to operating
activities.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), AeroVironment, Inc. and subsidiaries’ internal controls over financial
reporting as of April 30, 2015, based upon criteria established in Internal Control—Integrated
Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 30, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
June 30, 2015
67
AEROVIRONMENT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $606 at
April 30, 2015 and $791 at April 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables and retentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2015
2014
$143,410
85,381
$126,969
70,639
33,607
17,356
39,414
—
5,265
4,599
329,032
46,769
13,499
7,426
741
31,739
10,929
50,699
6,584
5,038
4,260
306,857
50,505
19,997
6,721
874
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$397,467
$384,954
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wages and related accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability for uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
$ 19,243
13,395
692
4,235
9,170
46,735
1,381
439
$ 13,906
14,083
—
2,984
6,762
37,735
1,239
3,513
Authorized shares—10,000,000; none issued or outstanding . . . . . . . . . . . . .
—
—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—23,314,640 shares at April 30, 2015 and
23,176,576 at April 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
148,293
(1,358)
201,975
2
143,648
(263)
199,080
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348,912
342,467
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$397,467
$384,954
See accompanying notes to consolidated financial statements.
68
AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share data)
Revenue:
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Cost of sales:
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
(Benefit) provision for income taxes
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share data:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
$
$
$
Year Ended April 30,
2015
2014
2013
205,027
54,371
259,398
118,834
36,296
155,130
104,268
55,763
46,491
2,014
882
(1,003)
1,893
(1,002)
2,895
0.13
0.13
$
$
$
$
194,996
56,707
251,703
119,137
38,953
158,090
93,613
55,679
25,515
12,419
855
1,622
14,896
1,178
13,718
0.61
0.60
$
$
$
$
139,813
100,339
240,152
85,643
61,973
147,616
92,536
51,520
37,214
3,802
726
6,245
10,773
347
10,426
0.47
0.47
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,868,733
23,145,997
22,354,444
22,719,218
22,069,842
22,390,420
See accompanying notes to consolidated financial statements.
69
AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income:
Year Ended April 30,
2015
2014
2013
$ 2,895
$13,718
$10,426
Unrealized (loss) gain on investments, net tax . . . . . . . . . . . . . . . . . . .
(1,095)
442
(11)
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,800
$14,160
$10,415
See accompanying notes to consolidated financial statements.
70
AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands except share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Retained Comprehensive
Earnings
Loss
Total
$124,954 $174,936
— 10,426
—
—
—
289
—
—
—
—
—
—
$ (694)
—
(11)
—
—
—
—
$299,198
10,426
(11)
289
—
—
—
Balance at April 30, 2012 . . . . . . . . . . . . 22,243,903
Net income . . . . . . . . . . . . . . . . . . . .
Unrealized loss on investments . . . . . .
Stock options exercised . . . . . . . . . . .
Restricted stock awards . . . . . . . . . . .
Restricted stock awards forfeited . . . .
Restricted stock units vested . . . . . . . .
Tax withholding payment related to net
share settlement of equity awards . .
Reclassification from share-based
$ 2
— —
— —
208,338 —
163,886 —
(12,767) —
14,926 —
(3,971) —
(77)
401
—
—
—
—
liability compensation to equity . . . .
— —
Tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . .
— —
— —
1,490
3,470
Balance at April 30, 2013 . . . . . . . . . . . . 22,614,315
Net income . . . . . . . . . . . . . . . . . . . .
. . . . .
Unrealized gain on investments
Stock options exercised . . . . . . . . . . .
Restricted stock awards . . . . . . . . . . .
Restricted stock awards forfeited . . . .
Restricted stock units vested . . . . . . . .
Tax withholding payment related to net
share settlement of equity awards . .
Tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . .
2
— —
— —
460,231 —
128,500 —
(35,869) —
14,251 —
130,527
185,362
— 13,718
—
—
—
6,709
—
—
—
—
—
—
(4,852) —
(163)
— —
— —
2,953
3,622
—
—
—
—
—
—
—
(705)
—
442
—
—
—
—
—
—
—
(77)
401
1,490
3,470
315,186
13,718
442
6,709
—
—
—
(163)
2,953
3,622
Balance at April 30, 2014 . . . . . . . . . . . . 23,176,576
2
143,648
199,080
(263)
342,467
Net income . . . . . . . . . . . . . . . . . . . .
Unrealized loss on investments . . . . . .
Stock options exercised . . . . . . . . . . .
Restricted stock awards . . . . . . . . . . .
Restricted stock awards forfeited . . . .
Tax withholding payment related to net
share settlement of equity awards . .
Tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . .
— —
— —
35,018 —
160,180 —
(56,004) —
—
—
722
—
—
(1,130) —
(36)
— —
— —
191
3,768
2,895
—
—
—
—
—
—
—
—
(1,095)
—
—
—
—
—
—
2,895
(1,095)
722
—
—
(36)
191
3,768
Balance at April 30, 2015 . . . . . . . . . . . . 23,314,640
$ 2
$148,293 $201,975
$(1,358)
$348,912
See accompanying notes to consolidated financial statements.
71
AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of conversion feature of convertible bonds
. . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of held-to-maturity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables and retentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity method investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions of held-to-maturity investments
Purchases of held-to-maturity investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities
Financing activities
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax withholding payment related to net settlement of equity awards
. . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended April 30,
2015
2014
2013
(Restated)
(Restated)
$
2,895
$ 13,718
$ 10,426
8,366
240
438
(106)
580
209
(3,382)
(73)
3,768
52
(162)
3,661
4,532
(1,762)
(6,427)
11,285
6,584
(339)
5,337
3,717
39,413
(5,279)
(395)
69,387
(97,464)
(150)
—
10,081
(23,820)
162
(36)
722
848
9,155
30
3,317
(6)
21
(4)
(3,110)
(1,773)
3,622
2,305
(648)
—
5,037
(11,963)
375
11,862
5,193
157
(2,238)
(1,045)
34,005
(7,143)
(105)
75,022
(56,946)
(750)
—
360
10,438
648
(163)
6,709
7,194
51,637
75,332
10,937
—
—
462
—
—
3,851
(6,173)
3,470
1,606
—
18
5,237
36,185
15,730
(19,022)
(11,777)
(317)
(4,069)
(17,320)
29,244
(11,834)
—
84,071
(87,294)
(850)
(3,037)
600
(18,344)
—
(77)
289
212
11,112
64,220
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,441
126,969
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143,410
$126,969
$ 75,332
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash activities
Unrealized change in fair value on long-term investments recorded in accumulated other
comprehensive loss, net of deferred taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification from share-based liability compensation to equity . . . . . . . . . . . . . . . . . .
Forfeiture of vested stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued acquisition of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
700
$
2,556
$ 15,262
1,095
$
— $
$
23
$
250
442
—
—
—
$
$
$
$
11
401
—
—
See accompanying notes to consolidated financial statements.
72
AEROVIRONMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
AeroVironment, Inc., a Delaware corporation, is engaged in the design, development, production,
support and operation of unmanned aircraft systems (‘‘UAS’’) and efficient energy systems (‘‘EES’’) for
various industries and governmental agencies.
Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AeroVironment, Inc.
and its wholly-owned subsidiaries: AV S.r.l. Italy, Skytower, LLC, AV GmbH, AV Massachusetts, LLC,
AV Rhode Island, LLC, Skytower Inc., AILC, Inc., AeroVironment International PTE. LTD. and
Regenerative Fuel Cell Systems, LLC (collectively referred to herein as the ‘‘Company’’). All
intercompany balances and transactions have been eliminated in consolidation.
Restatement of Previously Issued Consolidated Financial Statements
The Company identified a presentation error in its classification of $5.0 million and $5.2 million of
amortization/accretion of premiums/discounts related to held-to-maturity investments within the
consolidated statement of cash flows for the years ended April 30, 2014 and 2013, respectively. The
Company has corrected the error by reclassifying the amount between the investing and operating
sections in its prior year financial statements. See Note 20 for further details.
Investments in Companies Accounted for Using the Equity or Cost Method
Investments in other non-consolidated entities are accounted for using the equity method or cost
basis depending upon the level of ownership and/or the Company’s ability to exercise significant
influence over the operating and financial policies of the investee. When the equity method is used,
investments are recorded at original cost and adjusted periodically to recognize the Company’s
proportionate share of the investees’ net income or losses after the date of investment. When net losses
from an investment accounted for under the equity method exceed its carrying amount, the investment
balance is reduced to zero and additional losses are not provided for as the Company is not obligated
to provide additional capital. The Company resumes accounting for the investment under the equity
method if the entity subsequently reports net income and the Company’s share of that net income
exceeds the share of net losses not recognized during the period the equity method was suspended.
When an investment accounted for using the equity method issues its own shares, the subsequent
reduction in the Company’s proportionate interest in the investee is reflected in equity as an
adjustment to paid-in-capital. The Company evaluates its investments in companies accounted for by
the equity or cost method for impairment when there is evidence or indicators that a decrease in value
may be other than temporary.
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 about 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
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
these segments in order to make resource allocation decisions, including the focus of research and
development (‘‘R&D’’), activities, and assessing performance. The Company’s reportable segments are
business units that offer different products and services and are managed separately.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities and 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. Significant estimates made by management include,
but are not limited to, valuation of: inventory, available-for-sale securities, deferred tax assets and
liabilities, useful lives of property, plant and equipment, medical and dental liabilities, warranty
liabilities and estimates of anticipated contract costs and revenue utilized in the revenue recognition
process. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or
less at the time of purchase to be cash equivalents. The Company’s cash equivalents are comprised of
money market funds, certificates of deposit of major financial institutions, and U.S. Treasury bills.
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.
Unrealized gains and losses are excluded from earnings and reported as a separate component of
stockholders’ equity, net of deferred income taxes for available-for-sale investments. The convertible
bond in which the Company had invested, which was classified as available-for-sale, contained an
embedded conversion feature which was bifurcated from the bond. The change in the fair value of the
embedded conversion feature was recorded in other income in the income statement.
Gains and losses realized on the disposition of investment securities are determined on the specific
identification basis and credited or charged to income. Premium and discount on investments are
amortized and accreted using the interest method and charged or credited to investment income.
Management determines the appropriate classification of securities at the time of purchase and
re-evaluates such designation as of each balance sheet date.
Investments are considered to be impaired when a decline in fair value is judged to be
other-than-temporary. On a quarterly basis, the Company considers available quantitative and
qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment
exceeds its fair value, the Company evaluates, among other factors, general market conditions, the
duration and extent to which the fair value is less than cost, and our intent and ability to hold the
investment to maturity. The Company also considers potential adverse conditions related to the
financial health of the issuer based on rating agency actions. Once a decline in fair value is determined
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
to be other-than-temporary, an impairment charge is recorded in earnings and a new cost basis in the
investment is established.
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist
primarily of cash, cash equivalents, municipal bonds, U.S. government securities and accounts
receivable. The Company currently invests the majority of its cash in municipal bonds and U.S.
government securities. The Company’s revenue and accounts receivable are with a limited number of
corporations and governmental entities. In the aggregate, 80%, 75% and 70% of the Company’s
revenue came from agencies of the U.S. government for the years ended April 30, 2015, 2014 and 2013,
respectively. These agencies accounted for 29% and 11% of the accounts receivable balances at
April 30, 2015 and 2014, respectively. One such agency, the U.S. Army, accounted for 47%, 45% and
43% of the Company’s consolidated revenue for the years ended April 30, 2015, 2014 and 2013,
respectively. The U.S. Army accounted for approximately 55%, 54% and 53% of UAS reportable
segment sales for the years ended April 30, 2015, 2014 and 2013, respectively. The Company performs
ongoing credit evaluations of its commercial customers and maintains an allowance for potential losses.
Accounts Receivable, Unbilled Receivables and Retentions
Accounts receivable represents primarily U.S. government, and to a lesser extent commercial
receivables, net of allowances for doubtful accounts. Unbilled receivables represent costs in excess of
billings on incomplete contracts and, where applicable, accrued profit related to government long-term
contracts on which revenue has been recognized, but for which the customer has not yet been billed.
Retentions represent amounts withheld by customers until contract completion. At April 30, 2015
and 2014, the retention balances were $1,344,000 and $1,074,000, respectively. The Company
determines the allowance for doubtful accounts based on historical customer experience and other
currently available evidence. When a specific account is deemed uncollectible, the account is written off
against the allowance. The allowance for doubtful accounts reflects the Company’s best estimate of
probable losses inherent in the accounts receivable balance; such losses have historically been within
management’s expectations. An account is deemed past due based on contractual terms rather than on
how recently payments have been received.
Inventories
Inventories are stated at the lower of cost (using the weighted average costing method) or market
value. Inventory write-offs and write-down provisions are provided to cover risks arising from
slow-moving items or technological obsolescence and for market prices lower than cost. The Company
periodically evaluates the quantities on hand relative to current and historical selling prices and
historical and projected sales volume. Based on this evaluation, provisions are made to write inventory
down to its market value.
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Long-Lived Assets
Property and equipment are carried at cost. Depreciation of property and equipment, including
amortization of leasehold improvements, are provided using the straight-line method over the following
estimated useful lives:
2 to 7 years
Machinery and equipment . . . . . . . . . . . . . . .
2 to 5 years
Computer equipment and software . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . .
3 to 7 years
Leasehold improvements . . . . . . . . . . . . . . . . Lesser of useful life or term of lease
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions
and betterments to property and equipment are capitalized at cost. When the Company disposes of
assets, the applicable costs and accumulated depreciation and amortization thereon are removed from
the accounts and any resulting gain or loss is included in selling, general and administrative (‘‘SG&A’’)
expense in the period incurred.
The Company reviews the recoverability of its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated
future cash flows are based upon, among other things, assumptions about expected future operating
performance, and may differ from actual cash flows. If the sum of the projected undiscounted cash
flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to
the estimated fair value in the period in which the determination is made.
Product Warranty
The Company accrues an estimate of its exposure to warranty claims based upon both current and
historical product sales data and warranty costs incurred. Product warranty reserves are recorded in
other current liabilities.
Self-Insurance Liability
The Company is self-insured for employee medical claims, subject to individual and aggregate
stop-loss policies. The Company estimates a liability for claims filed and incurred but not reported
based upon recent claims experience and an analysis of the average period of time between the
occurrence of a claim and the time it is reported to and paid by the Company. As of April 30, 2015
and 2014, the Company estimated and recorded a self-insurance liability in wages and related accruals
of approximately $1,293,000 and $1,281,000, respectively.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences between the
financial statement and income tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future. The provision for income taxes reflects the taxes to be paid for the period and
the change during the period in the deferred income tax assets and liabilities. The Company records a
valuation allowance to reduce the deferred tax assets to the amount of future tax benefit that is more
likely than not to be realized. For uncertain tax positions, the Company determines whether it is ‘‘more
likely than not’’ that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. For those tax
positions where it is ‘‘not more likely than not’’ that a tax benefit will be sustained, no tax benefit is
recognized. Where applicable, associated interest and penalties are also recorded.
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Customer Advances and Amounts in Excess of Cost Incurred
The Company receives advances, performance-based payments and progress payments from
customers that may exceed costs incurred on certain contracts, including contracts with agencies of the
U.S. government. These advances are classified as advances from customers and will be offset against
billings.
Revenue Recognition
The substantial majority of the Company’s revenue is generated pursuant to written contractual
arrangements to design, develop, manufacture and/or modify complex products, and to provide related
engineering, technical and other services according to the specifications of the buyers (customers).
These contracts may be fixed-price or cost-reimbursable. The Company considers all contracts for
treatment in accordance with authoritative guidance for contracts with multiple deliverables.
