Butler National Corporation

09/11/2026 | Press release | Distributed by Public on 09/11/2026 07:02

Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THROUGHOUT THIS ITEM 2 ALL NON-TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.
Forward-Looking Statements
Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, plans, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2026, and elsewhere herein or in other reports filed with the SEC. Other unforeseen factors not identified herein could also have such an effect.
Actual events or results may differ materially from the information included in forward-looking statements. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2026, including the following factors:
•customer concentration risk;
•dependence on government spending;
•government shutdown;
•industry specific business cycles;
•regulatory hurdles in the launch of new products;
•loss of key personnel, including executive officers;
•the geographic location of our casino;
•fixed-price contracts;
•international sales;
•changing U.S. trade policy and impacts of tariffs;
•need to acquire hangar space for substantial growth;
•future acquisitions;
•supply chain and labor issues;
•customer demand;
•insurance costs and insufficient insurance for aircraft modifications;
•cyber security threats;
•fraud, theft and cheating at our casino;
•dependence on third-party platforms to offer sports wagering;
•outside factors influence the profitability of sports wagering and legacy gaming;
•change of control restrictions;
•significant and expensive governmental regulation across our industries;
•U.S. Government action with respect to contracts;
•failure by the corporation or its stockholders to maintain applicable gaming licenses;
•evolving political and legislative initiatives in gaming;
•extensive and increasing taxation of gaming revenues;
•changes in regulations of financial reporting;
•the availability of financing;
•potential impairment losses;
•marketability restrictions of our common stock;
•the possibility of a reverse-stock split;
•market competition by larger competitors;
•acts of terrorism and war;
•climate change, inclement weather and natural disasters;
•rising inflation;
•failure of risk management; and
•effectiveness of internal controls.
Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock.
Investors should also be aware that while the Company, from time to time, communicates with securities analysts; Company policy is to not disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Butler National Corporation.
General
Butler National Corporation ("Butler National" the "Company", "we", "us", or "our") was incorporated in 1960. Our companies design, engineer, manufacture, sell, integrate, install, repair, modify, overhaul, service and distribute a broad portfolio of aerostructures, aircraft components, avionics, accessories, subassemblies and systems ("Aerospace Products"). We serve a broad, worldwide spectrum of the aviation industry, including owners of aircraft and contractors involved with private, commercial, business, and government aircraft operations. We also serve commercial weapon manufacturers and suppliers to governments and their agencies.
In addition, our companies provide management services in the gaming industry, which includes owning the land and building for the Boot Hill Casino and Resort in Dodge City, Kansas ("Professional Services").
Products and Services
The Company has two operating segments for financial reporting purposes: (a) Aerospace Products, whose companies' revenues are derived from system design, engineering, manufacturing, sale, distribution, integration, installation, repairing, modifying, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems; and (b) Professional Services, whose companies provide professional management services in the traditional gaming industry and in sports wagering.
Aerospace Products. The Aerospace Products segment includes the design, manufacture, sale and service of structural modifications, design, integration and installation of electronic equipment, systems and technologies that enhance aircraft operations, and the design, manufacture and sale of commercial controls, cabling and defense related articles. Additionally, we operate Federal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate on products and services for Learjet, Challenger, Textron Beechcraft King Air, and Textron Cessna turboprop aircraft.
