Form 10-K for Collins Industries, Inc.
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2004 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-12619
COLLINS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-0985160
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification Number)
15 Compound Drive, Hutchinson, Kansas 67502-4349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 620-663-5551
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter), is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as
defined under rule 12-b of the Act.) Yes __ No X .
The aggregate market value of voting stock held by non-affiliates of the
$34,704,201 as of registrant was June 15, 2005
The number of share of Common Stock outstanding on June 15, 2005 was 6,610,324
PART I
Item 1. BUSINESS
General Development of Business
Collins Industries, Inc. was founded in 1971 as a manufacturer of small school
buses and ambulances built from modified cargo vans. The Company's initial
product was the first "Type A" school bus, designed to carry 14 to 20
passengers. Today the Company manufactures specialty vehicles and accessories
for various basic service niches of the transportation industry. The Company's
products include ambulances, small school buses, shuttle and mid-size commercial
buses, terminal trucks, commercial bus chassis, road construction equipment and
industrial rental sweepers. From its inception, Collins' goal has been to become
one of the largest manufacturers of specialty vehicles in the U.S. The Company
has grown primarily through the internal development of new products and the
acquisition of complementary product lines.
In the U.S., Collins believes that it is the largest single manufacturer of
ambulances, the second largest manufacturer of terminal trucks, the leading
manufacturer of small school buses and a leading manufacturer of sweepers used
in the road construction industry. The Company sells its products under several
well-known trade names, including Wheeled Coach(R) (ambulances), Collins Bus(R)
and Mid Bus(R) (small school buses), World Trans(R) (commercial buses),
Capacity(R) (terminal trucks) and Waldon(R)/Lay-Mor(R) (road construction and
industrial rental sweeper equipment).
Most Collins products are built to customer specifications from a wide range of
options offered by the Company. Collins sells to niche markets which demand
manufacturing processes too sophisticated for small job shop assemblers, but do
not require the highly automated assembly line operations of mass production
vehicle manufacturers. The Company emphasizes specialty engineering and product
innovation, and it has introduced new products and product improvements, which
include the Moduvan(R) ambulance, the first ambulance of its size with advanced
life-support system capability; the Dura-Ride(R) suspension system, the first
frame-isolating suspension system for terminal trucks; and the innovation of a
larger seating capacity, Type A Super Bantam(TM) school bus capable of carrying
up to 30 passengers, one of the largest Type A school buses in the industry.
Description of Business
The Company principally manufactures and markets specialty vehicles.
See "Note 9 to the Consolidated Financial Statements" for quantitative segment
information.
Ambulances. The Company manufactures both modular and van-type ambulances at its
Hutchinson, Kansas and Orlando, Florida plants. Modular ambulances are produced
by attaching an all-aluminum, box-type, patient compartment to a dual rear-wheel
cab chassis ("Type I")
1
ambulance or to a dual rear-wheel, van-type, cutaway chassis ("Type III")
ambulance or to a single rear-wheel cutaway chassis ("Moduvan") ambulance. A
cutaway chassis consists of only the front portion of the driver's compartment,
engine, drive train, frame, axle and wheels. Van ("Type II") ambulances are
cargo vans modified to include a patient compartment and a raised fiberglass
roof. Type II ambulances are smaller and less expensive than modular ambulances.
The Company also produces a limited number of medical support vans designed to
transport medical and life-support equipment. Medical support vans are modified
commercial vehicles which do not have a patient compartment for advanced life
support system.
Buses. The Company manufactures small school and activity buses, and certain
other commercial and shuttle buses at its Bluffton, Ohio and South Hutchinson,
Kansas facilities.
School and Activity Buses. The Company manufactures small Type A school and
activity buses which carry from 14 to 24 passengers. The majority of Type A
school buses currently built by the Company are produced by fabricating the
body and mounting it on a vendor-supplied, dual rear-wheel or single
rear-wheel, cutaway chassis. The Company was the first manufacturer to
produce a Type A school bus on this type of chassis, which permits greater
seating capacity than a van chassis. School and activity buses are produced
in compliance with federal, state and local laws regarding school and
activity bus vehicles. In recent years, the Company has sold an increasing
number of small activity buses used by day care, church and other
non-profit organizations.
Commercial and Shuttle Buses. The Company produces a limited number of
commercial and shuttle buses for churches, transit authorities, hotels and
resorts, retirement centers, nursing homes and similar users. These buses
are built to customer specifications and are designed to transport 14 to 30
passengers over short distances.
Terminal Trucks / Road Construction Equipment. The Company produces two basic
models of terminal trucks at its Longview, Texas facility, the Trailer Jockey(R)
and the Yardmaster(R). Terminal trucks are designed and built to withstand
heavy-duty use by moving trailers and containers at warehouses, rail yards, rail
terminals and shipping ports. Most terminal trucks manufactured by the Company
are built to customer specifications. The Company manufactures the entire truck
except for major drive train components which are purchased from outside
suppliers.
The road construction equipment produced by the Company includes three and four
wheel sweepers, a full line of articulated four-wheel drive loaders, rough
terrain lift trucks, compact loaders and backhoes. These products are
principally sold in both commercial and rental markets through direct sales and
distributors throughout the United States.
Manufacturing
Manufacturing consists of the assembly of component parts either purchased from
others or fabricated internally. With the exception of chassis, chassis
components and certain terminal truck components which are purchased from
outside suppliers, the Company fabricates the
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principal components of its products. Collins' internal capabilities include CNC
gas/plasma shape cutting, robotic welding of certain subassemblies, CNC routing
and cabinetry equipment, CNC punching and forming of sheet metal, metal
stamping, tooling, molding of fiberglass components, mechanical and electrical
component assembly, upholstery, painting and finishing and Computer-Aided-Design
and Manufacturing (CAD/CAM) systems.
The Company has improved its manufacturing facilities from time-to-time through
the selective upgrading of equipment and the mechanization or automation of
appropriate portions of the manufacturing process. Management believes the
Company's manufacturing facilities are in good condition and are adequate for
the purposes for which they currently are used. The capacity of the Company's
current facilities, particularly if operated on a multiple shift basis, is
adequate to meet current needs and anticipated sales volumes.
New Products
The Company is not presently engaged in, and does not anticipate engaging in,
activities which would require significant expenditures or use of material
amounts of assets for development of products.
Suppliers
In order to ensure that it has a readily available supply of chassis for
ambulance and bus products, the Company has entered into consignment agreements
with General Motors Corporation ("GMC") and Ford Motor Company ("Ford"). Under
those agreements, chassis are kept at Company production facilities at no cost
to the Company other than chassis storage costs. When an individual chassis is
selected from the Company's consignment pool for use in vehicle production,
title to the chassis passes to the Company and the Company becomes liable to the
consignor for the cost of the chassis. While an interruption in supply from one
source may cause a temporary slowdown in production, the Company believes that
it could obtain adequate numbers of chassis from alternate sources of supply.
The Company uses substantial amounts of steel in the production of its terminal
truck products and road construction equipment and certain other major
components (primarily engines, transmissions and axles). The Company also uses
large amounts of aluminum, steel, fiberglass and glass in the production of
ambulances and buses. There is substantial competition among suppliers for such
raw materials and components, and the Company does not believe that a loss of a
single source of supply would have a material adverse effect on its business.
Patents, Trademarks and Licenses
The Company owns federal registrations for most of the trademarks which it uses
on its products. The Company also owns patents on its bus body design, ambulance
design, Dura-Ride air suspension system, ambulance warning light system and
air-activated bus door. The Company believes that its patents are helpful,
because they may force competitors to do more extensive design work to produce a
competitive product. The Company believes that its production
3
techniques and skills are as important as product design, and therefore, in
management's opinion, any lack of patent protection would not adversely affect
the Company's business.
Seasonality of Business
Historically, a major portion of the Company's net income has been earned in the
second half of its fiscal year ending October 31. The purchasing patterns of
school districts are typically strongest in the summer months and this accounts
for stronger sales of small school buses in the second half of the fiscal year.
Generally, the Company's sales tend to be lower in the winter months and first
half of the Company's fiscal year due to the purchasing patterns of the
Company's customers in general and because purchasing activities are normally
lower near the end of the calendar year.
Sales Terms
The Company produces the majority of its products on an order-only basis. Most
products are delivered on a cash basis. Products sold on a direct basis (not
through dealers) are sold on trade terms common to the respective industry.
Finished goods that are reflected on the financial statements are generally
completed units that are ready for customer delivery. Sales to dealers have
generally been financed for the dealers through an unrelated third party,
resulting in payment generally within days of the sale.
Customer Concentration
The Company has no single customer whose loss would have a material adverse
effect on the Company as a whole. During 2004, 2003 and 2002, sales to any one
customer were not in excess of 10% of consolidated sales.
Sales Backlog
The sales backlog at October 31, 2004, was approximately $68.5 million compared
to $46.7 million at October 31, 2003. In the opinion of management, the majority
of this sales backlog will be shipped in fiscal 2005.
Governmental Sales
The Company has pursued, and will continue to pursue, government sales
opportunities as they occur. No material portion of the Company's business,
however, is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Marketing and Distribution
The Company, through its wholly owned subsidiaries, markets its products
throughout the U.S. and, to a limited extent, abroad, through independent
dealers and distributors and the direct sales efforts of Company personnel. Each
of the Company's product groups is responsible for its own marketing activities
and maintains independent relationships with dealers and distributors.
4
Support is provided to dealers and distributors in bidding, specification
writing and customer service.
The Company regularly advertises in consumer and trade magazines and other print
media and actively participates in national, regional and local trade shows. In
addition, Company representatives attend a number of national conventions and
regional meetings of important constituent groups such as school boards and
emergency medical groups.
Competition
The markets for most of the Company's product lines are very competitive, and
the Company currently has several direct competitors in most markets. Some of
these competitors may have greater relative resources. The Company believes it
can compete successfully (i) in the ambulance market on the basis of the quality
and price of its products, its design engineering and product innovation
capabilities and on the strength of the Wheeled Coach brand name, and (ii) in
the small school bus market on the basis of its product price and quality and
favorable recognition of the Collins Bus and Mid Bus brand names, (iii) in the
road construction equipment market for sweepers on the strength of its Waldon
and Lay-Mor brand names, product quality, price and distribution network, and
(iv) in the terminal truck market on the basis of its Capacity brand name,
price, product quality and customer demand for its exclusive Dura-Ride
suspension system.
Research and Development Costs
2004 2003 2002
---- ---- ----
Research and Development Expenses $ 82,537 $ 93,527 $198,814
This table sets forth the research and development costs the Company incurred
the past three fiscal years, which are included in general and administrative
expenses. It should be noted the Company does significant research and
development work on the production line. Accordingly, the major costs of new
programs are recorded as cost of sales and are expensed as incurred.
Regulation
The Company is subject to various laws and regulations and all of the Company's
on-road vehicles must satisfy certain standards as established by the United
States Department of Transportation. Certain of its products must also satisfy
specifications established by other federal, state and local regulatory
agencies, primarily dealing with safety and performance standards.
Federal and state authorities have various environmental control standards
relating to air, water, and noise pollution which affect the business and
operations of the Company. For example, these standards, which are generally
applicable to all companies, control choice of paints, discharge of air
compressor, waste water and noise emitted by factories. Company facilities are
subject to air permitting by the U.S. Environmental Protection Agency and/or
authorized states' under federal and/or state regulations implementing the
federal Clean Air Act. Each of our facilities is
5
currently operating under valid permits. Costs to renew these permits are
immaterial. The Company relies upon certifications obtained from chassis
manufacturers with respect to compliance of vehicles with all applicable
emission control standards.
With respect to employees' health and safety, the Company is subject to various
laws and regulations promulgated by the Occupational Safety and Health
Administration or OSHA. Plants are periodically inspected by federal agencies
concerned with health and safety in the work place to ensure that company plants
comply with applicable governmental and industry standards.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended, and other similar state laws require the cleanup of a
hazardous waste disposal sites. Parties that may be liable under CERCLA for the
cleanup of a hazardous waste disposal site include the current property owner,
the operator, owners and operators of the property at the time of a release of
hazardous substances, the arranger of the disposal, and the transporter of
hazardous substances. To date, the Company has not been notified by the U.S.
Environmental Protection Agency, any state agency, or any other private party
that it is considered responsible or potentially responsible for some aspect of
the cleanup of any hazardous waste disposal site under CERCLA or any other
similar state laws.
In management's opinion, the Company and its products are in compliance in all
material respects with all applicable governmental regulations. A substantial
change in any such regulation could have a significant impact on the business of
the Company.
Employees
The Company employs approximately 1,000 persons full time, including officers
and administrative personnel. No Company employees are represented by unions or
are covered by collective bargaining agreements. The Company has not experienced
any strikes or work stoppages due to labor problems and considers its relations
with its employees to be satisfactory.
Export Sales
See "Note 9 to the Consolidated Financial Statements".
Recent Developments
Audit Committee Investigation
On January 31, 2005, the Company announced that it was delaying filing of its
Form 10-K for the period ending October 31, 2004 as Company management and the
Audit Committee of its Board of Directors were investigating and analyzing the
Company's manner of establishing reserves in various worker's compensation cases
in the states of Kansas and Florida. The decision to delay filing of the Form
10-K for the period ended October 31, 2004 was made to permit the Company's
management and Audit Committee to complete the investigation and
6
analysis, and to allow its independent registered public accounting firm
sufficient time to complete the audit of the Company's October 31, 2004
financial statements.
The Audit Committee retained independent legal counsel and an independent
third-party insurance advisor to investigate of the practices employed by the
Company in determining liability reserve estimates for self insured worker's
compensation claims in Kansas and Florida.
Due to the complexity of calculating the reserves required at the various dates
and the difficulty of estimating the reserve amount in each case, additional
time was needed to ensure a complete investigation. This required the company's
annual shareholder meeting to be held at a later date than normal, which is
traditionally the last Friday in February of each year.
The Company obtained a waiver from its lead bank with regard to the covenant in
its credit facility that all Securities and Exchange Commission reports be filed
on a timely basis. The credit facility remains available and unaffected.
On February 22, 2005, the Company announced that it received notice of a
determination by NASDAQ's Listing Qualifications Staff that it failed to comply
with NASDAQ listing standards set forth in NASDAQ Marketplace Rule 4310(c)(14)
due to the delayed filing with the Securities and Exchange Commission of its
annual report on Form 10-K for the period ended October 31, 2004, and that its
common stock would therefore be subject to delisting from the NASDAQ National
Market. On May 16, the common stock of the Company was delisted from the NASDAQ
National Market due to the delay in filing its annual report on Form 10-K.
On March 2, 2005, the Company announced that, as a result of the investigation,
the Company would restate its previously issued financial statements for the
2003 and 2002 fiscal years to correct the manner in which the Company had
established and recorded these reserves. In addition, the Company's previously
released financial information for fiscal 2004 will be revised. The Company and
Audit Committee have discussed the issues surrounding the restatement with the
Company's independent registered public accounting firm, KPMG LLP (KPMG). KPMG
has informed the Company and Audit Committee that they concur with the
restatement decision.
The Company discovered issues with workers' compensation claims for injuries
dating back to 1990. The special investigation revealed that Company personnel
with responsibility for setting reserves did so in an aggressive manner which
caused the third-party administrator adjusters to recommend reserves at levels
lower than they would have otherwise recommended. Personnel also employed a
practice known as stair-stepping reserves for certain claims. This involves
recording reserves initially at an amount lower than the amount the claim would
be expected to settle for and increasing the reserve over time. In addition,
several Florida claims that had existed for an extended period of time had
reserves which had been set artificially low and then increased periodically to
reflect on-going payments to claimants. The accrual of these amounts in the
period that claims were incurred resulted in a charge to retained earnings for
periods prior to October 31, 2001 and a reversal of reserves in subsequent years
to reflect amounts that should already have been recorded.
7
On May 12, 2005, the Company announced that its Audit Committee had recommended
revised procedures for establishing workers' compensation reserves. Revised
procedures were put in place to help ensure reserve recommendations made by the
Third Party Administrator ("TPA") are recorded. Procedures also prohibit
inappropriate influence by management in the determination of the TPA's
recommended reserve amounts. The revised procedures require increased accounting
oversight to help insure reserves are recorded in accordance with generally
accepted accounting principles. The Board of Directors approved the
recommendation. Effective July 1, 2005, the Company purchased guaranteed cost
workers compensation insurance for the states in which it had previously
self-insured. The Company continues to be self-insured in certain states for
workers compensation claims incurred prior to July 1, 2005.
On March 21, 2005, the Company reported that the Executive Vice President -
Operations, Terry L. Clark, and Chief Financial Officer, Larry Sayre, retired
effective March 18, 2005. April 1, 2005, Randall Swift became Vice President and
Chief Operating Officer of the Company. On May 23, 2005, Cletus Glasener became
Vice President and Chief Financial Officer of the Company. A charge to income
totaling approximately $1.1 million was recorded in the second quarter of fiscal
year 2005. This amount represents the estimated severance obligation of the two
executives who retired.
As a result of the investigation and review of estimated workers compensation
claims, the Company has restated its consolidated financial statements for the
fiscal years ended October 31, 2002 and 2003, and for the quarters ended January
31, 2004 through July 31, 2004. This restatement increased net income by
$242,291, or $.04 per share (diluted) to $1,990,124 for 2002 and by $69,912, or
$.01 per share (diluted) to $1,644,865 for 2003. The beginning balance in
Retained Earnings for 2002 was reduced by $1,443,218 to $8,891,450 to reflect
the additional worker's compensation liability. Previously reported unaudited
net income for the first three quarters of fiscal 2004 increased by $106,734 to
$1,530,207 or $.02 per share (diluted). Net income reflected in the unaudited
consolidated financial statement information for the year ended October 31, 2004
contained in the November 22, 2004 Current Report on Form 8-K decreased by
$153,579. The opening equity as of November 1, 2001 has been restated by
$1,443,218. All applicable financial information contained in this Annual Report
on Form 10-K gives effect to these restatements.