Revenue arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables have value to the customer on a stand-alone basis; there is objective and
reliable evidence of the fair value of the undelivered item(s); and, if the arrangement includes a
general right of return, delivery or performance of the undelivered item(s) is considered probable and
substantially in the control of the vendor. The Company occasionally enters into arrangements that
consist of installation and repair contracts associated with hardware sold by the Company. Such
arrangements consist of separate contractual arrangements and are divided into separate units of
accounting where the delivered item has value to the customer on a stand-alone basis and there is
objective and reasonable evidence of the fair value of the installation contract. Consideration is
allocated among the separate units of accounting based on their relative fair values.
Product sales revenue is composed of revenue recognized on contracts for the delivery of
production hardware and related activities. Contract services revenue is composed of revenue
recognized on contracts for the provision of services, including repairs, training, engineering design,
development and prototyping activities.
Revenue from cost-plus-fee contracts are recognized on the basis of costs incurred during the
period plus the fee earned. Revenue from fixed-price contracts are recognized on the
percentage-of-completion method. Contract costs include all direct material and labor costs and those
indirect costs related to contract performance. Unbilled receivables represent costs incurred and related
profit on contracts not yet billed to customers, and are invoiced in subsequent periods.
Product sales revenue is recognized on the percentage-of-completion method or upon transfer of
title to the customer, which is generally upon shipment. Shipping and handling costs incurred are
included in cost of sales.
Revenue and profits on fixed-price production contracts, where units are produced and delivered
in a continuous or sequential process, are recorded as units are delivered based on their selling prices
(the ‘‘units-of-delivery method’’). Revenue and profits on other fixed-price contracts with significant
engineering as well as production requirements are recorded based on the ratio of total actual incurred
costs to date to the total estimated costs for each contract (the ‘‘cost-to-cost method’’). Accounting for
revenue and profits on a fixed-price contract requires the preparation of estimates of (1) the total
contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred
costs to date on the contract and the estimated costs to complete the contract’s statement of work and
(3) the measurement of progress towards completion. The estimated profit or loss at completion on a
contract is equal to the difference between the total estimated contract revenue and the total estimated
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
cost at completion. Under the units-of-delivery method, sales on a fixed-price type contract are
recorded as the units are delivered during the period based on their contractual selling prices. Under
the cost-to-cost method, sales on a fixed-price type contract are recorded at amounts equal to the ratio
of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by (i) the
total estimated contract revenue, less (ii) the cumulative sales recognized in prior periods. The profit
recorded on a contract in any period using either the units-of-delivery method or cost-to-cost method is
equal to (i) the current estimated total profit margin multiplied by the cumulative sales recognized, less
(ii) the amount of cumulative profit previously recorded for the contract. In the case of a contract for
which the total estimated costs exceed the total estimated revenue, a loss arises, and a provision for the
entire loss is recorded in the period that it becomes evident. The unrecoverable costs on a loss contract
that are expected to be incurred in future periods are recorded in the program cost.
Significant management judgments and estimates must be made and used in connection with the
recognition of revenue in any accounting period. Material differences in the amount of revenue in any
given period may result if these judgments or estimates prove to be incorrect or if management’s
estimates change on the basis of development of the business, market conditions or other factors.
Management judgments and estimates have been applied consistently and have been reliable
historically. The Company believes that there are two key factors which impact the reliability of
management’s estimates. The first of those key factors is that the terms of the Company’s contracts are
typically less than six months. The short-term nature of such contracts reduces the risk that material
changes in accounting estimates will occur on the basis of market conditions or other factors. The
second key factor is that the Company has hundreds of contracts in any given accounting period, which
reduces the risk that any one change in an accounting estimate on one or several contracts would have
a material impact on the Company’s consolidated financial statements or its two reporting segments’
measures of profit. Changes in estimates are recognized using the cumulative catch-up method of
accounting. This method recognizes, in the current period, the cumulative effect of the changes on
current and prior periods.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and
is recognized as expense over the requisite service period, which is generally the vesting period of the
respective award. No compensation cost is ultimately recognized for awards for which employees do not
render the requisite service and are forfeited.
Long-Term Incentive Awards
For long-term incentive awards, a target payout is established at the beginning of each
performance period. The actual payout at the end of the performance period is calculated based upon
the Company’s achievement of such targets. Payouts are made in cash and restricted stock units. Upon
vesting of the restricted stock units, the Company has the discretion to settle the restricted stock units
in cash or stock.
The cash component of the award is accounted for as a liability. The equity component is
accounted for as a stock-based liability, as the restricted stock units may be settled in cash or stock. At
each reporting period, the Company reassesses the probability of achieving the performance targets.
The estimation of whether the performance targets will be achieved requires judgment, and, to the
extent actual results or updated estimates differ from the Company’s current estimates, the cumulative
effect on current and prior periods of those changes will be recorded in the period estimates are
revised.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Research and Development
Internally funded research and development costs (‘‘IRAD’’), sponsored by the Company relate to
both U.S. government products and services and those for commercial and foreign customers. IRAD
costs for the Company are recoverable and allocable under government contracts in accordance with
U.S. government procurement regulations.
Customer-funded research and development costs are incurred pursuant to contracts (revenue
arrangements) to perform research and development 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 research and development services are performed. Revenue
from customer-funded research and development was approximately $36,998,000, $28,393,000 and
$37,317,000 for the years ended April 30, 2015, 2014 and 2013, respectively. The related cost of sales
for customer-funded research and development totaled approximately $ 24,776,000, $18,644,000 and
$26,496,000 for the years ended April 30, 2015, 2014 and 2013, respectively.
Lease Accounting
The Company accounts for its leases and subsequent amendments as operating leases or capital
leases for financial reporting purposes. Certain operating leases contain rent escalation clauses, which
are recorded on a straight-line basis over the initial term of the lease with the difference between the
rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from
landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the
lease term as a reduction to rent expense. Deferred rent liabilities were approximately $1,381,000 and
$1,239,000 as of April 30, 2015 and 2014, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses included in SG&A expenses were
approximately $416,000, $225,000 and $238,000 for the years ended April 30, 2015, 2014 and 2013,
respectively.
Earnings Per Share
Basic earnings per share are computed using the weighted-average number of common shares
outstanding and excludes any anti-dilutive effects of options, restricted stock and restricted stock units.
The dilutive effect of potential common shares outstanding is included in diluted earnings per share.
The reconciliation of diluted to basic shares is as follows:
Year Ended April 30,
2015
2014
2013
Numerator for basic earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,895,000
$13,718,000
$10,426,000
Denominator for basic earnings per share:
Weighted average common shares . . . . . . . . . . . . . . . . . .
22,868,733
22,354,444
22,069,842
Dilutive effect of employee stock options, restricted stock
and restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . .
277,264
364,774
320,578
Denominator for diluted earnings per share . . . . . . . . . . . . .
23,145,997
22,719,218
22,390,420
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
During the years ended April 30, 2015, 2014 and 2013, certain options, shares of restricted stock
and restricted stock units were not included in the computation of diluted earnings per share because
their inclusion would have been anti-dilutive. The number of options, restricted stock and restricted
stock units which met this anti-dilutive criterion was approximately 43,000, 51,000 and 191,000 for the
years ended April 30, 2015, 2014 and 2013, respectively.
Recently Issued Accounting Standards
In July 2013, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards
Update (‘‘ASU’’) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a
consensus of the Emerging Issues Task Force). This ASU addresses when unrecognized tax benefits
should be presented as reductions to deferred tax assets for net operating loss carryforwards in the
financial statements. This ASU is effective prospectively for fiscal years, and interim periods within
those years, beginning after December 15, 2013. Early adoption and retrospective application is
permitted. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity. This ASU changes the threshold for a disposal to qualify as a
discontinued operation. To be considered a discontinued operation a disposal now must represent a
strategic shift that has or will have a major effect on an entity’s operations and financial results. This
ASU also requires new disclosures for individually material disposal transactions that do not meet the
definition of a discontinued operation. This update will be applied prospectively and is effective for
annual periods, and interim periods within those years, beginning after December 15, 2014. Early
adoption is permitted provided the disposal was not previously disclosed. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to
determine when and how revenue is recognized. The core principle is that a company should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services.
This ASU is effective for annual periods beginning after December 15, 2017 and shall be applied either
retrospectively to each period presented or as a cumulative-effect adjustment as of the date of
adoption. The Company is evaluating the potential impact of this adoption on its consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force). This
ASU clarifies that a performance target that affects vesting and that could be achieved after the requisite
service period be treated as a performance condition. A reporting entity should apply existing guidance in
Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards.
As such, the performance target should not be reflected in estimating the grant-date fair value of the
award. Compensation cost should be recognized in the period in which it becomes probable that the
performance target will be achieved and should represent the compensation cost attributable to the
period(s) for which the requisite service has already been rendered. This ASU is effective for annual
periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
permitted. This ASU may be applied 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. The adoption of this guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual
Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of
Extraordinary Items. This ASU is part of the FASB’s initiative to reduce complexity in accounting
standards. This ASU eliminates from U.S. GAAP the concept of extraordinary items, which were
previously required to be segregated from the results of ordinary operations and shown separately in
the income statement, net of tax, after income from continuing operations. Entities were also required
to disclose applicable income taxes for the extraordinary item and either present or disclose
earnings-per-share data applicable to the extraordinary item. Items which are considered both unusual
and infrequent will now be presented separately within income from continuing operations in the
income statement or disclosed in notes to the financial statements. This update is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Companies may
apply the ASU prospectively, or may also apply the amendments retrospectively to all prior periods
presented in the financial statements. Early adoption is permitted provided that the guidance is applied
from the beginning of the fiscal year of adoption. The adoption of this guidance will not have a
material impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to
the Consolidation Analysis. This ASU changes the analysis that reporting entities must perform to
determine if certain types of legal entities should be consolidated. Specifically, the ASU focuses on
1) the variable interest entity, or VIE, evaluation of limited partnerships and similar legal entities,
2) eliminating the presumption that general partners should consolidate a limited partnership, 3) the
consolidation analysis of reporting entities that are involved with VIEs, and 4) scope exceptions from
consolidation guidance for reporting entities with interests in legal entities that are required to comply
with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the
Investment Company Act of 1940 for registered money market funds. This update is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption
is permitted, including adoption in an interim period. If the ASU is adopted in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The ASU may be applied using a modified retrospective approach by recording a cumulative-effect
adjustment as of the beginning of the fiscal year of adoption. A reporting entity also may apply the
amendments retrospectively. The Company is evaluating the potential impact of this adoption on its
consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This
ASU adds explicit guidance into U.S. GAAP regarding a customer’s accounting for fees paid in a cloud
computing arrangement. The ASU 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. This update is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early
adoption is permitted. A reporting entity should apply the amendments either (1) prospectively to all
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
arrangements entered into or materially modified after the effective date or (2) retrospectively. The
Company is evaluating the potential impact of this adoption on its consolidated financial statements.
2.
Investments
Investments consist of the following:
April 30,
2015
2014
(In thousands)
Short-term investments:
Held-to-maturity securities:
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67,173
11,536
1,314
3,885
$69,898
—
—
741
Total held-to-maturity investments . . . . . . . . . . . . . . . . . .
83,908
70,639
Available-for-sale securities:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale investments . . . . . . . . . . . . . . . . .
1,473
1,473
—
—
Total short-term investments . . . . . . . . . . . . . . . . . . . . . .
$85,381
$70,639
Long-term investments:
Held-to-maturity securities:
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,418
5,009
8,501
—
$29,759
—
—
3,889
Total held-to-maturity investments . . . . . . . . . . . . . . . . . .
43,928
33,648
Available-for-sale securities:
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale investments . . . . . . . . . . . . . . . . .
2,841
—
—
2,841
5,683
5,865
5,309
16,857
Total long-term investments . . . . . . . . . . . . . . . . . . . . . .
$46,769
$50,505
Held-To-Maturity Securities
As of April 30, 2015 and 2014, the balance of held-to-maturity securities consisted of state and
local government municipal securities, U.S. government securities, corporate bonds and certificates of
deposit. Interest earned from these investments is recorded in interest income.
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The amortized cost, gross unrealized losses, and estimated fair value of the held-to-maturity
investments as of April 30, are as follows (in thousands):
2015
2014
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair
Value
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Fair
Value
Municipal securities . . . $ 97,591
U.S. government
securities . . . . . . . . .
Corporate bonds . . . . .
Certificates of deposit . .
16,545
9,815
3,885
Total held-to-maturity
$ 8
$(35)
$ 97,564 $ 99,657
$65
$ (9)
$ 99,713
12
—
—
—
(13)
—
16,557
9,802
3,885
—
—
4,630
—
—
—
—
—
—
—
—
4,630
investments . . . . . . . . $127,836
$20
$(48)
$127,808 $104,287
$65
$ (9)
$104,343
The amortized cost and fair value of the Company’s held-to-maturity securities by contractual
maturity at April 30, 2015, are as follows:
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . .
$ 83,908
43,928
$ 83,895
43,913
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$127,836
$127,808
Cost
Fair Value
Available-For-Sale Securities
Auction Rate Securities
As of April 30, 2015 and 2014, the entire balance of available-for-sale auction rate securities
consisted of two and three investment grade auction rate municipal bonds, respectively, with maturities
ranging from 4 to 19 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 April 30, 2015 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 April 30, 2015 and 2014. The analysis considers, among other items,
the collateralization underlying the security investments, the creditworthiness of the counterparty, the
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
timing of expected future cash flows, and the expectation of the next time 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. The Company will continue to monitor the value
of its auction rate securities at each reporting period for a possible impairment if a further decline in
fair value occurs. 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 maturity and as of April 30, 2015, it did not consider these investments to be
other-than-temporarily impaired.
The amortized cost, gross unrealized losses, and estimated fair value of the available-for-sale
auction rate securities are as follows (in thousands):
Auction rate securities
Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,200
(359)
$6,575
(892)
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,841
$5,683
April 30,
2015
2014
The amortized cost and fair value of the Company’s auction rate securities by contractual maturity
at April 30, 2015 are as follows (in thousands):
Due after one through five years . . . . . . . . . . . . . . . . . . . . . . . .
Due after 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,200
2,000
$1,147
1,694
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,200
$2,841
Cost
Fair Value
Convertible Bonds
As of April 30, 2015 the Company did not have any convertible bond investments. As of April 30,
2014, the entire balance of available-for-sale convertible bonds consisted of one convertible bond. The
convertible bond was issued by CybAero AB (‘‘CybAero’’), a publicly traded company in Sweden that
develops and manufactures unmanned aerial vehicles. The bond had a principal amount of 10 million
Swedish Kronor (‘‘SEK’’), was convertible into one million CybAero shares at the conversion price of
10 SEK per share, had a maturity date of November 30, 2017, and had an interest rate of 5% per
annum.
The convertible bond contained an embedded conversion feature which was bifurcated from the
bond. The changes in the fair value of the embedded conversion feature are recorded in other income
in the income statement. Unrealized gains and losses of the bond are excluded from earnings and
reported as a separate component of stockholders’ equity, net of deferred income taxes.
On May 14, 2013, CybAero effected a reverse stock split whereby every 10 shares of CybAero were
converted into 1 share. All amounts discussed as of April 30, 2014 reflect this reverse stock split.
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
On February 12, 2014, CybAero adjusted the conversion price of each convertible bond, pursuant
to anti-dilution provisions in the convertible bonds agreement, from 10 SEK to 9.41 SEK and increased
the number of shares per bond from 1,000,000 to 1,062,699. The adjusted conversion price and
increased share count was effective February 12, 2014.