Products. The aviation-related products that the companies within this group design, engineer, manufacture, integrate, install, repair and/or service include:
•Aerial surveillance products
•Aerodynamic enhancement products
•Airplane range extension products
•Avcon stability enhancing fins
•Airplane nose extension products
•Cargo/sensor carrying pods and radomes
•Fuel system protection devices
•Navigation / flight display installations
•Crew work stations
•Electrical power systems and switching equipment
•Enlarged aircraft doors
•Powered airplane sensor lifts
•Provisions to allow carrying of external stores
•Specialized cabling and harnesses
Modifications. The companies in Aerospace Products have authority, pursuant to Federal Aviation Administration Supplemental Type Certificates ("STCs") and Parts Manufacturer Approval ("PMA"), to build required parts and subassemblies and to make applicable installations. Companies in Aerospace Products perform modifications in the aviation industry including:
•Aerial photograph capabilities
•Aerodynamic improvements
•Avionics systems
•Cargo or expanded-sized doors
•Search and rescue
•Airborne research capability
•Extended range fuel tanks
•Radar systems
•ISR - Intelligence Surveillance Reconnaissance
•Special mission modifications
•Target towing capabilities
•Electrical systems integration
Special Mission Electronics. We supply defense-related, commercial off-the-shelf products to various commercial entities and government agencies and subcontractors in order to update or extend the useful life of systems. These products include:
•Cabling
•Electronic control systems
•Gun Control Units for Apache and Blackhawk helicopters
•HangFire Override Modules
•Test equipment
•Gun Control Units for land and sea based military vehicles
Professional Services. The Professional Services segment includes the management of a gaming and related dining and entertainment facility in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 500 slot machines, 15 table games, a restaurant and a sportsbook.
Boot Hill. Butler National Service Corporation ("BNSC"), and BHCMC, LLC ("BHCMC"), companies in Professional Services, manage The Boot Hill Casino and Resort in Dodge City, Kansas ("Boot Hill") pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery, as subsequently amended ("Boot Hill Agreement"). As required by Kansas law, all games, gaming equipment and gaming operations, including sports wagering, at Boot Hill are owned and operated by the Kansas Lottery. On September 1, 2022, sports wagering became legal in the State of Kansas. Sports wagering is managed through the
four lottery gaming facility managers. The Company entered into a provider contract with DraftKings for interactive/mobile sports wagering. In addition to an online platform, the Company opened a DraftKings branded sports book at Boot Hill on February 28, 2023.
Results Overview
The three months ended July 31, 2026 revenue increased 53% to $30.8 million compared to $20.1 million in the three months ended July 31, 2025. In the three months ended July 31, 2026 the Professional Services revenue was $9.0 million compared to $8.8 million in the three months ended July 31, 2025, an increase of 3%. In the three months ended July 31, 2026 the Aerospace Products revenue was $21.7 million compared to $11.3 million in the three months ended July 31, 2025, an increase of 92%.
In the three months ended July 31, 2026, net income increased to $5.3 million compared to a net income of $3.7 million in the three months ended July 31, 2025, an increase of 43%. In the three months ended July 31, 2026, operating income increased to $7.4 million from an operating income of $4.7 million in the three months ended July 31, 2025, an increase of 59%.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2026 COMPARED TO THE THREE MONTHS ENDED JULY 31, 2025
Three Months Ended July 31, 2026 Three Months Ended July 31, 2025
(dollars in thousands) Percent of Total Revenue Percent of Total Revenue Percent Change 2025-2026
Revenue:
Aerospace Products $ 21,740 71 % $ 11,314 56 % 92 %
Professional Services 9,041 29 % 8,811 44 % 3 %
Total revenue 30,781 100 % 20,125 100 % 53 %
Costs and expenses:
Cost of Aerospace Products 13,561 44 % 6,591 33 % 106 %
Costs of Professional Services 3,677 12 % 3,912 19 % (6) %
Marketing and advertising 1,139 5 % 921 5 % 24 %
General, administrative and other 4,980 16 % 4,034 20 % 23 %
Total costs and expenses 23,357 76 % 15,458 77 % 51 %
Operating income $ 7,424 24 % $ 4,667 23 % 59 %
Revenue
Revenue increased 53% to $30.8 million in the three months ended July 31, 2026, compared to $20.1 million in the three months ended July 31, 2025. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
•Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for aircraft and military vehicles. Aerospace Products revenue increased by 92% to $21.7 million for the three months ended July 31, 2026 compared to $11.3 million for the three months ended July 31, 2025. The increase in revenue is largely due to an increase in Aircraft Modifications revenue of $10.7 million and an increase in Special Mission Electronics revenue of $0.7 million. The Aircraft Modification revenue grew to a quarterly record of $16.3 million, and was primarily driven by higher activity across aircraft modification programs, including increased work on larger and more complex special-mission aircraft projects, as well as repeat modifications utilizing previously developed STCs. Revenue also benefited from increased sales of modification kits for field installation, including Cessna Caravan camera-port modification kits and Avcon rail
and Special Mission Pod kits for the King Air, among others. Additionally, Avcon completed and delivered two Special Mission Challenger 605/650 modification projects that included our recently approved STC for the under-fuselage radome/pod and rails for mounting of sensors. The timing, size and scope of individual aircraft modification programs can result in variability in revenue between reporting periods.
