David Drewitz - Public Relations Clark Stewart - President and Chief Executive Officer Kathy Gorrell - Chief Information Officer Christopher Reedy - Vice President and Secretary Craig Stewart - Vice President and President of Aerospace and Chief Financial Officer

Good morning, ladies and gentlemen. Today is Thursday, July 30, 2015. And welcome to the Butler National Corporation Fourth Quarter and Fiscal Year-End Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Call leaders for today’s call are David Drewitz, Creative Options Communication; Clark Stewart, President and CEO; Craig Stewart, President of Aerospace Group. I will now hand the call over to Mr. David Drewitz. Mr. Drewitz, you may begin.

Thank you, Erica, and good morning to everyone. Before Mr. Stewart begins, I would like to draw your attention to, except for historical information contained herein, the statements in this conference call are forward-looking and made pursuant to the Safe Harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Butler National’s actual results and future periods to differ materially from forecasted results. Those risks include among other things the loss of market shares through competition or otherwise, the introduction of competing technologies by other companies, new governmental safety health and environmental regulations which could require Butler to make significant capital expenditures. The forward looking statements included in this conference call are only made as of the date of this call and Butler National undertakes no obligation to publically update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, factors described under the caption Risk Factors in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Okay. With that completed, I would like to turn the call over to Mr. Clark Stewart. Mr. Stewart?

