10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 29, 2011

OR

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

For the transition period from                       to                       

Commission File Number: 001-33261

AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-2705790
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
181 W. Huntington Drive, Suite 202
Monrovia, California	91016
(Address of principal executive offices)	(Zip Code)

(626) 357-9983

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if smaller reporting company)

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

As of November 25, 2011, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 22,102,559.

AeroVironment, Inc.

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of October 29, 2011 (Unaudited) and April 30, 2011	3
	Consolidated Statements of Operations for the three and six months ended October 29, 2011 (Unaudited) and October 30, 2010 (Unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended October 29, 2011 (Unaudited) and October 30, 2010 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Reserved	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
Signatures		21
Exhibit Index

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share and per share data)

	October 29,2011			April 30,2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	98,589		$	62,041
Short-term investments	78,782			126,839
Accounts receivable, net of allowance for doubtful accounts of $877 at October 29, 2011 and $639 at April 30, 2011	25,571			44,376
Unbilled receivables and retentions	21,676			21,966
Inventories, net	41,435			38,137
Deferred income taxes	2,596			2,300
Prepaid expenses and other current assets	2,974			2,372
Total current assets	271,623			298,031
Long-term investments	22,556			6,275
Property and equipment, net	18,841			17,498
Deferred income taxes	9,733			9,762
Other assets	186			181
Total assets	$	322,939		$	331,747
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	19,617		$	31,134
Wages and related accruals	12,831			15,458
Income taxes payable	2,372			7,404
Other current liabilities	8,343			7,384
Liability for uncertain tax positions	724			724
Total current liabilities	43,887			62,104
Wages and other accruals	981			762
Deferred rent	1,185			1,275
Liability for uncertain tax positions	4,138			4,138
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares — 10,000,000
None issued or outstanding	—			—
Common stock, $0.0001 par value:
Authorized shares — 100,000,000
Issued and outstanding shares — 22,098,896 at October 29, 2011 and 21,949,884 at April 30, 2011	2			2
Additional paid-in capital	122,089			119,765
Accumulated other comprehensive loss	(741		)	(784		)
Retained earnings	151,398			144,485
Total stockholders’ equity	272,748			263,468
Total liabilities and stockholders’ equity	$	322,939		$	331,747

See accompanying notes to consolidated financial statements (unaudited).

3

AeroVironment, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)

	Three Months Ended				Six Months Ended
	October 29,		October 30,		October 29,		October 30,
	2011		2010		2011		2010
Revenue:
Product sales	$	47,858	$	32,494	$	77,157	$	44,714
Contract services	32,514		31,287		65,212		57,295
	80,372		63,781		142,369		102,009
Cost of sales:
Product sales	28,499		20,646		46,371		29,332
Contract services	21,243		21,360		43,653		38,866
	49,742		42,006		90,024		68,198
Gross margin	30,630		21,775		52,345		33,811
Selling, general and administrative	12,240		12,685		25,940		24,056
Research and development	8,816		8,689		16,402		16,661
Income (loss) from operations	9,574		401		10,003		(6,906		)
Other income:
Interest income	106		45		184		166
Income (loss) before income taxes	9,680		446		10,187		(6,740		)
Provision (benefit) for income taxes	3,093		184		3,274		(3,559		)
Net income (loss)	$	6,587	$	262	$	6,913	$	(3,181	)
Earnings (loss) per share data:
Basic	$	0.30	$	0.01	$	0.32	$	(0.15	)
Diluted	$	0.30	$	0.01	$	0.31	$	(0.15	)
Weighted average shares outstanding:
Basic	21,763,927		21,565,969		21,743,990		21,555,864
Diluted	22,255,943		22,027,155		22,244,697		21,555,864

See accompanying notes to consolidated financial statements (unaudited).

4

AeroVironment, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended
	October 29,2011			October 30,2010
Operating activities
Net income (loss)	$	6,913		$	(3,181	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization	4,141			5,493
Provision for doubtful accounts	246			248
Deferred income taxes	(296		)	(280		)
Stock-based compensation	1,535			1,077
Tax benefit from exercise of stock options	376			109
Excess tax benefit from stock-based compensation	(90		)	—
Gain on sale of property and equipment	—			(56		)
Changes in operating assets and liabilities:
Accounts receivable	18,559			5,098
Unbilled receivables and retentions	290			2,133
Inventories	(3,298		)	(8,001		)
Income tax receivable	—			(2,351		)
Other assets	(607		)	(400		)
Accounts payable	(11,517		)	1,559
Other liabilities	(6,481		)	(5,463		)
Net cash provided by (used in) operating activities	9,771			(4,015		)
Investing activities
Acquisitions of property and equipment	(5,484		)	(3,553		)
Proceeds from the sale of property and equipment	—			94
Net sales of held-to-maturity investments	31,623			55,093
Net sales of available-for-sale investments	225			200
Net cash provided by investing activities	26,364			51,834
Financing activities
Excess tax benefit from stock-based compensation	90			—
Exercise of stock options	323			180
Net cash provided by financing activities	413			180
Net increase in cash and cash equivalents	36,548			47,999
Cash and cash equivalents at beginning of period	62,041			28,665
Cash and cash equivalents at end of period	$	98,589		$	76,664
Supplemental disclosure:
Unrealized gain (loss) on long-term investments recorded in other comprehensive income (loss), net of deferred taxes of $30 and $10, respectively	$	43		$	(15	)

See accompanying notes to consolidated financial statements (unaudited).