•Professional Services derives its revenue from professional management services in the gaming industry. Revenue from Professional Services increased 3% to $9.0 million for the three months ended July 31, 2026 compared to $8.8 million for the three months ended July 31, 2025. Sports wagering revenue through the DraftKings platform was $1.1 million for the three months ended July 31, 2026 compared to $1.3 million in the three months ended July 31, 2025. Traditional casino gaming revenue increased $0.4 million, primarily due to increased patron spending during the current quarter. This increase occurred despite continued economic pressures in the region surrounding our casino operations in southwest Kansas, including factors affecting Dodge City-based cattle processors and meat packing employees, general economic uncertainty and drought conditions.
Costs and expenses:
Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 51% to $23.4 million in the three months ended July 31, 2026 compared to $15.5 million in the three months ended July 31, 2025. Costs and expenses were 76% of total revenue in the three months ended July 31, 2026, as compared to 77% of total revenue in the three months ended July 31, 2025. This represents an operating margin of 24% in the three months ended July 31, 2026, compared to 23% in the three months ended July 31, 2025 (operating income as a percentage of revenue), an increase of 1.0 percentage point.
Costs of Professional Services decreased in the three months ended July 31, 2026 to $3.7 million compared to $3.9 million in the three months ended July 31, 2025. Professional Services costs were 12% of total revenue in the three months ended July 31, 2026, as compared to 19% of total revenue in the three months ended July 31, 2025.
Costs of Aerospace Products increased 106% in the three months ended July 31, 2026 to $13.6 million compared to $6.6 million for the three months ended July 31, 2025. Aerospace Products costs were 44% of total revenue in the three months ended July 31, 2026, as compared to 33% of total revenue in the three months ended July 31, 2025. The increase in Aerospace Products costs is directly related to the increase in material and labor costs associated with higher Aerospace revenues. The Aircraft Modification business has also invested in engineering and production resources to support work on a new special-mission platform and the increased level of program activity. We continue to work to control costs with expanding our internal parts fabrication capabilities.
Marketing and advertising expenses increased in the three months ended July 31, 2026 to $1.1 million compared to $0.9 million in the three months ended July 31, 2025. Marketing and advertising expenses were 5% of total revenue in the three months ended July 31, 2026, as compared to 5% of total revenue in the three months ended July 31, 2025. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
General, administrative and other expenses increased in the three months ended July 31, 2026 to $5.0 million compared to $4.0 million in the three months ended July 31, 2025. General, administrative and other expenses were 16% of total revenue in the three months ended July 31, 2026, as compared to 20% of total revenue in the three months ended July 31, 2025. The increase is primarily attributable to higher insurance, professional fees and overhead labor for the three months ended July 31, 2026 compared to the three months ended July 31, 2025.
Other income (expense):
Other income (expense) was $235 thousand expense in the three months ended July 31, 2026 compared to $352 thousand expense in the three months ended July 31, 2025. Interest expense was $418 thousand in the three months ended July 31, 2026, compared with interest expense of $523 thousand in the three months ended July 31, 2025. The decrease in interest expense is due to the paydown of long-term debt. Interest income was $183 thousand in the three months ended July 31, 2026 compared to $171 thousand in the three months ended July 31, 2025.