Thank you, David. Good morning, ladies and gentlemen. We appreciate you taking your time to join us on this call this morning. Like we said, this is the quarter-end and the year-end information, obviously, kind of go through what you probably should have already seen in your 10-K and in the press releases that we issued yesterday. There are two of them, one relative to this call and one relative to some new products. First of all, the revenue was relative – for all practical purposes, constantly of around $47 million. We expect this to be flat. We did expect some increase in the casino, but we didn’t – we’re not able to get that. And I’ll address that later. Net income after tax and the minority interest is $27,000 versus $112,000 last year. Not what we planned, but tax benefit is turning around on us, so that the accelerated depreciations now causing some recaptures, which eats up profit. So that is the way that works. In this past year, we had lower margin product mix in Aerospace and we’ve had some weaker special mission business. We have more demand for maintenance and airplane support. And we’re moving back into that product line. The margin and the ability to upsell that is much more controllable than some special mission products that we’re seeing today. The casino has basically been flat for a couple of reasons, actually been hurt a little bit for, because of lower oil prices, they have a significant effect on us, and the drought that we’re just recovering from this summer or this spring. We now have the moisture. We still have the low oil prices, which affects our extended market out there, when we get down into Oklahoma, Texas, and New Mexico and Colorado, so it’s – they are not well known to dry this far and that’s primarily where we’re showing weakness in the casino market. We expected to have 3% growth out there. It’s kind of what we budgeted. Maybe we can accomplish that in fiscal 2016. What happened in the fourth quarter is that casino has two good months and one weak one. And generally, the springtime is the best time out there. We’ve had pretty erratic months. We’ll have good months and bad months. And that’s been going on since really January. The Aerospace, we completed a multimillion dollar job in the fourth quarter and it lasted over the last couple of years. About two-thirds of the parts, which is a major amount of money, were spent on, just nothing, buying and selling, reselling the parts of the cameras and the radars and all that stuff. We only have variable to yield about a 10% margin on those. So over the time you have them install them, deal with over regulatory problems with those, we probably don’t make any money selling that equipment. So that changes the ratios, changes the margin and you’re seeing that in the fourth quarter and the annual performance of the Aerospace segment. We need to review the numbers, I think, on the front of the press release. You can see that assets and the debt have been down over the past couple of years. There debt has really been reduced about $5.3 million in the last two years and the reason we’re trying to do that is we got to have enough credit available to accomplish the transaction with our partners on Boot Hill that we’re working on as we speak. So with that, we’ve had some concern that we’re spending too much money on R&D and paying down too much debt and we’re operating basically at the lowest cash number we can operate at, which is about $5 million between the two segments. So we’re trying to do that. R&D is up, you will see some differences and we’ll explain some of that later in the discussion here today, but you’ve seen a number of press releases and we’ve put a paragraph in the press release that we sent out to you. Yesterday, talking about the new products in the – it’s on Page 2, I believe, and in the aerospace products. You’ll see the new products we’ve got have improved in the past year. We also have as many as that was more than that coming in the next year. So we spent a lot of money and I think we have got demand coming between now and 2020 on regulatory items that will definitely pay for all the money we spent. Anyway, the fourth quarter is tough and was tough, and last year was exceptionally good, so we have a major difference between the two quarters. And we were considering, as you know, we talked about – instead of doing the stock match, we talked about a cash match on the 401(k). Actually the fourth quarter used up the extra cash that we might have been able to match that, so we were not able to do that. The backlog is sitting right now at about $9.4 million. We have seen a shift from special mission orders of – for one to five airplanes to larger quotes with more units. And we’ve got a lot of people – we’re doing lot of quotes right now. We haven’t had as many orders as we’d like to have, but we do have the backlog build-up. The gun control products are a major portion of the backlog to be delivered in the next year. The quotes that we have in that segment down there and that aerospace military related product line, where we have as many quotes – more quotes open than we have backlog at this point. So we’re looking forward to that being a very profitable operation down the road here. As far as the negotiations with our partner on Boot Hill, we paid up to $5 million in debt at the casino level, that was step one. We’re negotiating some of the things on the building and we’re in the process of doing that, even though you will probably see some activity on that in the next quarter or maybe sooner than you think. New products we’re – like I say, we’re talking about on Page 5, Page 7, and Page 18 of the Form 10-K. And they’re identified there. Like I said earlier, we have at least that many new ones coming as you don’t know about. And it’s a matter of approval through the FAA and some foreign agencies, we have to get approval to operate in some foreign countries as a repair station and we’re in the process of doing that. Those are paperwork heavy and manpower heavy projects, but they do pay off. Let’s see, we are having in these new STCs relative to the ADS-B, which is going to be mandatory in 2020. We have airplanes showing up on the ramp now, saying you got to do something for us now. We’ll leave it here while we get it done. And that’s an unusual situation, we haven’t seen that in a longtime, but that is happening, happened yesterday, it’s happened twice this week. So it’s a matter of we got to get the approval of the FAA in timely manner and get it done. So we’re looking forward to some real results from spending all this money on the STCs, which like I say, in many more [indiscernible] in the next six to nine months. We kind of need to review the good things from the past year. Backlog is improving. We’re back – getting back into the airplane maintenance business, which sells the legacy parts. And if you look at your press release that you see later yesterday talking about the Learjet aftermarket partner with Butler National Corporation. To us, that’s an honor to be associated with that that company and to be able to say that we are working with them very closely to support the legacy airplanes. There are probably, at least, somewhere between 1,500 and 2,000 Learjets that you call legacy airplanes that are out there flying today, and this is the supply of parts for those airplanes direct from us. We’re getting more support from the major manufacturers, like I say, with the Learjets, and we have gotten through a lot of the painful stages in the past year on that. What do we expect in 2016, we expect to complete the steps of the acquisition as best we can. Step one was completed in April, which was the refinance of that. That step two, we expect to accomplish in the next couple of months, and probably, step three in, sometime in the fall of – sometime before calendar year-end hopefully. The other thing we should expect, like I said, is the ADS-B solution for the 2020 mandate. The market there is somewhere in excess of 10,000 airplanes. Cost ranges from $3,500 for 150 at best, $750,000 for about 25 airplanes. So that is the important thing. The part 25 is in all the airline type airplanes requiring STC, which is we are moving forward on a number of models to get – to acquire this STC to support not only the columns, universal – all the major manufacturers’ equipment. And let’s see, you will see that to continue to expand in 2016. We expect to extend some of the useful life of some of the airplanes in 2016. And the Tempe operation we’re working on. And the integration project on the UH-60s that will integrate in two or three of the major manufacturers of the missiles and guns and all of that. And it turns out we may be the integrator of that. And we are looking forward to get that done. We’re also been talking about and dealing with some of our customers. We support the UAV market, and we’ve done – we’ve worked with them a number of years on their test airplanes, but never in the real UAVs for industrial use. And I think we need to be moving in that way. And you’ll see some expansion in the gaming infrastructure. We accomplished our tests [indiscernible] right now. And, I guess, as a summary, I’d call your attention that you need to be at Dodge City in Boot Hill for a Cattle Drive of 100 herd [ph] of longhorn and steers [ph] on Saturday, August 1, that’s couple of days from now. So we invite you all to come. In September 24 to 27, the 60th year of Gunsmoke TV program, there is a celebration in Dodge City, sponsored by Boot Hill Casino, and that will be a national news at that time. We expect to have our next annual meeting here this fall. You should be seeing proxy information sometime, August through October. We’re not sure quite how long that will take. But we – that is planned and that’s 20 minutes of your time, that’s probably too much. But I’m ready for questions if anybody. Kathy, have we missed anything.