5

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Organization and Significant Accounting Policies

Organization

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three and six months ended October 29, 2011 are not necessarily indicative of the results for the full year ending April 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2011, included in AeroVironment, Inc.’s Annual Report on Form 10-K.

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

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

Segments

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

Investments

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

Fair Values of Financial Instruments

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

Government Contracts

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

6

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Earnings (Loss) Per Share

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

The reconciliation of diluted to basic shares is as follows:

	Three Months Ended		Six Months Ended
	October 29,2011	October 30,2010	October 29,2011	October 30,2010
Denominator for basic earnings (loss) per share:
Weighted average common shares outstanding, excluding unvested restricted stock	21,763,927	21,565,969	21,743,990	21,555,864
Dilutive effect of employee stock options and unvested restricted stock	492,016	461,186	500,707	—
Denominator for diluted earnings (loss) per share	22,255,943	22,027,155	22,244,697	21,555,864

During the three months ended October 29, 2011 and October 30, 2010 and six months ended October 29, 2011, certain shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. The number of shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock that met this anti-dilutive criterion for the three months ended October 29, 2011 and October 30, 2010 was approximately 1,000 and 16,000, respectively.  The number of shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock that met this anti-dilutive criterion for the six months ended October 29, 2011 was approximately 2,000.  Due to the net loss for the six months ended October 30, 2010, no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti-dilutive.

Recently Issued Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which requires companies to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. The new guidance is effective for the Company’s interim and annual reporting periods beginning on May 1, 2012 and will be applied retrospectively, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the Company’s consolidated financial statements, other than the change in presentation described in the new guidance.

In May 2011, the FASB issued accounting guidance to provide a consistent definition of fair value and to ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States and International Financial Reporting Standards. The new guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The new guidance is effective for the Company’s interim and annual reporting periods beginning on May 1, 2012 and will be applied prospectively. The Company is currently evaluating the potential impact of this adoption on its consolidated financial statements.

7

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

2. Investments

Investments consist of the following (in thousands):

	October 29,2011		April 30,2011
Short-term investments:
Held-to-maturity securities:
U.S. Treasury bills	$	78,782	$	126,839
Total short-term investments	$	78,782	$	126,839
Long-term investments:
Held-to-maturity securities:
Pre-refunded municipal bonds	$	16,433	$	—
Available-for-sale securities:
Auction rate securities	6,123		6,275
Total long-term investments	$	22,556	$	6,275

Held-To-Maturity Securities

At October 29, 2011, the balance of held-to-maturity securities consisted of two pre-refunded municipal bonds and U.S. Treasury bills. Pre-refunded municipal bonds are created when municipalities issue new debt to refinance debt issued when interest rates were higher. When the refinancing is completed, the issuer uses the proceeds to purchase U.S. Treasury securities or state and local government securities and places these securities in an escrow account. These proceeds are then used to pay interest and principal on the original debt until the bonds are called. Interest earned from these investments is recorded in interest income.

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Pre-refunded municipal bonds	$	16,433	$	—	$	(31	)	$	16,402
U.S. Treasury bills	78,782		24		(6		)	78,800
Total held-to-maturity investments	$	95,215	$	24	$	(37	)	$	95,202

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the held-to-maturity investments as of April 30, 2011, were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Treasury bills	$	126,839	$	38	$	(3	)	$	126,874
Total held-to-maturity investments	$	126,839	$	38	$	(3	)	$	126,874

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

	Cost		Fair Value
Due within one year	$	78,782	$	78,800
Due after one year through five years	16,433		16,402
Total	$	95,215	$	95,202

8

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Available-For-Sale Securities

As of October 29, 2011, the entire balance of available-for-sale securities consisted of four investment grade auction rate municipal bonds with maturities ranging from 8 to 23 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 October 29, 2011, until a future auction of these securities is successful or a buyer is found outside of the auction process.

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

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

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Auction rate securities	$	7,350	$	—	$	(1,227	)	$	6,123
Total available-for-sale investments	$	7,350	$	—	$	(1,227	)	$	6,123

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the available-for-sale investments as of April 30, 2011, were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Auction rate securities	$	7,575	$	—	$	(1,300	)	$	6,275
Total available-for-sale investments	$	7,575	$	—	$	(1,300	)	$	6,275

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

	Cost		Fair Value
Due after five through 10 years	$	1,825	$	1,639
Due after 10 years	5,525		4,484
Total	$	7,350	$	6,123

9

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

3. Inventories, net

Inventories consist of the following (in thousands):

	October 29,2011			April 30,2011
Raw materials	$	11,347		$	13,737
Work in process	13,892			7,994
Finished goods	18,279			17,647
Inventories, gross	43,518			39,378
Reserve for inventory obsolescence	(2,083		)	(1,241		)
Inventories, net	$	41,435		$	38,137