Operations by Segment
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, modifying, servicing and repairing products for aircraft.
The following table presents a summary of our operating segment information for the three months ended July 31, 2026 and July 31, 2025:
Three Months Ended July 31, 2026
Three Months Ended July 31, 2025
(dollars in thousands) Percent of Total Revenue Percent of Total Revenue Percent Change 2025-2026
Aerospace Products
Revenue $ 21,740 100 % $ 11,314 100 % 92 %
Costs of Aerospace Products 13,561 62 % 6,591 58 % 106 %
Expenses 2,680 12 % 1,838 16 % 46 %
Total costs and expenses 16,241 75 % 8,429 75 % 93 %
Aerospace Products operating income $ 5,499 25 % $ 2,885 25 % 91 %
Three Months Ended July 31, 2026
Three Months Ended July 31, 2025
(dollars in thousands) Percent of Total Revenue Percent of Total Revenue Percent Change 2025-2026
Professional Services
Revenue - Boot Hill Casino $ 9,041 100 % $ 8,811 100 % 3 %
Costs of Professional Services 3,677 41 % 3,912 44 % (6) %
Expenses 3,439 38 % 3,117 35 % 10 %
Total costs and expenses 7,116 79 % 7,029 80 % 1 %
Professional Services operating income $ 1,925 21 % $ 1,782 20 % 8 %
Aerospace Products
•Revenue increased 92% to $21.7 million in the three months ended July 31, 2026, compared to $11.3 million in the three months ended July 31, 2025. The increase in revenue is primarily due to a $10.7 million increase in aircraft modification business and a $0.7 million increase in Special Mission Electronics, partially offset by a $0.9 million decrease in aircraft avionics. The development of new STCs, as well as repeat modifications utilizing previously developed STCs and our marketing efforts in both domestic and international markets supported the increase. The increased sales of various kits for installation in the field also contributed to both revenue and margin results for the three months ended July 31, 2026.
The increase in revenue with respect to Special Mission Electronics is related to efficiencies in production, including pre-building components for shipment upon receipt of orders, increased inventory to minimize risk of production delay, and receipt of additional orders. We remain focused on recruiting, hiring and training personnel, as appropriate, to efficiently execute our backlog and support continued growth.
Our backlog as of July 31, 2026, totaled $51.1 million for Aerospace Products. The backlog includes orders with signed contracts which may not be completed within the next fiscal year. There can be no assurance that all orders will be completed or that some may ever commence.
•Costs of Aerospace Products increased 106% in the three months ended July 31, 2026 to $13.6 million compared to $6.6 million for the three months ended July 31, 2025. This increase is directly related to the increase in material and labor costs associated with higher revenues. Costs were 62% of segment total revenue in the three months ended July 31, 2026, as compared to 58% of segment total revenue in the three months ended July 31, 2025.
•Expenses increased 46% in the three months ended July 31, 2026 to $2.7 million compared to $1.8 million in the three months ended July 31, 2025. Expenses were 12% of segment total revenue in the three months ended July 31, 2026, as compared to 16% of segment total revenue in the three months ended July 31, 2025. The increase is primarily due to higher insurance premium costs and higher administrative and overhead labor costs in the three months ended July 31, 2026.
•Aerospace Products operating income increased 91% compared to the prior-year period, generally consistent with the 92% increase in segment revenue. Despite the significant increase in activity, the segment maintained an operating margin of approximately 25%, reflecting the Company's ability to support substantially higher revenue levels while maintaining operating profitability.
Professional Services
•Revenue from Professional Services increased 3% for the three months ended July 31, 2026 to $9.0 million compared to $8.8 million for the three months ended July 31, 2025. Sports wagering through the DraftKings sports wagering platform brought in $1.1 million of revenue for the three months ended July 31, 2026 compared to $1.3 million in the three months ended July 31, 2025. Furthermore, traditional casino gaming revenue increased $0.4 million due to an increase in patron spending. Non-gaming revenue at Boot Hill Casino increased slightly to $1.1 million for the three months ended July 31, 2026, compared to $1.0 million for the three months ended July 31, 2025.