For information concerning the restatements, see Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 2 of the Notes to Consolidated Financial Statements included in Item 8.
8
Item 2. PROPERTIES
The following table sets forth certain information with respect to the Company's
manufacturing and office facilities. The Company owns all properties listed
below in fee simple, except as otherwise noted.
Approximate
Location Use Size (sq ft)
-------- --- ------------
Hutchinson, Kansas (1) Corporate headquarters 5,000
Hutchinson, Kansas (1),(2) Ambulance production; Office space 196,000
South Hutchinson, Kansas (1),(3) Small school bus and commercial bus production; Office space 247,000
Orlando, Florida (1),(4) Ambulance products; Office space 311,000
Terminal truck/road construction equipment production,
Longview, Texas (1),(5) chassis
production; Office space 180,000
Mansfield, Texas (1) Ambulance sales, service and distribution center 25,000
Fairview, Oklahoma (1) Road construction equipment fabrication and assembly;
Office space 74,000
Bluffton, Ohio (6) Small school bus and commercial bus production; Office space 186,000
(1) This property is pledged as collateral to secure payment of the Company's
debt obligations. See "Note 3 to Consolidated Financial Statements."
(2) This facility and certain related equipment are financed by industrial
revenue bonds in the original principal amount of $2,000,000 in 2002 issued
by Reno County, Kansas under lease purchase agreements.
(3) This facility and certain related equipment are financed by industrial
revenue bonds in the original principal amounts of $1,250,000 in 1999 and
$3,500,000 in 1997 issued by the City of South Hutchinson under lease
purchase agreements.
(4) Certain related equipment is financed by industrial revenue bonds in the
original principal amount of $2,000,000 in 2002 issued by Orange County,
Florida Industrial Development Authority under lease purchase agreements.
(5) This facility and certain related equipment are financed by industrial
revenue bonds in the original principal amount of $4,200,000 in 1999 issued
by the Longview Industrial Corporation, Longview, Texas.
(6) This property was leased prior to being purchased for $2,000,000 on May 13,
2005 with financing under the Company's credit facility.
The Company also leases several other facilities throughout the U.S. for the
sale and distribution of ambulances. Although the Company evaluates
opportunities to acquire additional properties at favorable prices as they
arise, it believes that its existing facilities are well maintained and will be
adequate to service its needs in the foreseeable future. Certain Company
facilities have room to expand in existing buildings and others have land upon
which additional buildings can be constructed.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Company is a party or of
which any of its property is subject.
9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during the
fourth quarter of the fiscal year ended October 31, 2004.
10
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Prior to being delisted on May 16, 2005, Collins Industries, Inc. common stock
was quoted on the NASDAQ Stock Market under the symbol COLL. The common stock of
the Company is currently traded over the counter and is quoted through Pink
Sheets under the symbol "COLL.PK." The following table sets forth the high and
low sales prices per share of the common stock as reported by the NASDAQ Stock
Market. There were 460 shareholders of record of the Company's common stock at
June 15, 2005.
FISCAL 2004
Volume
Quarter High Low (000s)
--------------------------------------------------------------------------
First $5.69 $4.05 608
Second 6.02 4.51 401
Third 6.30 4.75 514
Fourth 5.75 4.61 433
FISCAL 2003
Volume
Quarter High Low (000s)
--------------------------------------------------------------------------
First $4.45 $3.02 151
Second 3.91 2.94 339
Third 3.68 3.00 424
Fourth 4.50 3.23 542
During the period covered by this Report, the Company did not sell any equity
securities that were not registered under the Securities Act.
During each of the fiscal years ended October 31, 2004 and 2003 the Company's
annual cash dividend was $0.135 and $0.12 per share respectively and was paid on
a quarterly basis.
For information on our equity compensation plans refer to Item 12, "Security
Ownership of Certain Beneficial Owners and Management".
In the three months ended October 31, 2004 the Company did not repurchase any
shares of common stock.
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Item 6. SELECTED FINANCIAL DATA
Operating History
(In thousands except share and per-share data)
Fiscal years ended October 31, 2004 2003(a) 2002(a) 2001(b) 2000(b)
---- ------- ------- ------- -------
(as restated) (as restated) (as restated) (as restated)
Sales $ 208,203 $ 204,618 $ 200,843 $ 207,626 $ 220,912
Cost of Sales 184,128 181,608 177,705 183,143 194,141
Gross profit 24,075 23,010 23,138 24,483 26,771
Selling, general and administrative
(includes research & development) 19,263 18,653 18,387 19,625 20,725
Income from operations 4,812 4,357 4,751 4,858 6,046
Other income (expenses):
Interest, net (1,472) (1,728) (1,527) (2,056) (1,743)
Other, net 521 6 26 27 125
Income before provision for income taxes 3,861 2,635 3,250 2,829 4,428
Provision for income taxes 1,530 990 1,260 950 1,210
Net income $ 2,331 $ 1,645 $ 1,990 $ 1,879 $ 3,218
Earnings per share - diluted: $ .38 $ .24 $ .29 $ .26 $ .42
Dividends per share $ .1350 $ .1200 $ .1200 $ .1425 $ .1800
Weighted average shares outstanding-
Diluted 6,211,112 6,855,955 6,854,222 7,131,734 7,574,915
Depreciation and amortization $ 3,393 $ 3,320 $ 3,506 $ 3,525 $ 3,099
Financial Position
(In thousands, except share and per-share data)
As of October 31, 2004 2003(a) 2002(a) 2001(b) 2000(b)
---- ------- ------- ------- -------
(as restated) (as restated) (as restated) (as restated)
Current assets $ 54,570 $ 47,267 $ 48,850 $ 45,708 $ 55,451
Current liabilities 35,918 28,879 30,630 28,372 36,238
Working capital 18,652 18,388 18,220 17,336 19,213
Total assets 80,727 74,705 77,476 70,744 81,602
Long-term debt and capitalized leases
(less current maturities) 18,515 16,730 19,396 15,124 19,016
Shareholders' investment 24,769 27,763 26,335 26,287 25,732
Book value per share 3.89 3.83 3.70 3.61 3.47
Financial Comparisons
Fiscal years ended October 31, 2004 2003(a) 2002(a) 2001(b) 2000(b)
---- ------- ------- ------- -------
(as restated) (as restated) (as restated) (as restated)
Gross profit margin 11.6% 11.2% 11.5% 11.8% 12.1%
Net profit margin 1.1% 0.8% 1.0% 0.9% 1.5%
Selling, general and administrative
(including R&D) as percent of sales 9.2% 9.1% 9.2% 9.5% 9.4%
Long-term debt and capitalized leases
to shareholders' investment 0.7:1 0.6:1 0.7:1 0.6:1 0.7:1
Manufacturing space (000's square feet) 1,022 1,108 1,108 1,108 1,108
Common stock repurchased $ 5,344 $ 195 $ 1,749 $ 908 $ 539
Capital expenditures $ 1,837 $ 3,131 $ 3,004 $ 1,687 $ 1,763
(a) For information on the effects of the restatement see Note 2 of Notes to the
Consolidated Financial Statements.
(b) Certain changes have been made to results in these years as discussed in
Note 2 of Notes to the Consolidated Financial Statements. Earnings per share was
previously reported as $.33 in 2001 and $.55 in 2000. Net Income was previously
reported as $2,382 in 2001 and $4,158 in 2000. Shareholders Investment was
previously reported as $27,730 in 2001 and $26,673 in 2000.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT OF FINANCIAL STATEMENTS
On March 2, 2005, the Company announced that, as a result of the Company's
investigation of its self-insured reserves for estimated worker compensation
claims in the states of Florida and Kansas, the Company would restate its
previously issued financial statements for the 2003 and 2002 fiscal years to
correct the manner in which the Company had established and recorded these
reserves. In addition, the Company's previously released financial information
for fiscal 2004 will be revised.
The following table identifies the adjustments made to previously-released
consolidated financial statements:
Periods Prior
Description of Adjustments to
($ In thousands) 2004(1) 2003 2002 2002
--------------------------------------------------------------------------------------------------------
Workers Compensation Reserve Adjustments(2) $ 612 $ 24 $ 411 $ (2,359)
Workers' Compensation Premium Increase (3) (37) - - -
Environmental Reserve Accrual (4) (59) - - -
Uncollectible Rebates (5) (55) (6) - -
Other Accrued Expenses (6) (605) 82 (19) (14)
---------------------------------------------------------------------------------------------------------
Total pre-tax impact $ (144) $ 100 $ 392 $ (2,373)
Income tax (7) (10) (30) (150) 930
---------------------------------------------------------------------------------------------------------
Total Net Income Impact $ (154) $ 70 $ 242 $ (1,443)
---------------------------------------------------------------------------------------------------------
(1) These amounts have been revised by the Company for the quarters ended
January 31, 2004, April 30, 2004 and July 30, 2004 on Form 10-Q and
financial statement information for the year ended October 31, 2004
compared to what was previously furnished in the November 22, 2004 Current
Report on Form 8-K.
(2) Adjustments to workers' compensation liability reserves which had not
previously been recorded. These adjustments are reflected in cost of sales
on the income statement and accrued expenses and other current liabilities
on the balance sheet. Adjustments in 2004, 2003 and 2002 also reflect
reversal of expense recorded in those years which should have been recorded
in prior periods.
Consolidated Statements of Income and Comprehensive Income: Adjustment
decreased (increased) cost of sales by the amounts set forth in this table.
Consolidated Balance Sheets: Adjustment increased accrued expenses and
other current liabilities by $1,312, $1,923 and $1,948, at October 31,
2004, 2003 and 2002, respectively.
(3) In January 2005 the Company received a notice that its State of Ohio
Workers compensation premium attributable to fiscal year 2004 would
increase by $37.
Consolidated Statements of Income and Comprehensive Income: Adjustment
increased cost of sales by the amounts set forth in this table.
Consolidated Balance Sheets: At October 31, 2004, adjustment increased
accounts payable by $37.
(4) In February 2005, the Company received notice from its counsel that amounts
previously recorded for potential environmental liabilities were
understated. Such amounts were increased by $59. This adjustment is
reflected in cost of sales on the income statement and accounts payable on
the balance sheet.
Consolidated Statements of Income and Comprehensive Income: Adjustment
increased cost of sales by the amounts set forth in this table.
Consolidated Balance Sheets: At October 31, 2004, adjustment increased
accounts payable by $59.
(5) Relates to corrections to the estimate of rebate collectibility at October
31, 2004.
13
Consolidated Statements of Income and Comprehensive Income: Adjustment
increased cost of sales by $55 in 2004 and $6 in 2003.
Consolidated Balance Sheets: At October 31, 2004 and 2003, adjustment
decreased receivables by $61 and $6, respectively.
(6) The 2004 items relate to several miscellaneous adjustments primarily
revising estimated accruals to actual expense. The 2004 items include legal
reserve accruals ($340), employee medical expense accruals ($200), facility
expenses ($10), product returns ($17), product concessions expense ($10),
and reversal of product liability expense ($85) partially offset by lower
actual employee bonuses ($34), and lower audit fees ($25).
Consolidated Statements of Income and Comprehensive Income: Adjustments
decreased sales by $13, increased cost of sales by $400 and increased
selling, general and administrative expenses by $191.
Consolidated Balance Sheets: At October 31, 2004, adjustment increased
accrued expense and other current liabilities by $216, increased accounts
payable by $295, increased inventories by $11 and decreased receivables by
$56. An additional entry related to subsequent payments for goods and
service made in 2005 related to 2004 increased inventories and accounts
payable by $113, respectively.
The 2003 items primarily include corrections to facility expenses ($35),
product concessions ($14) offset by lower product liability expense ($85),
lower actual employee bonuses ($3), and lower accounts receivable allowance
expense ($43).
Consolidated Statements of Income and Comprehensive Income: Adjustments
decrease sales by $29, increased cost of sales by $20 and decreased
selling, general and administrative expenses by $132 in 2003.
Consolidated Balance Sheets: At October 31, 2003, adjustment decreased
accrued expense and other current liabilities by $111, increased accounts
payable by $35, decreased receivables by $53 and increased inventories by
$26.
The 2002 items primarily include corrections to increase accounts
receivable allowance expense ($43) partially offset by lower actual
employee bonuses ($22), and lower product concessions expense ($2).
onsolidated Statements of Income and Comprehensive Income: Adjustments
increased sales by $4, increased cost of sales by $2 and increased selling,
general and administrative expense by $21 in 2002.
Consolidated Balance Sheets: At October 31, 2002, adjustment decreased
receivables by $56, and decreased accrued expense and other current
liabilities by $23.
The adjustment to periods prior to 2002 is increased product concessions
expense by $14 and is reflected as a $28 decrease to sales and a $14
decrease to cost of sales in the Consolidated Statements of Income and
Comprehensive Income in 2001. Receivables decreased $28 and inventories
increased $14 in the Consolidated Balances Sheet as of October 31, 2001.
Amounts in 2004, 2003 and 2002 also reflect adjustments for expenses
recorded in those years which should have been recorded in prior periods.
(7) Relates to approximately $40 of income tax benefit related to the
adjustments described above, offset by $50 of additional estimated income
tax expense in 2004. Tax amounts for 2003 and 2002 represent the tax effect
due to the adjustments.
Consolidated Statements of Income and Comprehensive Income: Adjustment
increased income taxes by the amount set forth in this table.
Consolidated Balance Sheets: At October 31, 2004, adjustment increased
accounts payable by $50. The cumulative effect of all entries increased
prepaid expenses and other current assets by $790, $750 and $780 for the
years ended October 31, 2004, 2003 and 2002, respectively.
This restatement increased net income by $242,291, or $.04 per share (diluted)
to $1,990,124 for 2002 and $69,912, or $.01 per share (diluted) to $1,644,865
for 2003. The balance in Retained Earnings as previously reported at October 31,
2001 was reduced by $1,443,218 to $8,891,450 to reflect the additional worker's
compensation reserves which should have been recorded in earlier periods.
Previously reported unaudited net income for the first three quarters of fiscal
2004
14
increased by $106,734 to $1,530,207 or $.02 per share (diluted). Net income
reflected in the unaudited consolidated financial statement information for the
year ended October 31, 2004 furnished in the November 22, 2004 Current Report on
Form 8-K decreased by $153,579. The opening equity as of November 1, 2001 has
been restated by $1,443,218. All applicable financial information contained in
this Annual Report on Form 10-K gives effect to these restatements.
RESULTS EXPRESSED AS A PERCENTAGE OF SALES
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
2004 2003 2002
---- ---- ----
As Restated As Restated
Sales 100.0% 100.0% 100.0%
Cost of sales 88.4 88.8 88.5
---- ----- ----
Gross profit 11.6 11.2 11.5
Selling, general and administrative expenses 9.3 9.1 9.2
Research and development expenses 0.0 0.0 0.0
--- --- ---
Income from operations 2.3 2.1 2.3
Other income(expense):
Interest, net (0.7) (0.8) (0.7)
Other, net 0.3 0.0 0.2
--- --- ---
Income before provision for income taxes 1.9 1.3 1.8
Provision for income taxes 0.8 0.5 0.7
--- --- ---
Net income 1.1% 0.8% 1.1%
==== ==== ====
OVERVIEW
General
Collins Industries, Inc. is a manufacturer of specialty vehicles and has three
reportable segments: ambulances, buses and terminal trucks/road construction
equipment. The ambulance segment produces modular and van type ambulances for
sale to hospitals, ambulance services, fire departments and other governmental
agencies. The bus segment produces small school buses, commercial buses and
shuttle buses for sale to schools, hotel shuttle services, airports, and other
15
governmental agencies. The terminal trucks/road construction equipment segment
produces off-road trucks designed to move trailers and containers for
warehouses, truck terminals, rail yards, rail terminals and shipping ports and
produces a line of road construction equipment. Each of the Company's product
groups is responsible for its own marketing activities and maintains independent
relationships with dealers and distributors.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies of the "Notes to Consolidated
Financial Statements." The Company evaluates performance based on profit or loss
from operations before income taxes not including nonrecurring gains and losses.
For the fiscal years ended October 31, 2003, and 2002 nonrecurring gains or
losses were not material and as such have no impact on this analysis. For fiscal
year 2004 the Company had a nonrecurring pretax gain on sale of property in the
amount of $466,733.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, with all intercompany sales eliminated in
consolidation.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The sales backlog at October 31, 2004, was approximately $68.5 million compared
to $46.7 million at October 31, 2003. In the opinion of management, the majority
of this sales backlog will be shipped in fiscal 2005.
Ambulance Segment
The Company's ambulance segment is the most significant of the Company's three
reportable segments. The ambulance segment is dependent on a number of factors,
including replacement cycles of ambulances, budgetary constraints of Federal,
municipal and other governmental agencies, the age and health demographics of
medical patients, capital spending trends and interest rates for capital goods.
Most ambulance sales are made on a competitive bid basis to public and private
ambulance services, fire departments, hospitals and other governmental agencies.
Substantially all ambulance sales are based on and built to customer
specifications. The Company markets its products through a direct sales force
and to a lesser extent through a dealer network throughout the U.S. and abroad.
