AeroVironment (AVAV) shares are down sharply today after the company, which makes unmanned aircraft systems, electrical vehicle charging stations and other products, disclosed in a 10-K filing with the SEC that it has been under investigation by the Justice Department since February concerning its billing practices for government contracts.
“We are currently cooperating with this investigation, which we believe may be the result of prior DCAA [Defense Contract Audit Agency] audit activity,” the company said in the filing. “An unfavorable outcome to such an audit or investigation by the DCAA, DOJ or other government agency, could materially adversely affect our competitive position, affect our ability to obtain the maximum price for our products and services, and result in a substantial reduction of our revenue.”
What’s a little puzzling is why the company waited until now to disclose an investigation that started in February; since then, the company filed a 10-Q without mentioning the probe – and even announced the exit of its previous CFO without disclosing the investigation.
Despite reporting strong results yesterday for its fiscal fourth quarter ended in April, AVAV today is down $2.11, or 9.1%, to $21.15.
Update: The company has now issued a statement on the probe.
AeroVironment said the investigation focuses on three areas:
- The appropriateness of certain expenses included in the company�s fiscal year 2006 Incurred Indirect Cost Claim (reconciliation of projected rates to actual rates.)
- Billing labor rates associated with time and materials government contracts.
- Billing rates for Small Unmanned Aircraft Systems maintenance and repair contracts.
The company said it does not believe the probe will have a material impact on its business, and so far has not had an impact on the company’s ability to receive government contracts.
AeroVironment said it believes most of the issues have been previously addresses in the DCAA audit processes, and that time and materials government contracts have accounted for less than 1% of the company�s revenue over the last 6 years. The company said it is cooperating with the investigation, and that no claim has been filed against AeroVironment to date.
The company said the March 2010 resignation of CFO Stephen Wright was motivated by personal reasons and was not related by the investigation or any other operational matters.
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