4. Fair Value Measurements

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

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

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

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

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

	Fair Value Measurement Using
Description	Quoted prices in active marketsfor identical assets(Level 1)		Significantotherobservableinputs(Level 2)		Significantunobservableinputs(Level 3)		Total
Auction rate securities	$	—	$	—	$	6,123	$	6,123
Total	$	—	$	—	$	6,123	$	6,123

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

	Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3)
Description	Auction Rate Securities
Balance at April 30, 2011	$	6,275
Transfers to Level 3	—
Total gains (losses) (realized or unrealized)
Included in earnings	—
Included in other comprehensive income (loss)	73
Settlements	(225		)
Balance at October 29, 2011	$	6,123
The amount of total gains or (losses) for the period included in earnings (or change in net assets) attributable to the change in unrealized gains or losses relating to assets still held at October 29, 2011	$	—

10

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Based on the Company’s ability to access its cash and cash equivalents, expected operating cash flows, and other sources of cash, the Company does not anticipate the current lack of liquidity on these investments will affect its ability to operate the business in the ordinary course. The Company believes the current lack of liquidity of these investments is temporary and expects that the securities will be redeemed or refinanced at some point in the future, allowing the Company to recover the original cost of $7.4 million.  The Company will continue to monitor the value of its auction rate securities at each reporting period for a possible other-than-temporary impairment.

5. Other Comprehensive Income (Loss)

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

	Three Months Ended					Six Months Ended
	October 29,		October 30,			October 29,		October 30,
	2011		2010			2011		2010
Net income (loss)	$	6,587	$	262		$	6,913	$	(3,181	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on long-term investments	41		(29		)	43		(15		)
Comprehensive income (loss)	$	6,628	$	233		$	6,956	$	(3,196	)

6. Warranty Reserves

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

	Three Months Ended						Six Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
Beginning balance	$	1,046		$	799		$	1,127		$	804
Warranty expense	900			332			1,252			548
Warranty costs incurred	(602		)	(297		)	(1,035		)	(518		)
Ending balance	$	1,344		$	834		$	1,344		$	834

7. Customer-Funded Research & Development

Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales when the corresponding revenue is recognized, which is generally as the R&D services are performed. Revenue from customer-funded R&D was approximately $4.0 million and $9.2 million for the three and six months ended October 29, 2011, respectively. Revenue from customer-funded R&D was approximately $9.7 million and $21.6 million for the three and six months ended October 30, 2010, respectively.

11

AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

8. Income Taxes

For the three and six months ended October 29, 2011, the Company recorded a provision for income taxes of $3.1 million and $3.3 million, respectively, yielding an effective tax rate of 32.0% and 32.1%, respectively.  The variance from statutory rates for the three and six months ended October 29, 2011 was primarily due to research and development tax credits.  For the three and six months ended October 30, 2010, the Company recorded a provision (benefit) for income taxes of $0.2 million and ($3.6) million, respectively, yielding an effective tax rate of 41.3% and 52.8%, respectively. The variance from statutory rates for the three and six months ended October 30, 2010 was primarily due to a reduction in the liability for uncertain tax positions of approximately $1.7 million related to the conclusion of the examination of the Company’s fiscal 2003 and 2004 tax returns.  The examination concluded in May of 2010, and no change was required to the tax returns filed.

9. Segment Data

The Company’s product segments are as follows:

·Unmanned Aircraft Systems (“UAS”) — The UAS segment focuses primarily on the design, development, production and support of innovative UAS that provide situational awareness and other mission effects to increase the security and operational effectiveness of the Company’s customers.

·Efficient Energy Systems (“EES”) — The EES segment focuses primarily on the design, development, production and support 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 limited financial statement information by segment.

The segment results are as follows (in thousands):

	Three Months Ended				Six Months Ended
	October 29,		October 30,		October 29,		October 30,
	2011		2010		2011		2010
Revenue:
UAS	$	66,931	$	53,616	$	119,136	$	87,063
EES	13,441		10,165		23,233		14,946
Total	80,372		63,781		142,369		102,009
Gross margin:
UAS	27,224		17,434		47,429		27,804
EES	3,406		4,341		4,916		6,007
Total	30,630		21,775		52,345		33,811
Selling, general and administrative	12,240		12,685		25,940		24,056
Research and development	8,816		8,689		16,402		16,661
Income (loss) from operations	9,574		401		10,003		(6,906		)
Interest income	106		45		184		166
Income (loss) before income taxes	$	9,680	$	446	$	10,187	$	(6,740	)

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

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

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

Critical Accounting Policies and Estimates

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

There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements from those disclosed in the Form 10-K for the fiscal year ended April 30, 2011.

Fiscal Periods

Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday.  Our 2012 fiscal year ends on April 30, 2012 and our fiscal quarters end on July 30, 2011, October 29, 2011 and January 28, 2012.