The Company produces ambulances in Florida and Kansas and the ambulances are
generally completed in 60-90 days depending on the complexity of the particular
ambulance. Chassis, purchased components and raw materials are the most
significant ambulance manufacturing costs. Ambulances are produced on a variety
of chassis purchased from manufacturers such as Ford and General Motors. As a
result, the ambulance segment is dependent upon an adequate supply and flow of
chassis from its principal chassis suppliers. The Company maintains chassis
consignment pool arrangements with both GM and Ford and generally maintains a
90-120 day supply of chassis in its consignment pools. While an interruption in
supply from one source may cause a temporary slowdown in products, the Company
believes that it could obtain adequate
16
numbers of chassis from alternate sources of supply. In certain cases, chassis
may be supplied by a customer. Other key production components of ambulances
include aluminum, steel, lights and light bars, wood, laminates, paint,
electrical wire and components. The Company generally does not enter into
long-term production contracts for ambulances that would require contractual
provisions for cost adjustments.
Bus Segment
In 2004, the Company's bus segment was its third most significant reportable
segment. Key business drivers of the bus segment include, among other things,
the replacement cycle of buses, transportation budgets of school districts and
other non-profit organizations, capital spending trends and interest rates for
capital goods. Bus sales are generally made on a competitive bid basis either
through the Company's dealer network or directly to an end user for national
account customers. Substantially all bus sales are based on and built to
customer specifications. Additionally, school buses are manufactured to meet
state specifications which vary by state. The majority of the bus segment sales
are small Type-A buses sold to either school districts or large contract
carriers for school districts. In recent years, many states have adopted new
laws that will prohibit or severely limit the public use of 14-passenger vans
("non-conforming vans"). Consequently, public and private schools, public
agencies, churches and similar organizations have begun replacement of
non-conforming vans with small school buses. As a result, the Company expects
the replacement cycle in this new market segment to continue to increase over
the next several years. In recent years, the Company has sold an increasing
number of small activity buses used by day care, church and other non-profit
organizations.
The Company produces buses in Kansas and Ohio and the buses are generally
completed in 30-60 days depending on the complexity of the particular bus.
Chassis, purchased components and raw materials are the most significant bus
manufacturing costs. Buses are principally produced on Ford, General Motors and
International chassis. As a result, the bus segment is dependent upon an
adequate supply and flow of chassis from its principal chassis suppliers. The
Company maintains chassis consignment pool arrangements with both GM and Ford
and generally maintains a 90-120 day supply of chassis in its consignment pools.
While an interruption in supply from one source may cause a temporary slowdown
in products, the Company believes that it could obtain adequate numbers of
chassis from alternate sources of supply. In certain cases, chassis may be
supplied by a customer. Other key production components of buses include steel,
lights, wood, windows, paint and electrical wire and components. The Company
generally does not enter into long-term production contracts for buses that
would require contractual provisions for cost adjustments.
Terminal Truck/Road Construction Segment
Product sales of terminal trucks and road construction units were principally
driven by freight volume trends in the intermodal, trucking, warehousing,
stevedoring operations and construction spending. Other key drivers of this
segment include capital spending and interest rate trends, highway construction
budgets and international currency exchange rates. This segment's
17
products are sold direct to end customers and through dealer networks and
distributors, depending on the particular product and unit volumes. A majority
of this segment's products are sold on a competitive bid basis and terminal
trucks are generally manufactured based on the particular specifications and
requirements of the end customer. A significant majority of the trucks are built
for off-highway use in rail yards, ports and warehouses and distribution
centers. After-market sales of parts to the terminal truck/road construction
market customer base are also a key source of revenue to this segment.
The Company produces its terminal truck/road construction equipment in Texas and
certain other road construction equipment in Oklahoma. These products are
generally manufactured within a 30-60 day timeframe depending on the complexity
of the particular product. The most significant manufacturing costs are the
engines, transmissions, axles and raw steel components. Other key manufacturing
components include windows, hydraulic components, paint and electrical wire and
components. The Company generally does not enter into long-term production
contracts for terminal truck/road construction products that would require
contractual provisions for cost adjustments.
See "Note 9 to the Consolidated Financial Statements" for quantitative segment
information.
RESULTS OF OPERATIONS
Fiscal 2004 Compared to Fiscal 2003
Sales
Ambulance Segment
In fiscal 2004, the ambulance segment sales were $83.2 million or 40.0% of the
Company's consolidated sales compared to $96.5 million or 47.1% in fiscal 2003.
Unit volume sales of ambulance products decreased 15% in fiscal 2004 compared to
2003. This decrease was principally due to budgetary curtailments by certain
municipalities and national not-for-profit organizations. Ambulance products
selling prices increased approximately 1% in fiscal 2004 compared to fiscal
2003. This increase principally resulted from normal price increases required to
offset increases in chassis costs, raw materials and direct labor and a change
in product mix. Segment pretax profits from ambulance products decreased
approximately 36% in fiscal 2004 compared to 2003. Substantially all of this
decrease was a result of lower sales volumes. However, the decrease was
partially offset by higher purchase discounts and incentives from chassis
manufacturers and by production efficiencies achieved from automation of certain
manufacturing operations as discussed below.
Bus Segment
In fiscal 2004, bus segment sales were $57.6 million or 27.7% of the Company's
consolidated sales compared to $66.6 million or 32.6% in fiscal 2003. The
decrease was principally the result of customer-supplied chassis for bus
products. Sales of bus products were reduced by approximately $25.1 million for
the fiscal year ended October 31, 2004 due to customer-supplied
18
bus chassis compared to a reduction of approximately $10.0 million for the same
period last year. Units with customer-supplied chassis for the fiscal year ended
October 31, 2004 amounted to 57% of bus units produced compared to 22% for the
same period last year. Unit volume sales of bus products increased by 7% in
fiscal 2004. This increase was principally due to increased sales to day-care
providers and church-related organizations. The average unit price of bus
products decreased by approximately 19% in fiscal 2004. Substantially all of
this decrease resulted from the impact of customer-supplied chassis discussed
above.
In fiscal 2003, the Kansas bus plant completed mechanization projects and made
major product and manufacturing process improvements. These projects and
improvements were significant factors for the increased bus margins achieved in
both fiscal 2004 and 2003. Segment pretax profits from bus products improved by
approximately 39% in fiscal 2004 compared to 2003.
Terminal Truck/Road Construction Segment
In fiscal 2004, the terminal truck/road construction segment sales were $67.4
million or 32.4% of the Company's consolidated sales compared to $41.5 million
or 20.3% in fiscal 2003. Unit volume sales of terminal truck/road construction
products increased 55% in fiscal 2004. This unit volume increase was principally
due to the impact of additional export sales associated with foreign stevedoring
operations, the changes in currency exchange rates, greater market penetration
and higher domestic sales to intermodal and warehousing customers. This segment
also experienced a rebound in the number of road sweepers sold to the domestic
rental market. The average unit price of terminal truck/road construction
products increased by 5% in fiscal 2004 compared to fiscal 2003. Substantially
all of this increase related to the product mix of terminal truck products and
unit price increases required to offset higher steel and major component prices
of suppliers.
Segment pretax profits from terminal truck/road construction products improved
by 211% in fiscal 2004 compared to 2003. These improvements were principally due
to the higher unit volumes and product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2004 were $19.2 million
(9.2% of sales) compared to $18.6 million (9.1% of sales) in fiscal 2003. This
increase principally resulted from higher sales volumes.
Other Income (Expense)
Interest expense decreased to $1.5 million in fiscal 2004 compared to $1.7
million in fiscal 2003. This decrease was principally a result of an overall
decrease of the Company's average borrowings throughout most of fiscal 2004.
Other income for the fiscal year ended October 31, 2004 was $.52 million. Of
this amount, $.47 million resulted from gains from sales of buildings and land.
Theses properties were comprised of excess office space in Kansas and excess
manufacturing space in Alabama. These properties
19
were not replaced. Although the Company evaluates opportunities to acquire
additional properties at favorable prices as they arise, it believes that its
existing facilities are well maintained and will be adequate to service its
needs in the foreseeable future. Certain Company facilities have room to expand
in existing buildings and others have land upon which additional buildings can
be constructed.
Provision for Taxes
Income tax expense in fiscal 2004 was $1.5 million compared to $1.0 million in
fiscal 2003, while income tax expense as a percentage of pretax income was
approximately 39% and 38%, respectively.
Net Income
The Company's net income in fiscal 2004 increased to $2.3 million ($.38 per
share-diluted) compared to $1.6 million ($.24 per share-diluted) in fiscal 2003.
The overall increase was principally due to higher profit contributions from
terminal truck/road construction and bus products, lower interest costs and
aggregate after tax gains of $292,000 ($.05 per share - diluted) from the sale
of properties in the first and fourth quarter of fiscal 2004. These improvements
were partially offset by lower profit contributions from ambulance products.
Diluted earnings per share for the fiscal year ended October 31, 2004 were also
impacted by the Company's purchase of approximately 14% of its then-outstanding
common stock in December 2003 ($.05 per share - diluted).
Fiscal 2003 Compared to Fiscal 2002
Sales
Ambulance Segment
In fiscal 2003, the ambulance segment sales were $96.5 million or 47.2% of the
Company's consolidated sales compared to $95.5 million or 47.6% in fiscal 2002.
Unit volume sales of ambulance products decreased 14% in fiscal 2003 compared to
2002. This decrease was principally due to a large non-recurring export sale of
ambulances in fiscal 2002. Ambulance products selling prices increased 17% in
fiscal 2003 compared to fiscal 2002. This increase principally resulted from the
impact of a greater number of customer furnished chassis in 2002 compared to
2003. The impact of non-recurring, large export sale in fiscal 2002 and a change
in product mix, were the principal reasons for lower profit margins from the
ambulance segment.
Bus Segment
In fiscal 2003, bus segment sales were $66.6 million or 32.6% of the Company's
consolidated sales compared to $66.3 million or 33.0% in fiscal 2002. Unit
volume sales of bus products decreased by 3% in fiscal 2003. This decrease was
principally due to the overall weakness
20
in the school bus transportation markets, school budgetary constraints and a
general weakness in the U.S. economy. The average unit price of bus products
increased by 4% in fiscal 2003 principally as a result of product mix changes.
In fiscal 2003 the Kansas bus plant completed mechanization projects and made
major product and manufacturing process improvements. These projects and
improvements were the principal reasons for the increased bus margins achieved
in fiscal 2003.
Terminal Truck/Road Construction Segment
In fiscal 2003, the terminal truck/road construction segment sales were $41.5
million or 20.3% of the Company's consolidated sales compared to $39.0 million
or 19.4% in fiscal 2002. Unit volume sales of terminal truck/road construction
products increased 7% in fiscal 2003. These unit volume increases principally
resulted from higher sales to intermodal, domestic stevedoring, trucking and
warehousing customers. Additionally, the Company experienced a rebound in the
road sweepers sold to the domestic rental market. Average unit selling prices of
terminal truck/road construction products decreased less than 1% in fiscal 2003
compared to fiscal 2002.
Segment pretax profits from terminal truck/road construction products improved
by 39% in fiscal 2003 compared to 2002. These improvements were principally due
to the higher unit volumes and product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2003 were $18.6 million
(9.1% of sales) compared to $18.2 million (9.1% of sales) in fiscal 2002. This
increase principally resulted from higher sales volumes.
Other Income (Expense)
Interest expense increased to $1.7 million in fiscal 2003 compared to $1.5
million in fiscal 2002. This increase was principally a result of an overall
increase of the Company's average borrowings throughout most of fiscal 2003
required to support higher levels of inventory and capital expenditures financed
by Industrial Revenue Bonds.
Provision for Income Taxes
Income tax expense in fiscal 2003 was $1.0 million compared to $1.3 million in
fiscal 2002. Income tax expense as a percentage of pretax income was 38% in
fiscal 2003 compared to 39% in fiscal 2002. Income tax expense as a percent of
pretax income decreased principally as a result of lower state income taxes and
non-deductible expenses.
Net Income
21
The Company's net income in fiscal 2003 decreased to $1.6 million ($.24 per
share-diluted) compared to $2.0 million ($.29 per share-diluted) in fiscal 2002.
The overall decrease was principally due to lower profit contributions from
ambulance products and increased interest expense. These decreases were
partially offset by the impact of higher profit contributions from bus products,
and lower corporate expenses.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has principally relied on internally generated funds,
supplier financing, bank borrowings and industrial revenue bonds to finance its
operations and capital expenditures. The Company's working capital requirements
vary from period to period depending on the production volume, the timing of
vehicle deliveries and the payment terms offered to its customers.
Cash provided by operations was $5.4 million in fiscal 2004 compared to $4.6
million in fiscal 2003. Principal sources of the cash provided by operations in
fiscal 2004 were from Company profits and increases in accounts payable and
accrued expenses. These sources of cash from operations were partially offset by
increases in accounts receivable and inventories. Accounts receivable increased
primarily as a result of higher foreign sales in the terminal truck/road
construction equipment segment.
Cash provided by operations was $4.6 million in fiscal 2003 compared to $4.7
million in fiscal 2002. Principal sources of the cash provided by operations in
fiscal 2003 were from Company profits and decreases of accounts receivable.
These sources of cash from operations were offset by increases in inventories
and decreases in accounts payable (net of controlled disbursements).
Cash used in investing activities was $1.3 million in fiscal 2004 compared to
$3.2 million in fiscal 2003. In fiscal 2004, the principal use of cash for
investing purposes was for capital expenditures of $1.8 million partially offset
by $0.6 million in proceeds from the sale of properties in the first and fourth
quarter of fiscal 2004. The Company made capital expenditures related to the
ambulance segment in fiscal 2004 and 2003, of $0.9 million and $2.7 million,
respectively. The majority of these expenditures related to the automation of
certain cabinet and metal fabrication operations in the Florida and Kansas
plants. The Company expects these expenditures to improve the quality of its
products and to reduce its overall production costs.
Cash used in investing activities was $3.2 million in fiscal 2003 compared to
$3.0 million in fiscal 2002. In fiscal 2003, the principal use of cash for
investing purposes was for capital expenditures associated with the automation
of certain ambulance production. The Company made capital expenditures related
to the ambulance segment in fiscal 2003 and 2002, of $2.7 million and $2.0
million, respectively. The majority of these expenditures related to the
automation of certain cabinet and metal fabrication operations in the Florida
and Kansas plants. The Company expects these expenditures to improve the quality
of its products and to reduce its overall production costs.
Cash used in financing activities was $4.0 million in fiscal 2004 compared to
$1.7 million in fiscal 2003. In fiscal 2004, the principal sources of cash from
financing activities related to $4.7
22
million in additional debt financed by the Company's revolving debt credit line
and $0.4 million advanced from Industrial Revenue Bonds issued in fiscal 2002.
These sources of cash from financing activities were offset by the Company's
repurchase and retirement of common stock of $5.3 million, repayment of debt of
$2.9 million and the payment of cash dividends of $.9 million. At October 31,
2004, cash balances included restricted funds of $.4 million related to the
unused proceeds from the new Industrial Revenue Bonds issued in fiscal 2002.
Cash used in financing activities was $1.7 million in fiscal 2003 compared to
$1.5 million in fiscal 2002. In fiscal 2003, the principal sources of cash from
financing activities related to $2.0 million advanced from Industrial Revenue
Bonds issued in fiscal 2002 and $.9 million in additional debt related to
equipment financed by the Company's term debt credit line. These sources of cash
from financing activities were partially offset by the Company's repayment of
debt of $3.5 million, the repurchase and retirement of common stock of $.2
million and the payment of cash dividends of $.9 million. At October 31, 2003,
cash balances included restricted funds of $.8 million related to the unused
proceeds from the new Industrial Revenue Bonds issued in fiscal 2002.
Aggregate maturities of $11.7 million in capitalized leases and long-term debt
due in 2008 are principally a result of a loan agreement with the Company's lead
bank which expires May 17, 2008. The Company currently anticipates arranging an
extension or refinancing of this debt at or prior to maturity. See "Note 3 to
the Consolidated Financial Statements" for quantitative information.
On May 17, 2002 the Company entered into a Loan and Security Agreement, (the
"Agreement"), with Fleet Capital Corporation, a Rhode Island Corporation (the
"Bank"). The Agreement, was amended in fiscal 2004 and provides a total credit
facility of $39.0 million consisting of a revolving credit facility of $30.0
million and long-term credit facilities of $9.0 million. The amended Agreement
expires May 17, 2008. The credit facilities bear interest based on a combination
of Eurodollar (LIBOR plus 1.75%) and the Bank's prime lending rate (4.75% at
October 31, 2004). The revolving credit facility also provides for a maximum of
$2.5 million in letters of credit, of which $1.5 million were outstanding at
October 31, 2004. The total amount of unused revolving credit available to the
Company was $17.6 million at October 31, 2004.
On December 1, 2003 the Company completed a modified Dutch auction tender offer,
which commenced on October 10, 2003 and expired on November 21, 2003. As a
result, the Company purchased and retired 14.4% of its outstanding common stock
(1,050,879 shares) at $4.50 per share or $5.1 million including associated
indirect costs. The purchase of the shares was financed by the Company's
revolving credit facility. The effect of this transaction increased the
Company's interest-bearing debt and reduced its stockholder's equity by $5.1
million.
The Company obtained a waiver from its lead bank with regard to the covenant in
its credit facility that all audited financial statements be delivered on a
timely basis. The credit facility remains available and unaffected. The delay in
providing audited financial statements did not result in a default under other
debt obligations. The Company has not received any default notifications.
Management believes it is in compliance with its covenants under the credit
facility.
23
The Company believes that its cash flows from operations, its credit facility
with its lead bank and unused funds restricted for future capital expenditures
will be sufficient to satisfy its future working capital, capital expenditure
requirements and anticipated dividends. See "Note 2 to the Consolidated
Financial Statements" for quantitative information.