•Costs of Professional Services decreased 6% for the three months ended July 31, 2026 to $3.7 million compared to $3.9 million for the three months ended July 31, 2025, mainly due to decreased labor expenses. Costs were 41% of segment total revenue in the three months ended July 31, 2026, as compared to 44% of segment total revenue in the three months ended July 31, 2025.
•Expenses increased 10% in the three months ended July 31, 2026 to $3.4 million compared to $3.1 million in the three months ended July 31, 2025, primarily driven by higher marketing and promotional costs. Expenses were 38% of segment total revenue in the three months ended July 31, 2026 as compared to 35% of segment total revenue in the three months ended July 31, 2025.
Employees
Other than persons employed by our gaming subsidiaries, there were 171 full time and 7 part time employees on July 31, 2026, compared to 149 full time and 8 part time employees on July 31, 2025. Our staffing at Boot Hill Casino & Resort on July 31, 2026 was 177 full time and 45 part time employees compared to 190 full time and 45 part time employees on July 31, 2025. None of the employees are subject to any collective bargaining agreements.
Liquidity and Capital Resources
Overview
Butler National is a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our lines of credit and notes payable and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment
obligations and interest payments. Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and develop new streams of income that may be profitable. As such, we have continued to invest in developing and marketing new aircraft modifications and marketing new STCs. We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have expressed an interest in funding our working capital needs to continue our operational growth during our 2027 fiscal year and beyond.
Operating Activities
During the three months ended July 31, 2026 our cash position increased by $142 thousand. Net income was $5.3 million for the three months ended July 31, 2026. Cash flow provided by operating activities was $4.6 million for the three months ended July 31, 2026. Non-cash activities consisting of depreciation and amortization provided $1.8 million, stock awarded to directors added $50 thousand and deferred compensation added $66 thousand. Accounts receivable increased our cash position by $7.2 million. Contract assets decreased our cash position by $3.7 million, inventories decreased our cash position by $625 thousand and prepaid expenses and other assets decreased our cash position by $357 thousand. Accounts payable decreased our cash position by $4.9 million, contract liabilities decreased our cash position by $454 thousand and accrued liabilities decreased our cash position by $1.8 million. Gaming facility mandated payments decreased our cash position by $160 thousand. Income tax payable increased our cash position by $1.9 million, other current liabilities added $288 thousand and lease liabilities added $55 thousand.
Investing Activities
Cash used in investing activities was $1.9 million for the three months ended July 31, 2026. We invested $908 thousand towards STCs, $801 thousand on buildings and improvements, $207 thousand on equipment and furnishings.
Financing Activities
Cash used by financing activities was $2.6 million for the three months ended July 31, 2026. We made repayments of $1.5 million on our long-term debt and repayments on lease right-to-use of $70 thousand. We purchased Company stock of $1.1 million. The stock acquired was placed in treasury.
Capital Expenditures
The Company anticipates remaining capital expenditures in fiscal 2027 to be approximately $9.6 million, consisting of $4.1 million on STCs, $3.4 million on equipment, and $2.1 million on buildings and improvements. We anticipate our cash balance will be sufficient to cover our cash requirements through the current fiscal year.
Critical Accounting Policies and Estimates
We believe there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue from contracts with customers, inventory valuation and long-lived assets. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Revenue from Contracts with Customers - Aerospace Contracts
Methodology
We recognize revenue and profit based upon either (1) the percent completion method, in which sales and profit are recorded based upon the ratio of labor costs incurred to date to estimated total labor costs to complete the performance obligation, or (2) the point-in-time method, in which sales are recognized at the time control is transferred to the customer. For aerospace contracts that involve airplane modifications based on customer specific requirements, we generally recognize revenue and income using the percent completion method because of continuous transfer of control to the customer. Revenue is generally recognized using the percent completion method based on the extent of progress towards completion of the performance obligation, which allows for recognition of revenue as work on a contract progresses. Our general contract term is between one to twelve months.