Results of Operations

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

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

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

	Three Months Ended
	October 29,		October 30,
	2011		2010
Revenue:
UAS	$	66,931	$	53,616
EES	13,441		10,165
Total	80,372		63,781
Gross margin:
UAS	27,224		17,434
EES	3,406		4,341
Total	30,630		21,775
Selling, general and administrative	12,240		12,685
Research and development	8,816		8,689
Income from operations	9,574		401
Interest income	106		45
Income before income taxes	$	9,680	$	446

Revenue. Revenue for the three months ended October 29, 2011 was $80.4 million, as compared to $63.8 million for the three months ended October 30, 2010, representing an increase of $16.6 million, or 26%.  UAS revenue increased by $13.3 million to $66.9 million for the three months ended October 29, 2011, primarily due to an increase in UAS product deliveries of $12.2 million and service revenue of $6.8 million, partially offset by a decrease in customer-funded R&D work of $5.6 million. The increase in UAS product deliveries and service revenue was primarily due to increased deliveries of digital Puma® All Environment unmanned aircraft systems, or Puma AE systems, and support services relating to our small unmanned aircraft systems.  The decrease in customer-funded R&D work was primarily due to the pending completion of the Global Observer contract.  EES revenue increased by $3.3 million, or 32%, to $13.4 million for the three months ended October 29, 2011.  The increase in EES revenue was primarily due to increased deliveries of electric vehicle charging docks and electric vehicle test systems.

Cost of Sales. Cost of sales for the three months ended October 29, 2011 was $49.7 million, as compared to $42.0 million for the three months ended October 30, 2010, representing an increase of $7.7 million, or 18%. The increase in cost of sales was caused primarily by increases in UAS cost of sales of $3.5 million and EES cost of sales of $4.2 million due to increased revenue and higher costs on development programs.

Gross Margin. Gross margin for the three months ended October 29, 2011 was $30.6 million, as compared to $21.8 million for the three months ended October 30, 2010, representing an increase of $8.8 million, or 41%. UAS gross margin increased $9.8 million, or 56%, to $27.2 million for the three months ended October 29, 2011. As a percentage of revenue, gross margin for UAS increased from 33% to 41%, primarily due to a higher mix of fixed-price contracts compared to cost-plus contracts.  EES gross margin decreased $0.9 million, or 22%, to $3.4 million for the three months ended October 29, 2011.  As a percentage of revenue, EES gross margin decreased from 43% to 25%, primarily due to higher program costs on development contracts, higher sales mix of new products in low-rate production and higher manufacturing and engineering support overhead costs.

Selling, General and Administrative.  SG&A expense for the three months ended October 29, 2011 was $12.2 million, or 15% of revenue, compared to SG&A expense of $12.7 million, or 20% of revenue, for the three months ended October 30, 2010.

Research and Development. R&D expense for the three months ended October 29, 2011 was $8.8 million, or 11% of revenue, compared to R&D expense of $8.7 million, or 14% of revenue, for the three months ended October 30, 2010.

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

Income Tax Expense. Our effective income tax rate was 32.0% for the three months ended October 29, 2011, as compared to 41.3% for the three months ended October 30, 2010. The decrease was primarily due to lower R&D tax credits.

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Six Months Ended October 29, 2011 Compared to Six Months Ended October 30, 2010

	Six Months Ended
	October 29,		October 30,
	2011		2010
Revenue:
UAS	$	119,136	$	87,063
EES	23,233		14,946
Total	142,369		102,009
Gross margin:
UAS	47,429		27,804
EES	4,916		6,007
Total	52,345		33,811
Selling, general and administrative	25,940		24,056
Research and development	16,402		16,661
Income (loss) from operations	10,003		(6,906		)
Interest income	184		166
Income (loss) before income taxes	$	10,187	$	(6,740	)

Revenue. Revenue for the six months ended October 29, 2011 was $142.4 million, as compared to $102.0 million for the six months ended October 30, 2010, representing an increase of $40.4 million, or 40%.  UAS revenue increased $32.1 million, or 37%, to $119.1 million for the six months ended October 29, 2011, primarily due to increased UAS product deliveries of $25.0 million and service revenue of $19.1 million, partially offset by lower customer-funded R&D work of $12.0 million.  The increase in UAS product deliveries and service revenue was primarily due to increased deliveries of Puma AE systems and support services relating to our small unmanned aircraft systems.  The decrease in UAS customer-funded R&D revenue was primarily due to the pending completion of the Global Observer contract.  EES revenue increased by $8.3 million, or 55%, to $23.2 million for the six months ended October 29, 2011.  The increase in EES revenue was primarily due to increased deliveries of electric vehicle charging docks and electric vehicle test systems.

Cost of Sales. Cost of sales for the six months ended October 29, 2011 was $90.0 million, as compared to $68.2 million for the six months ended October 30, 2010, representing an increase of $21.8 million, or 32%. The increase in cost of sales was caused by higher UAS cost of sales of $12.4 million and EES cost of sales of $9.4 million due to increased revenue and higher costs on development programs.

Gross Margin. Gross margin for the six months ended October 29, 2011 was $52.3 million, as compared to $33.8 million for the six months ended October 30, 2010, representing an increase of $18.5 million, or 55%. UAS gross margin increased $19.6 million, or 71%, to $47.4 million for the six months ended October 29, 2011. As a percentage of revenue, gross margin for UAS increased from 32% to 40%.  EES gross margin decreased $1.1 million, or 18%, to $4.9 million for the six months ended October 29, 2011.  As a percentage of revenue, EES gross margin decreased from 40% to 21%, due to higher program costs on development contracts and transition costs related to low-rate production of several new electric vehicle charging systems.