On February 28, 2014, the Company exercised its conversion right and converted one convertible
bond into CybAero common shares. The convertible bond was in the amount of 10 million SEK and
was converted into 1,062,699 common shares of CybAero at the conversion price of 9.41 SEK. The
shares are classified as available-for-sale.
On August 11, 2014, the Company exercised its conversion right and converted the remaining
convertible bond into CybAero common shares. The convertible bond was in the amount of 10 million
SEK and was converted into 1,062,699 common shares of CybAero at the conversion price of 9.41 SEK.
The shares are classified as available-for-sale.
The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the
available-for-sale convertible bonds are as follows (in thousands):
Convertible bonds
Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $1,519
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,346
—
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $5,865
April 30,
2015
2014
Equity Securities
As of April 30, 2015 and 2014, the entire balance of available-for-sale equity securities consisted of
618,042 and 1,025,799 CybAero common shares, respectively. The shares are classified as
available-for-sale. During the years ended April 30, 2015 and 2014, the Company realized gains on the
sale of CybAero shares of $4,784,000 and $132,000, respectively.
The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the
available-for-sale equity securities are as follows (in thousands):
Equity Securities
Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,357
—
(1,884)
$5,033
276
—
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,473
$5,309
April 30,
2015
2014
As of April 30, 2015, the equity securities have been in an unrealized loss position for less than
12 months. The Company evaluated the near-term prospects of the issuer in relation to the severity and
duration of the impairment. Based on that evaluation and the Company’s ability and intent to hold
those investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the
Company does not consider those investments to be other-than-temporarily impaired at April 30, 2015.
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
3.
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:
(cid:127) 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.
(cid:127) 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.
(cid:127) Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability.
The Company’s financial assets measured at fair value on a recurring basis at April 30, 2015, were
as follows (in thousands):
Description
Fair Value Measurement Using
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Auction rate securities . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
1,473
$1,473
$—
—
$—
$2,841
—
$2,841
Total
$2,841
1,473
$4,314
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):
Description
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Balance at May 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gains (realized or unrealized)
Included in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Included in other comprehensive income . . . . . . . . . . . . . . . . .
Purchases, issuances and settlements, net . . . . . . . . . . . . . . . . . .
$ 7,297
—
—
438
(4,894)
Balance at April 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,841
The amount of total gains or (losses) for the period included in
earnings attributable to the change in unrealized gains or losses
relating to assets still held at April 30, 2015 . . . . . . . . . . . . . . .
$ —
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
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
counterparty, the timing of expected future cash flows, and the estimated date upon which the security
is expected to have a successful auction. As of April 30, 2015, the inputs used in the Company’s
discounted cash flow analysis included current coupon rates of 0.1%, estimated redemption periods of 4
to 19 years and discount rates of 4.6% to 15.4%. The discount rates were based on market rates for
municipal bond securities, as adjusted for a risk premium to reflect the lack of liquidity of these
investments.
4.
Inventories, net
Inventories consist of the following:
April 30,
2015
2014
(In thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,325
5,140
25,537
$15,102
7,542
31,289
Inventories, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for inventory excess and obsolescence . . . . . . . . . . . . . .
44,002
(4,588)
53,933
(3,234)
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,414
$50,699
Inventory consigned to others as of April 30, 2015 and 2014 was $6,840,000 and $7,856,000,
respectively.
5.
Intangibles
Intangibles are included in other assets, long-term, on the balance sheet. The components of
intangibles are as follows:
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2015
2014
(In thousands)
$ 856
$ 818
(189)
(438)
Intangibles, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 380
$ 667
The weighted average amortization period at April 30, 2015 and 2014 was five years and three
years, respectively. Amortization expense for the years ended April 30, 2015, 2014 and 2013 was
$249,000, $154,000 and $35,000, respectively.
During the year ended April 30, 2015, the Company recorded an impairment charge of $438,000
recorded in SG&A expenses related to an exclusive distribution agreement as the Company determined
that it would not be selling any products through the exclusive distribution agreement.
During the year ended April 30, 2014, the Company recorded an impairment charge of $72,000
recorded in SG&A expenses related to a license for certain technology as the Company determined
that it would not be selling any products containing the licensed technology.
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
At April 30, 2014, the Company recorded an impairment charge of $672,000 recorded in SG&A
expenses related to an exclusive distribution license. See Note 6, Property and Equipment, net for
further details.
Estimated amortization expense for the next five years is as follows:
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ending
April 30
(In thousands)
$ 80
80
80
80
60
$380
6.
Property and Equipment, net
Property and equipment consist of the following:
April 30,
2015
2014
(In thousands)
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment and software . . . . . . . . . . . . . . . . . . . . .
Construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,117
45,525
1,877
26,223
1,634
$ 8,611
42,025
1,840
24,377
6,344
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . .
84,376
(70,877)
83,197
(63,200)
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,499
$ 19,997
At April 30, 2014, an analysis of the Company’s long-lived assets related to Tier II helicopter
demonstration assets and an exclusive license agreement to sell Tier II helicopters indicated
impairment. At April 30, 2014 the Company determined that the carrying value of the Tier II
helicopter demonstration assets and license agreement would not be recovered over the estimated
useful life of the primary assets due to the delay of market adoption resulting in lower than anticipated
sales. Accordingly, the Company completed an impairment test for this asset group, which resulted in
an impairment charge of $3,317,000 that was recorded in SG&A costs of which $2,645,000 was related
to the Tier II helicopter demonstration assets and $672,000 was related to the exclusive distribution
license. To determine the amount of the impairment charge, the Company was required to make
estimates of the fair value of the assets in this group, and these estimates were based on the use of the
income approach to determine the fair value of the equipment. At April 30, 2014, the Company
considered these assets ‘‘held and used.’’
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
7.
Investments in Companies Accounted for Using the Equity Method
In March of 2014, the Company purchased 49% of the outstanding common stock of Altoy
Savunma Sanayi ve Havacilik Anonim Sirketi (‘‘Altoy’’), a Turkish corporation founded in February
2014. Altoy aims to develop and manufacture high altitude long endurance, unmanned aerial platform
technologies in Turkey and market and sell such technologies to the world market. Altoy is considered
to be in the start-up phase with no current operations. During the years ended April 30, 2015 and 2014,
the Company recorded 49% of the net loss of Altoy, or $240,000 and $30,000, respectively, in ‘‘Other
(expense) income’’ in the consolidated statement of income. At April 30, 2015 and 2014, the carrying
value of the investment in Altoy was $230,000 and $75,000, respectively and was recorded in ‘‘Other
assets, long-term.’’
8. Warranty Reserves
Warranty reserve activity is summarized as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty costs settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,280
2,919
(1,546)
$ 1,515
1,436
(1,671)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,653
$ 1,280
April 30,
2015
2014
(In thousands)
9. Employee Savings Plan
The Company has an employee 401(k) savings plan covering all eligible employees. The Company
expensed approximately $2,818,000, $2,757,000 and $3,137,000 in contributions to the plan for the years
ended April 30, 2015, 2014 and 2013, respectively.
10. Restructuring Charges
On May 29, 2013 and September 26, 2013, the Company implemented two separate and unrelated
organizational realignments and workforce reductions in its UAS and EES business segments.
The purpose of the organizational realignment and workforce reduction on May 29, 2013, within
the Company’s UAS and EES business segments, was to enhance the Company’s focus on new product
introductions and the adoption of new solutions designed to support the Company’s long-term growth
plans. The workforce reduction was necessitated by continuing delays in U.S. government procurements
from the Company’s UAS business segment and delays in the growth of plug-in electric vehicle
adoption and associated recharging solution sales in the Company’s EES business segment. The cost of
the organizational realignment and workforce reduction was approximately $1,100,000, consisting
primarily of severance payments. The Company recorded this charge in its fiscal first quarter ended
July 27, 2013. Of the $1,100,000 recorded during the first quarter, approximately $1,000,000 was
recorded in cost of sales and approximately $100,000 was recorded in SG&A costs. Of the
approximately $1,000,000 recorded in cost of sales, approximately $700,000 related to UAS and
approximately $300,000 related to EES. The Company does not report SG&A costs by segment as the
CODM only reviews the revenue and gross margin results for each of these segments when making
resource allocation decisions.
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The purpose of the organizational realignment and workforce reduction on September 26, 2013,
within the Company’s UAS business segment, was to address shifts in the UAS segment’s business mix
and align the skills within the UAS business segment more closely with market requirements to support
ongoing programs and emerging growth opportunities. The cost of the organizational realignment and
workforce reduction was approximately $700,000, consisting primarily of severance payments recorded
in cost of sales. The Company recorded this charge in its fiscal second quarter ended October 26, 2013.
11. Stock-Based Compensation
For the years ended April 30, 2015, 2014 and 2013, the Company recorded stock-based
compensation expense of approximately $3,768,000, $3,622,000 and $3,470,000, respectively.
On January 14, 2007, the stockholders of the Company approved the 2006 Equity Incentive Plan,
or 2006 Plan, effective January 21, 2007, for officers, directors, key employees and consultants. On
September 29, 2011, the stockholders of the Company approved an amendment and restatement of the
2006 Plan, or Restated 2006 Plan. Under the Restated 2006 Plan, incentive stock options, nonqualified
stock options, restricted stock awards, stock appreciation right awards, performance share awards,
performance stock unit awards, dividend equivalents awards, stock payment awards, deferred stock
awards, restricted stock unit awards, other stock-based awards, performance bonus awards or
performance-based awards may be granted at the discretion of the compensation committee, which
consists of outside directors. A maximum of 4,884,157 shares of stock may be issued pursuant to awards
under the Restated 2006 Plan. The maximum number of shares of common stock with respect to one
or more awards that may be granted to any one participant during any twelve month period is
2,000,000. A maximum of $5,000,000 may be paid in cash as a performance-based award during any
twelve month period. The exercise price for any incentive stock option shall not be less than 100% of
the fair market value on the date of grant. Vesting of awards is established at the time of grant.
The Company had an equity incentive plan, or 2002 Plan, for officers, directors and key
employees. Under the 2002 Plan, incentive stock options or nonqualified stock options were granted, as
determined by the administrator at the time of grant. Stock purchase rights were also granted under
the 2002 Plan. Options under the 2002 Plan were granted at their fair market value (as determined by
the board of directors). The options became exercisable at various times over a five-year period from
the grant date. The 2002 Plan was terminated on the effective date of the 2006 Plan. Awards
outstanding under the 2002 Plan remain outstanding and exercisable; no additional awards may be
made under the 2002 Plan.
The Company had a 1992 nonqualified stock option plan, or 1992 Plan, for certain officers and key
employees. Options under the 1992 Plan were granted at their fair market value (as determined by the
board of directors) at the date of grant and became exercisable at various times over a five-year period
from the grant date. The 1992 Plan expired in August 2002.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The fair value of stock options granted was estimated at the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions for the years ended April 30,
2015, 2014 and 2013:
Year Ended April 30,
2015
2014
2013
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value at grant date . . . . . . . . . . .
6.00
6.00
6.08
44.65% 45.61% 45.94%
1.92% 1.64% 0.92%
—
$10.61
—
$ 8.44
—
$14.05
The expected term of stock options represents the weighted average period the Company expects
the stock options to remain outstanding, based on the Company’s historical exercise and post-vesting
cancellation experience and the remaining contractual life of its outstanding options.
The expected volatility is based on historical volatility for the Company’s stock.
The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon bond with
a remaining term that approximates the expected term of the option.
The expected dividend yield of zero reflects that the Company has not paid any cash dividends
since inception and does not anticipate paying cash dividends in the foreseeable future.
Information related to the stock option plans at April 30, 2015, 2014 and 2013, and for the years
then ended is as follows:
Outstanding at April 30, 2012 . . . . . . . . . . . . . . . 692,210 $25.01
324,986 $ 2.80 239,310
$0.49
Restated 2006 Plan
2002 Plan
1992 Plan
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Options granted . . . . . . . . . . . . . . . . . . . . . . . 203,000
Options exercised . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . .
—
19.07
(3,000) 20.75 (147,597)
—
—
—
—
—
1.39 (57,741)
—
—
Outstanding at April 30, 2013 . . . . . . . . . . . . . . . 892,210
23.67
177,389
3.98 181,569
Options granted . . . . . . . . . . . . . . . . . . . . . . . 125,000
—
Options exercised . . . . . . . . . . . . . . . . . . . . . . (261,900) 24.45 (121,841)
Options canceled . . . . . . . . . . . . . . . . . . . . . .
(42,200) 26.05
23.39
(7,037) 11.79
—
—
2.25 (76,490)
—
Outstanding at April 30, 2014 . . . . . . . . . . . . . . . 713,110
23.20
48,511
7.18 105,079
31.27
85,599
Options granted . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . .
(30,000) 23.81
Options canceled . . . . . . . . . . . . . . . . . . . . . . (111,592) 24.75
—
(3,518)
—
—
2.13
—
—
(1,500)
—
Outstanding at April 30, 2015 . . . . . . . . . . . . . . . 657,117
23.96
44,993
7.57 103,579
—
0.38
—
0.52
—
0.42
—
0.59
—
0.59
—
0.59
Options exercisable at April 30, 2015 . . . . . . . . . 363,210 $23.15
44,993 $ 7.57 103,579
$0.59
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The total intrinsic value of all options exercised during the years ended April 30, 2015, 2014 and
2013 was approximately $455,000, $9,220,000, and $4,329,000, respectively. The intrinsic value of all
options outstanding at April 30, 2015 and 2014 was $5,349,000 and $12,314,000, respectively. The
intrinsic value of all exercisable options at April 30, 2015 and 2014 was $4,560,000 and $7,998,000,
respectively.
A summary of the status of the Company’s non-vested stock options as of April 30, 2015 and the
year then ended is as follows:
Non-vested Options
Non-vested at April 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
411,200
85,599
—
(104,592)
(98,300)
Non-vested at April 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
293,907
Weighted
Average
Grant Date
Fair Value
$ 8.75
14.05
—
8.51
8.58
$10.43
As of April 30, 2015, there was approximately $10,331,000 of total unrecognized compensation cost
related to non-vested share-based compensation awards granted under the equity plans. That cost is
expected to be recognized over an approximately five-year period or a weighted average period of
approximately three years.
The weighted average fair value of options issued for the years ended April 30, 2015, 2014 and
2013 was $14.05, $10.61 and $8.44, respectively. The total fair value of shares vesting during the years
ended April 30, 2015, 2014 and 2013 was $2,389,000, $2,168,000 and $2,477,000, respectively.
Proceeds from all option exercises under all stock option plans for the years ended April 30, 2015,
2014 and 2013 were approximately $722,000, $6,709,000 and $289,000, respectively. The tax benefit
realized from stock-based compensation during the years ended April 30, 2015, 2014 and 2013 was
approximately $191,000, $2,953,000, and $1,490,000, respectively.
The following tabulation summarizes certain information concerning outstanding and exercisable
options at April 30, 2015:
Range of Exercise Prices
$
0.59
2.13
11.79
18.07-24.65
25.77-32.19
$ 0.59-32.19
As of
April 30,
2015
103,579
19,658
25,335
413,710
243,407
805,689
Weighted
Average
Exercise
Price
$ 0.59
2.13
11.79
20.89
29.17
$20.04
Options Exercisable
As of
April 30,
2015
103,579
19,658
25,335
277,610
85,600
511,782
Weighted
Average
Exercise
Price
$ 0.59
2.13
11.79
21.43
28.75
$17.22
Options Outstanding
Weighted
Average
Remaining
Contractual
Life In
Years
4.35
0.47
1.40
4.92
7.35
5.36
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The remaining weighted average contractual life of exercisable options at April 30, 2015 was
3.93 years.
Information related to the Company’s restricted stock awards at April 30, 2015 and for the year
then ended is as follows:
Restated 2006 Plan
Unvested stock at April 30, 2014 . . . . . . . . . . . . . . . . . . . . . .