The credit facility is collateralized by receivables, inventories, equipment and
certain real property. Under the terms of the Agreement, the Company is required
to maintain certain financial ratios and other financial conditions. The
Agreement also prohibits the Company from incurring certain additional
indebtedness, limits certain investments, advances or loans and restricts
substantial asset sales and capital expenditures. The delay in filing audited
financial statements for the year ended October 31, 2004 would have constituted
a debt covenant violation pursuant to the agreement. The Company obtained a
waiver from its lender regarding this event. The delay in filing the audited
financial statements also resulted in non-compliance under other debt
agreements, although the non-compliance did not result in an event of default.
The Company has not received any default notifications. Management believes all
default conditions have now been remedied and the Company is in compliance with
its covenants under its lending agreements.
It is customary practice for companies in the specialty vehicle industry to
enter into repurchase agreements with financing institutions to provide floor
plan financing for dealers. In the event of a dealer default, these agreements
generally require the repurchase of products at the original invoice price net
of certain adjustments. The risk of loss under the agreements is limited to the
risk that market prices for these products may decline between the time of
delivery to the dealer and time of repurchase by the Company. The risk is spread
over numerous dealers and the Company has not incurred significant losses under
these agreements. In the opinion of management, any future losses under these
agreements will not have a material adverse effect on the Company's financial
position or results of operations. The Company's repurchase obligation under
these agreements is limited to vehicles which are in new condition and as to
which the dealer still holds title. The Company's contingent obligation under
such agreements was approximately $1,188,000 at October 31, 2004.
OFF-BALANCE SHEET ARRANGEMENTS
At October 31, 2004, the Company had no off-balance sheet arrangements that have
or are likely to have a material current or future effect on our financial
condition, changes in financial condition, revenues or expense, results of
operations, liquidity, capital expenditures or capital resources.
24
CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES
The Company's consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. We believe that of our critical
accounting policies, the following may involve a high degree of judgments,
estimates, and complexity:
Inventories
The Company values its inventories at the lower of cost or market. The Company
has chosen the first-in, first-out (FIFO) cost method of valuing its
inventories. The effect of the FIFO method is to value ending inventories on the
balance sheet at their approximate current or most recent cost. The market
values for finished goods inventories are determined based on recent selling
prices.
Impairment of Long-Lived Assets
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142). SFAS No. 142 was effective for fiscal years beginning
after December 15, 2001. Consequently, goodwill is no longer amortized over
future periods, but is assessed for impairment at least annually using a fair
value test. The Company adopted this new standard on November 1, 2002.
As of October 31, 2004 and October 31, 2003, the Company tested for impairment
the bus and terminal truck/road construction business segments using the
discounted cash flow approach and determined that the fair values for each of
these segments exceeded the related carrying values. On an on-going basis, and
absent any impairment indicators, the Company will conduct similar tests and
record any impairment loss. Management believes that the estimates of future
cash flows and fair values are reasonable; however, changes in estimates of such
cash flows and fair value could affect the valuations.
Insurance Reserves
The Company failed to adequately provide for estimated future Workers
Compensation costs related to certain claims that have been denied by the
Company's excess liability insurance carrier and for certain other claims. When
management discovered the error, an independent third party administrator was
retained to estimate and determine the additional potential liability related to
these claims. The Company is currently disputing the denial of coverage by the
excess liability insurance carrier, but the amount of future recovery, if any,
can not be assured.
Generally, the Company is self-insured for workers' compensation for certain
subsidiaries and for all group medical insurance. Under these plans, liabilities
are recognized for claims incurred (including claims incurred but not reported)
and changes in the case reserves. At the time a worker's compensation claim is
filed, a liability is estimated to settle the claim. The liability for workers'
compensation claims is determined based on management's estimates of the nature
and severity of the claims and based on analysis provided by third party
administrators and by various state statutes and reserve requirements. Since the
liability is an estimate, the ultimate liability may be more or less than
reported. If previously established accruals are required to be
25
adjusted, such amounts are included in cost of sales. Group medical reserves are
funded through a trust and are estimated using historical claims' experience.
Due to the nature of the Company's products, the Company is subject to product
liability claims in the normal course of business. To the extent permitted under
applicable law, the Company maintains insurance to reduce or eliminate risk to
the Company. This insurance coverage includes self-insured retentions that vary
each year. The Company maintains excess liability insurance with outside
insurance carriers to minimize its risks related to catastrophic claims in
excess of all self-insured positions. Any material change in the aforementioned
factors could have an adverse impact on our operating results.
Warranties
The Company's products generally carry explicit product warranties that extend
from several months to more than a year, based on terms that are generally
accepted in the marketplace. Certain components included in the Company's end
products (such as chassis, engines, axles, transmissions, tires, etc.) may
include manufacturers' warranties that are generally passed on to the end
customer of the Company's products and the customer generally deals directly
with the applicable component manufacturer. The Company records provisions for
estimated warranty and other related costs at the time of sale based on
historical warranty loss experience and periodically adjusts these provisions to
reflect actual experience. Certain warranty and other related claims involve
matters of dispute that ultimately are resolved by negotiation, arbitration or
litigation. Infrequently, a material warranty issue may arise which is beyond
the scope of the company's historical experience. The Company provides for any
such warranty issues as they become known and estimable. It is reasonably
possible that from time to time additional warranty and other related claims
could arise from disputes or other matters beyond the scope of the Company's
historical experience.
Revenue Recognition
The Company records vehicle sales, and passes title to the customer, at the
earlier of completion of the vehicle and receipt of full payment or shipment or
delivery to the customer as specified by the customer purchase order. Customer
deposits for partial payment of vehicles are deferred and treated as current
liabilities until the vehicle is completed and recognized as revenue. In
instances where revenue has been recognized and the vehicle is on the Company's
property, the customer has instructed in writing the Company to hold the unit
for specific business reasons, a delivery date normally within the next 30 days
has been established, the vehicles are complete, ready for shipment, and
segregated from other vehicles, and the risk of ownership has passed to the
customer.
26
PRINCIPAL CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The Company's contractual obligations and other commercial commitments as of
October 31, 2004 are summarized below and fully disclosed in Notes 3 and 8 in
Notes to Consolidated Financial Statements:
Payments due by period (in millions)
----------------------------------------------------------------------------
Less than 1-3 years After 5
Total 1 year 4-5 years years
------------- ------------- ----------- ------------- -----------
Contractual Cash Obligations
Long-term debt $14.345 $ 1.207 $ 2.414 $10.724 $ -
Capital lease obligations 6.541 1.164 2.485 1.556 1.336
Operating lease obligations 1.070 0.482 0.435 0.153 -
Purchase obligations 0.360 0.360 - - -
Chassis contingent obligations 15.659 15.659 - - -
----------------------------------------------------------------------------
Total contractual cash obligations $37.975 $18.872 $ 5.334 $ 12.433 $ 1.336
----------------------------------------------------------------------------
Other Commercial Commitments
Lines of credit $ - $ - $ - $ - $ -
Standby letters of credit 3.167 3.167 - - -
Standby repurchase commitments 1.188 1.188 - - -
Other commercial commitments - - - - -
----------------------------------------------------------------------------
Total commercial commitments $ 4.355 $ 4.355 $ - $ - $ -
----------------------------------------------------------------------------
Recently Issued Accounting Standards
In November 2004, the FASB issued FASB Statement No. 151, "Inventory Costs: an
amendment of ARB No. 43". FASB No. 151 will no longer permit companies to
capitalize inventory costs on their balance sheets when the production defect
rate varies significantly from the expected rate. The statement also clarifies
that fixed overhead should be allocated to inventory based on "normal capacity".
The statement is effective for the Company beginning on November 1, 2005. The
Company is unable to estimate the financial statement impact of this statement
at this time.
In December 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation 46R (FIN 46R), a revision to Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46R clarifies some of the
provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R
is effective at the end of the first interim period ending after March 15, 2004.
Entities that have adopted FIN 46 prior to this effective date can continue to
apply the provisions of FIN 46 until the effective date of FIN 46R or elect
early adoption of FIN 46R. The adoption of FIN 46 and FIN 46R did not have a
significant impact on our financial statements.
FASB Statement No. 123, Accounting for Stock-Based Compensation, was revised in
December 2004 ("Revised Statement"). The Revised Statement, Share Based Payment,
also supersedes
27
APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. The Revised Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. For the Company, the Revised Statement is effective
November 1, 2005. The adoption of this Revised Statement is not expected to have
a material impact on our financial statements.
28
Cautionary Statement Regarding Risks and Uncertainties That May Affect Future
Results
This annual report on Form 10-K and other written reports and oral statements
made from time to time by the Company may contain so-called "forward-looking
statements" about the business, financial condition, and prospects of the
Company which are subject to risks and uncertainties. One can identify these
forward-looking statements by their use of words such as "expects", "plans",
"will", "estimates", "forecasts", "projects", and other words of similar
meaning. One can also identify them by the fact that they do not relate strictly
to historical or current facts. One should understand that it is not possible to
predict or identify all factors which involve risks and uncertainties.
Consequently, the reader should not consider any such list or listing to be a
complete statement of all potential risks or uncertainties.
No forward-looking statement can be guaranteed and actual future results may
vary materially. The actual results of the Company could differ materially from
those indicated by the forward-looking statements because of various risks and
uncertainties including without limitation, changes in funds budgeted by
Federal, state and local governments, the availability and timely delivery of
key raw materials, components and chassis, changes in competition, various
inventory risks due to changes in market conditions, changes in product demand,
substantial dependence on third parties for product quality, interest rate
fluctuations, adequate direct labor pools, development of new products, changes
in tax and other governmental rules and regulations applicable to the Company,
reliability and timely fulfillment of orders and other risks indicated in the
Company's filing with the Securities and Exchange Commission.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q and 8-K (if any).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk relating to interest rates on its fixed
rate debt. Interest rate risk is not material to the Company's consolidated
financial position or results of operations.
The Company uses derivative financial instruments to reduce exposure to its
variable-rate debt. On July 5, 2002, the Company entered into an interest rate
declining balance swap agreement on term debt of $6.8 million to limit the
effect of potential increases in the interest rates on its floating-rate term
debt through May 2005. The effect of this agreement was to convert the
underlying variable-rate debt based on LIBOR to a fixed-rate debt with an
interest rate between 4.42% and 4.65% plus a margin of 175 basis points. Fair
value of this swap at October 31, 2004 was $40,562. If interest rates for
long-term debt under the current credit facility had averaged 10% more on
average variable-rate debt for the entire year, interest expense would have
increased, and income before taxes would have decreased by less than $0.06
million for the year ended October 31, 2004.
29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Shareholders of Collins Industries, Inc.,
We have audited the accompanying consolidated balance sheets of Collins
Industries, Inc. (a Missouri corporation) and Subsidiaries as of October 31,
2004 and 2003, and the related consolidated statements of income and
comprehensive income, shareholders' investment and cash flows for each of the
years in the three-year period ended October 31, 2004. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Collins Industries,
Inc. and Subsidiaries as of October 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 2004, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the Company has
restated its consolidated financial statements for the years ended October 31,
2003 and 2002. As discussed in Note 1 to the consolidated financial statements,
in 2003 the Company changed its method of accounting for goodwill and other
intangible assets to comply with the accounting provisions of Statement of
Financial Accounting Standard No. 142.
KPMG LLP
Kansas City, Missouri
July 28, 2005
30
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended October 31,
2004 2003 2002
---- ---- ----
(as restated) (as restated)
Sales $208,202,664 $204,617,949 $200,842,914
Cost of sales 184,128,034 181,608,277 177,704,716
--------------- --------------- ---------------
Gross profit 24,074,630 23,009,672 23,138,198
Selling, general and administrative expenses 19,180,504 18,558,989 18,187,702
Research and development expenses 82,537 93,527 198,814
--------------- --------------- ---------------
Income from operations 4,811,589 4,357,156 4,751,682
Other income (expense):
Interest, net (1,472,380) (1,728,369) (1,527,592)
Other, net 521,533 6,078 26,034
--------------- --------------- ---------------
(950,847) (1,722,291) (1,501,558)
--------------- --------------- ---------------
Income before provision for income taxes 3,860,742 2,634,865 3,250,124
Provision for income taxes 1,530,000 990,000 1,260,000
--------------- --------------- ---------------
Net income $2,330,742 $1,644,865 $1,990,124
Other comprehensive income, net of tax:
Unrealized gain (loss) on interest rate swap agreement 75,654 143,702 (244,918)
--------------- --------------- ---------------
Comprehensive income $2,406,396 $1,788,567 $1,745,206
========== ========== ==========
Earnings per share:
Basic $.40 $.25 $.30
Diluted $.38 $.24 $.29
Dividends per share $0.14 $0.12 $0.12
The accompanying notes are an integral part of these consolidated statements.
31
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31,
ASSETS 2004 2003
---- ----
(as restated)
Current assets:
Cash $ 163,098 $ 77,012
Receivables 10,979,087 6,620,399
Inventories 39,059,185 36,391,602
Prepaid expenses and other current assets 4,368,191 4,178,027
--------- ---------
Total current assets 54,569,561 47,267,040
Restricted cash 359,810 772,803
Property and equipment, at cost:
Land and improvements 2,856,115 2,925,178
Buildings and improvements 19,038,969 19,987,222
Machinery and equipment 23,742,788 23,270,297
Office furniture and fixtures 3,966,401 4,355,691
--------- ---------
49,604,273 50,538,388
Less - accumulated depreciation 30,239,053 30,494,964
---------- ----------
19,365,220 20,043,424
Goodwill 5,050,232 5,050,232
Other assets 1,382,482 1,571,899
--------- ---------
$ 80,727,305 $ 74,705,398
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current liabilities
Current maturities of long-term debt and capitalized leases $ 2,371,734 $ 2,406,250
Controlled disbursements 5,668,517 3,632,287
Accounts payable 18,408,291 13,931,090
Accrued expenses and other current liabilities 9,469,165 8,909,911
--------- ---------
Total current liabilities 35,917,707 28,879,538
Long-term debt and capitalized leases 18,515,178 16,729,561
Deferred income taxes 1,525,560 1,333,571
Shareholders' investment:
Preferred stock, $.10 par value
Authorized - 750,000 shares
Outstanding - no share outstanding
Capital stock, $.10 par value
Authorized - 3,000,000 shares
Outstanding - No shares outstanding
Common stock, $.10 par value
Authorized - 17,000,000 shares
Issued and outstanding - 6,369,327 shares in 2004
and 7,247,865 shares in 2003 636,933 724,787
Paid-in capital 13,342,600 17,570,310
Deferred compensation (1,472,590) (1,238,947)
Accumulated other comprehensive income (loss), net (25,562) (101,216)
Retained earnings 12,287,479 10,807,794
---------- ----------
Total shareholders' investment 24,768,860 27,762,728
---------- ----------
Total Liabilities & Shareholders Investment $ 80,727,305 $ 74,705,398
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
32
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31,
2004 2003 2002
---- ---- ----
(as restated) (as restated)
Cash flow from operations:
Cash received from customers $203,853,977 $206,913,163 $197,985,303
Cash paid to suppliers and employees (195,778,494) (199,920,830) (191,320,054)
Interest paid, net (1,452,952) (1,760,118) (1,563,990)
Income taxes paid (1,241,684) (648,540) (406,650)
----------------- ---------------- ------------------
Cash provided by operations 5,380,847 4,583,675 4,694,609
----------------- ---------------- ------------------
Cash flow from investing activities:
Capital expenditures (1,837,219) (3,131,071) (3,003,579)
Proceeds from sale of property and equipment 617,000 - -
Expenditures for other assets (75,334) (38,096) (43,560)
----------------- ---------------- ------------------
Cash used in investing activities (1,295,553) (3,169,167) (3,047,139)
----------------- ---------------- ------------------
Cash flow from financing activities:
Principal payments of long-term debt and
capitalized leases (2,927,722) (3,546,861) (2,062,485)
Addition to long-term debt and capitalized leases 4,668,644 900,000 5,817,348
Changes in restricted unexpended IRB cash 412,993 1,976,167 (2,748,970)
Purchase of common stock and other
capital transactions (5,302,065) (188,229) (1,605,906)
Payment of dividends (851,058) (863,087) (855,558)
----------------- ---------------- ------------------
Cash used in financing activities (3,999,208) (1,722,010) (1,455,571)
----------------- ---------------- ------------------
Net increase (decrease) in cash 86,086 (307,502) 191,899
Cash at beginning of year 77,012 384,514 192,615
----------------- ---------------- ------------------
Cash at end of year $163,098 $77,012 $384,514
================= ================ ==================
Reconciliation of net income to net
cash provided by operations:
Net income $2,330,742 $1,644,865 $ 1,990,124
Depreciation and amortization 3,392,944 3,320,474 3,505,504
Deferred income taxes (credits) 92,000 (122,000) 355,000
Gain on sale of property and equipment (466,733) - -
Changes in assets and liabilities:
Decrease (increase) in receivables (4,348,688) 2,295,214 (2,857,611)
Increase in inventories (2,667,583) (654,805) (353,747)
Increase (decrease) in prepaid expenses (193,461) (131,196) 61,648
Increase in controlled disbursements 2,036,230 1,654,803 373,394
Increase (decrease) in accounts payable 4,639,854 (3,764,449) 1,768,676
Increase (decrease) in accrued expenses 565,542 340,769 (148,379)
----------------- ---------------- ------------------
Cash provided by operations $5,380,847 $4,583,675 $4,694,609
================= ================ ==================
The accompanying notes are an integral part of these consolidated statements
33
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the years ended October 31,
Common Stock
------------ Paid-In Retained
Shares Amount Capital Earnings Other
------ ------ ------- -------- -----
Balance November 1, 2001 (as previously 7,291,755 $ 729,175 $ 17,612,508 $10,334,668 $ (945,981)
reported)
Adjustments
Cumulative Restatement Adjustments, (1,443,218)
Net of tax
Balance November 1, 2001 (as restated) 7,291,755 $ 729,175 $ 17,612,508 $8,891,450 $ (945,981)
Stock issued under stock
option plans 76,000 7,600 135,236 - -
Issuance of restricted stock awards, net 202,500 20,250 992,250 - (1,012,500)
Amortization of restricted
stock awards - - - - 690,489
Net income - - - 1,990,124 -
Other comprehensive loss (net of taxes) - - - - (244,918)
Cash dividends paid - - - (855,558) -
Tax benefit from NQSO options exercised - - 73,731 - -
Purchase and retirement of treasury stock (454,626) (45,462) (1,703,279) - -
------------ ----------- --------------- ---------------- -----------
Balance October 31, 2002 (as restated) 7,115,629 711,563 17,110,446 10,026,016 (1,512,910)
Stock issued under stock
option plans 3,700 370 6,818 - -
Issuance of restricted stock awards, net 185,500 18,550 642,768 - (661,318)
Amortization of restricted
stock awards - - - - 690,363
Net income - - - 1,644,865 -
Other comprehensive income (net of - - - - 143,702
taxes)
Cash dividends paid - - - (863,087) -
Purchase and retirement of treasury stock (56,964) (5,696) (189,722) - -
------------ ----------- --------------- ---------------- -----------
Balance October 31, 2003 (as restated) 7,247,865 724,787 17,570,310 10,807,794 (1,340,163)
Stock issued under stock
option plans 21,600 2,160 39,453 - -
Issuance of restricted stock awards, net 195,000 19,500 967,000 - (986,500)
Amortization of restricted
stock awards - - - - 752,857
Net income - - - 2,330,743 -
Other comprehensive income (net of - - - - 75,654
taxes)
Cash dividends paid - - - (851,058) -
Purchase and retirement of treasury stock (1,095,138) (109,514) (5,234,163) - -
------------ --------- ------------ ------------ ------------
Balance October 31, 2004 6,369,327 $ 636,933 $ 13,342,600 $ 12,287,479 $ (1,498,152)
============ ========= ============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
34
Collins Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended October 31, 2004
(1) Summary of Significant Accounting Policies
(a) General - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Consolidation and Operations - The consolidated financial statements include
the accounts of Collins Industries, Inc. (the Company) and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company primarily operates in the ambulance, bus, and terminal truck/road
construction equipment segments. Manufacturing activities are carried on solely
in the United States. However, the Company does market its products in other
countries. Revenues derived from export sales were less than 10% of consolidated
sales in fiscal 2004, 2003 and 2002.