Selling, General and Administrative.  SG&A expense for the six months ended October 29, 2011 was $25.9 million, or 18% of revenue, compared to SG&A expense of $24.1 million, or 24% of revenue, for the six months ended October 30, 2010.  SG&A expense increased $1.9 million primarily due to higher marketing and business development costs and higher administrative infrastructure costs.

Research and Development. R&D expense for the six months ended October 29, 2011 was $16.4 million, or 12% of revenue, compared to R&D expense of $16.7 million, or 16% of revenue, for the six months ended October 30, 2010.

Interest Income. Interest income for the six months ended October 29, 2011 and October 30, 2010 was $0.2 million.

Income Tax Expense. Our effective income tax rate was 32.1% for the six months ended October 29, 2011, as compared to 52.8% for the six months ended October 30, 2010.  The decrease was primarily due to lower R&D tax credits.

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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 October 29, 2011 and April 30, 2011, our funded backlog was approximately $116.4 million and $82.9 million, respectively.

In addition to our funded backlog, we also had unfunded backlog of $126.3 million and $230.8 million as of October 29, 2011 and April 30, 2011, respectively.  We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with multiple one-year options, and indefinite delivery indefinite quantity, or IDIQ, contracts. Unfunded backlog does not obligate the U.S. government to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts.

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

Liquidity and Capital Resources

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

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

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

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.

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Cash Flows

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

	Six Months Ended
	October 29,2011		October 30,2010
	(Unaudited)
Net cash provided by (used in) operating activities	$	9,771	$	(4,015	)
Net cash provided by investing activities	$	26,364	$	51,834
Net cash provided by financing activities	$	413	$	180

Cash Provided by Operating Activities. Net cash provided by operating activities for the six months ended October 29, 2011 increased by $13.8 million to $9.8 million, compared to net cash used in operating activities of $4.0 million for the six months ended October 30, 2010. This increase in net cash provided by operating activities was primarily due to higher income of $10.1 million and lower working capital needs of $4.4 million, partially offset by lower depreciation of $1.4 million.

Cash Provided by Investing Activities. Net cash provided by investing activities decreased by $25.4 million to $26.4 million for the six months ended October 29, 2011, compared to net cash provided by investing activities of $51.8 million for the six months ended October 30, 2010. The decrease in net cash provided by investing activities was primarily due to lower net sales of investments of $23.5 million and higher acquisitions of property and equipment of $1.9 million.

Cash Provided by Financing Activities. Net cash provided by financing activities increased by $0.2 million to $0.4 million for the six months ended October 29, 2011, compared to $0.2 million for the six months ended October 30, 2010.  During the six months ended October 29, 2011, we received net proceeds from stock option exercises of $0.3 million.

Off-Balance Sheet Arrangements

During the second quarter, there were no material changes in our off-balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Form 10-K for the fiscal year ended April 30, 2011.

Inflation

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

New Accounting Standards

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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

17

Foreign Currency Exchange Rate Risk

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

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

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

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

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

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

Internal Control over Financial Reporting

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

18

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2011.  Please refer to that section for disclosures regarding the risks and uncertainties related to our business.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number	Description
10.1 (1)	2011 Amendment and Restatement of AeroVironment’s 2006 Equity Incentive Plan
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Label Linkbase Document.
101.PRE*	XBRL Taxonomy Presentation Linkbase Document.

(1) Incorporated by reference herein to Exhibit 10 to the Company’s current report on Form 8-K filed on October 5, 2011 (file no. 001-33261).

*  Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

20

SIGNATURES

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

Date: December 6, 2011		AEROVIRONMENT, INC.
	By:	/s/ Timothy E. Conver
		Timothy E. Conver
		Chairman, Chief Executive Officer and President
		(Principal Executive Officer)
		/s/ Jikun Kim
		Jikun Kim
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

21

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

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

I, Timothy E. Conver, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: December 6, 2011
	/s/ Timothy E. Conver
	Timothy E. Conver
	Chairman, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

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

I, Jikun Kim, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: December 6, 2011

/s/ Jikun Kim

Jikun Kim

Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification

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

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

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

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

/s/ Timothy E. Conver

Timothy E. Conver

Chairman, Chief Executive Officer and President

/s/ Jikun Kim

Jikun Kim

Senior Vice President and Chief Financial Officer

Dated: December 6, 2011

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

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Fair Value Measurements

6 Months Ended

Oct. 29, 2011

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

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

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

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

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

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

	Fair Value Measurement Using
Description	Quoted prices in active marketsfor identical assets(Level 1)		Significantotherobservableinputs(Level 2)		Significantunobservableinputs(Level 3)		Total
Auction rate securities	$	—	$	—	$	6,123	$	6,123
Total	$	—	$	—	$	6,123	$	6,123