Stock granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
392,913
160,180
(100,063)
(56,004)
Unvested stock at April 30, 2015 . . . . . . . . . . . . . . . . . . . . . .
397,026
Weighted
Average
Grant Date
Fair Value
$23.02
31.15
23.88
22.01
$26.20
12. Long-Term Incentive Awards
During the year ended April 30, 2015, the Company granted a performance award under the
Restated 2006 Plan to key employees. The performance period for the award is the year ending
April 30, 2017. A target payout was established at the award date. The actual payout at the end of the
performance period will be calculated based upon the Company’s achievement of revenue and gross
margin for the year ending April 30, 2017. Payouts will be made in cash and restricted stock units.
Upon vesting of the restricted stock units, the Company has the discretion to settle the restricted stock
units in cash or stock.
During each of the years ended April 30, 2014 and 2013, the Company granted a three-year
performance award under the Restated 2006 Plan to key employees. The performance period for each
three-year award is the three-year period ending April 30, 2016 and 2015, respectively. A target payout
was established at the beginning of the performance period. The actual payout at the end of the
performance period will be calculated based upon the Company’s achievement of revenue and
operating profit growth. Payouts will be made in cash and restricted stock units. Upon vesting of the
restricted stock units, the Company has the discretion to settle the restricted stock units in cash or
stock.
The cash component of the award is accounted for as a liability. The equity component is
accounted for as a stock-based liability, as the restricted stock units may be settled in cash or stock. At
each reporting period, the Company reassesses the probability of achieving the performance targets.
The estimation of whether the performance targets will be achieved requires judgment, and, to the
extent actual results or updated estimates differ from the Company’s current estimates, the cumulative
effect on current and prior periods of those changes will be recorded in the period estimates are
revised.
During the years ended April 30, 2015, 2014 and 2013, the Company recorded compensation
expense for the long-term incentive awards of $0, $160,000 and $194,000, respectively. At April 30, 2015
and 2014, the Company had an accrued liability of $0 for outstanding awards. The maximum
compensation expense that may be recorded for outstanding awards is $8,689,000.
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
13. Income Taxes
The components of income before income taxes are as follows (in thousands):
Year Ended April 30,
2015
2014
2013
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,138
(245)
$14,996
(100)
$10,790
(17)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,893
$14,896
$10,773
The Company expects any foreign earnings to be reinvested in such foreign jurisdictions and,
therefore, no deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded. The
foreign subsidiaries do not have any undistributed earnings.
A reconciliation of income tax expense computed using the U.S. federal statutory rates to actual
income tax expense is as follows:
Year Ended April 30,
2015
2014
2013
U.S. federal statutory income tax rate . . . . . . . . . . . . .
State and local income taxes, net of federal benefit . . . .
R&D and other tax credits . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax position adjustment . . . . . . . . . . . . . . . .
Return to provision adjustments . . . . . . . . . . . . . . . . . .
Permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0% 35.0% 35.0%
(17.0)
(84.4)
(21.5)
(172.3)
8.7
96.7
4.4
(1.9)
(0.1)
78.3
(1.3)
(5.2)
(0.3)
0.9
1.6
(29.6)
—
(6.7)
0.7
2.4
(0.2)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . .
(52.9)%
7.9%
3.2%
The components of the provision for income taxes are as follows (in thousands):
Year ended April 30,
2015
2014
2013
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
573
(1,292)
$ 4,307
(1,879)
$(3,818)
(1,527)
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,972)
1,689
(1,694)
444
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . .
(283)
(1,250)
$(1,002) $ 1,178
$
5,178
514
5,692
347
(719)
2,428
(5,345)
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Significant components of the Company’s deferred income tax assets and liabilities are as follows
(in thousands):
April 30,
2015
2014
Deferred income tax assets:
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowances, reserves, and other . . . . . . . . . . . . . . . . . . . . . . .
Fixed asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss and credit carry-forwards . . . . . . . . . . . . . . . . . . .
Intangibles basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,442
1,543
—
5,692
464
$ 6,459
2,547
196
6,293
276
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . .
16,141
15,771
Deferred income tax liabilities:
Unrealized gain on securities . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . .
(237)
(86)
(323)
(2,714)
—
(2,714)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,127)
(1,298)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,691
$11,759
At April 30, 2015 and 2014 the Company recorded a valuation allowance of $3,127,000 and
$1,298,000, respectively, against state R&D credits as the Company is currently generating more tax
credits than it will utilize in future years and against foreign net operating losses that are not more
likely than not to be utilized. The valuation allowance increased by $1,829,000 and $1,298,000 for
April 30, 2015 and April 30, 2014, respectively.
At April 30, 2015 the Company had state credit carryforwards of $13,573,000 that do not expire
and federal tax credit carryforwards of $2,654,000 that expire in 2034. As of April 30, 2015, the
Company had federal and state credits of $143,000 and $30,000, respectively, for which the tax benefit,
when recognized, will be recorded in equity.
At April 30, 2015, the Company had multiple state net operating loss carryforwards and foreign
losses of approximately $314,000 and $132,000, respectively. The state net operating loss carryforwards
begin to expire in 2023 and the foreign losses carryforward indefinitely.
At April 30, 2015 and 2014, the Company had approximately $8,190,000 and $6,334,000,
respectively, of unrecognized tax benefits all of which would impact the Company’s effective tax rate if
recognized. The Company estimates that $10,000 of its unrecognized tax benefits will decrease in the
next twelve months due to statute of limitation expiration.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists (a consensus of the Emerging Issues Task Force). As a result of the adoption of this
guidance the Company reclassified $2,484,000 at April 30, 2015 from the liability for uncertain tax
positions to reduce deferred income tax assets on the balance sheet.
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The following table summarizes the activity related to our gross unrecognized tax benefits for the
years ended April 30, 2015 and 2014 (in thousands):
April 30,
2015
2014
Balance as of May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to prior year tax positions . . . . . . . . . . . . . . . . . .
Decreases related to prior year tax positions . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . .
Decreases related to lapsing of statute of limitations . . . . . . . . . . .
$6,334
747
(12)
1,158
(37)
$5,083
775
—
1,050
(574)
Balance as of April 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,190
$6,334
The Company records interest and penalties on uncertain tax positions to income tax expense. As
of April 30, 2015 and 2014, the Company had accrued approximately $43,000 and $233,000,
respectively, of interest and penalties related to uncertain tax positions. The Company is currently
under audit by various state jurisdictions but does not anticipate any material adjustments from these
examinations. The tax years 2010 to 2014 remain open to examination by the IRS for federal income
taxes. The tax years 2008 to 2014 remain open for major state taxing jurisdictions.
14. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows (in thousands):
Available-for-Sale
Securities
Accumulated Other
Comprehensive Loss
Balance as of April 30, 2014 . . . . . . . . . . . . . . . .
Unrealized loss . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of April 30, 2015 . . . . . . . . . . . . . . . .
$ (263)
(1,743)
648
$(1,358)
$ (263)
(1,743)
648
$(1,358)
15. Changes in Accounting Estimates
During the years ended April 30, 2015, 2014 and 2013, the Company revised its estimates at
completion of various fixed-price contracts which resulted in cumulative catch up adjustments during
the year in which the change in estimate occurred. The change in estimate was a result of the Company
changing the total costs required to complete the contracts due to having more accurate cost
information as work progressed in subsequent periods on the various contracts. The changes in
estimates resulted in cumulative catch-up adjustments to income from continuing operations for the
years ended April 30, 2015 and 2014 were not material. The changes in estimates resulted in
cumulative catch-up adjustments of $1,768,000 to increase income from continuing operations for the
year ended April 30, 2013. The changes in estimates resulted in cumulative catch-up adjustments to
increase net income for the year ended April 30, 2013 in the amount of $1,081,000. The impact on
basic earnings per share for the year ended April 30, 2013, was an increase of $0.05 per share. The
impact on diluted earnings per share for the year ended April 30, 2013, was an increase of $0.05 per
share.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
16. Related Party Transactions
Pursuant to a consulting agreement, the Company paid a board member approximately $96,000,
$96,000 and $172,000 during the years ended April 30, 2015, 2014 and 2013, respectively, for consulting
services independent of his board service.
17. Commitments and Contingencies
Commitments
The Company’s operations are conducted in leased facilities. Following is a summary of
non-cancelable operating lease commitments:
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ending
April 30
(In thousands)
$ 3,720
2,367
1,678
1,581
1,528
1,298
$12,172
Rental expense under operating leases was approximately $4,350,000, $4,981,000 and $4,349,000 for
the years ended April 30, 2015, 2014 and 2013, respectively.
Contingencies
The Company is subject to legal proceedings and claims which arise out of the ordinary course of
its business. Although adverse decisions or settlements may occur, the Company, in consultation with
legal counsel, believes that the final disposition of such matters will not have a material adverse effect
on the consolidated financial position, results of operations or cash flows of the Company.
At April 30, 2015 and 2014, the Company had outstanding letters of credit totaling $1,755,000 and
$294,000, respectively.
Contract Cost Audits
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,
or 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
rates, may create an additional receivable or liability for the Company.
For example, during the course of its audits, the DCAA may question the Company’s incurred
costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent
with the requirements under Federal Acquisition Regulations, or FAR, the DCAA auditor may
recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the
Company has not experienced material disallowed costs as a result of government audits. However, the
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Company can provide no assurance that the DCAA or other government audits will not result in
material disallowances for incurred costs in the future.
The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable
government contracts to be recorded at actual rates unless collectability is not reasonably assured.
The Defense Contract Management Agency, or DCMA, has disallowed a portion of the
Company’s executive compensation and other costs included in the Company’s fiscal 2006 incurred cost
claim and sought interest and penalties. The Company and DCMA have resolved most of these claims.
However, the Company is vigorously defending its position on the government’s remaining claims for
the fiscal 2006 incurred cost claim as well as the claims the government has raised regarding the
Company’s fiscal 2007 and fiscal 2008 incurred cost claims, which the Company has appealed to the
Armed Services Board of Contract Appeals. Based on the Company’s current understanding of the
facts and the amount in dispute, The Company believes that the outcome of these disputes will not
have a material impact on the Company’s business. At April 30, 2015 and 2014, the Company had
reserves for incurred cost claim audits for various fiscal years.
18. Segment Data
The Company’s product segments are as follows:
(cid:127) Unmanned Aircraft Systems—The UAS segment focuses primarily on the design, development,
production, support and operation of innovative UAS and tactical missile systems that provide
situational awareness, multi-band communications, force protection and other mission effects to
increase the security and effectiveness of the operations of the Company’s customers.
(cid:127) Efficient Energy Systems—The EES segment focuses primarily on the design, development,
production, marketing, support and operation of innovative efficient electric energy systems that
address the growing demand for electric transportation solutions.
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 only limited financial statement information by segment.
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
The segment results are as follows (in thousands):
Year Ended April 30,
2015
2014
2013
Revenue:
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$220,950
38,448
$208,810
42,893
$194,276
45,876
Total
Cost of sales:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259,398
251,703
240,152
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128,233
26,897
127,992
30,098
115,194
32,422
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155,130
158,090
147,616
Gross margin:
UAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92,717
11,551
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,268
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,763
46,491
2,014
882
(1,003)
80,818
12,795
93,613
55,679
25,515
12,419
855
1,622
79,082
13,454
92,536
51,520
37,214
3,802
726
6,245
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,893
$ 14,896
$ 10,773
Geographic Information
Sales to non-U.S. customers accounted for 9%, 14% and 15% of revenue for each of the fiscal
years ended April 30, 2015, 2014 and 2013, respectively.
19. Quarterly Results of Operations (Unaudited)
The following tables present selected unaudited consolidated financial data for each of the eight
quarters in the two-year period ended April 30, 2015. In the Company’s opinion, this unaudited
information has been prepared on the same basis as the audited information and includes all
adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the
financial information for the period presented. The Company’s fiscal year ends on April 30. Due to the
fixed year end date of April 30, the first and fourth quarters each consist of approximately 13 weeks.
The second and third quarters each consist of 13 weeks. The first three quarters end on a Saturday.
Three Months Ended
August 2,
2014
November 1,
2014
January 31,
2015
April 30,
2015
(In thousands except per share data)
Year ended April 30, 2015
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per share—basic(6) . . . . . . . . . . . . . .
Net (loss) income per share—diluted(6) . . . . . . . . . . . .
$51,866
$14,054
$ (3,609)
$ (0.16)
$ (0.16)
$52,664
$68,397
$17,871(1) $26,993
$ 2,325
$ (2,901)
0.10
$
$ (0.13)
0.10
$
$ (0.13)
$86,471
$45,350
$ 7,080
$ 0.31
0.31
$
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Three Months Ended
July 27,
2013
October 26,
2013
January 25,
2014
April 30,
2014
(In thousands except per share data)
Year ended April 30, 2014
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per share—basic(6) . . . . . . . . . . . . . .
Net (loss) income per share—diluted(6) . . . . . . . . . . . . .
$69,221
$44,117(2) $64,867
$12,545(3) $23,878(4) $27,052
$11,216
$ 1,655
$ (7,210)
0.50
$
0.07
$
$ (0.32)
0.49
$
0.07
$
$ (0.32)
$73,498
$30,138
$ 8,057(5)
0.36
$
0.35
$
(1) Includes $2.6 million for a government contract accounting reserve for prior year incurred cost
audit findings.
(2) Includes $2.3 million of revenue for the termination settlement for the Global Observer Joint
Capability Technology Demonstration contract.
(3) Includes $1.0 million in severance costs related to the organizational realignment and workforce
reduction on May 29, 2013, within the Company’s UAS and EES business segments—see Note 10
for additional information.
(4) Includes $0.7 million in severance costs related to the organizational realignment and workforce
reduction on September 26, 2013, within the Company’s UAS business segment—see Note 10 for
additional information.
(5) Includes $3.3 million in pre-tax impairment charges related to Tier II assets—see Note 6 for
additional information.
(6) Earnings per share is computed independently for each of the quarters presented. The sum of the
quarterly earnings per share do not equal the total earnings per share computed for the year due
to rounding.
20. Restatement of Previously Issued Consolidated Financial Statements
The Company identified a presentation error in its classification of $5.0 million and $5.2 million of
amortization/accretion of premiums/discounts related to held-to-maturity investments within the
consolidated statement of cash flows for the years ended April 30, 2014 and 2013, respectively. These
amounts were previously included in the investing section of the statement of cash flows within the
redemptions of held-to-maturity investments rather than being properly presented as a reconciling item
to net income within the operating section of the statement of cash flows. For the years ended
April 30, 2014 and 2013, the Company was presenting the change in held-to-maturity investments as net
redemptions which is not in accordance with GAAP. To conform to the appropriate GAAP presentation
for the change in held-to-maturity investments the Company is presenting the gross purchases, gross
redemptions and amortization/accretion of premiums/discounts.
The Company has corrected the error by reclassifying the amortization of held-to-maturity
investments between the investing and operating sections as well as presenting the gross purchases and
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
gross redemptions in the investing section in its prior year financial statements. Below are the as
reported and restated amounts (in thousands).
Operating activities
Amortization of held-to-maturity investments . . . . . .
Net cash provided by operating activities . . . . . . . . . .
Investing activities
Net redemptions of held-to-maturity investments . . . .
Purchases of held-to-maturity securities . . . . . . . . . . .
Redemptions of held-to-maturity securities . . . . . . . .
Year Ended April 30,
Year Ended April 30,
2014
2014
2013
2013
(As Reported)
(Restated)
(As Reported)
(Restated)
$ —
$ 5,037
$
— $ 5,237
28,863
34,005
24,007
29,244
23,113
—
—
—
(56,946)
75,022
2,014
—
—
—
(87,294)
84,071
Net cash provided by (used) in investing activities . . .
