Butler National Corporation

09/12/2025 | Press release | Distributed by Public on 09/12/2025 04:00

Quarterly Report for Quarter Ending July 31, 2025 (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 and 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, 2025, and elsewhere herein or in other reports filed with the SEC. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time, except as expressly required by federal securities laws.
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, 2025, including the following factors:
•customer concentration risk;
•dependence on government spending;
•industry specific business cycles;
•regulatory hurdles in the launch of new products;
•loss of key personnel;
•the geographic location of our casino;
•fixed-price contracts;
•international sales;
•changing U.S. trade policy and impacts of tariffs
•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;
•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 stability of economic markets;
•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; and
•rising inflation
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 and servicing 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, 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
•Traffic collision avoidance systems
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, 2025 revenue increased 1% to $20.1 million compared to $19.8 million in the three months ended July 31, 2024. In the three months ended July 31, 2025 the Professional Services revenue was $8.8 million compared to $9.2 million in the three months ended July 31, 2024, a decrease of 5%. In the three months ended July 31, 2025 the Aerospace Products revenue was $11.3 million compared to $10.6 million in the three months ended July 31, 2024, an increase of 7%.
In the three months ended July 31, 2025, net income increased to $3.7 million compared to a net income of $2.2 million in the three months ended July 31, 2024. In the three months ended July 31, 2025, operating income increased to $4.7 million from an operating income of $3.5 million in the three months ended July 31, 2024.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2025 COMPARED TO THE THREE MONTHS ENDED JULY 31, 2024
(dollars in thousands) Three Months Ended July 31, 2025 Percent of Total Revenue Three Months Ended July 31, 2024 Percent of Total Revenue Percent Change 2024-2025
Revenue:
Professional Services $ 8,811 44 % $ 9,236 47 % -5 %
Aerospace Products 11,314 56 % 10,592 53 % 7 %
Total revenue 20,125 100 % 19,828 100 % 1 %
Costs and expenses:
Costs of Professional Services 3,912 19 % 3,892 20 % 1 %
Cost of Aerospace Products 6,591 33 % 7,474 38 % -12 %
Marketing and advertising 921 5 % 914 5 % 1 %
General, administrative and other 4,034 20 % 4,012 20 % 1 %
Total costs and expenses 15,458 77 % 16,292 82 % -5 %
Operating income $ 4,667 23 % $ 3,536 18 % 32 %
Revenue
Revenueincreased 1% to $20.1 million in the three months ended July 31, 2025, compared to $19.8 million in the three months ended July 31, 2024. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
•Professional Services derives its revenue from professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"). Revenue from Professional Services decreased 5% to $8.8 million for the three months ended July 31, 2025 compared to $9.2 million for the three months ended July 31, 2024. Sports wagering through the DraftKings sports wagering platform brought in $1.3 million for the three months ended July 31, 2025 compared to $1.0 million in the three months ended July 31, 2024. Traditional casino gaming revenue decreased $0.6 million. Effective December 15, 2024, the revenue share to the state of Kansas increased by 2% with the start of our fifteen-year contract renewal term for the management of Boot Hill.
•Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for aircraft and military vehicles. Aerospace Products revenue increased by 7% to $11.3 million for the three months ended July 31, 2025 compared to $10.6 million for the three months ended July 31,
2024. The increase in revenue is primarily due to an increase in special mission electronics business of $1.2 million along with an increase in aircraft avionics business of $1.0 million.
Costsand expenses:
Costs and expensesrelated to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses decreased 5% to $15.5 million in the three months ended July 31, 2025 compared to$16.3 million in the three months ended July 31, 2024. Costs and expenses were 77% of total revenue in the three months ended July 31, 2025, as compared to 82% of total revenue in the three months ended July 31, 2024. This represents an operating margin of 20.3% in the three months ended July 31, 2025, compared to 17.8% in fiscal 2024 (operating income as a percentage of revenue), an increase of 2.5 percentage points.
Costs of Professional Servicesremained constant in the three months ended July 31, 2025 at$3.9 million compared to$3.9 million in the three months ended July 31, 2024. Costs were 19% of total revenue in the three months ended July 31, 2025, as compared to 20% of total revenue in the three months ended July 31, 2024.