No.

And, Chris, I think we’re ready for questions. Thank you.

Ladies and gentlemen, at this time we will conduct the question-and-answer session. [Operator Instructions]

May we were done.

Our first question comes from Tony Prescott [ph]. Please state your question.

Good morning, Clark.

Good morning, Tony.

I’ve brought up several times on these calls, the ESOP 401(k) situation. I understand the cash constraints that you all had this year and good explanation. But by – as I brought up before several times, by marking to the market the share price on December 31, each year, which is arguably the lowest price of the year, due to the end of year tax loss selling. The company is diluting shareholder equity by about 1.5 million shares a year. My idea has been to mark-to-market at the higher of market price or current stated book value, thereby creating still some dilution that are much more modest dilution. You’ve listened politely to this idea in the past and promised updates and not has been forthcoming. Was this actually ever voted on by the board, or brought before the board?

Yes, it comes before the board every year. And at the annual meeting, we have the board meeting and discuss these items. We had thought we would tentatively do it in cash this year, we thought we have enough cash. But we did – we were not able to accomplish that, as you know. The book value, I understand that the higher – which higher market price would you recommend?

Well, no, I’m saying current market price or book value, whichever of the two is higher?

Now, the book value, as you know, with our friendly bankers is an accounting phenomenon, not a real value phenomenon. But that, as you know, that’s cost to market – lower cost to market, which is not – apparently that’s usually higher than the market price.

Exactly. That’s my point. It would cut down on the dilution quite dramatically. And I think it would also reflect more of a true value for the shares.

Yes, we will bring that up at the next annual meeting. I had somehow or missed – I missed the book value and we had talked about the cash and the higher market price, so…

All right.

Yes, I missed that. I have to tell you, I haven’t realized you were really saying book value. I haven’t written down this time, Tony.

Okay. My second question/point is, in the 10-K this year, it states that there will be a, "strong continuing effort to reduce costs in the general and administrative areas”. Now, given that the past year was one of flat to modest declines in virtually all of the metrics from Butler. How is it justified that your personal total compensation increased by 21% year-over-year?

That’s because I took a major cut when we ran out of cash. And I’m still substantially below what my contract calls for, but that’s about the best answer I can give you. As far as when we’re running shorter on cash, I don’t get paid, so it’s very easy to figure that out. Overall, I think our costs actually are down some from last year, in that particular area. So that’s the best answer I can give you. I think that I don’t – I have not been increasing at all since we were adjusted for the fact that I haven’t been paid. And so I think we’re doing the right – doing the right thing here. And I don’t see that – I don’t see us increasing my pay, even though the contract calls for it. So that’s really on the cash source. I guess, this is what you think.

Right.

I know I shouldn’t be that, but that is how it works.

All right. All right. Thank you, Clark. That’s it for now. I might jump back in the queue later. Thank you.

All right. Thank you.

Our next question comes from Michael Melby [ph]. Please state your question.

Good morning, gentlemen. Thanks for your time today. Clark, you mentioned steps two and three with the casino. For complete clarity, could you highlight what you mean there?

Not really, I can just tell you that we’re moving forward in – I don’t think until we have something signed we can talk about it, is basically where I am seeing. I’m telling you there is three steps to it. One of them has been completed, the second one is in process, and the third one is down the road like always. But we do have some options that you would notice in the operating agreements that would identify with those steps. So I think that’s the best thing for you to reference, Michael. I just think that’s – I don’t want to disclose until we’ve actually got the documents drawn up and presented in what we’re doing. And I don’t think we can – I don’t think we can do that. Isn’t that correct, Chris?

Yes.

Yes. Tony says, no, we can’t do it. So that’s basically where we are with it.

Okay.

I’m telling – what I’m telling you is that it’s moving forward. How is that? At a faster rate than that was a quarter ago. I can tell you that too.

Okay. Well, I appreciate the color there. And I guess in past filings including this 10-K, you highlight that you’d actually enter the casino business, because you felt the aerospace business might be too cyclical or volatile. Has something changed in your philosophy there, where you think the two can operate separately, or any other color on how you would think about it if the casino is spun-off or becomes a different entity on having two separate companies?