$15,580
$ 10,438
$(13,107)
$(18,344)
The Company is also correcting the presentation error for each quarter during the years ended
April 30, 2015 and 2014. Below are the as reported and restated amounts (in thousands).
Three Months Ended
Six Months Ended
Nine Months Ended
August 2,
2014
August 2, November 1, November 1,
2014
2014
2014
January 31,
2015
January 31,
2015
(As Reported) (Restated) (As Reported)
(Restated)
(As Reported)
(Restated)
Unaudited
Unaudited
Unaudited
Operating activities
Amortization of held-to-maturity
investments . . . . . . . . . . . . . . . . . .
$ —
$ 1,152
$
—
$ 2,211
$
—
$ 3,388
Net cash provided by operating activities
Investing activities
Net purchases of held-to-maturity
investments . . . . . . . . . . . . . . . . . .
Purchases of held-to-maturity securities .
Redemptions of held-to-maturity
securities . . . . . . . . . . . . . . . . . . .
Net cash provided by (used) in investing
activities . . . . . . . . . . . . . . . . . . . .
14,368
15,520
9,961
12,172
13,543
16,931
(2,924)
—
—
(28,771)
(19,586)
—
—
(68,524)
—
(88,737)
—
(88,074)
—
24,695
—
46,727
66,158
62,107
$ 5,723
$ 4,571
$(11,618)
$(13,829)
$(15,557)
$(18,945)
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AEROVIRONMENT, INC.
Three Months Ended
Six Months Ended
Nine Months Ended
July 27,
2013
July 27,
2013
October 26,
2013
October 26,
2013
January 25,
2014
January 25,
2014
(As Reported)
(Restated)
(As Reported)
(Restated)
(As Reported)
(Restated)
Unaudited
Unaudited
Unaudited
Operating activities
Amortization of
held-to-maturity investments .
$
—
$ 1,277
$ —
$ 2,605
$ —
$ 3,881
Net cash (used in) provided by
operating activities . . . . . . .
Investing activities
Net redemptions of
(13,176)
(11,899)
(9,673)
(7,068)
3,472
7,353
held-to-maturity investments .
6,442
—
6,934
—
20,388
—
Purchases of held-to-maturity
securities
Redemptions of
. . . . . . . . . . . . .
held-to-maturity securities . .
Net cash provided by (used) in
investing activities . . . . . . . .
—
—
(26,040)
31,205
—
—
(37,401)
41,730
—
—
(47,610)
64,117
$ 2,160
$
883
$
312
$ (2,293)
$13,062
$ 9,181
102
SUPPLEMENTARY DATA
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
Allowance for doubtful accounts for the year
ended April 30:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve for the year ended April 30:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for inventory excess and obsolescence
for the year ended April 30:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for self-insured medical claims for the
year ended April 30:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of
Period
(In thousands)
$ 921
$ 936
$ 791
$2,872
$1,515
$1,280
$2,754
$3,871
$3,234
$1,448
$1,543
$1,281
15
$
$
(6)
$ 106
$2,169
$1,436
$2,919
$1,461
$2,187
$2,035
$8,065
$8,908
$8,953
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$ —
$ (139)
$ (291)
$(3,526)
$(1,671)
$(1,546)
$ 936
$ 791
$ 606
$1,515
$1,280
$2,653
$ (344)
$(2,824)
(681)
$3,871
$3,234
$4,588
$(7,970)
$(9,170)
$(8,941)
$1,543
$1,281
$1,293
103
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure 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 only provide 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 have carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer and our 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 level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our board of directors, management
and other personnel, 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 and includes those policies and procedures that:
(cid:127) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(cid:127) Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and
(cid:127) Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive
and financial officers, we assessed our internal control over financial reporting as of April 30, 2015,
based on criteria for effective internal control over financial reporting established in Internal Control—
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
104
Commission (2013 framework) (COSO). Based on this assessment, management concluded that the
Company maintained effective internal control over financial reporting as of April 30, 2015 based on
the specified criteria.
The effectiveness of our internal control over financial reporting as of April 30, 2015 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Changes in Internal Control over Financial Reporting
During the fourth quarter of our fiscal year ended April 30, 2015, we enhanced our internal
controls over the financial statement close process. Specifically, we added more precision around the
preparation of our consolidated statements of cash flows, including a more detailed review of non-cash
items. As a result of implementing these enhanced controls we identified an error in our consolidated
statements of cash flows for the first three quarters of our fiscal year ended April 30, 2015 and for the
fiscal years ended April 30, 2014 and 2013, which we determined to be the result of a previously
undetected material weakness in our internal controls over financial reporting that was not previously
communicated.
The error was in the presentation of amortization/accretion of premiums/discounts related to
held-to-maturity investments within the investing activities section rather than the operating activities
section of our consolidated statements of cash flows. We have corrected this error by restating those
prior financial statements to adjust the amortization of held-to-maturity investments to the operating
activities sections from the investing activities section of our consolidated statement of cash flows as
well as by separately presenting gross purchases and gross redemptions in the investing activities section
in those prior financial statements.
The error did not impact our consolidated statements of income or our consolidated balance
sheets, mask a change in earnings or any other trends, hide a failure to meet any analysts’ expectation
or estimates, or have any impact on management compensation. Moreover, the enhancement to our
internal controls over the financial statement close process which identified this error also remediated
the underlying material weakness and such material weakness no longer existed as of April 30, 2015.
There were no other 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 April 30, 2015 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On June 19, 2014, the Board of Directors of the Company approved the Third Amended and
Restated Bylaws of AeroVironment, Inc., effective as of the same date. The Third Amended and
Restated Bylaws: (i) amended Article III to add a new section regarding board leadership which
specifies the selection process for and roles of the Chairman of the Board and the Lead Independent
Director; (ii) amended Article IV, Section 1 to add the office of Chief Executive Officer to the
Company’s list of officers; (iii) amended Article IV, Section 4 to limit the Board’s responsibility to
establish the salaries of only the Company’s executive officers, as defined under the Exchange Act,
rather than all officers and agents of the Company; and (iv) amended Article II, Section 6 to conform
to the Company’s Certificate of Incorporation to provide that special meetings of the Company’s
stockholders can be called by the Chief Executive Officer, rather than the President, by the Chairman
of the Board and at the written request of a majority of the members of the Board of Directors.
The foregoing description of the Third Amended and Restated Bylaws is not complete and is
qualified in its entirety by the full text of the Third Amended and Restated Bylaws, which are attached
as Exhibit 3.3 to this Annual Report on Form 10-K and are incorporated herein by reference.
105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of AeroVironment, Inc. and Subsidiaries
We have audited AeroVironment Inc. and subsidiaries’ internal control over financial reporting as
of April 30, 2015, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). AeroVironment Inc. and subsidiaries management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AeroVironment, Inc. and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of April 30, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of AeroVironment, Inc. and
subsidiaries as of April 30, 2015 and 2014, and the related consolidated statements of income,
comprehensive income stockholders’ equity, and cash flows for each of the three years in the period
ended April 30, 2015 of AeroVironment, Inc. and subsidiaries and our report dated June 30, 2015
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
June 30, 2015
106
Item 10. Directors, Executive Officers, and Corporate Governance.
PART III
Certain information required by Item 401 and Item 405 of Regulation S-K will be included in the
Proxy Statement for our 2015 Annual Meeting of Stockholders, and that information is incorporated by
reference herein.
Codes of Ethics
We have adopted a Code of Business Conduct and Ethics, or Code of Conduct. The Code of
Conduct is posted on our website, http://investor.avinc.com. We intend to disclose on our website any
amendments to, or waivers of, the Code of Conduct covering our Chief Executive Officer, Chief
Financial Officer and/or Controller promptly following the date of such amendments or waivers. A copy
of the Code of Conduct may be obtained upon request, without charge, by contacting our Secretary at
(626) 357-9983 or by writing to us at AeroVironment, Inc., Attn: Secretary, 181 W. Huntington Dr.,
Suite 202, Monrovia, CA 91016. The information contained on or connected to our website is not
incorporated by reference into this Annual Report and should not be considered part of this or any
reported filed with the SEC.
No family relationships exist among any of our executive officers or directors.
There have been no material changes to the procedures by which security holders may recommend
nominees to our board of directors.
The information required by Item 407(d)(4) and (5) of Regulation S-K will be included in the
Proxy Statement for our 2015 Annual Meeting of Stockholders, and that information is incorporated by
reference herein.
Item 11. Executive Compensation.
The information required by Item 402 and Item 407(e)(4) and (5) of Regulation S-K will be
included in the Proxy Statement for our 2015 Annual Meeting of Stockholders, and that information is
incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by Item 201(d) and Item 403 of Regulation S-K will be included in the
Proxy Statement for our 2015 Annual Meeting of Stockholders, and that information is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 and Item 407(a) of Regulation S-K will be included in the
Proxy Statement for our 2015 Annual Meeting of Stockholders, and that information is incorporated by
reference herein.
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 will be included in the Proxy Statement for our 2015 Annual
Meeting of Stockholders, and that information is incorporated by reference herein.
107
Item 15. Exhibits, Financial Statement Schedules.
(a) The following are filed as part of this Annual Report:
PART IV
1. Financial Statements
The following consolidated financial statements are included in Item 8:
(cid:127) Report of Independent Registered Public Accounting Firm
(cid:127) Consolidated Balance Sheets at April 30, 2015 and 2014
(cid:127) Consolidated Statements of Income for the Years ended April 30, 2015, 2014 and 2013
(cid:127) Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2015, 2014
and 2013
(cid:127) Consolidated Statements of Stockholders’ Equity for the Years ended April 30, 2015, 2014 and
2013
(cid:127) Consolidated Statements of Cash Flows for the Years ended April 30, 2015, 2014 and 2013
(cid:127) Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following Schedule is included in Item 8:
(cid:127) Schedule II—Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not present, or not
present in amounts sufficient to require submission of the schedule, or because the information
required is included in the consolidated financial statements or the Notes thereto.
3. Exhibits
See Item 15(b) of this report below.
(b) Exhibits
Exhibit
Number
3.1(1)
3.3
4.1(2)
10.1#(2)
10.2#(2)
10.3#(2)
10.4#(2)
10.5#(2)
10.6#(2)
10.7#(2)
10.8#(2)
10.9#(3)
Exhibit
Amended and Restated Certificate of Incorporation of AeroVironment, Inc.
Third Amended and Restated Bylaws of AeroVironment, Inc.
Form of AeroVironment, Inc.’s Common Stock Certificate
Form of Director and Executive Officer Indemnification Agreement
AeroVironment, Inc. Nonqualified Stock Option Plan
Form of Nonqualified Stock Option Agreement pursuant to the AeroVironment, Inc.
Nonqualified Stock Option Plan
AeroVironment, Inc. Directors’ Nonqualified Stock Option Plan
Form of Directors’ Nonqualified Stock Option Agreement pursuant to the
AeroVironment, Inc. Directors’ Nonqualified Stock Option Plan
AeroVironment, Inc. 2002 Equity Incentive Plan
Form of AeroVironment, Inc. 2002 Equity Incentive Plan Stock Option Agreement
AeroVironment, Inc. 2006 Equity Incentive Plan
AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated effective
September 29, 2012
108
Exhibit
Number
10.10#(2)
10.11#(2)
10.12#(4)
10.13#
10.14(5)
10.15(6)
10.16(6)
10.17(7)
10.18(7)
10.19(7)
10.20†(8)
10.21†(2)
10.22†(9)
Exhibit
Form of Stock Option Agreement pursuant to the AeroVironment, Inc. 2006 Equity
Incentive Plan
Form of Performance Based Bonus Award pursuant to the AeroVironment, Inc. 2006
Equity Incentive Plan
Form of Long-Term Compensation Award Grant Notice and Long-Term Compensation
Award Agreement pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement
pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Standard Industrial/Commercial Single-Tenant Lease, dated February 12, 2007, between
AeroVironment, Inc. and OMP Industrial Moreland, LLC, for the property located at
85 Moreland Road, Simi Valley, California, including the addendum thereto
Standard Industrial/Commercial Single-Tenant Lease, dated March 3, 2008, between
AeroVironment, Inc. and Hillside Associates III, LLC, for the property located at
900 Enchanted Way, Simi Valley, California, including the addendum thereto
Standard Industrial/Commercial Single-Tenant Lease, dated April 21, 2008, between
AeroVironment, Inc. and Hillside Associates II, LLC, for the property located at
994 Flower Glen Street, Simi Valley, California, including the addendum thereto
First Amendment to Lease Agreement (900 Enchanted Way, Simi Valley, CA 93065)
dated as of December 1, 2013, by and between the Company and Hillside III LLC, and
related agreements
First Amendment to Lease Agreement (994 Flower Glen Street, Simi Valley, CA 93065)
dated as of December 1, 2013, by and between the Company and Hillside II LLC, and
related agreements
Lease Agreement (996 Flower Glen Street, Simi Valley, CA 93065) dated as of
December 1, 2013, by and between the Company and Hillside II LLC, and related
agreements
Award Contract, dated August 15, 2005, between AeroVironment, Inc. and U.S. Army
Aviation & Missile Command
Award Contract, dated September 21, 2004, between AeroVironment, Inc. and Natick
Contracting Division
Award Contract, dated September 24, 2007, between AeroVironment, Inc. and United
States Special Operations Command, as amended
10.23†(10) Award Contract, dated December 22, 2006, between AeroVironment, Inc. and the United
10.24#(11)
10.25(12)
States Air Force/Air Force Research Laboratory, Aeronautical Systems Center, as
amended
Standard Consulting Agreement, dated November 1, 2008, between AeroVironment, Inc.
and Charles R. Holland
Amendment No. 2 to Standard Consulting Agreement, dated December 17, 2009,
between AeroVironment, Inc. and Charles R. Holland
10.26#(12) Task Order #FY-10-001, dated December 17, 2009, between AeroVironment, Inc. and
Charles R. Holland
10.27#(13) Amendment No. 3 to Standard Consulting Agreement, dated February 21, 2013, between
AeroVironment, Inc. and Charles R. Holland
10.28#(13) Task Order FY13-001, dated February 21, 2013, between AeroVironment, Inc. and
Charles R. Holland
10.29#(13) Relocation agreement, effective February 21, 2013, between AeroVironment, Inc. and
Wahid Nawabi
10.30#(2) Retiree Medical Plan
109
Exhibit
Number
Exhibit
10.31†(14) Award Contract, dated June 30, 2008, between AeroVironment, Inc. and United States
Special Operations Command, as amended
10.32†(15) Award Contract, dated March 1, 2011, between AeroVironment, Inc. and United States
Army Contracting Command
10.33†(16) Contract modification P00015 dated September 5, 2013 under the base contract with the
10.34(17)
10.35(18)
21.1
23.1
24.1
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
US Army Contracting Command—Redstone Arsenal (Missile) dated August 30, 2012
Letter agreement dated April 29, 2014, between AeroVironment, Inc. and Thomas E.
Herring
Consulting Agreement, dated February 5, 2015, between Jikun Kim and
AeroVironment, Inc.
Subsidiaries of AeroVironment, Inc.
Consent of Ernst & Young LLP, independent registered public accounting firm
Power of Attorney (incorporated by reference to the signature page of this Annual
Report)
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
(1) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed March 9, 2007 (File No. 001-33261).
(2) Incorporated by reference herein to the exhibits to the Company’s Registration Statement on
Form S-1 (File No. 333-137658).
(3) Incorporated by reference to the exhibits to the Company’s Form 8-K filed on October 5, 2011
(File No. 001-33261).