Costs of Aerospace Productsdecreased 12%in the three months ended July 31, 2025 to $6.6 million compared to $7.5 million for the three months ended July 31, 2024. Costs were 33%of total revenue in the three months ended July 31, 2025, as compared to 38% of total revenue in the three months ended July 31, 2024, reflecting increased efficiencies of our engineering and fabrication leading to improved operating profit margins.
While we continue to work to control costs, with the sales growth and expansion of aircraft modification installations at the New Century facility, the need for parts fabrication exceeded our existing shop capacity in Newton, Kansas. In response, in April, 2025, we purchased a building adjacent to our Newton airport campus for the primary purpose to expand our internal fabrication capabilities.
Marketing and advertising expensesremained constantin the three months ended July 31, 2025 at $0.9 million compared to $0.9 million in the three months ended July 31, 2024. Expenses were5% of total revenue in the three months ended July 31, 2025, as compared to 5% of total revenue in the three months ended July 31, 2024. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
General, administrative and other expensesas a percent of total revenue was20% in the three months ended July 31, 2025, compared to 20% in the three months ended July 31, 2024. These expenses remained constant at $4.0 million in the three months ended July 31, 2025 and July 31, 2024.
Other income (expense):
Other income (expense)was ($352) thousand in the three months ended July 31, 2025 compared to ($459) thousand in the three months ended July 31, 2024. Interest expense was $523 thousand in the three months ended July 31, 2025, compared with interest expense of $565 thousand in the three months ended July 31, 2024. The decrease in interest expense is due to the paydown of long term debt. Interest income was $171 thousand in the three months ended July 31, 2025 compared to $106 thousand in the three months ended July 31, 2024.
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, 2025 and July 31, 2024:
(dollars in thousands)
Three Months Ended July 31, 2025
Percent of Total Revenue
Three Months Ended July 31, 2024
Percent of Total Revenue Percent Change 2024-2025
Professional Services
Revenue - Boot Hill Casino $ 8,811 100 % $ 9,236 100 % -5 %
Costs of Professional Services 3,912 44 % 3,892 42 % 1 %
Expenses 3,117 35 % 3,214 35 % -3 %
Total costs and expenses 7,029 80 % 7,106 77 % -1 %
Professional Services operating income $ 1,782 20 % $ 2,130 23 % -16 %
(dollars in thousands)
Three Months Ended July 31, 2025
Percent of Total Revenue Three Months Ended July 31, 2024 Percent of Total Revenue Percent Change 2024-2025
Aerospace Products
Revenue $ 11,314 100 % $ 10,592 100 % 7 %
Costs of Aerospace Products 6,591 58 % 7,474 71 % -12 %
Expenses 1,838 16 % 1,712 16 % 7 %
Total costs and expenses 8,429 75 % 9,186 87 % -8 %
Aerospace Products operating income $ 2,885 25 % $ 1,406 13 % 105 %
Professional Services
•Revenue from Professional Services decreased 5% for the three months ended July 31, 2025 to$8.8 million compared to $9.2 million for the three months ended July 31, 2024. Sports wagering through the DraftKings sports wagering platform brought in $1.3 million of revenue for the three months ended July 31, 2025 compared to $1.0 million in the three months ended July 31, 2024. Furthermore, traditional casino gaming revenue decreased $0.4 million due to a decrease in patron visits. We believe the decline of traditional casino gaming revenue was due primarily to economic factors impacting the region surrounding our casino in southwest Kansas. Factors influencing the local economy in the region surrounding our casino operations include reduced shifts and/or wages for Dodge City-based cattle processors and meat packing employees, increased inflation and drought conditions. Additionally, beginning in December 2024, the revenue share paid to the State of Kansas under our Management Agreement increased by two percent. Our revenue is determined after the revenue share is distributed to the state and mandated regulatory expenses are paid. Non-gaming revenue at Boot Hill Casino decreased slightly to $1.0 million for the three months ended July 31, 2025, compared to $1.1 million for the three months ended July 31, 2024.
•Costs of Professional Services increased less than $0.1 million to $3.9 million in the three months ended July 31, 2025 compared to$3.9 million compared to the three months ended July 31, 2024. Costs were 44% ofsegment total revenue in the three months ended July 31, 2025, as compared to 42% of segment total revenue in the three months ended July 31, 2024. The increase is directly related to an increase in labor costs.
•Expenses decreased 3% in the three months ended July 31, 2025 to$3.1 million compared to $3.2 million in the three months ended July 31, 2024. Expenses were 35%of segment total revenue in the three months ended July 31, 2025 and July 31, 2024.