(c) Cash and Cash Management - Cash includes checking accounts, funds invested
in overnight and other short-term, interest-bearing accounts of three months or
less.
The Company maintains controlled disbursement accounts with its lead bank under
an arrangement whereby all cash receipts and checks are centralized and
presented to the bank daily. All deposits are applied directly against the
Company's revolving credit line and all checks presented for payment in the
controlled disbursement accounts are funded through daily borrowings under the
Company's revolving credit facility. Accordingly controlled disbursements
represent the Company's liability for outstanding checks drawn but not yet
presented for payment to the bank.
(d) Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market. Major classes of inventories which include material,
labor, and manufacturing overhead required in production of Company products
consisted of the following:
2004 2003
---- ----
(as restated)
Chassis $ 5,767,019 $ 5,727,490
Raw materials & components 14,997,408 16,006,994
Work-in-process 9,037,199 6,705,560
Finished goods 9,257,559 7,951,558
----------- -----------
$39,059,185 $36,391,602
35
(e) Depreciation and Maintenance - Depreciation is provided using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. The estimated useful lives of property are as follows:
Land improvements 10 to 20 years
Buildings and improvements 10 to 30 years
Machinery and equipment 3 to 15 years
Office furniture and fixtures 3 to 10 years
Maintenance and repairs are charged to expense as incurred. The cost of
additions and betterments are capitalized. The cost and related depreciation of
property retired or sold are removed from the applicable accounts and any gain
or loss is taken into income.
(f) Impairment of Long-Lived Assets - Long-lived assets, such as property,
plant, and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
(g) Goodwill - In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 142 was effective for fiscal years
beginning after December 15, 2001. Accordingly, after October 31, 2002, goodwill
is no longer amortized over future periods, but is assessed for impairment at
least annually using a fair value test. The Company adopted this new standard on
November 1, 2002.
As of October 31, 2004 and October 31, 2003, the Company tested for goodwill
impairment in the bus and terminal truck/road construction business segments
using the discounted cash flow approach and determined that the fair values for
each of these segments exceeded the related carrying values. On an on-going
basis, and absent any impairment indicators, the Company will continue to
conduct similar annual tests and record any impairment losses.
At October 31, 2004 and October 31, 2003, the Company's goodwill related to the
bus and terminal truck/road construction segments was $3.0 million and $2.0
million, respectively. Prior to November 1, 2002 goodwill was amortized on a
straight-line basis over 15-20 years.
2004 2003 2002
Reported Net Income $2,330,743 $1,644,865 $1,990,124
Add back: Goodwill amortization - - 283,000
Adjusted Net Income $2,330,743 $1,644,865 $2,273,124
Basic earnings per share:
Reported Net Income 0.40 0.25 .030
Goodwill amortization - - 0.04
Adjusted Net Income 0.40 0.25 0.34
Diluted earnings per share:
Reported Net Income 0.38 0.24 0.29
Goodwill amortization - - 0.04
Adjusted Net Income 0.38 0.24 0.33
36
(h) Revenue Recognition - The Company records vehicle sales, and passes title to
the customer, at the earlier of completion of the vehicle and receipt of full
payment or shipment or delivery to the customer as specified by the customer
purchase order. Customer deposits for partial payment of vehicles are deferred
and treated as current liabilities until the vehicle is completed and recognized
as revenue. In instances where revenue has been recognized and the vehicle is on
the Company's property, the customer has instructed in writing the Company to
hold the unit for specific business reasons, a delivery date normally within the
next 30 days has been established, the vehicles are complete, ready for
shipment, and segregated from other vehicles, and the risk of ownership has
passed to the customer.
(i) Earnings Per Share - Basic earnings per share are computed based on the
weighted average number of common shares outstanding. Potentially dilutive
shares, calculated using the treasury stock method, consist of stock options and
restricted stock.
The following is a reconciliation of shares used to calculate basic and diluted
earnings per share:
2004 2003 2002
---- ---- ----
Average shares outstanding - basic 5,824,451 6,663,471 6,681,140
Effect of potentially dilutive stock
options and restricted stock 386,661 192,484 173,082
--------- --------- ---------
Average shares outstanding - diluted 6,211,112 6,855,955 6,854,222
========= ========= =========
(j) Stock Option Plan - The Company applies the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations including
FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, to account for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123. No stock options have been
granted since 1999 and all outstanding options are fully vested. Accordingly, no
proforma net income disclosures are required.
(2) Restatement of Financial Statements
Subsequent to October 31, 2004, management determined that the procedures used
to record workers compensation reserves were inappropriate and resulted in
inadequate reserves being recorded historically for estimated workers
compensation costs and claims. This information was reported to the Audit
Committee and the Audit Committee initiated procedures which ultimately lead to
the special investigation described in Note 11. As a result, and because the
2004 year-end financial closing process identified adjustments to prior period
financial statements, the Company restated its consolidated financial statements
for the fiscal years ended October 31, 2003 and 2002 and for the quarters ended
January 31, 2003 to July 31, 2004. The
37
consolidated opening balance sheet for the earliest period presented has also
been restated for adjustments identified that related to periods prior to
October 31, 2001.
The following table identifies the adjustments made to previously-released
consolidated financial statements:
Periods Prior
Description of Adjustments to
($ In thousands) 2004(1) 2003 2002 2002
----------------------------------------------------- ------------------- -------------- --------------- ----------------
Workers Compensation Reserve Adjustments(2) $ 612 $ 24 $ 411 $ (2,359)
Workers' Compensation Premium Increase ((3)) (37) - - -
Environmental Reserve Accrual ((4)) (59) - - -
Uncollectible Rebates ((5)) (55) (6) - -
Other Accrued Expenses ((6)) (605) 82 (19) (14)
----------------------------------------------------- ------------------- -------------- --------------- ----------------
Total pre-tax impact $ (144) $ 100 $ 392 $ (2,373)
Income tax (7) (10) (30) (150) 930
----------------------------------------------------- ------------------- -------------- --------------- ----------------
Total Net Income Impact $ (154) $ 70 $ 242 $ (1,443)
----------------------------------------------------- ------------------- -------------- --------------- ----------------
(1) These amounts have been revised by the Company for the quarters ended
January 31, 2004, April 30, 2004 and July 30, 2004 on Form 10-Q and
financial statement information for the year ended October 31, 2004
compared to what was previously furnished in the November 22, 2004 Current
Report on Form 8-K.
(2) Adjustments to workers' compensation liability reserves which had not
previously been recorded. These adjustments are reflected in cost of sales
on the income statement and accrued expenses and other current liabilities
on the balance sheet. Adjustments in 2004, 2003 and 2002 also reflect
reversal of expense recorded in those years which should have been recorded
in prior periods. Consolidated Statements of Income and Comprehensive
Income: Adjustment decreased (increased) cost of sales by the amounts set
forth in this table. Consolidated Balance Sheets: Adjustment increased
accrued expenses and other current liabilities by $1,312, $1,923 and
$1,948, at October 31, 2004, 2003 and 2002, respectively.
(3) In January 2005 the Company received a notice that its State of Ohio
Workers compensation premium attributable to fiscal year 2004 would
increase by $37. Consolidated Statements of Income and Comprehensive
Income: Adjustment increased cost of sales by the amounts set forth in this
table. Consolidated Balance Sheets: At October 31, 2004, adjustment
increased accounts payable by $37.
(4) In February 2005, the Company received notice from its counsel that amounts
previously recorded for potential environmental liabilities were
understated. Such amounts were increased by $59. This adjustment is
reflected in cost of sales on the income statement and accounts payable on
the balance sheet. Consolidated Statements of Income and Comprehensive
Income: Adjustment increased cost of sales by the amounts set forth in this
table. Consolidated Balance Sheets: At October31, 2004, adjustment
increased accounts payable by $59.
(5) Relates to corrections to the estimate of rebate collectibility at October
31, 2004. Consolidated Statements of Income and Comprehensive Income:
Adjustment increased cost of sales by $55 in 2004 and $6 in 2003.
Consolidated Balance Sheets: At October 31, 2004 and 2003, adjustment
decreased receivables by $61 and $6, respectively.
(6) The 2004 items relate to several miscellaneous adjustments primarily
revising estimated accruals to actual expense. The 2004 items include legal
reserve accruals ($340), employee medical expense accruals ($200), facility
expenses ($10), product returns ($17), product concessions expense ($10),
and reversal of product liability expense ($85) partially offset by lower
actual employee bonuses ($34), and lower audit fees ($25). Consolidated
Statements of Income and Comprehensive Income: Adjustments decreased sales
by $13, increased cost of sales by $400 and increased selling, general and
administrative expenses by $191.
38
Consolidated Balance Sheets: At October 31, 2004, adjustment increased
accrued expense and other current liabilities by $216, increased accounts
payable by $295, increased inventories by $11 and decreased receivables by
$56. An additional entry related to subsequent payments for goods and
service made in 2005 related to 2004 increased inventories and accounts
payable by $113, respectively.
The 2003 items primarily include corrections to facility expenses ($35),
product concessions ($14) offset by lower product liability expense ($85),
lower actual employee bonuses ($3), and lower accounts receivable allowance
expense ($43).
Consolidated Statements of Income and Comprehensive Income: Adjustments
decreased sales by $29, increased cost of sales by $20 and decreased
selling, general and administrative expenses by $132 in 2003. Consolidated
Balance Sheets: At October 31, 2003, adjustment decreased accrued expense
and other current liabilities by $111, increased accounts payable by $35,
decreased receivables by $53 and increased inventories by $26.
The 2002 items primarily include corrections to increase accounts
receivable allowance expense ($43) partially offset by lower actual
employee bonuses ($22), and lower product concessions expense ($2).
Consolidated Statements of Income and Comprehensive Income: Adjustments
increased sales by $4, increased cost of sales by $2 and increased selling,
general and administrative expense by $21 in 2002. Consolidated Balance
Sheets: At October 31, 2002, adjustment decreased receivables by $56, and
decreased accrued expense and other current liabilities by $23.
The adjustment to periods prior to 2002 is increased product concessions
expense by $14 and is reflected as a $28 decrease to sales and a $14
decrease to cost of sales in the Consolidated Statements of Income and
Comprehensive Income in 2001. Receivables decreased $28 and inventories
increased $14 in the Consolidated Balances Sheet as of October 31, 2001.
Amounts in 2004, 2003 and 2002 also reflect adjustments for expenses
recorded in those years which should have been recorded in prior periods.
(7) Relates to approximately $40 of income tax benefit related to the
adjustments described above, offset by $50 of additional estimated income
tax expense in 2004. Tax amounts for 2003 and 2002 represent the tax affect
due to the adjustments.
Consolidated Statements of Income and Comprehensive Income: Adjustment
increased income taxes by the amount set forth in this table. Consolidated
Balance Sheets: At October 31, 2004, adjustment increased accounts payable
by $50. The cumulative effect of all entries increased prepaid expenses and
other current assets by $790, $750 and $780 for the years ended October 31,
2004, 2003 and 2002, respectively.
This restatement increased net income by $242,291, or $.04 per share (diluted)
to $1,990,124 for 2002 and $69,912, or $.01 per share (diluted) to $1,644,865
for 2003. The balance in Retained Earnings as previously reported at October 31,
2001 was reduced by $1,443,218 to $8,891,450 to reflect the additional worker's
compensation reserves which should have been recorded in earlier periods.
Previously reported unaudited net income for the first three quarters of fiscal
2004 increased by $106,734 to $1,530,207 or $.02 per share (diluted). Net income
reflected in the unaudited consolidated financial statement information for the
year ended October 31, 2004 furnished in the November 22, 2004 Current Report on
Form 8-K decreased by $153,579. The opening equity as of November 1, 2001 has
been restated by $1,443,218. All applicable financial information contained in
this Annual Report on Form 10-K gives effect to these restatements.
As a result of the foregoing factors, the Company's unaudited condensed
consolidated financial statements for the first three quarters of fiscal year
2004 have been restated and its consolidated
39
financial statements for the fiscal years 2002 and 2003 have been restated from
amounts previously reported. In addition, quarterly data for 2003 presented in
selected Quarterly Financial Information (Unaudited) has been restated from
amounts previously reported. The accompanying consolidated financial data set
forth below presents the Company's Consolidated Statements of Income and
Comprehensive Income for the years ended October 31, 2003 and 2002 and
Consolidated Balance Sheet as of October 31, 2003 on a comparative basis showing
the amounts as originally reported and as restated. The restatement did not
result in any change in the Consolidated Statement of Cash Flows between Cash
Provided by Operations, Investing Activities, or Financing Activities.
40
The following provides comparative financial statement information as restated
compared to that previously reported.