(4) Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K
filed July 28, 2010 (File No. 001-33261).
(5) Incorporated by reference herein to the exhibits on the Company’s Annual Report on Form 10-K
filed June 29, 2007 (File No. 001-33261).
(6) Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K
filed June 26, 2008 (File No. 001-33261).
(7) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed March 5, 2014 (File No. 001-33261).
(8) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed March 10, 2010 (File No. 001-33261).
(9) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed December 6, 2007 (File No. 001-33261).
110
(10) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed March 4, 2008 (File No. 001-33261).
(11) Incorporated by reference herein to the exhibits on the Company’s Annual Report on Form 10-K
filed June 24, 2009 (File No. 001-33261).
(12) Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K
filed December 22, 2009 (File No. 001-33261).
(13) Incorporated by reference herein to the exhibits on the Company’s Annual Report on Form 10-K
filed June 26, 2013 (File No. 001-33261).
(14) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed September 10, 2008 (File No. 001-33261).
(15) Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K
filed on June 21, 2011 (File No. 001-33261).
(16) Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q
filed November 27, 2013 (File No. 001-33261).
(17) Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K
filed July 9, 2014 (File No. 001-33261).
(18) Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K
filed February 5, 2015 (File No. 001-33261).
†
Confidential treatment has been granted for portions of this exhibit.
# Indicates management contract or compensatory plan.
(c) Not applicable.
111
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
AEROVIRONMENT, INC.
Date: June 30, 2015
/s/ TIMOTHY E. CONVER
By:
Its:
Timothy E. Conver
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature
appears below hereby constitutes and appoints Timothy E. Conver and Teresa Covington, each of them
acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming our signatures as they may be signed by our said attorney-in-fact and any and all
amendments to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name
Title
Date
/s/ TIMOTHY E. CONVER
Timothy E. Conver
/s/ TERESA COVINGTON
Teresa Covington
/s/ EDWARD R. MULLER
Edward R. Muller
/s/ ARNOLD L. FISHMAN
Arnold L. Fishman
/s/ STEPHEN F. PAGE
Stephen F. Page
Chairman, President and Chief
Executive Officer and Director
(Principal Executive Officer)
June 30, 2015
Chief Financial Officer (Principal
Financial and Accounting Officer)
June 30, 2015
Director
Director
Director
112
June 30, 2015
June 30, 2015
June 30, 2015
Name
Title
Date
/s/ CHARLES R. HOLLAND
Charles R. Holland
/s/ CHARLES T. BURBAGE
Charles T. Burbage
Director
Director
June 30, 2015
June 30, 2015
113
Exhibit 3.3
THIRD AMENDED AND RESTATED
BYLAWS
OF
AEROVIRONMENT, INC.
TABLE OF CONTENTS
PAGE
ARTICLE I. OFFICES
Section 1. REGISTERED OFFICES
Section 2. OTHER OFFICES
ARTICLE II. MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS
Section 2. ANNUAL MEETING OF STOCKHOLDERS
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF
Section 4. VOTING
Section 5. PROXIES
Section 6. SPECIAL MEETINGS
Section 7. NOTICE OF STOCKHOLDERS’ MEETINGS
Section 8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD
Section 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS
Section 10. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST
Section 11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING
ARTICLE III. DIRECTORS
Section 1. THE NUMBER OF DIRECTORS
Section 2. VACANCIES
Section 3. POWERS
Section 4. PLACE OF DIRECTORS’ MEETINGS
Section 5. REGULAR MEETINGS
Section 6. SPECIAL MEETINGS
Section 7. QUORUM
Section 8. ACTION WITHOUT MEETING
Section 9. TELEPHONIC MEETINGS
Section 10. BOARD LEADERSHIP
Section 11. COMMITTEES OF DIRECTORS
Section 12. MINUTES OF COMMITTEE MEETINGS
Section 13. COMPENSATION OF DIRECTORS
ARTICLE IV. OFFICERS
Section 1. OFFICERS
i
3
3
3
3
3
3
3
3
4
4
4
4
5
10
10
10
10
11
11
11
11
11
11
12
12
12
12
13
13
13
13
Section 2. ELECTION OF OFFICERS
Section 3. SUBORDINATE OFFICERS
Section 4. COMPENSATION OF OFFICERS
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES
Section 6. POWERS AND DUTIES OF OFFICERS
ARTICLE V. INDEMNIFICATION OF EMPLOYEES AND AGENTS
ARTICLE VI. CERTIFICATES OF STOCK
Section 1. FORM AND EXECUTION OF CERTIFICATES
Section 2. SIGNATURES ON CERTIFICATES
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES
Section 4. LOST CERTIFICATES
Section 5. TRANSFERS OF STOCK
Section 6. REGISTERED STOCKHOLDERS
ARTICLE VII. GENERAL PROVISIONS
Section 1. CHECKS
Section 2. FISCAL YEAR
Section 3. CORPORATE SEAL
Section 4. MANNER OF GIVING NOTICE
Section 5. WAIVER OF NOTICE
ARTICLE VIII. AMENDMENTS
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THIRD AMENDED AND RESTATED
BYLAWS
OF
AEROVIRONMENT, INC.
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICES. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors (the “Board”) may from time to
time determine or the business of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place
within or outside the State of Delaware designated by the Board. In the absence of any such designation,
stockholders’ meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and time designated by the Board. At each annual meeting
directors shall be elected, and any other proper business may be transacted.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of
which are present in person or represented by proxy, shall constitute a quorum for the transaction of
business except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. A
quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a
quorum, and the votes present may continue to transact business until adjournment. If, however, such
quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting
stock represented in person or by proxy may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in all matters other than the
election of directors, the vote of the holders of a majority of the stock having voting power present in
person or represented by proxy and entitled to vote on a particular question shall decide such question
brought before such meeting, unless the question is one upon which by express provision of the statutes,
the Certificate of Incorporation or these Bylaws, a different
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vote is required in which case such express provision shall govern and control the decision of such
question. Directors shall be elected by a plurality of the votes of the stock present in person or
represented by proxy at the meeting and entitled to vote on the election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each stockholder having the
right to vote may vote in person or may authorize another person or persons to act for him or her by
proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more
than three years prior to said meeting, unless said instrument provides for a longer period. All proxies
must be filed with the Secretary of the corporation at the beginning of each meeting in order to be
counted in any vote at the meeting. Each stockholder shall have one vote for each share of stock having
voting power, registered in his name on the books of the corporation on the record date set by the Board
as provided in Article II, Section 8 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by
the Chairman of the Board or the Chief Executive Officer and shall be called by the Chief Executive
Officer or the Secretary at the request in writing of a majority of the members of the Board. Business
transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDERS’ MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the meeting shall be given,
which notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting. If mailed, notice is deemed given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records of the corporation.
Section 8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the corporation may determine the stockholders entitled to notice of, or to vote at, any
meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board, and which record date: (a) in the case of determination of stockholders entitled
to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law,
not be more than sixty nor less than ten days before the date of such meeting; and (b) in the case of any
other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (i) the
record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the meeting is held; and
(ii) the record date for determining stockholders for any other purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of, or to vote at, a meeting of stockholders shall apply to
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any adjournment of the meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
Section 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) Annual Meetings.
(i) Nominations of persons for election to the Board of the corporation and
the proposal of business to be considered by the stockholders may be made at an annual meeting of
stockholders (A) pursuant to the corporation’s notice of meeting (or any supplement thereto), (B) by or
at the direction of the Board or (C) by any stockholder of the corporation who (I) was a stockholder of
record (and, with respect to any beneficial owner, if different, on whose behalf such nomination or
business is proposed, only if such beneficial owner was the beneficial owner of shares of the
corporation) both at the time the notice provided for in this Section 9 is given to the Secretary of the
corporation and at the time of the meeting, (II) is entitled to vote at the meeting and (III) has complied
with this Section 9 as to such nomination or other business. Except for proposals properly made in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”),
and included in the notice of meeting given by or at the direction of the Board, the foregoing clause
(C) shall be the exclusive means for a stockholder to propose business to be considered or to propose
any nominations of persons for election to the Board of the corporation at an annual meeting of the
stockholders.
(ii) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this Section 9, the stockholder
must have given timely notice thereof in writing and in proper form to the Secretary of the corporation
and must provide any updates or supplements to such notice at the times and in the forms required by
this Section 9. To be timely, a stockholder’s notice must be delivered to, or mailed and received by, the
Secretary at the principal executive offices of the corporation not later than the close of business on the
ninetieth day nor earlier than the close of business on the one hundred twentieth day prior to the first
anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of
the annual meeting is more than thirty days before or more than sixty days after such anniversary date,
notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the
close of business on the one hundred twentieth day prior to such annual meeting and not later than the
close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following
the earlier of (A) the day on which notice of the meeting was mailed or (B) the date public
announcement of the date of such meeting is first made by the corporation (such notice within such time
periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting or
the public announcement thereof commence a new time period (or extend any time period) for the giving
of Timely Notice as described above.
to the Secretary with respect to proposals of business shall set forth:
(iii) To be in proper form for purposes of this Section 9, a stockholder’s notice
address of such Proposing Person (including, if applicable, the name and address that
(A) As to each Proposing Person (as defined below), (I) the name and
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appear on the corporation’s books and records); and (II) the class or series and number of shares of the
corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall
in all events be deemed to beneficially own any shares of any class or series of the corporation as to
which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the
disclosures to be made pursuant to the foregoing clauses (I) and (II) are referred to as “Stockholder
Information”);
(B) As to each Proposing Person, (I) any derivative, swap or other
transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the
purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares
of any class or series of the corporation, including due to the fact that the value of such derivative, swap
or other transactions are determined by reference to the price, value or volatility of any shares of any
class or series of the corporation, or which derivative, swap or other transactions provide, directly or
indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series
of the corporation (“Synthetic Equity Interests”), which Synthetic Equity Interests shall be disclosed
without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such
shares to such Proposing Person, (y) the derivative, swap or other transactions are required to be, or are
capable of being, settled through delivery of such shares or (z) such Proposing Person may have entered
into other transactions that hedge or mitigate the economic effect of such derivative, swap or other
transactions, (II) any proxy (other than a revocable proxy or consent given in response to a solicitation
made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation
statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to
which such Proposing Person has or shares a right to vote any shares of any class or series of the
corporation, (III) any agreement, arrangement, understanding or relationship, including any repurchase
or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by
such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of
ownership or otherwise) of shares of any class or series of the corporation by, manage the risk of share
price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the
shares of any class or series of the corporation, or which provides, directly or indirectly, the opportunity
to profit from any decrease in the price or value of the shares of any class or series of the corporation
(“Short Interests”), (IV) any rights to dividends on the shares of any class or series of the corporation
owned beneficially by such Proposing Person that are separated or separable from the underlying shares
of the corporation, (V) any performance related fees (other than an asset based fee) that such Proposing
Person is entitled to based on any increase or decrease in the price or value of shares of any class or
series of the corporation, or any Synthetic Equity Interests or Short Interests, if any, and (VI) any other
information relating to such Proposing Person that would be required to be disclosed in a proxy
statement or other filing required to be made in connection with solicitations of proxies or consents by
such Proposing Person with respect to the election of directors at the meeting pursuant to
Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses
(I) through (VI) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests
shall not include any such disclosures with respect to the ordinary course business activities of any
broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a
result of being the
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stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial
owner; and
(C) As to each item of business that the stockholder proposes to bring
before the annual meeting, (I) a reasonably brief description of the business desired to be brought before
the annual meeting, the reasons for conducting such business at the annual meeting and any material
interest in such business of each Proposing Person, (II) the text of the proposal or business (including the
text of any resolutions proposed for consideration), and (III) a reasonably detailed description of all
agreements, arrangements and understandings (x) between or among any of the Proposing Persons or
(y) between or among any Proposing Person and any other person or entity (including their names) in
connection with the proposal of such business by such stockholder.
For purposes of this Section 9, the term “Proposing Person” shall mean (i) the stockholder
providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial
owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be
brought before the annual meeting is made, and (iii) any affiliate or associate (each within the meaning
of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial
owner.
(iv) To be in proper form for purposes of this Section 9, a stockholder’s notice
to the Secretary with respect to nominations of persons for election to the Board of the corporation shall
set forth:
(A) As to each Nominating Person (as defined below), the Stockholder
Information (as defined in Section 9(a)(iii)(A), except that for purposes of this Section 9(a)(iv) the term
“Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in
Section 9(a)(iii)(A));
(B) As to each Nominating Person, any Disclosable Interests (as
defined in Section 9(a)(iii)(B), except that for purposes of this Section 9(a)(iv) the term “Nominating
Person” shall be substituted for the term “Proposing Person” in all places it appears in
Section 9(a)(iii)(B) and the disclosure in clause (VI) of Section 9(a)(iii)(B) shall be made with respect to
the election of directors at the meeting);
(C) As to each person whom a Nominating Person proposes to
nominate for election as a director, (I) all information with respect to such proposed nominee that would
be required to be set forth in a stockholder’s notice pursuant to this Section 9 if such proposed nominee
were a Nominating Person, (II) all information relating to such proposed nominee that is required to be
disclosed in a proxy statement or other filings required to be made in connection with solicitations of
proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act
(including such proposed nominee’s written consent to being named in the proxy statement as a nominee
and to serving as a director if elected), (III) a description of all direct and indirect compensation and
other material monetary agreements, arrangements and understandings during the past three years, and
any other material relationships, between or among any Nominating Person, on the one hand, and each
proposed nominee, his or her respective affiliates and associates, on the other hand, including, without
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limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation
S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed
nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to
the foregoing clauses (I) through (III) are referred to as “Nominee Information”), and (IV) a completed
and signed questionnaire, representation and agreement as provided in Section 9(c)(iii); and
(D) The corporation may require any proposed nominee to furnish such
other information (I) as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as an independent director of the corporation in accordance with the
corporation’s Corporate Governance Guidelines or (II) that could be material to a reasonable
stockholder’s understanding of the independence or lack of independence of such proposed nominee.
For purposes of this Section 9, the term “Nominating Person” shall mean (i) the
stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the
beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination
proposed to be made at the meeting is made and (iii) any affiliate or associate of such stockholder or
beneficial owner.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting pursuant to the
corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a
special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice
of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that
directors shall be elected at such meeting, by any stockholder of the corporation who (A) was a
stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such
business is proposed, only if such beneficial owner was the beneficial owner of shares of the
corporation) both at the time the notice provided for in this Section 9 is given to the Secretary of the
corporation and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied
with this paragraph (b) and paragraph (a)(iv) (including the procedures to update and supplement such
notice) of this Section 9 as to such nominations. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board, any such stockholder entitled
to vote in such election of directors may nominate a person or persons (as the case may be) for election
to such position(s) as specified in the corporation’s notice of meeting, if (x) the stockholder’s notice
required shall be delivered to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth day prior to such special meeting and not
later than the close of business on the later of (i) the ninetieth day prior to such special meeting or (ii) the
tenth day following the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board to be elected at such meeting, (y) such
stockholder’s notice includes the information required to be provided in paragraph (a)(iv) of this
Section 9 and (z) such stockholder shall have provided any updates or supplements to such notice at the
times and in the forms required by this Section 9. In no event shall any adjournment or postponement of
a special meeting or the announcement thereof commence a new time period (or extend any time period)
for the giving of a stockholder’s notice as described above. For the avoidance of doubt, for a stockholder
to bring nominations before a
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special meeting of stockholders, such stockholder must comply with the notice and other procedures set
forth in this Section 9 and this shall be the exclusive means for a stockholder to bring such nominations
properly before a special meeting.