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

	Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3)
Description	Auction Rate Securities
Balance at April 30, 2011	$	6,275
Transfers to Level 3	—
Total gains (losses) (realized or unrealized)
Included in earnings	—
Included in other comprehensive income (loss)	73
Settlements	(225		)
Balance at October 29, 2011	$	6,123
The amount of total gains or (losses) for the period included in earnings (or change in net assets) attributable to the change in unrealized gains or losses relating to assets still held at October 29, 2011	$	—

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

Based on the Company’s ability to access its cash and cash equivalents, expected operating cash flows, and other sources of cash, the Company does not anticipate the current lack of liquidity on these investments will affect its ability to operate the business in the ordinary course. The Company believes the current lack of liquidity of these investments is temporary and expects that the securities will be redeemed or refinanced at some point in the future, allowing the Company to recover the original cost of $7.4 million.  The Company will continue to monitor the value of its auction rate securities at each reporting period for a possible other-than-temporary impairment.

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Inventories, net

6 Months Ended

Oct. 29, 2011

Inventories, net

Inventories, net

3. Inventories, net

Inventories consist of the following (in thousands):

	October 29,2011			April 30,2011
Raw materials	$	11,347		$	13,737
Work in process	13,892			7,994
Finished goods	18,279			17,647
Inventories, gross	43,518			39,378
Reserve for inventory obsolescence	(2,083		)	(1,241		)
Inventories, net	$	41,435		$	38,137

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Oct. 29, 2011	Apr. 30, 2011
Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 877	$ 639
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, Authorized shares	10,000,000	10,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, Authorized shares	100,000,000	100,000,000
Common stock, Issued shares	22,098,896	21,949,884
Common stock, outstanding shares	22,098,896	21,949,884

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Organization and Significant Accounting Policies

6 Months Ended

Oct. 29, 2011

Organization and Significant Accounting Policies

Organization and Significant Accounting Policies

1. Organization and Significant Accounting Policies

Organization

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three and six months ended October 29, 2011 are not necessarily indicative of the results for the full year ending April 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2011, included in AeroVironment, Inc.’s Annual Report on Form 10-K.

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

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

Segments

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

Investments

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

Fair Values of Financial Instruments

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

Government Contracts

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

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

Earnings (Loss) Per Share

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

The reconciliation of diluted to basic shares is as follows:

	Three Months Ended		Six Months Ended
	October 29,2011	October 30,2010	October 29,2011	October 30,2010
Denominator for basic earnings (loss) per share:
Weighted average common shares outstanding, excluding unvested restricted stock	21,763,927	21,565,969	21,743,990	21,555,864
Dilutive effect of employee stock options and unvested restricted stock	492,016	461,186	500,707	—
Denominator for diluted earnings (loss) per share	22,255,943	22,027,155	22,244,697	21,555,864

During the three months ended October 29, 2011 and October 30, 2010 and six months ended October 29, 2011, certain shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. The number of shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock that met this anti-dilutive criterion for the three months ended October 29, 2011 and October 30, 2010 was approximately 1,000 and 16,000, respectively.  The number of shares reserved for issuance upon exercise of stock options and shares of unvested restricted stock that met this anti-dilutive criterion for the six months ended October 29, 2011 was approximately 2,000.  Due to the net loss for the six months ended October 30, 2010, no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti-dilutive.

Recently Issued Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which requires companies to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. The new guidance is effective for the Company’s interim and annual reporting periods beginning on May 1, 2012 and will be applied retrospectively, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the Company’s consolidated financial statements, other than the change in presentation described in the new guidance.

In May 2011, the FASB issued accounting guidance to provide a consistent definition of fair value and to ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States and International Financial Reporting Standards. The new guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The new guidance is effective for the Company’s interim and annual reporting periods beginning on May 1, 2012 and will be applied prospectively. The Company is currently evaluating the potential impact of this adoption on its consolidated financial statements.

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Investments

6 Months Ended

Oct. 29, 2011

Investments

Investments

2. Investments

Investments consist of the following (in thousands):

	October 29,2011		April 30,2011
Short-term investments:
Held-to-maturity securities:
U.S. Treasury bills	$	78,782	$	126,839
Total short-term investments	$	78,782	$	126,839
Long-term investments:
Held-to-maturity securities:
Pre-refunded municipal bonds	$	16,433	$	—
Available-for-sale securities:
Auction rate securities	6,123		6,275
Total long-term investments	$	22,556	$	6,275

Held-To-Maturity Securities

At October 29, 2011, the balance of held-to-maturity securities consisted of two pre-refunded municipal bonds and U.S. Treasury bills. Pre-refunded municipal bonds are created when municipalities issue new debt to refinance debt issued when interest rates were higher. When the refinancing is completed, the issuer uses the proceeds to purchase U.S. Treasury securities or state and local government securities and places these securities in an escrow account. These proceeds are then used to pay interest and principal on the original debt until the bonds are called. Interest earned from these investments is recorded in interest income.