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended October 31,
2003 2003 2002 2002
---- ---- ---- ----
(as previously (as restated) (as previously (as restated)
reported) reported)
Sales $204,647,364 $204,617,949 $200,839,393 $200,842,914
Cost of sales 181,606,051 181,608,277 178,114,150 177,704,716
----------- ----------- ----------- -----------
Gross profit 23,041,313 23,009,672 22,725,243 23,138,198
Selling, general and administrative expenses 18,690,542 18,558,989 18,167,038 18,187,702
Research and development expenses 93,527 93,527 198,814 198,814
----------- ----------- ----------- -----------
Income from operations 4,257,244 4,357,156 4,359,391 4,751,682
Other income (expense):
Interest, net (1,728,369) (1,728,369) (1,527,592) (1,527,592)
6,078 6,078 26,034 26,034
----------- ----------- ----------- -----------
(1,722,291) (1,722,291) (1,501,558) (1,501,558)
----------- ----------- ----------- -----------
Income before provision for income taxes 2,534,953 2,634,865 2,857,833 3,250,124
Provision for income taxes 960,000 990,000 1,110,000 1,260,000
----------- ----------- ----------- -----------
Net income $1,574,953 $1,644,865 $1,747,833 $1,990,124
Other comprehensive income, net of tax:
Unrealized gain (loss) on interest rate swap
agreement 143,702 143,702 (244,918) (244,918)
----------- ----------- ----------- -----------
Comprehensive income $ 1,718,655 $1,788,567 $1,502,915 $1,745,206
=========== ========== ========== ==========
Earnings per share:
Basic $.24 $.25 $.26 $.30
Diluted $.23 $.24 $.26 $.29
Dividends per share $0.12 $0.12 $0.12 $0.12
41
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS at October 31,
ASSETS 2003 2003
---- ----
(as previously reported) (as restated)
Current assets:
Cash $ 77,012 $ 77,012
Receivables 6,679,907 6,620,399
Inventories 36,364,906 36,391,602
Prepaid expenses and other current assets 3,428,027 4,178,027
--------- ---------
Total current assets 46,549,852 47,267,040
Restricted cash 772,803 772,803
Property and equipment, at cost:
Land and improvements 2,925,178 2,925,178
Buildings and improvements 19,987,222 19,987,222
Machinery and equipment 23,270,297 23,270,297
Office furniture and fixtures 4,355,691 4,355,691
--------- ---------
50,538,388 50,538,388
Less - accumulated depreciation 30,494,964 30,494,964
---------- ----------
20,043,424 20,043,424
Goodwill 5,050,232 5,050,232
1,571,899 1,571,899
--------- ---------
Other assets
$73,988,210 $ 74,705,398
=========== ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current liabilities
Current maturities of long-term debt and capitalized leases $2,406,250 $ 2,406,250
Controlled disbursements 3,632,287 3,632,287
Accounts payable 13,895,996 13,931,090
Accrued expenses and other current liabilities 7,096,802 8,909,911
----------- ---------
Total current liabilities 27,031,335 28,879,538
Long-term debt and capitalized leases 16,729,561 16,729,561
Deferred income taxes 1,333,571 1,333,571
Shareholders' investment:
Preferred stock, $.10 par value
Authorized - 750,000 shares
Outstanding - no share outstanding
Capital stock, $.10 par value
Authorized - 3,000,000 shares
Outstanding - No shares outstanding
Common stock, $.10 par value
Authorized - 17,000,000 shares
Issued and outstanding - 6,369,327 shares in 2004
and 7,247,865 shares in 2003 724,787 724,787
Paid-in capital 17,570,310 17,570,310
Deferred compensation (1,238,947) (1,238,947)
Accumulated other comprehensive income (loss), net (101,216) (101,216)
Retained earnings 11,938,809 10,807,794
---------- ----------
Total shareholders' investment 28,893,743 27,762,728
---------- ----------
$ 73,988,210 $ 74,705,398
============ ============
42
(3) Long-term Debt and Capitalized Leases
Long-term debt and capitalized leases at October 31, 2004 and 2003 consist of
the following:
2004 2003
---- ----
Bank credit facility:
Revolving credit borrowings $ 9,261,302 $ 4,867,474
Term Loan A, quarterly principal payment of $250,000 4,100,190 5,500,000
Term Loan B, quarterly principal payments of $51,788 983,963 900,000
Capitalized leases:
City of South Hutchinson, Kansas, 4.75%-5.80%
Annual principal and sinking fund payments range
From $391,000 in 2005 to $323,000 in 2007 1,128,750 1,498,750
City of South Hutchinson, Kansas, 4.80%-5.90%
Annual principal and sinking fund payments range
From $129,000 in 2005 to $88,000 in 2009 647,915 770,000
Longview Industrial Corporation, Longview, Texas
Variable Rate Demand Revenue Bonds, 0.95%-1.84% in 2004
Annual principal and sinking fund payments range
From $300,000 in 2005 to $88,000 in 2009 1,487,709 1,988,337
Orange County Industrial Development Authority
Orlando, Florida, 5.50%
Annual principal and sinking fund payments range
From $175,000 in 2005 to $250,000 in 2012 1,675,000 1,840,000
Reno County, Kansas, 4.60%-5.50%
Annual principal and sinking fund payments range
From $169,000 in 2005 to $250,000 in 2012 1,602,083 1,771,250
----------- -----------
20,886,912 19,135,811
Less - current maturities 2,371,734 2,406,250
----------- -----------
$18,515,178 $16,729,561
On May 17, 2002 the Company entered into a Loan and Security Agreement, (the
"Agreement"), with Fleet Capital Corporation, a Rhode Island Corporation (the
"Bank"). The Agreement was amended in fiscal 2004 and provides a total credit
facility of $39.0 million consisting of a revolving credit facility of $30.0
million and long-term credit facilities of $9.0 million. The amended Agreement
expires May 17, 2008. The credit facilities bear interest based on a combination
of Eurodollar (LIBOR plus 1.75%) and the Bank's prime lending rate (4.75% at
October 31, 2004). The revolving credit facility also provides for a maximum of
$2.5 million in letters of credit, of which $1.5 million were outstanding at
October 31, 2004. The total amount of unused revolving credit available to the
Company was $17.6 million at October 31, 2004. On May 13, 2005 the Company
entered into an Amendment which provided for, among other things, two additional
term loans in the original principal amount of $2.35 million and $1.0 million to
finance the acquisition of certain real property and to finance the improvements
thereon comprising the manufacturing facility that was leased by the Company in
Bluffton, Ohio.
43
The Company uses derivative financial instruments to reduce exposure to its
variable-rate debt. On July 5, 2002, the Company entered into an interest rate
declining balance swap agreement on term debt of $6.8 million to limit the
effect of potential increases in the interest rates on its floating-rate term
debt. This swap agreement expired in May of 2005 and was not renewed. The effect
of this agreement is to convert the underlying variable-rate debt based on LIBOR
to a fixed-rate debt with an interest rate between 4.42% and 4.65% plus a margin
of 175 basis points. The fair value of this swap at October 31, 2004 was
$40,562.
The credit facility is collateralized by receivables, inventories, equipment and
certain real property. Under the terms of the Agreement, the Company is required
to maintain certain financial ratios and other financial conditions. The
Agreement also prohibits the Company from incurring certain additional
indebtedness, limits certain investments, advances or loans and restricts
substantial asset sales and capital expenditures. The delay in providing audited
financial statements for the year ending October 31, 2004 would have constituted
a covenant violation pursuant to the Agreement. The Company obtained a waiver
from its lender regarding this event. The delay in providing the audited
financial statements also resulted in non-compliance under other debt
agreements, although the non-compliance did not result in an event of default.
The Company has not received any default notifications. Management believes all
default conditions have now been remedied and the Company is in compliance with
its covenants under its lending agreements.
Certain of the Company's manufacturing facilities were financed from the
proceeds of industrial revenue bonds. Lease purchase agreements with the
respective cities provide that the Company may purchase the manufacturing
facilities at any time during the lease terms by paying the outstanding
principal amount of the bonds plus a nominal amount. At October 31, 2004, the
net book value of manufacturing facilities subject to these lease purchase
agreements was approximately $7.7 million. At October 31, 2004 the Company's
assets included $.4 million in unexpended cash proceeds from Industrial Revenue
Bonds issued in 2002.
The carrying amount of the Company's long-term obligations does not differ
materially from fair value based on current market rates available to the
Company.
The aggregate maturities of capitalized leases and long-term debt for the years
subsequent to October 31, 2004 are as follows:
2005 $2,371,734
2006 2,533,400
2007 2,365,900
2008 11,678,170
2009 601,458
2010 and thereafter 1,336,250
The Company has aggregate maturities of $11.7 million in capitalized leases and
long-term debt due in 2008, principally as a result of a loan agreement with the
Company's lead bank that expires May 17, 2008. The Company currently anticipates
arranging an extension or refinancing of this debt at or prior to maturity.
44
(4) Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting
shareholders' investment that, under generally accepted accounting principles
are excluded from net income. Accumulated other comprehensive loss as of October
31, 2004, includes unrealized losses on interest rate swaps of $40,562, reduced
by $15,000 of deferred tax benefit. Accumulated other comprehensive loss as of
October 31, 2003, includes unrealized losses on interest rate swaps of $161,216,
reduced by $60,000 of deferred tax benefit. Other comprehensive income (loss)
for the years ended October 31, 2004, 2003 and 2002 was $75,654, and $143,702
and ($244,918) respectively.
(5) Income Taxes
The provision for income taxes consists of the following:
2004 2003 2002
---- ---- ----
(as restated) (as restated)
Current $ 1,438,000 $ 1,112,000 $ 955,000
Deferred 92,000 (122,000) 305,000
----------- ----------- -----------
Total $ 1,530,000 $ 990,000 $ 1,260,000
=========== =========== ===========
The Company accounts for income taxes in accordance with the asset and liability
method. Deferred income taxes are determined based upon the difference between
the book and tax basis of the Company's assets and liabilities. Deferred taxes
are provided at the enacted tax rates expected to be in effect when the
differences reverse. The income tax effect of temporary differences comprising
the deferred tax assets are included in other current assets and liabilities on
the accompanying consolidated balance sheet and result from:
2004 2003
---- ----
Deferred tax assets: (as restated)
Self-insurance reserves $ 1,124,000 $ 1,257,000
Vacation 196,000 194,000
Warranty / recall 474,000 469,000
Doubtful accounts 67,000 75,000
Inventories 413,000 370,000
Amortization 42,000 217,000
Revenue recognition 62,000 -
Interest rate swaps 15,000 60,000
Restricted stock awards 333,000 270,000
Deferred compensation 139,000 84,000
Other 105,000 -
--------- ---------
2,970,000 2,996,000
--------- ---------
Deferred tax liabilities:
Accelerated depreciation (1,570,000) (1,553,000)
Prepaid health insurance (532,000) (462,000)
Other - (21,000)
---------- ----------
(2,102,000) (2,036,000)
---------- ----------
Net deferred tax assets $ 868,000 $ 960,000
========= =========
No valuation allowance against deferred tax assets was provided at October 31,
2004 and 2003, as management considers it more likely than not that the recorded
tax assets will be realized.
45
A reconciliation between the statutory federal income tax rate (34%) and the
effective rate of income tax expense for each of the three years during the
period ended October 31, 2004 follows:
2004 2003 2002
---- ---- ----
Statutory federal income tax rate 34% 34% 34%
Increase (decrease) in taxes
Resulting from:
State tax, net of federal benefit 4 4 4
Other 1 - 1
--- --- ---
Effective tax rate 39% 38% 39%
=== === ===
(6) Capital Stock
Preferred Stock - On March 28, 1995, the Company's Board of Directors adopted a
stockholders rights plan (Plan) and declared a dividend distribution of one
right (Right) for each outstanding share of common stock to stockholders of
record on April 20, 1995. Under the terms of the Plan each Right entitles the
holder to purchase one one-hundredth of a share of Series A Participating
Preferred Stock (Unit) at an exercise price of $7.44 per Unit. The Rights are
exercisable a specified number of days following (i) the acquisition by a person
or group of persons of 20% or more of the Company's common stock or (ii) the
commencement of a tender offer or an exchange offer for 20% or more of the
Company's common stock or (iii) when a majority of the Company's unaffiliated
directors (as defined) declares that a person is deemed to be an adverse person
(as defined) upon determination that such adverse person has become the
beneficial owner of at least 10% of the Company's common stock. The Company has
authorized and reserved 750,000 shares of preferred stock, $.10 par value, for
issuance upon the exercise of the Rights. The Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right in accordance with the
provisions of the Plan. These Rights expired on April 1, 2005.
Stock-Based Compensation Plans - The Company has two shareholder-approved stock
plans, the 1995 Stock Option Plan (the "1995 Plan") and the 1997 Omnibus
Incentive Plan (the "1997 Plan").
Under the 1995 Plan, a total of 1,000,000 shares of the Company's common stock
were available for grant to officers, directors and key employees. As of October
31, 2004, all of these options had been granted and options to purchase 84,100
shares were outstanding under the 1995 Plan.
Under the 1997 Plan, directors, officers and key employees may be granted stock
options, restricted stock and other stock-based awards. A total of 2,000,000
shares may be granted under the 1997 Plan. At October 31, 2004 a total of
186,000 shares were available for future issuance and options for 732,500 shares
were outstanding under the 1997 Plan.
In fiscal 2004, the Company issued 195,000 shares of common stock under the 1997
Plan in the form of restricted stock awards which will vest in fiscal 2008. In
fiscal 2003, the Company issued 205,000 shares of common stock under the 1997
Plan in the form of restricted stock awards which will vest in fiscal 2007. In
fiscal 2002, the Company issued 202,500 shares of
46
common stock under the 1997 Plan in the form of restricted stock awards which
will vest in fiscal 2005. Restricted shares issued under the 1997 Plan were
awarded as an incentive to retain key employees, officers and directors. Upon
issuance of restricted stock, unearned compensation, equivalent to the excess of
the market price of the shares awarded over the price paid by the recipient at
the date of grant, is charged to equity and amortized against income over the
related vesting period.
Under both plans, the exercise price of all options granted through October 31,
2004 equaled the stock's market price on the date of grant and fully vested six
months after the date of grant. The original expiration dates of the options
ranged from 5 to 10 years. Options outstanding at October 31, 2004 had a
weighted average contractual life of three years and exercise prices ranged from
$3.97 to $5.13 per share.
A summary of outstanding options under the Company's two stock option plans at
October 31, 2004, 2003 and 2002 and changes during the years then ended are
presented in the table following:
2004 2003 2002
---- ---- ----
Per Per Per
Shares Share(a) Shares Share(a) Shares Share(a)
------ -------- ------ -------- --------
Outstanding at
beginning of
year 838,200 $4.27 849,800 $4.26 925,800 $4.07
Exercised (21,600) 1.93 (3,700) 1.94 (76,000) 1.88
Forfeited - - (7,900) 4.44 - -
-------------- ------------- ----- ---- -------------- -----------
Outstanding at end of
year 816,600 $4.33 838,200 $4.27 849,800 $4.26
======= ===== ======= ===== ======= =====
Exercisable at end of
year 816,600 $4.33 838,200 $4.27 849,800 $4.26
======= ===== ======= ===== ======= =====
(a) Weighted average exercise price per share.
(7) Tax Deferred Savings Plan and Trust
In 1985, the Company made available to all eligible employees the opportunity to
participate in the Company's Tax Deferred Savings Plan and Trust. The Company
provides a 50% matching contribution in the form of cash or unregistered common
stock of the Company on the eligible amount invested by participants in the plan
to purchase common stock of the Company. The Company's contribution to this plan
was $178,745 in 2004, $159,160 in 2003, and $81,488 in 2002. This plan held
465,542 shares of the Company's common stock at October 31, 2004 and 535,552
shares at October 31, 2003.
47
(8) Commitments and Contingencies
(a) Letters of Credit - The Company has outstanding letters of credit as more
fully described in Note 3.
(b) Repurchase Agreements - It is customary practice for companies in the
specialty vehicle industry to enter into repurchase agreements with financing
institutions to provide floor plan financing for dealers. In the event of a
dealer default, these agreements generally require the repurchase of products at
the original invoice price net of certain adjustments. The risk of loss under
the agreements is limited to the risk that market prices for these products may
decline between the time of delivery to the dealer and time of repurchase by the
Company. The risk is spread over numerous dealers and the Company has not
incurred significant losses under these agreements. In the opinion of
management, any future losses under these agreements will not have a material
adverse effect on the Company's financial position or results of operations. The
Company's repurchase obligation under these agreements is limited to vehicles
which are in new condition and as to which the dealer still holds title. The
Company's contingent obligation under such agreements was approximately
$1,188,000 at October 31, 2004.
(c) Operating Leases - The Company has operating leases principally for certain
manufacturing facilities, vehicles and equipment. Operating lease expense was
$758,752 in 2004, $651,998 in 2003, and $586,297 in 2002. It is expected that in
the ordinary course of business these leases will be renewed or replaced as they
expire.
The following schedule details operating lease commitments for the years
subsequent to October 31, 2004:
2005 $481,821
2006 249,827
2007 184,873
2008 109,229
2009 44,252
2010 and thereafter -
(d) Litigation - At October 31, 2004 the Company has litigation pending which
arose in the ordinary course of business. Litigation is subject to many
uncertainties and the outcome of the individual matters is not presently
determinable. It is management's opinion that this litigation will not result in
liabilities that would have a material adverse effect on the Company's financial
position or results of operations.
(e) Self-insurance Reserves - The Company has historically self-insured for
workers compensation, health insurance, general liability and product liability
claims, subject to specific retention and reinsurance levels.
Effective July 1, 2005, the Company purchased guaranteed cost workers
compensation insurance for the states in which it had previously self-insured.
The Company continues to be self-insured in certain states for workers
compensation claims incurred prior to July 1, 2005.
48
Certain workers compensation claims have been denied by the Company's excess
liability insurance carrier. Reserves have been recorded assuming no recovery
from the excess insurance carrier is received. Management is disputing the
denial of coverage by the excess liability insurance carrier but recovery of any
amounts is contingent and management cannot provide any assurances regarding
recovery of any amounts. The amount of excess coverage being disputed is
approximately $0.6 million.
(f) Chassis Contingent Liabilities - The Company obtains certain vehicle chassis
from two automotive manufacturers under agreements that do not transfer the
vehicle's certificate of origin to the Company and, accordingly, the Company
accounts for the chassis as consigned inventory. Chassis are typically converted
and delivered to customers within 90 days. The Company's contingent liability
under such agreements amounted to $15.7 million at October 31, 2004.
(g) Warranties - The Company's products generally carry explicit product
warranties that extend from several months to more than a year, based on terms
that are generally accepted in the marketplace. Certain components included in
the Company's end products (such as chassis, engines, axles, transmissions,
tires, etc.) may include warranties from original equipment manufacturers (OEM).
These OEM warranties are generally passed on to the end customer of the
Company's products and the customer generally deals directly with the applicable
component manufacturer. The Company records provisions for estimated warranty
and other related costs at the time of sale based on historical warranty loss
experience and periodically adjusts these provisions to reflect actual
experience. Certain warranty and other related claims involve matters of dispute
that ultimately are resolved by negotiation, arbitration or litigation.
Infrequently, a material warranty issue may arise which is beyond the scope of
the Company's historical experience. The Company provides for any such warranty
issues as they become known and estimable. It is reasonably possible that from
time to time additional warranty and other related claims could arise from
disputes or other matters beyond the scope of the Company's historical
experience. The following table provides the changes for fiscal years 2004 and
2003 in the Company's product warranties (in thousands):
2004 2003
----- ----
Accrued warranties Beginning of Fiscal Year $ 1,133 $ 1,076
Provisions for warranty charged against income 1,561 1,442
Payments and adjustments of warranties (1,510) (1,385)
------- -------
Accrued warranties at Fiscal Year End $ 1,184 $ 1,133
======= =======
(h) SEC investigation - The Company was advised on February 25, 2005 that the
SEC initiated a preliminary investigation of certain accounting practices of the
Company. The Company is cooperating with the SEC.