(c) General. (i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 9 shall be eligible to be elected at an annual or special meeting of
stockholders of the corporation to serve as directors, and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in accordance with the
procedures set forth in this Section 9. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this Section 9 and, if such proposed
nomination or business is deemed not to have been properly made, to declare that such nomination or
proposal has not been properly brought before the meeting and shall be disregarded and declared to be
out of order, notwithstanding that proxies in respect of such vote may have been received by the
corporation.
(ii) A stockholder providing notice of any nomination proposed to be made or
business to be considered at a meeting shall further update and supplement such notice, if necessary, so
that the information provided or required to be provided in such notice pursuant to this Section 9 shall be
true and correct as of the record date for the meeting and as of the date that is ten (10) business days
prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall
be delivered to, or mailed and received by, the Secretary at the principal executive offices of the
corporation not later than five (5) business days after the record date for the meeting (in the case of the
update and supplement required to be made as of the record date), and not later than eight (8) business
days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if
not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or
postponed) (in the case of the update and supplement required to be made as of ten (10) business days
prior to the meeting or any adjournment or postponement thereof).
(iii) To be eligible to be a nominee for election as a director of the corporation,
the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice
under this Section 9) to the Secretary at the principal executive office of the corporation a written
questionnaire with respect to the background and qualification of such proposed nominee (which
questionnaire shall be provided by the Secretary upon written request) and a written representation and
agreement (in form provided by the Secretary upon written request) that such proposed nominee (A) is
not and will not become a party to (I) any agreement, arrangement or understanding with, and has not
given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected
as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that
has not been disclosed to the corporation or (II) any Voting Commitment that could limit or interfere
with such proposed nominee’s ability to comply, if elected as a director of the corporation, with such
proposed nominee’s duties under applicable law, (B) is not, and will not become a party to, any
agreement, arrangement or understanding with any person or entity other than the corporation with
respect to any direct or indirect compensation, reimbursement or indemnification in connection with
service or action as a director that has not been disclosed to the corporation and (C) in such
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proposed nominee’s individual capacity and on behalf of the stockholder (or the beneficial owner, if
different) on whose behalf the nomination is made, would be in compliance, if elected as a director of
the corporation, and will comply with applicable publicly disclosed corporate governance, conflict of
interest, confidentiality and stock ownership and trading policies and guidelines of the corporation.
(iv) For purposes of this Section 9, “public announcement” shall include
disclosure in a press release reported by PRNewswire, Business Wire, the Dow Jones News Service,
Associated Press or comparable national news or wire service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(v) Notwithstanding the foregoing provisions of this Section 9, a stockholder
shall also comply with all applicable requirements of the Exchange Act with respect to the matters set
forth in this Section 9. This Section 9 is expressly intended to apply to any business proposed to be
brought before a meeting of stockholders other than any proposal made pursuant to Rule 14a-8 under the
Exchange Act. Nothing in this Section 9 shall be deemed to affect any rights (A) of stockholders to
request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of preferred stock of the corporation to elect directors
pursuant to any applicable provisions of the Certificate of Incorporation.
Section 10. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required to be
taken at any annual or special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may not be taken without a meeting.
ARTICLE III.
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors which shall
constitute the whole Board shall be not less than three nor more than thirteen. The actual number of
directors shall be fixed from time to time solely by resolution adopted by the affirmative vote of a
majority of the directors. The directors need not be stockholders. The directors shall be
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elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and
each director elected shall hold office until his successor is elected and qualified; provided, however,
that unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire
Board may be removed, for cause, from the Board at any meeting of stockholders by not less than 66
2/3% of the outstanding stock of the corporation.
Section 2. VACANCIES. Vacancies on the Board by reason of death, resignation,
retirement, disqualification, removal from office or otherwise, and newly created directorships resulting
from any increase in the authorized number of directors may be filled solely by a vote of a majority of
the directors then in office, although less than a quorum, or by a sole remaining director, and each
director so elected shall hold office for a term that shall coincide with the remaining term of the class to
which such director shall have been elected. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of the total number of the
shares at the time outstanding having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the
directors then in office.
Section 3. POWERS. The property and business of the corporation shall be managed by or
under the direction of its Board. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board may exercise all such powers of the corporation and do all such lawful
acts and things as are not by statute, by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 4. PLACE OF DIRECTORS’ MEETINGS. The directors may hold their
meetings, have one or more offices and keep the books of the corporation outside of the State of
Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such time and place as shall from time to time be determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be called by the
Chairman of the Board or the President on forty-eight hours’ notice to each director, either personally,
by mail, electronic mail or by telegram; special meetings shall be called by the President or the Secretary
in like manner and on like notice on the written request of two directors, unless the Board consists of
only one director, in which case special meetings shall be called by the President or Secretary in like
manner or on like notice on the written request of the sole director.
Section 7. QUORUM. At all meetings of the Board a majority of the authorized number of
directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of
the Board, except as may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board, the
directors present thereat may adjourn the meeting from time to
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time, without notice other than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the
Board, or of any committee thereof, may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board, or any committee designated by the Board, may
participate in a meeting of the Board, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the meeting can hear each
other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 10. BOARD LEADERSHIP.
(a) Chairman of the Board. The Board shall annually elect one of its members to
serve as Chairman of the Board and shall fill any vacancy in the position at such time and in such
manner as the Board shall determine. The Chairman of the Board shall preside, when present, over all
meetings of the stockholders and of the Board, other than meetings of the independent directors, which
shall be presided over by the Lead Independent Director. The Chairman of the Board shall have such
other duties and powers as set forth in these Bylaws or as may from time to time be assigned or required
by the Board.
(b) Lead Independent Director. The Board shall annually designate an independent
director to serve as the Lead Independent Director on the Board and shall fill any vacancy in the position
of Lead Independent Director, when applicable, at such time and in such manner as the independent
directors of the Board shall determine, provided that the Lead Independent Director may only be
selected from among the independent directors. The Lead Independent Director shall serve at the
pleasure of the Board and may be removed by the Board at any time with or without cause. The Lead
Independent Director shall preside, when present, at all meetings of the stockholders and of the Board at
which the Chairman of the Board is not present and at all meetings of the independent directors of the
Board. The Lead Independent Director shall have such other powers and perform such other duties as
the Board may from time to time delegate.
Section 11. COMMITTEES OF DIRECTORS. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such committee to consist of one
or more of the directors of the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute
a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent provided in the resolution of
the Board, shall have
12
and may exercise all the powers and authority of the Board in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and
assets, recommending to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board
and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director.
No such payment shall preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV.
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be chosen by the Board and
shall include a Chief Executive Officer, President, a Secretary and a Chief Financial Officer or
Treasurer. The corporation may also have at the discretion of the Board such other officers as are
desired, including one or more Vice Presidents, one or more Assistant Secretaries and Assistant
Treasurers and such other officers as may be appointed in accordance with the provisions of Section 3
hereof. In the event there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board, at its first meeting after each annual
meeting of stockholders, shall choose the officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all executive officers
(within the meaning of Rule 3b-7 under the Exchange Act) and agents of the corporation shall be fixed
by the Board.
13
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify in their stead. Any officer
elected or appointed by the Board may be removed at any time by the affirmative vote of a majority of
the Board. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be
filled by the Board.
Section 6. POWERS AND DUTIES OF OFFICERS. The officers of the corporation shall
have such powers and duties in the management of the corporation as may be prescribed in a resolution
by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to
the control of the Board.
ARTICLE V.
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may indemnify every person who is or was a party or is or was threatened to be
made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was an employee or agent of the corporation or, while an employee
or agent of the corporation, is or was serving at the request of the corporation as an employee or agent or
trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including counsel fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or proceeding, to the extent
permitted by applicable law.
ARTICLE VI.
CERTIFICATES OF STOCK
Section 1. FORM AND EXECUTION OF CERTIFICATES. Shares of the corporation’s
stock may be certificated or uncertificated, as provided under Delaware law. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and
applicable law. Every holder of stock of the corporation shall be entitled to have a certificate signed by,
or in the name of the corporation by, the President or a Vice President and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer of the corporation, certifying the number
of shares owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if
he or she were such officer, transfer agent or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the
corporation shall be authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
14
restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back
of the certificate which the corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of
the foregoing requirements, there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 4. LOST CERTIFICATES. The Board may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person or by attorney duly
authorized, and, in the case of stock represented by a certificate, upon the surrender to the corporation, or
the transfer agent of the corporation, of a certificate or certificates for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to transfer for a like number of
shares.
Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as expressly provided by the
laws of the State of Delaware.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. CHECKS. All checks or demands for money and notes of the corporation shall
be signed by such officer or officers as the Board may from time to time designate.
Section 2. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution
of the Board.
Section 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name
of the corporation and shall be in such form as may be approved from time to time by the Board.
15
Section 4. MANNER OF GIVING NOTICE. Whenever, under the law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by telegram, telecopier or
other means of communication permitted by law.
Section 5. WAIVER OF NOTICE. Whenever any notice is required to be given under the
law, the Certificate of Incorporation or these Bylaws, a waiver thereof via electronic mail or in writing,
signed by the person or persons entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at nor the purpose of any regular or special
meeting of the stockholders, directors or members of a committee of directors need be specified in any
written waiver of notice.
ARTICLE VIII.
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the
stockholders or by the Board in accordance with the terms of the Certificate of Incorporation. If the
power to adopt, amend or repeal Bylaws is conferred upon the Board by the Certificate of Incorporation,
it shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
* * * * *
16
AEROVIRONMENT, INC.
2006 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD GRANT NOTICE AND
RESTRICTED STOCK AWARD AGREEMENT
Exhibit 10.13
AeroVironment, Inc., a Delaware corporation (the “ Company ”), pursuant to its 2006 Equity Incentive
Plan (the “Plan”), hereby grants to the individual listed below (“Participant”), the right to the number of shares of
the Company’s Stock set forth below (the “Shares”). This Restricted Stock award is subject to all of the terms
and conditions as set forth herein and in the Restricted Stock Award Agreement attached hereto as Exhibit A (the
“ Restricted Stock Agreement ”) and the Plan, which are incorporated herein by reference. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the
Restricted Stock Agreement.
Participant:
Grant Date:
Vesting Commencement Date:
Total Number of Shares of Restricted Stock:
Vesting Schedule:
[To be specified in individual agreements]
By his or her signature, Participant agrees to be bound by the terms and conditions of the Plan, the
Restricted Stock Agreement and this Grant Notice. Participant has reviewed the Restricted Stock Agreement, the
Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Grant Notice and fully understands all provisions of this Grant Notice, the Restricted Stock
Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Plan, this Grant Notice or the Restricted
Stock Agreement. If Participant is married, his or her spouse has signed the Consent of Spouse attached to this
Grant Notice as Exhibit B.
AEROVIRONMENT, INC.
PARTICIPANT
By:
Print Name:
Title:
Address:
Timothy E. Conver
Chief Executive Officer
181 W. Huntington Drive, Suite 202
Monrovia, CA 91016
By:
Name:
Address:
EXHIBIT A
TO RESTRICTED STOCK AWARD GRANT NOTICE
RESTRICTED STOCK AWARD AGREEMENT
Pursuant to the Restricted Stock Award Grant Notice (“ Grant Notice ”) to which this Restricted Stock
Award Agreement (this “ Agreement ”) is attached, AeroVironment, Inc., a Delaware corporation (the
“Company”), has granted to Participant the right to purchase the number of shares of Restricted Stock under the
Company’s 2006 Equity Incentive Plan (the “Plan”) indicated in the Grant Notice.
ARTICLE I
GENERAL
1.1 Defined Terms . Capitalized terms not specifically defined herein shall have the meanings
specified in the Plan and the Grant Notice.
1.2 Incorporation of Terms of Plan. The Shares are subject to the terms and conditions of the Plan
which are incorporated herein by reference.
ARTICLE II
GRANT OF RESTRICTED STOCK
2.1 Grant of Restricted Stock. Effective as of the Grant Date set forth in the Grant Notice (the “Grant
Date”), upon the terms and conditions set forth in the Plan and this Agreement, the Company irrevocably grants
to Participant the number of shares of Stock set forth in the Grant Notice (the “Shares”), in consideration of
Participant’s employment with or service to the Company or any Subsidiary thereof on or before the Grant Date,
for which the Committee has determined Participant has not been fully compensated, and the Committee has
determined that the benefit received by the Company as a result of such employment or service has a value that
exceeds the aggregate par value of the Shares, which Shares, when issued in accordance with the terms hereof,
shall be fully paid and nonassessable.
2.2 Issuance of Shares . On the Grant Date, the Company shall issue the Shares to Participant and
shall (a) cause a stock certificate or certificates representing the Shares to be registered in the name of
Participant, or (b) cause such Shares to be issued in uncertificated form, with such Shares recorded in the name
of Holder in the books and records of the Company’s transfer agent, with appropriate notations regarding the
restrictions imposed pursuant to this Agreement. If a stock certificate is issued, it shall be delivered to and held
in custody by the Company pursuant to Section 3.6 below and shall bear the restrictive legends required by
Section 4.4 below. If the Shares are held in book entry form, then such entry will reflect that the Shares are
subject to the restrictions of this Agreement.
2.3 Conditions to Issuance of Stock Certificates. The Shares, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which have then been reacquired by the Company.
Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any
Shares prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges on which such Stock is
then listed; and
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(b) The completion of any registration or other qualification of such shares under any state or
federal law or under rulings or regulations of the Securities and Exchange Commission or of any other
governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable;
and
agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal governmental
(d) The receipt by the Company of full payment for such shares, including payment of all
amounts which, under federal, state, local or foreign tax law, the Company (or other employer corporation) is
required to withhold upon issuance of such Shares; and
may from time to time establish for reasons of administrative convenience.
(e) The lapse of such reasonable period of time following the Grant Date as the Committee
2.4 Rights as Stockholder. Except as otherwise provided herein, upon issuance of the Shares by the
Company, Participant shall have all the rights of a stockholder with respect to the Shares, subject to the
restrictions herein, including the right to vote the Shares and to receive all dividends or other distributions paid
or made with respect to the Shares; provided, however, that any and all cash dividends paid on such Shares and
any and all shares of Stock, capital stock or other securities received by or distributed to Participant with respect
to the Shares as a result of any stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company shall also be subject to the Forfeiture
Restriction (as defined in Section 3.1 below) and the restrictions on transfer in Section 3.4 below until such
restrictions on the underlying Shares lapse or are removed pursuant to this Agreement and shall be held by the
Company pursuant to Section 3.6 pending the removal of such restrictions.
2.5 Consideration to the Company. In consideration of the issuance of the Shares by the Company,
Participant agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in the
Plan or this Agreement shall confer upon Participant any right to (a) continue in the employ of the Company or
any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries,
which are hereby expressly reserved, to discharge Participant, if Participant is an Employee, or (b) continue to
provide services to the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the
Company or its Subsidiaries, which are hereby expressly reserved, to terminate the services of Participant, if
Participant is a consultant, at any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in a written agreement between the Company, a Subsidiary and Participant, or
(c) continue to serve as a member of the Board or shall interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to discharge Participant in accordance with the Company’s
Bylaws.
ARTICLE III
RESTRICTIONS ON SHARES
3.1 Forfeiture Restriction . Subject to the provisions of Section 3.2 below, if Participant has a
Termination of Service (as defined below), all of the Unreleased Shares (as defined below) shall thereupon be
forfeited immediately and without any further action of the Company (the “Forfeiture Restriction”). Upon the
occurrence of such a forfeiture, the Company shall become the legal and beneficial owner of the Unreleased
Shares and all rights and interests therein or relating thereto, and the
Form Effective 06.17.09
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Company shall have the right to retain and transfer to its own name the number of Unreleased Shares being
forfeited by Participant. In the event any of the Shares are forfeited pursuant to this Section 3.1, any dividends
or other distributions paid on such Shares and held by the Company shall be retained by the Company.
