AeroVironment Inc Income Taxes Disclosure
15. Income Taxes
The components of income/(loss) before income taxes are as follows (in thousands):
| Year Ended April 30, |
| ||||||||
2026 | 2025 | 2024 |
| |||||||
Domestic | $ | (298,407) | $ | 68,814 | $ | 68,968 | ||||
Foreign | (7,215) |
| (29,150) |
| (5,737) | |||||
(Loss) income before income taxes | (305,622) | 39,664 | 63,231 | |||||||
Equity method investment income (loss) | 17,441 | 4,837 | (1,674) | |||||||
Total (loss) income before income taxes | $ | (288,181) | $ | 44,501 | $ | 61,557 | ||||
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/(benefit) computed using the U.S. federal statutory rates to actual income tax expense is as follows (dollars in thousands):
Year Ended April 30, | ||||||||||||||||||
2026 | 2025 | 2024 | ||||||||||||||||
Dollars | Percentages | Dollars | Percentages | Dollars | Percentages | |||||||||||||
U.S. federal statutory income tax rate | $ | (64,181) | 21.0 | % | $ | 8,329 | 21.0 | % | $ | 12,927 | 21.0 | % | ||||||
State income taxes, net of federal benefit | (4,558) | 1.5 | (987) | (2.5) | 569 | 0.9 | ||||||||||||
Effect of cross-border tax laws: | ||||||||||||||||||
Foreign-derived intangible income | — | — | (7,830) | (19.7) | (9,831) | (16.0) | ||||||||||||
Tax Credits: | ||||||||||||||||||
Research and development credits | (8,290) | 2.7 | (5,263) | (13.3) | (4,831) | (7.8) | ||||||||||||
Changes in valuation allowance | (2,665) | 0.9 | 84 | 0.2 | 931 | 1.6 | ||||||||||||
Nontaxable or nondeductible items: | ||||||||||||||||||
Limit on executive compensation | 5,958 | (1.9) | 2,646 | 6.7 | 1,687 | 2.7 | ||||||||||||
Excess benefit relating to stock-based compensation | (5,040) | 1.6 | (2,997) | (7.6) | (389) | (0.6) | ||||||||||||
Goodwill impairment | 44,438 | (14.5) | — | — | — | — | ||||||||||||
Acquisition related costs | 3,426 | (1.1) | — | — | — | — | ||||||||||||
Other Perms | 4,185 | (1.5) | 1,515 | 3.8 | 536 | 0.8 | ||||||||||||
Changes in unrecognized tax benefit | 2,321 | (0.8) | 459 | 1.2 | (370) | (0.6) | ||||||||||||
Foreign Tax Effects: | ||||||||||||||||||
Statutory tax rate different from US | (719) | 0.2 | (2,603) | (6.6) | (293) | (0.5) | ||||||||||||
Goodwill impairment | — | — | 5,477 | 13.8 | — | — | ||||||||||||
Change in valuation allowance | 1,653 | (0.5) | 2,213 | 5.6 | — | — | ||||||||||||
Other Adjustments | 413 | (0.1) | (161) | (0.4) | 955 | 1.5 | ||||||||||||
Effective income tax rate | $ | (23,059) | 7.5 | % | $ | 882 | 2.2 | % | $ | 1,891 | 3.0 | % | ||||||
The components of the (benefit from) provision for income taxes are as follows (in thousands):
Year Ended April 30, |
| |||||||||
| 2026 | | 2025 | | 2024 |
| ||||
Current: | ||||||||||
Federal | $ | (349) | $ | 21,901 | $ | 20,990 | ||||
State |
| 3,896 |
| (320) |
| 1,511 | ||||
Foreign | 523 | — | (76) | |||||||
| 4,070 |
| 21,581 |
| 22,425 | |||||
Deferred: | ||||||||||
Federal |
| (19,494) |
| (19,301) |
| (18,844) | ||||
State |
| (7,635) |
| (734) |
| (625) | ||||
Foreign | — | (664) | (1,065) | |||||||
| (27,129) |
| (20,699) |
| (20,534) | |||||
Total income tax expense (benefit) | $ | (23,059) | $ | 882 | $ | 1,891 | ||||
Significant components of the Company’s deferred income tax assets and liabilities are as follows (in thousands):
April 30, |
| ||||||
| 2026 | | 2025 |
| |||
Deferred income tax assets: | |||||||
Accrued expenses | $ | 6,435 | $ | 2,367 | |||
Stock based compensation | 5,467 | 3,728 | |||||
Allowances, reserves, and other |
| 564 |
| — | |||
Unrealized loss on securities |
| 1,704 |
| 3,787 | |||
Net operating loss and credit carry-forwards |
| 75,001 |
| 21,620 | |||
163(J) disallowed interest expense carry-forward | 28,083 | — | |||||
Acquisition related costs | 6,263 | 4,299 | |||||
Capitalized research and development costs | 59,288 | 57,266 | |||||
Reserve for inventory excess and obsolescence |
| 8,257 |
| 6,306 | |||
Lease liability | 30,436 | 8,226 | |||||
Total deferred income tax assets |
| 221,498 |
| 107,599 | |||
Deferred income tax liabilities: | |||||||
Fixed asset basis |
| (22,416) |
| (3,160) | |||
Allowances, reserves, and other | (5,517) | (1,895) | |||||
Outside basis difference | (38) | (38) | |||||
Right-of-use asset | (28,749) | (7,645) | |||||
Intangibles basis | (185,053) | (6,631) | |||||
Total deferred income tax liabilities |
| (241,773) |
| (19,369) | |||
Valuation allowance |
| (30,219) |
| (26,770) | |||
Net deferred tax assets | $ | (50,494) | $ | 61,460 | |||
The One Big Beautiful Bill Act was enacted in the U.S. on July 4, 2025. OBBBA introduced significant changes to the U.S. federal corporate tax system, including reinstating the immediate deductibility of domestic research and experimental (“R&E”) expenditures for tax years beginning after December 31, 2024. While foreign R&E expenditures continue to be capitalized and amortized over the applicable recovery period. Accordingly, the provisions impacting the Company have been reflected in the financial statements for the year ended April 30, 2026.