49
(9) Segment Information
The Company has three reportable segments: ambulances, buses and terminal
trucks/road construction equipment. The ambulance segment produces modular and
van type ambulances for sale to hospitals, ambulance services, fire departments
and other governmental agencies. The bus segment produces small school buses,
commercial buses and shuttle buses for sale to schools, hotel shuttle services,
airports, and other governmental agencies. The terminal trucks/road construction
equipment segment produces off road trucks designed to move trailers and
containers for warehouses, truck terminals, rail yards, rail terminals and
shipping ports and produces a line of road construction equipment.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in Note 1 of the Notes to the
Consolidated Financial Statements. The Company evaluates performance based on
profit or loss from operations before income taxes not including nonrecurring
gains and losses. For the fiscal years ended October 31, 2004, 2003 and 2002
nonrecurring gains or losses were not incurred and as such have no impact on
this analysis.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, with all intercompany sales eliminated in
consolidation.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The following table contains segment information for the years ended October 31,
2004, 2003 and 2002 following restatement as set forth in Note(2). All amounts
are in thousands of dollars.
Terminal
Trucks /
Road
Construction Consolidated
(as restated) Ambulance Buses Equipment Other Total
------------- --------- ----- --------- ----- -----
Revenues from external customers 2004 $83,242 $57,564 $67,397 - $208,203
2003 96,486 66,628 41,504 - 204,618
2002 95,547 66,264 39,032 - 200,843
Intersegment revenues: 2004 177 687 32 - 896
2003 142 411 48 - 601
2002 787 2,315 251 - 3,353
Interest income/(expense) net: 2004 (442) (378) (654) 2 (1,472)
2003 (499) (520) (697) (12) (1,728)
2002 (283) (497) (691) (56) (1,527)
Depreciation and amortization: 2004 (1,018) (839) (516) (1,020) (3,393)
2003 (722) (1,060) (559) (979) (3,320)
2002 (700) (1,195) (707) (904) (3,506)
Segment profit (loss) pre tax: 2004 2,315 2,169 3,311 (3,934) 3,861
2003 3,630 1,557 1,065 (3,617) 2,635
2002 6,544 (12) 764 (4,046) 3,250
Segment assets: 2004 35,165 18,100 21,866 5,596 80,727
2003 31,213 18,263 19,608 5,621 74,705
2002 32,797 21,427 17,948 5,304 77,476
Segment expenditures for capital
assets: 2004 870 541 406 20 1,837
2003 2,706 211 138 76 3,131
2002 1,953 902 122 27 3,004
50
Other includes the elimination of intersegment transactions and expenses
generated to support corporate activities not directly attributable to any
specific organization within the enterprise. Non-domestic sales were $12.6
million, $10.9 million, and $19.8 million for fiscal years 2004, 2003 and 2002,
respectively.
All assets are held by companies operating in the United States.
During fiscal years 2004, 2003 and 2002, sales to any one customer were not in
excess of 10% of consolidated sales.
The following table contains segment information for the years ended October 31,
2004, 2003 and 2002 previously reported before the restatement. All amounts are
in thousands of dollars.
As previously reported
Terminal
Trucks /
Road
Construction Consolidated
Ambulance Buses Equipment Other Total
--------- ----- --------- ----- -----
Revenues from external customers 2004 $83,263 $57,562 $67,390 - $208,215
2003 96,487 66,631 41,529 - 204,647
2002 95,547 66,266 39,026 - 200,839
Intersegment revenues: 2004 177 687 32 - 896
2003 142 411 48 - 601
2002 787 2,315 251 - 3,353
Interest income/(expense) net: 2004 (442) (378) (654) 2 (1,472)
2003 (499) (520) (697) (12) (1,728)
2002 (283) (497) (691) (57) (1,528)
Depreciation and amortization: 2004 (1,018) (839) (516) (1,020) (3,393)
2003 (722) (1,060) (559) (979) (3,320)
2002 (700) (1,195) (707) (904) (3,506)
Segment profit (loss) pre tax: 2004 2,204 2,182 3,326 (3,708) 4,004
2003 3,390 1,773 1,078 (3,706) 2,535
2002 6,333 (167) 761 (4,069) 2,858
Segment assets: 2004 35,156 18,068 21,820 4,886 79,930
2003 31,224 18,265 19,628 4,871 73,988
2002 32,844 21,428 17,956 4,524 76,752
Segment expenditures for capital
assets: 2004 870 541 406 20 1,837
2003 2,706 211 138 76 3,131
2002 1,953 902 122 27 3,004
51
(10) Quarterly Financial Information
(Unaudited) (Dollars in thousands except per share information)
The following information for fiscal year 2003 and the first, second and third
quarters for fiscal year 2004 is restated. See Note (2). Information for the
fourth quarter of fiscal year 2004 is revised from that previously furnished by
the Company in its November 22, 2004 Current Report on Form 8-k.
52
Financial Results
AS PREVIOUSLY REPORTED
Net Sales Gross Profit Net Earnings (Loss)
------------------------------ ------------------------------- ------------------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
First Quarter $ 41,094 $ 43,836 $ 4,226 $ 4,701 $ (65) $ (149)
Second Quarter 50,011 45,580 6,269 5,349 628 80
Third Quarter 59,070 57,581 6,745 6,105 860 624
Fourth Quarter 58,040 57,650 6,787 6,886 1,061 1,020
------ ------ ----- ----- ----- -----
Fiscal Year $208,215 $204,647 $24,027 $23,041 $2,484 $1,575
======== ======== ======= ======= ====== ======
Diluted Earnings (Loss)
Basic Earnings (Loss) Per Common Share
Per Common Share
2004 2003 2004 2003
---- ---- ---- ----
First Quarter $ (.01) $ (.02) $ (.01) $ (.02)
Second Quarter .11 .01 .10 .01
Third Quarter .15 .09 .14 .09
Fourth Quarter .18 .16 .17 .15
------ ------ ----- -----
Fiscal Year $ .43 $ .24 $ .40 $ .23
====== ====== ===== =====
AS RESTATED
Net Sales Gross Profit Net Earnings (Loss)
------------------------------ ------------------------------- ------------------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
(as restated) (as restated) (as restated) (as restated) (as restated) (as restated)
First Quarter $ 41,148 $ 43,860 $ 4,484 $ 4,677 $ 32 $ (152)
Second Quarter 50,011 45,580 6,253 5,447 622 148
Third Quarter 59,070 57,581 6,761 6,373 876 792
Fourth Quarter 57,974 57,597 6,576 6,513 801 857
------ ------ ----- ----- ------ ------
Fiscal Year $208,203 $204,618 $24,074 $23,010 $2,331 $1,645
======== ======== ======= ======= ====== ======
Diluted Earnings (Loss)
Basic Earnings (Loss) Per Common Share
Per Common Share ----------------
2004* 2003 2004 2003
---- ---- ---- ----
(as restated) (as restated) (as restated) (as restated)
First Quarter $ .01 $ (.02) $ .01 $ (.02)
Second Quarter .11 .02 .10 .02
Third Quarter .15 .12 .14 .12
Fourth Quarter .14 .13 .13 .12
------ ------ ----- -----
Fiscal Year $ .40 $ .25 $ .38 $ .24
====== ====== ===== =====
* - Fiscal year 2004 basic earnings is less than the sum of the quarters due to
rounding and the reduction of shares outstanding from the purchase and
retirement of treasury stock.
53
(11) Subsequent Events
Audit Committee Investigation
On January 31, 2005, the Company announced that it delayed filing the Form 10-K
for the year ended October 31, 2004 because Company management and the Audit
Committee of its Board of Directors were investigating and analyzing the
Company's manner of establishing reserves in various workers' compensation cases
in the states of Kansas and Florida. The decision to delay filing of the Form
10-K for the period ended October 31, 2004 was made to permit the Company's
management and Audit Committee to complete the investigation and analysis, and
to allow its independent registered public accounting firm sufficient time to
complete the audit of the Company's October 31, 2004 financial statements.
The Audit Committee hired independent legal counsel and an independent insurance
consultant to assist in its investigation of the workers compensation reserves.
Due to the complexity of calculating the reserves required at the various dates
and the difficulty of estimating the reserve amount in each case, additional
time was needed to ensure a complete investigation and this caused the Company
to not be in position to file its periodic reports with the SEC on a timely
basis.
The Company discovered issues with workers' compensation claims for injuries
dating back to 1990. The special investigation revealed that Company personnel
with responsibility for setting reserves did so in an aggressive manner which
caused the third-party administrator adjusters to recommend reserves at levels
lower than they would have otherwise recommended. Personnel also employed a
practice known as stair-stepping reserves for certain claims. This involves
recording reserves initially at an amount lower than the amount the claim would
be expected to settle for and increasing the reserve over time. In addition,
several Florida claims that had existed for an extended period of time had
reserves which had been set artificially low and then increased periodically to
reflect on-going payments to claimants. The accrual of these amounts in the
period that claims were incurred resulted in a charge to retained earnings for
periods prior to October 31, 2001 and a reversal of reserves in subsequent years
to reflect amounts that should already have been recorded.
On May 12, 2005, the Company announced that its Audit Committee had recommended
revised procedures for establishing workers' compensation reserves. Revised
procedures were put in place to help ensure reserve recommendations made by the
third party administrator ("TPA") are recorded. Procedures also prohibit
inappropriate influence by management in the determination of the TPA's
recommended reserve amounts. The revised procedures require increased accounting
oversight to help insure reserves are recorded in accordance with generally
accepted accounting principles. The Board of Directors approved the
recommendation.
Other
The Company failed to meet the continued listing qualifications set forth in
NASDAQ Marketplace Rule 4310(c)(14) due to the delayed filing of its annual
report on Form 10-K with
54
the Securities and Exchange Commission and as of May 16, 2005 its securities
were delisted from the NASDAQ National Market.
On May 13, 2005, the Company's Mid Bus subsidiary completed the purchase of its
Bluffton, Ohio manufacturing facility for a purchase price of $2,000,000. This
property was leased prior to being purchased with financing through the
Company's lead bank. In addition to the purchase price, the Company agreed to
purchase up to $1,000,000 of parts or products over the next five years from an
affiliate of the seller. Certain penalties are imposed on the Company if it is
unable or unwilling to meet this purchase commitment.
On March 21, 2005, the Company reported that the Executive Vice President -
Operations, Terry L. Clark, and Chief Financial Officer, Larry Sayre, retired
effective March 18, 2005. April 1, 2005, Randall Swift became Vice President and
Chief Operating Officer of the Company. On May 23, 2005, Cletus Glasener became
Vice President and Chief Financial Officer of the Company. A charge to income
totaling approximately $1.1 million was recorded in the second quarter of fiscal
year 2005. This amount represents the estimated severance obligation of the two
executives who retired.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
For the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon that evaluation and due to the material
weaknesses in internal control over financial reporting described below, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures (as defined in Rule 13a - 15(e) or Rule
15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") are not effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the required time periods.
There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures. Even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives.
Attached as Exhibits 31.1 and 31.2 to this annual report are certifications of
the Chief Executive Officer and Chief Financial Officer required in accordance
with Rule 13a-14(a) of the Exchange Act. This portion of the Company's annual
report includes the information concerning the controls evaluation referred to
in the certifications and should be read in conjunction with the certifications
for a more complete understanding of the topics presented.
Except as described below, there were no changes in the Company's internal
control over financial reporting that occurred during the last quarter of fiscal
year 2004 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over
55
financial reporting. In conjunction with their audit of our fiscal year 2004
consolidated financial statements KPMG LLP (KPMG), the Company's independent
registered public accounting firm, identified and reported to management and the
Audit Committee two material weaknesses under standards established by the
Public Company Accounting Oversight Board (PCAOB). A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. A significant
deficiency is a control deficiency, or combination of control deficiencies, that
adversely affects the Company's ability to initiate, authorize, record, process,
or report external financial data reliably in accordance with generally accepted
accounting principles such that there is a more than a remote likelihood that a
misstatement of the company's annual or interim financial statements that is
more than inconsequential will not be prevented or detected.
60
The material weaknesses were identified as:
(1) Control Policies and Procedures
The Company did not have effective policies and procedures regarding management
override of controls, and it did not have effective policies and procedures
implementing its Code of Conduct. As a result, it did not maintain a control
environment that promoted open and candid communication. In some instances,
certain officers and personnel did not communicate critical information needed
to properly record transactions. These deficiencies result in more than a remote
likelihood that a material misstatement of interim or annual financial
statements could occur and not be detected.
(2) Workers' Compensation Reserves
The Company had inadequate controls in place to record worker's compensation
reserves in accordance with generally accepted accounting principles.
Specifically, it did not have appropriate policies and procedures to ensure the
estimates provided by an independent insurance advisor, which was utilized to
assist in estimating workers' compensation reserves were appropriate. As a
result, workers compensation reserves were materially misstated in previously
filed consolidated financial statements. Historical consolidated financial
statements have been restated to correct these errors.
56
The Company will continue to evaluate the material weaknesses and will take all
necessary action to correct the internal control deficiencies identified. The
Company will also further develop and enhance its internal control policies,
procedures, systems and staff to allow it to mitigate the risk that material
accounting errors might go undetected and be included in its consolidated
financial statements.
The Company contemplates undertaking a thorough review of its internal controls
as part of the Company's preparation for compliance with the requirements under
Section 404 of the Sarbanes-Oxley Act of 2002 and the Company is using this
review to further assist in identifying and correcting control deficiencies. At
this time, the Company has not completed its review of the existing controls and
their effectiveness. Unless and until the material weaknesses described above,
or any identified during this review, are completely remedied, evaluated and
tested, there can be no assurances that the Company will be able to assert that
its internal control over financial reporting is effective, pursuant to the
rules adopted by the SEC under Section 404, when those rules take effect.
Item 9B. OTHER INFORMATION
None.
57
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
Name Age Position Within The Company
Don L. Collins 74 Chairman and Director
Donald Lynn Collins 53 President, Chief Executive Officer and
Director
Don S. Peters 75 Director
Arch G. Gothard, III 59 Director
William R. Patterson 63 Director
Terry L. Clark (1) 54 Former Executive Vice President of
Operations
Larry W. Sayre (1) 57 Former Vice President of Finance, Chief
Financial Officer and Secretary
Randall Swift (2) 39 Vice President and Chief Operating Officer
Cletus Glasener (3) 46 Vice President of Finance, Chief Financial
Officer
Rodney T. Nash 60 Vice President of Engineering
Kent E. Tyler 38 Vice President of Marketing
(1) Retired from the Company March 18, 2005.
(2) Promoted to Vice President and Chief Operating Officer April 1, 2005. (3)
Joined the Company May 23, 2005.
Don L. Collins, founder of the Company, has served as Chairman of the Board
since its inception in 1971 and served as Chief Executive Officer until 1998. He
is Chairman of the Board's Executive Committee.
58
Donald Lynn Collins joined the Company in 1980 after being associated with
Arthur Andersen LLP, an international accounting firm. Mr. Collins has served as
Chief Executive Officer of the Company since 1998, as President since 1990 and
as a director since 1983. He served as the Chief Operating Officer from 1988
until 1998. He is Chairman of the Board's Policy Committee and a member of the
Board's Executive Committee. He is the son of Don L. Collins.
Don S. Peters, an independent director of the Company since 1983, founded and
was chairman of Peters, Gamm, West and Vincent, Inc. an investment advisory firm
in Wichita, Kansas, from 1983 to December 1991. He has been a financial
consultant with Central Plains Advisors, Inc., an investment advisory firm,
since December 1991. He is Chairman of the Board's Finance Committee and a
member of the Board's Audit, Compensation, Nominating and Policy Committees.
Arch G. Gothard, III, an independent director of the Company since 1987, was
president of First Kansas Group, an investment firm in Junction City, Kansas,
from 1988 to 1999. He was chief financial officer, treasurer and director of
Communications Services, Inc. from 1985 to 1989. He is Chairman of the Board's
Compensation and Nominating Committees and is a member of the Board's Audit,
Finance and Policy Committees. Mr. Gothard also serves as a director of Kenco
Plastics, a manufacturer and molder of plastic products, Colorado Power Sports,
a distributor of ATV's, motorcycles, watercraft and similar products, Pay Phone
Concepts and Dornoch Medical Systems.
William R. Patterson, an independent director of the Company since 1998, and has
been a principal of Stonecreek Management, LLC , a private investment firm,
since 1998. From October 1996 to August 1998, he was Executive Vice President of
Premium Standard Farms, Inc., a fully-integrated pork producer and processor,
where he served as a consultant and as acting Chief Financial Officer from
January 1996 to October 1996. From September 1976 through December 1995 he was a
partner in Arthur Andersen LLP. Mr. Patterson is Chairman of the Board's Audit
Committee and is a member of the Board's Compensation, Executive, Finance and
Nominating Committees. Mr. Patterson also serves as a director of American
Italian Pasta Company, a producer of dry pasta, and Premium Standard Farm, Inc.,
an integrated pork producer and processor and as a director and chairman of the
board of Paul Mueller Company, a manufacturer of high-quality stainless steel
tanks and industrial processing equipment
Randall Swift was named Vice President and Chief Operating Officer on April 1,
2005. He joined the Company in 1998 as V.P./Sales and Marketing for Capacity of
Texas, Inc., a wholly-owned subsidiary of the Company. In 1999, Mr. Swift was
promoted to President of Capacity where he continued to serve prior to this
appointment. Mr. Swift possesses an extensive background in sales, engineering
and manufacturing with over six years at Cummins Southern Plains, Inc. prior to
coming to Capacity.
Cletus Glasener was named Vice President of Finance and Chief Financial Officer
on May 23, 2005. Prior to joining the Company he served as Vice President,
Controller and Treasurer of Vought Aircraft Industries since 2000.