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Pre-refunded municipal bonds	$	16,433	$	—	$	(31	)	$	16,402
U.S. Treasury bills	78,782		24		(6		)	78,800
Total held-to-maturity investments	$	95,215	$	24	$	(37	)	$	95,202

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the held-to-maturity investments as of April 30, 2011, were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Treasury bills	$	126,839	$	38	$	(3	)	$	126,874
Total held-to-maturity investments	$	126,839	$	38	$	(3	)	$	126,874

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

	Cost		Fair Value
Due within one year	$	78,782	$	78,800
Due after one year through five years	16,433		16,402
Total	$	95,215	$	95,202

Available-For-Sale Securities

As of October 29, 2011, the entire balance of available-for-sale securities consisted of four investment grade auction rate municipal bonds with maturities ranging from 8 to 23 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 October 29, 2011, until a future auction of these securities is successful or a buyer is found outside of the auction process.

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

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

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Auction rate securities	$	7,350	$	—	$	(1,227	)	$	6,123
Total available-for-sale investments	$	7,350	$	—	$	(1,227	)	$	6,123

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the available-for-sale investments as of April 30, 2011, were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Auction rate securities	$	7,575	$	—	$	(1,300	)	$	6,275
Total available-for-sale investments	$	7,575	$	—	$	(1,300	)	$	6,275

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

	Cost		Fair Value
Due after five through 10 years	$	1,825	$	1,639
Due after 10 years	5,525		4,484
Total	$	7,350	$	6,123

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Oct. 29, 2011	Oct. 30, 2010	Oct. 29, 2011	Oct. 30, 2010
Revenue:
Product sales	$ 47,858	$ 32,494	$ 77,157	$ 44,714
Contract services	32,514	31,287	65,212	57,295
Total revenue	80,372	63,781	142,369	102,009
Cost of sales:
Product sales	28,499	20,646	46,371	29,332
Contract services	21,243	21,360	43,653	38,866
Total cost of sales	49,742	42,006	90,024	68,198
Gross margin	30,630	21,775	52,345	33,811
Selling, general and administrative	12,240	12,685	25,940	24,056
Research and development	8,816	8,689	16,402	16,661
Income (loss) from operations	9,574	401	10,003	(6,906)
Other income:
Interest income	106	45	184	166
Income (loss) before income taxes	9,680	446	10,187	(6,740)
Provision (benefit) for income taxes	3,093	184	3,274	(3,559)
Net income (loss)	$ 6,587	$ 262	$ 6,913	$ (3,181)
Earnings (loss) per share data:
Basic (in dollars per share)	$ 0.30	$ 0.01	$ 0.32	$ (0.15)
Diluted (in dollars per share)	$ 0.30	$ 0.01	$ 0.31	$ (0.15)
Weighted average shares outstanding:
Basic (in shares)	21,763,927	21,565,969	21,743,990	21,555,864
Diluted (in shares)	22,255,943	22,027,155	22,244,697	21,555,864

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Oct. 29, 2011	Apr. 30, 2011
Current assets:
Cash and cash equivalents	$ 98,589	$ 62,041
Short-term investments	78,782	126,839
Accounts receivable, net of allowance for doubtful accounts of $877 at October 29, 2011 and $639 at April 30, 2011	25,571	44,376
Unbilled receivables and retentions	21,676	21,966
Inventories, net	41,435	38,137
Deferred income taxes	2,596	2,300
Prepaid expenses and other current assets	2,974	2,372
Total current assets	271,623	298,031
Long-term investments	22,556	6,275
Property and equipment, net	18,841	17,498
Deferred income taxes	9,733	9,762
Other assets	186	181
Total assets	322,939	331,747
Current liabilities:
Accounts payable	19,617	31,134
Wages and related accruals	12,831	15,458
Income taxes payable	2,372	7,404
Other current liabilities	8,343	7,384
Liability for uncertain tax positions	724	724
Total current liabilities	43,887	62,104
Wages and other accruals	981	762
Deferred rent	1,185	1,275
Liability for uncertain tax positions	4,138	4,138
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value: Authorized shares - 10,000,000 None issued or outstanding
Common stock, $0.0001 par value: Authorized shares - 100,000,000 Issued and outstanding shares - 22,098,896 at October 29, 2011 and 21,949,884 at April 30, 2011	2	2
Additional paid-in capital	122,089	119,765
Accumulated other comprehensive loss	(741)	(784)
Retained earnings	151,398	144,485
Total stockholders' equity	272,748	263,468
Total liabilities and stockholders' equity	$ 322,939	$ 331,747

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Oct. 29, 2011	Oct. 30, 2010
Operating activities
Net income (loss)	$ 6,913	$ (3,181)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization	4,141	5,493
Provision for doubtful accounts	246	248
Deferred income taxes	(296)	(280)
Stock-based compensation	1,535	1,077
Tax benefit from exercise of stock options	376	109
Excess tax benefit from stock-based compensation	(90)
Gain on sale of property and equipment		(56)
Changes in operating assets and liabilities:
Accounts receivable	18,559	5,098
Unbilled receivables and retentions	290	2,133
Inventories	(3,298)	(8,001)
Income tax receivable		(2,351)
Other assets	(607)	(400)
Accounts payable	(11,517)	1,559
Other liabilities	(6,481)	(5,463)
Net cash provided by (used in) operating activities	9,771	(4,015)
Investing activities
Acquisitions of property and equipment	(5,484)	(3,553)
Proceeds from the sale of property and equipment		94
Net sales of held-to-maturity investments	31,623	55,093
Net sales of available-for-sale investments	225	200
Net cash provided by investing activities	26,364	51,834
Financing activities
Excess tax benefit from stock-based compensation	90
Exercise of stock options	323	180
Net cash provided by financing activities	413	180
Net increase in cash and cash equivalents	36,548	47,999
Cash and cash equivalents at beginning of period	62,041	28,665
Cash and cash equivalents at end of period	98,589	76,664
Supplemental disclosure:
Unrealized gain (loss) on long-term investments recorded in other comprehensive income (loss), net of deferred taxes of $30 and $10, respectively	$ 43	$ (15)