You can see what we’ve spent in the R&D on, just trying to stabilize the product lines, more toward maintenance from replacement parts which are ongoing activities. The special mission side and that part of it where we are a leader is a lot of the volatility, so we’ve really never had a chance to spend the two or three years it takes to get ourselves positioned into the really supply market to the aftermarket, like we have. If you look at the press release it says, talking about the Learjet aftermarket, that’s the first two words. You look at that, you’ll see the direction and the type of thing we’re talking about is a repetitive ongoing support function of the business aircraft market. Our customers are primarily in that market and we’re expanding that with this AHC-3000 press release. We’re expanding that to more the business jet, the more expensive airplanes that are used for executive travel as opposed to the medevac, the freight haulers, all the utility airplanes, which are – they do – they carry the mail for the country, and just-in-time parts and all that. But those are the much lower budget operators than the ones with the executive jet. So we’re trying to get to where we support those segments much more than we have supported them in the past. And as we do that, we’re hoping that that will stabilize the biz, well, we know it will stabilize if we can get the products done. So that’s the direction we’re going and that will help some of this volatility. You are seeing the volatility in the past couple of years, and it isn’t fun. It runs over about 3 to 5-year cycle, and the cash goes up and down, and you got all kinds of challenges. These others unless we just – unless the airplanes just quit flying, there is a need for the support. So that’s what we were doing there, trying to beef that up. So that’s how we’re seeing the two of them be able to operate independent of each other.

Okay. I think I got it. And then, if they do stuff right, would you – we’re in a position to consider selling the Aerospace business, or looking to make it more economical by scaling up at all?

I don’t know. We get calls occasionally for our buying pieces of it. And we’re not sure, those are – I would say a lot of mergers trying to figure out what the product lines look like and that kind of stuff we really never had anybody with a checkbook and want to really pay any cash for anything. But, yes, there are pieces that we – we’re not sure, we got to get it where it will stand on its own on a five-year basis. So I guess this is what I would say to you, and make a nice return and then we’ll be in position to try to market it if we want to do. That’s about the best answer I can give you on that.

And, again, just kind of curious, you addressed a little bit, but in the Aerospace business, it looks like you spent a good amount of money between R&D and CapEx. And if you talked about cash constraints and it seems that you would have spent a little less and maybe based on, you could pay down the debt and be much more flexible on cash either potentially returning some to shareholders is going to improve, or even on the 401(k) question having cash to do cash instead of shares there. So here is why spending that much right now makes sense versus delaying a little and showing up the balance sheet a little bit and getting a little more flexibility in terms of what you’re able to do from a cash standpoint?

I would say that, I guess, I would answer it a little bit different. I would say if we don’t take the activity to move the product lines into a more stable group, there will be years when there won’t be any special mission, if you look at the government spending situations. As we go into these foreign countries, they change almost day-to-day. The exchange rate effect is a great deal and the – and our ability to figure out where the money is going to be in which foreign country. For the next two years, it’s pretty tough. And we have people working on that, trying to figure that out. And we’ve been halfway successful and halfway not so successful.

Yes, I guess, I just highlighted from a return standpoint with the business operating in, say, 25% gross margins, you need a whole lot of incremental sales in order to justify this level of spending to get a return on the investment, at least that’s how I see it.

That’s correct.

Okay. Maybe one more from you, if I could, and I guess to the compensation as well, but I think the options you have are going to – essentially, a lot of them expired at the end of this year, as the share prices at the trigger level needs to be curious, as maybe how you think of tying compensation to share price performance going forward should these expire. Maybe to the prior caller’s question, we probably like to see more of your base compensation reflective of share price, or operating metrics rather than just having a base level that’s made each year?

Well, I wish it was a base level paid each year. We don’t seem to have the cash to pay it, so we don’t pay it. And so I think that’s a good question on the options. We’ve known those options and probably were never usable at all even when they were setup. So I now with our 2020 hindsight, there is no question about it. So I don’t know what we do about the options that are going to expire, they’re not. I don’t think anyone with the options imagines they have any value whatsoever. The only thing they accomplished is reducing the earnings when we granted them. And we have no way – no way of recovering that, and no one is benefiting from them. So I think that we need to [indiscernible] on how we do that. And I think that’s all dependent upon how stable we get there to get the operation. But I would tell you that I’m very much aware of the cost of my income and my income is, like I say, variable with cash, it’s not a flat fee. And so, I think that we’ll not be accomplishing what you’re saying in the wrong method, but that is what happens. So I appreciate the question.

Okay. Thanks for your time, gentleman. Good luck going forward.

You bet. Thank you.

[Operator Instructions] At this time, we have no further questions. A - Clark Stewart: Well, I think we’re done. Thank you all for your time, we appreciate it. It took us 35 minutes here this morning, and we appreciate all your input. We will look into these items and try to keep you informed. Thank you very much.

This concludes today’s conference call. Thank you for attending.