Aerospace Products
•Revenue increased 7% to $11.3 million in the three months ended July 31, 2025, compared to $10.6 million in the three months ended July 31, 2024. The increase in revenue is primarily due to a $1.2 million increase in special missions electronics and a $1.0 million increase in aircraft avionics, partially offset by a $1.5 million decrease in aircraft modification business. 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, which is also reflected in the increased backlog. While a new control housing design for the minigun control is in process, special mission electronics shipped a number of the legacy control units that were first manufactured in late fiscal year 2025. We are focused on identifying and acquiring the staffing to efficiently decrease backlog. We continue to look at process opportunities to enhance the cable fabrication process in our expansion of that business. For Aircraft Modifications, timing in percentage of completion is reflected in the quarter revenue compared to the previous year. Avionics revenue was up due to revenues associated with a multi-airplane avionics upgrade contract.
•Costs of Aerospace Products decreased 12% in the three months ended July 31, 2025 to $6.6 million compared to $7.5 million for the three months ended July 31, 2024. Costs were 58% of segment total revenue in the three months ended July 31, 2025, as compared to 71% of segment total revenue in the three months ended July 31, 2024, reflecting increased efficiencies of our engineering and fabrication labor leading to improved operating profit margins. Both Special Mission Electronics and Aircraft Modifications gained further efficiencies by strategically planning sub-component fabrication and decreasing outsourcing. With respect to Avionics, the divestment of the autopilot product line has reduced the costs. It is noteworthy that on June 16, 2025, a third-party's airplane crashed into the Company's New Century, Kansas hangar facility resulting in some, but not a material, temporary loss in use of hangar operations for Aircraft Modifications. The hanger has now been fully repaired and restored.
•Expenses increased 7% in the three months ended July 31, 2025 to $1.8 million compared to $1.7 million compared to the three months ended July 31, 2024. Expenses were 16% ofsegment total revenue in the three months ended July 31, 2025, as compared to 16% of segment total revenue in the three months ended July 31, 2024. The increase is primarily due to higher insurance premium costs, higher administrative and overhead labor costs, and greater depreciation as a result of increased fixed assets in fiscal 2026.
Employees
Other than persons employed by our gaming subsidiaries, there were 149full time and 8 part time employees on July 31, 2025, compared to 137 full time and 3 part time employees on July 31, 2024. Our staffing at Boot Hill Casino & Resort on July 31, 2025 was 190full time and 45 part time employees compared to 189 full time and 40 part time employees on July 31, 2024. 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 in 2026 and beyond.
Operating Activities
During the three months ended July 31, 2025 our cash position increased by$8.2 million. Net income was $3.7 million for the three months ended July 31, 2025. Cash flow provided by operating activities was $14.7 million for the three months ended July 31, 2025. Non-cash activities consisting of depreciation and amortization provided $1.7 million and deferred compensation added $63 thousand. Contract assets increased our cash position by$1.6 million. Contract liability decreased our cash position by $0.7 million. Inventories decreased our cash position by $399 thousand. Accounts receivable decreased our cash position by$1.7 million.Gaming facility mandated payments decreased our cash position by $129 thousand. Prepaid expenses and other assets increased our cash by $205 thousand. Accounts payable increased our cash position by$8.8 million andaccrued liabilities increased our cash position by $268 thousand. An increase in lease liabilities and other current liabilities increased our cash by $56 thousand. Income tax payable increased our cash position by $0.6 million.
Investing Activities
Cash used in investing activities was $1.4 million for the three months ended July31, 2025. We invested $607 thousand towards STCs, $120 thousand on buildings and improvements, $711 thousand onequipment and furnishings.
Financing Activities
Cash used by financing activities was $5.0 million for the three months ended July 31, 2025. We made repayments of $1.3 million on our long-term debt and we made repayments on lease right-to-use of $67 thousand. We purchased Company stock of $3.7 million. The stock acquired was placed in treasury.
Capital Expenditures
The Company anticipates remaining capital expenditures in fiscal 2026 to be approximately $12.5 million, consisting of $5 million on STC's, $4.5 million on equipment, and $3.0 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, 2025, 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, 2025.
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, 2025.
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 2026. From fiscal year 2025 to fiscal year 2026 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 2026 and 2027.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Butler National Corporation published this content on September 12, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on September 12, 2025 at 10:00 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]