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Customer-Funded Research & Development

6 Months Ended

Oct. 29, 2011

Customer-Funded Research & Development

Customer-Funded Research & Development

7. Customer-Funded Research & Development

Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales when the corresponding revenue is recognized, which is generally as the R&D services are performed. Revenue from customer-funded R&D was approximately $4.0 million and $9.2 million for the three and six months ended October 29, 2011, respectively. Revenue from customer-funded R&D was approximately $9.7 million and $21.6 million for the three and six months ended October 30, 2010, respectively.

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Warranty Reserves

6 Months Ended

Oct. 29, 2011

Warranty Reserves

Warranty Reserves

6. Warranty Reserves

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

	Three Months Ended						Six Months Ended
	October 29,			October 30,			October 29,			October 30,
	2011			2010			2011			2010
Beginning balance	$	1,046		$	799		$	1,127		$	804
Warranty expense	900			332			1,252			548
Warranty costs incurred	(602		)	(297		)	(1,035		)	(518		)
Ending balance	$	1,344		$	834		$	1,344		$	834

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Document and Entity Information	6 Months Ended
	Oct. 29, 2011	Nov. 25, 2011
Document and Entity Information
Entity Registrant Name	AeroVironment Inc
Entity Central Index Key	0001368622
Document Type	10-Q
Document Period End Date	Oct. 29, 2011
Amendment Flag	false
Current Fiscal Year End Date	--04-30
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,102,559
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

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Income Taxes

6 Months Ended

Oct. 29, 2011

Income Taxes

Income Taxes

8. Income Taxes

For the three and six months ended October 29, 2011, the Company recorded a provision for income taxes of $3.1 million and $3.3 million, respectively, yielding an effective tax rate of 32.0% and 32.1%, respectively.  The variance from statutory rates for the three and six months ended October 29, 2011 was primarily due to research and development tax credits.  For the three and six months ended October 30, 2010, the Company recorded a provision (benefit) for income taxes of $0.2 million and ($3.6) million, respectively, yielding an effective tax rate of 41.3% and 52.8%, respectively. The variance from statutory rates for the three and six months ended October 30, 2010 was primarily due to a reduction in the liability for uncertain tax positions of approximately $1.7 million related to the conclusion of the examination of the Company’s fiscal 2003 and 2004 tax returns.  The examination concluded in May of 2010, and no change was required to the tax returns filed.

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Segment Data

6 Months Ended

Oct. 29, 2011

Segment Data

Segment Data

9. Segment Data

The Company’s product segments are as follows:

· Unmanned Aircraft Systems (“UAS”) — The UAS segment focuses primarily on the design, development, production and support of innovative UAS that provide situational awareness and other mission effects to increase the security and operational effectiveness of the Company’s customers.

· Efficient Energy Systems (“EES”) — The EES segment focuses primarily on the design, development, production and support 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 limited financial statement information by segment.

The segment results are as follows (in thousands):

	Three Months Ended				Six Months Ended
	October 29,		October 30,		October 29,		October 30,
	2011		2010		2011		2010
Revenue:
UAS	$	66,931	$	53,616	$	119,136	$	87,063
EES	13,441		10,165		23,233		14,946
Total	80,372		63,781		142,369		102,009
Gross margin:
UAS	27,224		17,434		47,429		27,804
EES	3,406		4,341		4,916		6,007
Total	30,630		21,775		52,345		33,811
Selling, general and administrative	12,240		12,685		25,940		24,056
Research and development	8,816		8,689		16,402		16,661
Income (loss) from operations	9,574		401		10,003		(6,906		)
Interest income	106		45		184		166
Income (loss) before income taxes	$	9,680	$	446	$	10,187	$	(6,740	)

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Consolidated Statements of Cash Flows (Parenthetical) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Oct. 29, 2011	Oct. 30, 2010
Consolidated Statements of Cash Flows
Unrealized gain (loss) on long-term investments recorded in other comprehensive income (loss), deferred taxes	$ 30	$ 10

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Other Comprehensive Income (Loss)

6 Months Ended

Oct. 29, 2011

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

5. Other Comprehensive Income (Loss)

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

	Three Months Ended					Six Months Ended
	October 29,		October 30,			October 29,		October 30,
	2011		2010			2011		2010
Net income (loss)	$	6,587	$	262		$	6,913	$	(3,181	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on long-term investments	41		(29		)	43		(15		)
Comprehensive income (loss)	$	6,628	$	233		$	6,956	$	(3,196	)