At April 30, 2026 and 2025 the Company recorded a valuation allowance of $30,219,000 and $26,770,000, respectively, against state net operating losses and state R&D credits as the Company is currently generating more tax credits than it will utilize in future years. The valuation allowance increased by $3,449,000 and $2,935,000 for April 30, 2026 and April 30, 2025, respectively, primarily due to state net operating losses and foreign deferred tax assets.
At April 30, 2026, the Company had federal R&D Credit carryforwards of 11,811,000, which carryforward to fiscal year 2046. At April 30, 2026, the Company had California R&D credit carryforwards of $21,425,000. These credits carryforward indefinitely.
At April 30, 2026, the Company had federal, state and foreign net operating loss carryforwards of approximately $180,315,000, $170,408,000 and $11,118,000, respectively. The federal net operating losses carry forward indefinitely. The state net operating losses will begin expiring in fiscal year 2036, and foreign net operating losses carry forward indefinitely. Utilization of federal and state net operating loss carryforwards may be subject to substantial annual limitation due to the ownership changes as provided by Section 382 of the Internal Revenue Code and similar state provisions.
At April 30, 2026 and 2025, the Company had approximately $16,196,000 and $13,429,000, respectively, of unrecognized tax benefits. Of the 2026 balance, $8,852,000 would impact the Company’s tax expense and $7,414,000 would result in an increase in California R&D credit valuation allowance. The Company estimates that $1,268,000 of its unrecognized tax benefits will decrease in the next twelve months due to statute of limitation expiration.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended April 30, 2026 and 2025 (in thousands):
April 30, |
| ||||||
| 2026 | | 2025 |
| |||
Balance as of May 1 | $ | 13,429 | $ | 13,601 | |||
Increases related to prior year tax positions |
| 62 |
| 30 | |||
Decreases related to prior year tax positions |
| (141) |
| (18) | |||
Increases related to current year tax positions |
| 3,588 |
| 1,582 | |||
Decreases related to lapsing of statute of limitations |
| (742) |
| (1,766) | |||
Balance as of April 30 | $ | 16,196 | $ | 13,429 | |||
The Company records interest and penalties on uncertain tax positions to income tax expense. As of April 30, 2026 and 2025, the Company had accrued approximately $1,609,000 and $454,000, respectively, of interest and penalties related to uncertain tax positions. The 2021 to 2024 tax years remain open to examination by the IRS for federal income taxes. The tax years 2019 to 2024 remain open for major state taxing jurisdictions.
The following table summarized income taxes paid for the year ended April 30, 2026, 2025 and 2024 (in thousands):
Year Ended April 30, | Year Ended April 30, | Year Ended April 30, |
| |||||||
2026 | | 2025 | | 2024 |
| |||||
Federal | $ | 2,250 | $ | 24,175 | $ | 17,387 | ||||
State: | ||||||||||
Alabama |
| (272) |
|
| ||||||
California | 514 | |||||||||
Florida |
| 351 |
|
| ||||||
Maryland | 204 | |||||||||
Other |
| 174 |
| 682 |
| 2,533 | ||||
Foreign: |
|
|
| |||||||
Germany | 385 | (226) | 518 | |||||||
$ | 3,606 | $ | 24,631 | $ | 20,438 | |||||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Jun 29, 2026 | Showing above |
| 2025 | Jun 25, 2025 | |
| 2024 | Jun 27, 2024 | |
| 2023 | Jun 28, 2023 | |
| 2022 | Jun 29, 2022 | |
| 2021 | Jun 29, 2021 | |
| 2020 | Jun 24, 2020 | |
| 2019 | Jun 26, 2019 | |
| 2018 | Jun 27, 2018 | |
| 2017 | Jun 28, 2017 | |
| 2016 | Jun 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.