Management performs detailed quarterly reviews of all of our significant long-term contracts. Based upon these reviews, we record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, we record a provision for the entire anticipated contract loss at that time.
Judgment and Uncertainties
The percent completion revenue recognition model requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the original contract price, with consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements. Contract costs may be incurred over a period of several months, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers and financial professionals. Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections.
Effect if Actual Results Differ from Assumptions
While we do not believe there is a reasonable likelihood there will be a material change in estimates or assumptions used to calculate our revenue contracts and costs, estimating the percentage of work complete on certain programs is a complex task. As a result, changes to these estimates could have a significant impact on our results of operations. These products and services are an important element in our continuing strategy to increase operating efficiencies and profitability as well as broaden our business base. Management continues to monitor and update program cost estimates quarterly for these contracts. A significant change in an estimate on one or more of these contracts could have a material effect on our financial position and results of operations.
Inventory Valuation
Methodology
We have four types of inventory (a) raw materials, (b) contracts in process, (c) other work in process and (d) finished goods. Raw material includes certain general stock materials but primarily relates to purchases that were made in anticipation of specific programs that have not been started as of the balance sheet date. Raw materials are stated at the lower of the cost of the inventory or its fair market value. Contracts in process, other work in process and finished goods are valued at production cost comprised of material, labor and overhead. Contracts in process, other work in process and finished goods are reported at the lower of cost or net realizable value.
Judgment and Uncertainties
The process for evaluating inventory obsolescence or market value often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. We adjust our inventory by the difference between the estimated market value and the actual cost of our inventory to arrive at net realizable value. Changes in estimates of future sales volume may necessitate future write-downs of inventory value.
Effect if Actual Results Differ from Assumptions
Management reviews the inventory balance on an annual basis to determine whether any additional write-downs are necessary. Following the write-down of the inventory as discussed above, we believe this inventory is stated at net realizable value at July 31, 2026, although an unanticipated lack of demand for aircraft or spare parts in the future could result in additional write-downs of the inventory value. Overall, management believes that our inventory is appropriately valued at July 31, 2026.
Long-lived Assets
Methodology
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, Impairment or Disposal of Long-Lived Assets. ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company
assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.
Judgment and Uncertainties
In years that management performs a qualitative assessment we consider the following qualitative factors: general economic conditions in the markets served by the segment, relevant industry-specific performance statistics, and forecasted results of operations.
For the quantitative impairment tests, management estimated the fair value of the long-lived asset group using an income methodology based on management's estimates of forecasted undiscounted cash flows over the estimated life of the assets. Changes in these estimates and assumptions could materially affect the results of our impairment testing.
An impairment loss is recognized for any excess of the carrying amount of the estimated undiscounted cash flows over the remaining life of the assets. No impairment charges were recorded during the three months ended July 31, 2026.
Effect if Actual Results Differ from Assumptions
As with all assumptions, there is an inherent level of uncertainty and actual results, to the extent they differ from those assumptions, could have a material impact on fair value. For example, a reduction in customer demand would impact our assumed growth rate resulting in a reduced fair value. Potential events or circumstances could have a negative effect on the estimated fair value. The loss of a major customer or program could have a significant impact on the future cash flows associated with a long-lived asset group. We do not currently believe there to be a reasonable likelihood that actual results will vary materially from estimates and assumptions used to test our long-lived assets for impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to additional impairment charges that could be material.
Changing Prices and Inflation
We have experienced upward pressure from inflation in fiscal year 2027. From fiscal year 2026 to fiscal year 2027 most of the increases we experienced were in material and labor costs. This additional cost may not be transferable to our customers resulting in lower income in the future. We anticipate fuel, material and labor costs to rise in fiscal 2027 and 2028.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Butler National Corporation published this content on September 11, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on September 11, 2026 at 13:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]