Participant hereby authorizes and directs the Secretary of the Company, or such other person designated by the
Committee, to transfer the Unreleased Shares which have been forfeited pursuant to this Section 3.1 from
Participant to the Company.
3.2 Release of Shares from Forfeiture Restriction. Subject to Section 3.1 above, the Shares shall be
released from the Forfeiture Restriction as indicated in the Grant Notice. Any of the Shares released from the
Forfeiture Restriction shall thereupon be released from the restrictions on transfer under Section 3.4. In the
event any of the Shares are released from the Forfeiture Restriction, any dividends or other distributions paid on
such Shares and held by the Company pursuant to Section 2.4 shall be promptly paid by the Company to
Participant. As soon as administratively practicable following the release of any Shares from the Forfeiture
Restriction, the Company shall, as applicable, either deliver to Participant the certificate or certificates
representing such Shares in the Company’s possession belonging to Participant, or, if the Shares are held in
uncertificated form, then the Company shall remove the notations on any such Shares. Participant (or the
beneficiary or personal representative of Participant in the event of Participant’s death or incapacity, as the case
may be) shall deliver to the Company any representations or other documents or assurances as the Company or
its representatives deem necessary or advisable in connection with any such delivery.
3.3 Unreleased Shares. Any of the Shares which, from time to time, have not yet been released from
the Forfeiture Restriction are referred to herein as “Unreleased Shares.”
3.4 Restrictions on Transfer.
(a) Subject to forfeiture to the Company pursuant to Section 3.1 and Section 3.4(b), no
Unreleased Shares or any dividends or other distributions thereon or any interest or right therein or part thereof,
shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be
subject to sale or other disposition by Participant or his or her successors in interest by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such sale or other disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted sale or other disposition thereof shall be null and
void and of no effect.
(b) Notwithstanding any other provision in this Agreement, with the consent of the
Committee, the Unreleased Shares may be transferred to certain persons or entities related to the Participant,
including but not limited to members of the Participant’s family, charitable institutions or trusts or other entities
whose beneficiaries or beneficial owners are members of the Participant’s family or to such other persons or
entities as may be expressly approved by the Committee (each a “ Permitted Transferee ”), pursuant to such
conditions and procedures as the Committee may require. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning
purposes (or to a “blind trust” in connection with the Participant’s Termination of Service with the Company or a
Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and
on a basis consistent with the Company’s lawful issue of securities.
3.5 Definition of Termination of Service. For purposes of this Agreement, “Termination of Service”
means the time when the service relationship (whether as an Employee, member of the Board or a consultant)
between Participant and the Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation, discharge, death or
Form Effective 06.17.09
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Disability; but excluding (a) a termination where there is a simultaneous reemployment or continuing employment
or consultancy of Participant by the Company or any Subsidiary or a “parent corporation” of the Company (within
the meaning of Section 424 of the Code), (b) at the discretion of the Committee, a termination which results in a
temporary severance of the employee-employer relationship, and (c) a termination which is followed by the
simultaneous establishment of a consulting relationship by the Company or a Subsidiary with a former Employee.
The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to
Termination of Service for the purposes of this Agreement, and all questions of whether a particular leave of
absence for a Participant who is an Employee of the Company or any of its Subsidiaries constitutes a Termination
of Service. Notwithstanding any other provision of the Plan or this Agreement, the Company or any Subsidiary
has an absolute and unrestricted right to terminate Participant’s employment and/or consultancy at any time for
any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written
agreement between the Company or a Subsidiary and Participant.
3.6 Escrow . The Secretary of the Company, or such other escrow holder as the Committee may
appoint, may retain physical custody of the certificates, if any, representing the Shares (and any dividends or
other distributions paid on such Shares) until all of the restrictions imposed pursuant to this Agreement lapse or
shall have been removed. In such event, Participant shall not retain physical custody of any certificates
representing Unreleased Shares (as defined above) issued to Participant (or any dividends or other distributions
paid on such Shares). Participant, by acceptance of this Award, shall be deemed to appoint, and does so
appoint, the Company and each of its authorized representatives as Participant’s attorney(s)-in-fact to effect any
transfer of forfeited Unreleased Shares (and any dividends or other distributions paid on such Shares) to the
Company as may be required pursuant to the Plan or this Agreement, and to execute such representations or
other documents or assurances as the Company or such representatives deem necessary or advisable in
connection with any such transfer. The Company, or its designee, shall not be liable for any act it may do or
omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its
judgment.
ARTICLE IV
OTHER PROVISIONS
4.1 Adjustment for Stock Split . In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the capital structure of the Company, the
Committee shall make appropriate and equitable adjustments in the Unreleased Shares subject to the Forfeiture
Restriction and the number of Shares, consistent with any adjustment under Section 11.1 of the Plan. The
provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any and
all shares of capital stock or other securities or other property or cash which may be issued in respect of, in
exchange for, or in substitution of the Shares, and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after the date hereof.
4.2 Taxes.
(a) Participant has reviewed with Participant’s own tax advisors the federal, state, local and
foreign tax consequences of this investment and the transactions contemplated by the Grant Notice and this
Agreement. Participant is relying solely on such advisors and not on any statements or representations of the
Company or any of its agents. Participant understands that Participant (and not the Company) shall be responsible
for Participant’s tax liability that may arise as a result of this investment or the transactions contemplated by this
Agreement. Participant understands that Participant will recognize
Form Effective 06.17.09
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ordinary income for federal income tax purposes under Section 83 of the Code as and when the Forfeiture
Restriction lapses. Participant understands that Participant may elect to be taxed for federal income tax purposes
at the time the Shares are purchased by Participant rather than as and when the Forfeiture Restriction lapses by
filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days from
the date of purchase. A form of election under Section 83(b) of the Code is attached to the Grant Notice as
Exhibit C.
PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY AND
NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), AND THE
COMPANY AND ITS REPRESENTATIVES SHALL HAVE NO OBLIGATION OR AUTHORITY TO MAKE
THIS FILING ON PARTICIPANT’S BEHALF.
(b) Notwithstanding anything to the contrary in this Agreement, the Company shall be
entitled to require payment (which payment may be made in cash, by deduction from other compensation payable
to Participant or in any form of consideration permitted by the Plan) of any sums required by federal, state or local
tax law to be withheld with respect to the issuance, lapsing of restrictions on or sale of the Shares. The Company
shall not be obligated to deliver any new certificate representing vested Shares to Participant or Participant’s
beneficiary or legal representative unless and until Participant or Participant’s beneficiary or legal representative,
as applicable, shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes
applicable to the taxable income of Participant resulting from the issuance, lapsing of restrictions on or sale of the
Shares.
4.3 Administration. The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding upon Participant, the Company
and all other interested persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan, this Agreement or the Shares. In its
absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan and this Agreement.
4.4 Restrictive Legends and Stop-Transfer Orders.
following legend and any other legends that may be required by state or federal securities laws:
(a) Any share certificate(s) evidencing the Shares issued hereunder shall be endorsed with the
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE
UNDER, AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS
AND CONDITIONS OF A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
(b) Participant agrees that, in order to ensure compliance with the restrictions referred to
herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the
Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) The Company shall not be required: (i) to transfer on its books any Shares that have been
sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of
such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such
shares shall have been so transferred.
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4.5 Notices . Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of
an authorized officer of the Company on the Grant Notice, and any notice to be given to Participant shall be
addressed to Participant at the address given beneath Participant’s signature on the Grant Notice. By a notice
given pursuant to this Section 4.5, either party may hereafter designate a different address for notices to be
given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail
(return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly
maintained by the United States Postal Service.
4.6 Titles . Titles are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of this Agreement.
4.7 Construction. This Agreement shall be administered, interpreted and enforced under the laws of
the State of Delaware without regard to conflicts of laws thereof. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
4.8 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations
and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and
regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Shares are
to be issued, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted
by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
4.9 Amendments . This Agreement may not be modified, amended or terminated except by an
instrument in writing, signed by Participant and by a duly authorized representative of the Company.
4.10 Successors and Assigns . The Company may assign any of its rights under this Agreement to
single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon
Participant and his or her heirs, executors, administrators, successors and assigns.
4.11 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits hereto)
constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof.
Form Effective 06.17.09
A-6
EXHIBIT B
TO RESTRICTED STOCK AWARD GRANT NOTICE
CONSENT OF SPOUSE
I, , spouse of , have read and approve the foregoing Restricted Stock Grant
Notice and Restricted Stock Award Agreement (the “Agreement”). In consideration of issuing to my spouse the
shares of the common stock of AeroVironment, Inc., a Delaware corporation (the “Company”), set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said
Agreement or any shares of the common stock of the Company issued pursuant thereto under the community
property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the
signing of the foregoing Agreement.
Dated: ,
Form Effective 06.17.09
Signature of Spouse
B-1
EXHIBIT C
TO RESTRICTED STOCK AWARD GRANT NOTICE
FORM OF 83(B) ELECTION AND INSTRUCTIONS
These instructions are provided to assist you if you choose to make an election under Section 83(b) of the
Internal Revenue Code, as amended, with respect to the shares of common stock of AeroVironment, Inc.
transferred to you. Please consult with your personal tax advisor as to whether an election of this nature will
be in your best interests in light of your personal tax situation.
The executed original of the Section 83(b) election must be filed with the Internal Revenue Service not
later than thirty days after the date the shares were transferred to you. PLEASE NOTE: There is no remedy for
failure to file on time. The steps outlined below should be followed to ensure the election is mailed and filed
correctly and in a timely manner. ALSO, PLEASE NOTE: If you make the Section 83(b) election, the election is
irrevocable.
1. Complete Section 83(b) election form (attached as Attachment 1 ) and make four copies of the signed
election form. (Your spouse, if any, should sign Section 83(b) election form as well.)
2. Prepare the cover letter to the Internal Revenue Service (sample letter attached as Attachment 2).
3. Send the cover letter with the originally executed Section 83(b) election form and one copy via certified
mail, return receipt requested to the Internal Revenue Service at the address of the Internal Revenue
Service where you file your personal tax returns. We suggest that you have the package date-stamped at
the post office. The post office will provide you with a white certified receipt that includes a dated
postmark. Enclose a self-addressed, stamped envelope so that the Internal Revenue Service may return a
date-stamped copy to you. However, your postmarked receipt is your proof of having timely filed the
Section 83(b) election if you do not receive confirmation from the Internal Revenue Service.
4. One copy must be sent to AeroVironment, Inc. for its records and one copy must be attached to your
federal income tax return for the applicable calendar year.
5. Retain the Internal Revenue Service file stamped copy (when returned) for your records.
Please consult your personal tax advisor for the address of the office of the Internal Revenue Service to
which you should mail your election form.
Form Effective 06.17.09
C-1
ATTACHMENT 1 TO EXHIBIT C
ELECTION UNDER INTERNAL REVENUE CODE SECTION 83(B)
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended, to include in taxpayer’s gross income for the current taxable year the amount of any compensation
taxable to taxpayer in connection with taxpayer’s receipt of shares (the “Shares”) of Common Stock of
AeroVironment, Inc., a Delaware corporation (the “Company”).
1.
The name, address and taxpayer identification number of the undersigned taxpayer are:
SSN:
The name, address and taxpayer identification number of the Taxpayer’s spouse are (complete if
applicable):
SSN:
Description of the property with respect to which the election is being made:
( ) shares of Common Stock of the Company.
The date on which the property was transferred was . The taxable year to which this
election relates is calendar year .
Nature of restrictions to which the property is subject:
The Shares are subject to forfeiture if unvested as of the date of termination of employment,
directorship or consultancy with the Company.
The fair market value at the time of transfer (determined without regard to any lapse restrictions, as
defined in Treasury Regulation Section 1.83-3(a)) of the Shares was $ per Share.
The amount paid by the taxpayer for the Shares was per share.
A copy of this statement has been furnished to the Company.
2.
3.
4.
5.
6.
7.
Dated: ,
Form Effective 06.17.09
Taxpayer Signature
C-1-1
The undersigned spouse of Taxpayer joins in this election. (Complete if applicable).
Dated: ,
Spouse’s Signature
Signature(s) Notarized by:
Form Effective 06.17.09
C-1-2
ATTACHMENT 2 TO EXHIBIT C
SAMPLE COVER LETTER TO INTERNAL REVENUE SERVICE
,
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Internal Revenue Service
[Address where taxpayer files returns]
Re:
Election under Section 83(b) of the Internal Revenue Code of 1986
Taxpayer:
Taxpayer’s Social Security Number:
Taxpayer’s Spouse:
Taxpayer’s Spouse’s Social Security Number:
Ladies and Gentlemen:
Enclosed please find an original and one copy of an Election under Section 83(b) of the Internal Revenue
Code of 1986, as amended, being made by the taxpayer referenced above. Please acknowledge receipt of the
enclosed materials by stamping the enclosed copy of the Election and returning it to me in the self-addressed
stamped envelope provided herewith.
Enclosures
cc: AeroVironment, Inc.
Form Effective 06.17.09
Very truly yours,
C-2-1
Subsidiaries of AeroVironment, Inc.
Name
Jurisdiction of Organization
Exhibit 21.1
Singapore
Italy
AeroVironment International PTE. LTD.
. . . . . . . . .
AV S.r.l. Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AV GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
AV Massachusetts, LLC . . . . . . . . . . . . . . . . . . . . . . Massachusetts
AV Rhode Island, LLC . . . . . . . . . . . . . . . . . . . . . . . Rhode Island
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
AILC, Inc.
SkyTower, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
SkyTower, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Regenerative Fuel Cell Systems, LLC . . . . . . . . . . . . Delaware
Charger Bicycles, LLC (50%)* . . . . . . . . . . . . . . . . . Delaware
Altoy Savunma Sanayi ve Havacilik Anonim Sirketi** . Turkey
*
inactive, but never officially dissolved
** AeroVironment, Inc. has a 49% ownership interest
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-8
No. 333-140237) pertaining to the AeroVironment, Inc. Nonqualified Stock Option Plan, the
AeroVironment, Inc. 2002 Equity Incentive Plan, and the AeroVironment, Inc. 2006 Equity Incentive
Plan, as amended and restated, of our reports dated June 30, 2015, with respect to the consolidated
financial statements and schedule of AeroVironment, Inc. and subsidiaries and the effectiveness of
internal control over financial reporting of AeroVironment, Inc. and subsidiaries included in this
Annual Report (Form 10-K) for the year ended April 30, 2015.
Exhibit 23.1
Los Angeles, California
June 30, 2015
/s/ Ernst & Young LLP
Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Timothy E. Conver, certify that:
1.
I have reviewed this annual report on Form 10-K 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 annual 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(s) 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 15(d)-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(s) 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 function):
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: June 30, 2015
/s/ TIMOTHY E. CONVER
Timothy E. Conver
Chief Executive Officer and President
Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Teresa Covington, certify that:
1.
I have reviewed this annual report on Form 10-K 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 annual 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(s) 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 15(d)-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(s) 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 function):
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: June 30, 2015
/s/ TERESA COVINGTON
Teresa Covington
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002,
each of the undersigned officers of AeroVironment, Inc. (the ‘‘Company’’) hereby certifies, to each
such officer’s knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the year ended April 30,
2015 (the ‘‘Report’’) fully complies with the requirements of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: June 30, 2015
/s/ TIMOTHY E. CONVER
Date: June 30, 2015
Timothy E. Conver
Chief Executive Officer and President
/s/ TERESA COVINGTON
Teresa Covington
Chief Financial Officer