Rodney T. Nash joined the Company in 1979 as Engineering Manager and was named
Vice President of Engineering of the Company in November 1986. Prior to joining
the Company, he
59
held engineering positions with Hesston Corporation, a farm equipment
manufacturer and Butler Manufacturing, a manufacturer of specialized buildings.
Kent E. Tyler joined the Company in December 1997 as Vice President of
Marketing. Prior to joining the Company, he was Vice President of Ackerman
McQueen, a full-service national marketing and advertising agency.
All executive officers serve at the discretion of the Board of Directors.
Section 16(a) - Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and directors of
the Company, and persons who beneficially own more than ten percent (10%) of the
common stock (collectively referred to herein as "Reporting Persons"), to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "Commission"). Reporting Persons are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely upon a review of copies of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during its most recent fiscal year, and any written
representations from a person that no Form 5 is required, the Company believes
that all of these forms required to be filed by Reporting Persons were timely
filed pursuant to Section 16(a) of the Exchange Act, except for one late filing
by Donald Lynn Collins and one late filing by Don L. Collins with respect to an
indirect stock transaction in fiscal year 2004.
COMMITTEES OF THE BOARD AND OTHER CORPORATE GOVERNANCE MATTERS
The Board of Directors has established standing Audit, Compensation and
Nominating Committees. The principal responsibilities of each committee are
described below.
The Audit Committee consists of three directors, each of whom is "independent",
as defined by the rules of the National Association of Securities Dealers and
the Sarbanes-Oxley Act of 2002. The Audit Committee met nine (9) times during
Fiscal 2004. It appoints a firm of independent public accountants to examine the
accounting records of the Company and its subsidiaries for the coming year. In
making this appointment, it reviews the nature of both audit-related and
non-audit-related services rendered or to be rendered to the Company and its
subsidiaries by the independent public accountants. The Audit Committee meets
with representatives of the Company's independent public accountants and reviews
with them audit scope, procedures and results, including any recommendations. It
also meets with the Company's chief financial officer to review reports on the
functioning of financial controls. A more complete description of the Audit
Committee's functions is provided in its Charter. The Board of Directors has
determined that William R. Patterson is an "audit committee financial expert" as
defined in Item 401(h) of Regulation S-K. The members of the Audit Committee are
William R. Patterson, III, Arch G. Gothard, III and Don S. Peters.
60
The Compensation Committee, consisting of three independent directors, met once
during Fiscal 2004. The Compensation Committee establishes the compensation
policies of the Company and makes salary and bonus recommendations to the Board
of Directors for all executive officers. The members of the Compensation
Committee are Arch G. Gothard, III, William R. Patterson, III and Don S. Peters.
The Nominating Committee, consisting of three independent directors, met once
during Fiscal 2004. It recommends to the Board of Directors nominees for
director to be proposed for election by the stockholders and also reviews the
qualifications of, and recommends to the Board of Directors, candidates to fill
Board of Director vacancies as they may occur during the year. The Nominating
Committee considers suggestions from many sources, including shareholders,
regarding the process for evaluation and possible candidates for director. Such
suggestions, together with appropriate biographical information, should be
submitted to the Secretary of the Company for consideration by the Nominating
Committee by September 23, 2005 for the next annual stockholders meeting. The
Nominating Committee guidelines regarding the qualifications of candidates for
directors, including shareholder proposed candidates, insofar as they apply to
non-employees, generally favor individuals who have managed relatively large,
complex business, educational, or other organizations or who, in a professional
or business capacity, are accustomed to dealing with complex business or
financial problems. In addition to these guidelines, the Committee will also
evaluate whether the candidate's skills are complementary to the existing Board
members' skills, and the Board's needs for operational, management, financial
and other expertise. The members of the Nominating Committee are Arch G.
Gothard, III, William R. Patterson, III and Don S. Peters.
Actions taken by any committee of the Board of Directors are reported to the
Board of Directors, usually at its next meeting.
There were eleven (11) meetings of the Board of Directors during Fiscal 2004. In
Fiscal 2004, each director attended more than 75% of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all committees of the Board on which he served. The Board of Directors has
affirmatively determined that Messrs. Gothard, Patterson and Peters are
independent as defined by the rules of the National Association of Securities
Dealers.
Shareholder Communications
Historically, the Company has not adopted a formal process for shareholder
communication with the Board of Directors. Nevertheless, every effort has been
made to ensure that the views of shareholders are heard by the Board of
Directors or individual directors, as may be applicable, and that appropriate
responses are provided to shareholders in a timely manner. We believe our
responsiveness to shareholder communications to the Board of Directors has been
excellent.
The Company asks that each director attend the Annual Meeting of Shareholders.
All of the Company's directors attended the last Annual Meeting held on February
27, 2004.
Code of Ethics - The Code of Ethics of the Company (the "Code"), was adopted
January 27, 2004, and is applicable to all directors and employees. The Code is
available free of charge from
61
the Investor Relations section of the Company website at
http://www.collinsind.com. The Company will satisfy any disclosure requirements
under Item 5.05 of Form 8-K regarding an amendment to, or waiver of the Code for
any officer, principal financial officer, principal accounting officer and
persons performing similar functions by disclosing the nature of such amendment
or waiver on the Company's website or in a report on Form 8-K.
62
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and the other named executive officers.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
Name and Other Annual Restricted Stock
Principal Position Year Salary ($) Bonus ($) Compensation ($)(1) Awards ($) (2)
------------------ ---- ---------- --------- ------------------ --------------
Don L. Collins 2004 400,000 - - 101,000 (3)
Chairman 2003 400,000 - - 108,000 (3)
2002 403,287 90,000 - 150,000 (3)
Donald Lynn Collins 2004 385,000 125,000 28,750 353,500 (4)
President and Chief 2003 380,000 100,000 - 252,000 (4)
Executive Officer 2002 374,012 100,000 - 350,000 (4)
Terry L. Clark (5) 2004 238,500 55,000 39,450 75,750 (6)
Former Executive Vice 2003 237,000 44,000 - 54,000 (6)
President of Operations 2002 234,144 44,000 - 75,000 (6)
Larry W. Sayre (5) 2004 195,000 40,000 36,000 75,750 (7)
Former Vice President of 2003 190,000 30,000 - 54,000 (7)
Finance, CFO and 2002 182,763 30,000 - 75,000 (7)
Secretary
Kent E. Tyler 2004 157,500 25,000 38,550 75,750 (8)
Vice President of 2003 155,000 20,000 - 54,000 (8)
Marketing 2002 154,144 20,000 - 75,000 (8)
(1) Other Annual Compensation relates to relocation expenses paid in Fiscal
2004.
(2) Under the terms of the Company's 2002 Restricted Stock Award Agreements,
the Restricted Stock fully vests three (3) years after the date of the
initial award. Under the terms of the Restricted Stock Award Agreements
granted in 2003 and 2004, the Restricted Stock vests four (4) years after
the date of the initial award. Dividends are paid on Restricted Stock at
the same rate as paid on all other outstanding shares of the Company's
common stock.
(3) Aggregate value at October 31, 2004 amounted to $406,400 based on an
aggregate total of 80,000 Restricted shares.
(4) Aggregate value at October 31, 2004 amounted to $1,066,800 based on an
aggregate total of 210,000 Restricted shares.
(5) Retired from the Company on March 18, 2005.
(6) Aggregate value at October 31, 2004 amounted to $228,600 based on an
aggregate total of 45,000 Restricted shares.
63
(7) Aggregate value at October 31, 2004 amounted to $228,600 based on an
aggregate total of 45,000 Restricted shares.
(8) Aggregate value at October 31, 2004 amounted to $228,600 based on an
aggregate total of 45,000 Restricted shares.
(9) Retired from the Company on March 18, 2005.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during the 2004 fiscal year and the number and value of
options held at October 31, 2004. The Company does not have any outstanding
stock appreciation rights.
Number of
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End (1)
Shares Acquire on
Name Exercise (#) Value Realized ($) Exercisable/Unexercisable Excercisable/Unexercisable
---- ------------ -------------------------------------------- --------------------------
Don L. Collins -- -- 205,800/0 $ 154,914 / $ -
Donald Lynn Collins -- -- 282,600/0 $ 191,433 / $ -
Terry L. Clark -- -- 80,800/0 $ 6,789/$ -
Larry W. Sayre -- -- 55,000/0 $ 6,725/$ -
Kent E. Tyler -- -- 30,000/0 $ 28,638/$ -
(1) The dollar values are calculated by determining the difference between
the fair market value of the underlying common stock and the exercise price
of the options at fiscal year end.
Directors' Compensation
During Fiscal 2004, the Company paid each employee director $1,300 for each
Board of Directors meeting attended. Outside directors received $1,900 for each
Board of Directors meeting attended and $1,200 to $1,300 for each Board of
Directors committee meeting attended. In addition, Mr. Peters, Mr. Gothard and
Mr. Patterson each received Board of Directors retainer fees of $2,000 per
month. Committee fees are not paid (i) to employee directors and (ii) to outside
directors when such committee meetings are held on the same day as a Board of
Directors meeting or in conjunction with a general managers meeting.
Compensation Committee Interlocks and Insider Participation
During Fiscal 2004, the members of the Compensation Committee were primarily
responsible for determining executive compensation. Messrs. Arch G. Gothard,
III, William R. Patterson, III and Don S. Peters comprise the Compensation
Committee, none of whom is or was an officer or employee of the Company during
any of the past three fiscal years.
64
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of June 15, 2005, with respect to
(i) each person who is known by the Company to own beneficially in excess of 5%
of the outstanding Common Stock, (ii) each director of the Company, (iii) each
named executive officer and (iv) all directors and executive officers of the
Company as a group. Each person listed below exercises sole voting power and
sole investment power unless otherwise indicated by footnote. As of June 15,
2005, there were 6,610,324 shares of Common Stock of the Company issued and
outstanding.
Shares
Beneficially Percentage
Name and Address Owned Owned
Venture Securities Corporation 646,061 (1) 9.77%
516 North Bethlehem Pike
Spring House, PA 19477
Collins Industries Tax Deferred 443,133 (2) 6.70%
Savings Plan and Trust
c/o InTrust Bank, Trustee
P.O. Box 8338 Prairie Village, KS 66208
Don L. Collins 715,148 (3) 10.82%
157 East New England Avenue, Suite 364
Winter Park, FL 32789
Donald Lynn 627,552 9.49%
Collins
15 Compound Drive
Hutchinson, KS 67502
Arch G. Gothard, III 202,985 (4) 3.05%
15 Compound Drive
Hutchinson, KS 67502
Don S. Peters 132,339 (5) 2.00%
15 Compound Drive
Hutchinson, KS 67502
William R. Patterson 79,000 (6) 1.20%
15 Compound Drive
Hutchinson, KS 67502
Terry L. Clark 58,405 (9) 0.88%
22997 Sutter Ave
Keytesville, MO 65261
Larry W. Sayre 75,036 (10) 1.14%
7300 Belle Meade Drive
Colleyville, TX 76034
65
Shares
Beneficially Percentage
Name and Address Owned Owned
Kent E. Tyler 80,704 (7) 1.22%
15 Compound Drive
Hutchinson, KS 67502
All executive officers and 2,132,296(8) 31.80%
directors as a group
(11 persons)
-----------------
(1) Pursuant to Schedule 13G/A filed with the Securities and Exchange
Commission on February 8 2005, Venture Securities Corporation, ("Venture")
is a registered investment advisor and furnishes investment advice to over
1,200 clients and certain of those clients hold Collins Industries Common
Stock. In its role as investment advisor and investment manager, Venture
possesses both voting and investment power over certain securities owned by
their clients. All securities reported herein are owned by Venture or its
clients and Venture is deemed to have beneficial ownership of 646,061
shares of the Company's Common Stock as of December 30, 2004. However,
neither one client of Venture nor Venture itself holds more than 5% of the
stock of Collins Industries in their account. Of the 646,061 shares as to
which Venture is deemed to have beneficial ownership, Venture is deemed to
have (i) sole voting power with respect to 303,975 shares (ii) shared
voting power with respect to 0 shares (iii) sole dispositive power with
respect to 646,061 shares and (iv) shared dispositive power with respect to
0 shares.
(2) As of June 15, 2005, based on information received from the Trustee of the
Plan.
(3) Does not include 7,559 shares owned by Sharon Collins, the wife of Mr.
Collins, as to which Mr. Collins disclaims beneficial ownership.
(4) Includes 45,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days. Mr. Gothard also has shared investment power
with respect to 44,160 shares.
(5) Mr. Peters also has shared investment power with respect to 132,961 shares.
(6) Includes 10,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
(7) Includes 30,000 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
(8) Includes 95,400 shares deemed beneficially owned pursuant to options
exercisable within 60 days.
(9) Mr. Clark retired from the company on March 18, 2005.
(10) Mr. Sayre retired from the company on March 18, 2005.
66
Equity Compensation Plan - The following table sets forth information as of the
end of the Company's 2004 fiscal year with respect to compensation plans under
which equity securities of the Company are authorized for issuance.
Number of Securities Remaining
Weighted Average Available For Future Issuance
Number of Securities To Be Issued Exercise Price of Under Equity Compensation Plans
Upon Exercise of Outstanding Outstanding Options, (Excluding Securities Reflected
Options, Warrants and Rights Warrants and Rights in Column (A))
Plan Category (A) (B) (C)
-------------------- ----------------------------------- ------ -------------------------- ---------------------------------
Equity
compensation plans
approved by
security holders
(1) 816,600 $4.33 186,000
Equity
compensation plans
not approved by
security holders
- $ - -
------- ----- -------
Total 816,600 $4.33 186,000
======= ===== =======
(1) These plans are the 1995 Stock Option Plan and the 1997 Omnibus Incentive Plan.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
FEES AND SERVICES OF KPMG LLP
The following table summarizes fees billed to the Company for each of the fiscal
years ended October 31, 2004 and 2003 by the Company's principal accounting
firm, KPMG LLP:
2004 2003
---- ----
Audit Fees - Annual Audit & Quarterly Reviews $ 707,000 $ 202,000
Audit Related Fees - -
Tax Fees - Review of Tax Returns & Tax Consulting 12,200 9,250
All Other Fees - Audit Fee for Stock 1,500 -
Repurchased in Fiscal 2004 --------- ---------
Total Fees $ 720,700 $ 211,250
67
The Audit Committee has considered whether the provision of these services is
compatible with maintaining the principal accountant's independence. The
Company's Audit Committee approves all fees paid to KPMG LLP for audit and
non-audit services in advance of performance of services. There are no other
specific policies or procedures relating to the pre-approval of services
performed by KPMG LLP. The Audit Committee has not yet met to discuss and
formally appoint the auditors for fiscal 2005. Representatives of KPMG LLP are
expected to be present at the Annual Meeting and shall have the opportunity to
make a statement and to respond to appropriate questions.
68
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Report:
(1) Financial Statements:
All financial statements and notes thereto as set forth under
Item 8 of this Report on Form 10-K:
Reports of Independent Public Accountants
Consolidated Statements of Income and Comprehensive Income for
the Three Years Ended October 31, 2004
Consolidated Balance Sheets--October 31, 2004
and 2003
Consolidated Statements of Cash Flows for
the Three Years Ended October 31, 2004
Consolidated Statements of Shareholders' Investment
for the Three Years Ended October 31, 2004
(2) Financial Statement Schedules:
All schedules have been omitted as not applicable or not required
under the instructions contained in Regulation S-X or the information
is included in the financial statements or notes thereto.
(3) Exhibits:
The exhibits required to be filed pursuant to Item 601 of Regulation
S-K are listed in the Exhibit Index, which immediately follows the
signature page of this report.
69
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COLLINS INDUSTRIES, INC.
By /s/ Donald Lynn Collins
-----------------------------------
Donald Lynn Collins, President
and Chief Executive Officer
Dated: July 29, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant, in their
respective capacities and on the dates indicated.
Dated: July 29, 2005 /s/ Don L. Collins
----------------------------------------------------
Don L. Collins, Director
Dated: July 29, 2005 /s/ Donald Lynn Collins
----------------------------------------------------
Donald Lynn Collins, Director,
President and Chief Executive
Officer
(Principal Executive Officer)
Dated: July 29, 2005 /s/ Don S. Peters
----------------------------------------------------
Don S. Peters, Director
Dated: July 29, 2005 /s/ Arch G. Gothard, III
----------------------------------------------------
Arch G. Gothard III, Director
Dated: July 29, 2005 /s/ William R. Patterson
----------------------------------------------------
William R. Patterson, Director
Dated: July 29, 2005 /s/ Cletus C. Glasener
----------------------------------------------------
Cletus C. Glasener, Vice President of
Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
70
Exhibit Number Document
-------------- --------
3.1 - Certificate of Incorporation of Registrant, as amended
(included as Exhibit 3.1 of the Company's Amendment No. 2 to
Form S-1, No. 2-93247 and incorporated herein by reference).
3.2 - Amendment to Certificate of Incorporation of Registrant
(included as Exhibit 3.3 of the Company's Amendment No. 1 to
form S-1, No 2-93247 and incorporated herein by reference).
3.3 - Amendment to Certificate of Incorporation of Registrant
(included as Exhibit 3.3(c) of the Company's Amendment No. 1
to Form S-1, No. 33-48323 and incorporated herein by reference).
3.4 - Amended Bylaws of Collins Industries, Inc. as of January 4,
2005. (Incorporated herein by reference to Exhibit 3.1 to the
Registrant's Report on Form 8-K filed January 10, 2005.)
10.1 - Various bailment and consignment agreements between the
Registrant and Automotive manufacturers (included as Exhibit
10.2 to the Company's Registration Statement on Form S-1, No.
33-48323 and incorporated herein by reference).
10.2 * - Collins Industries, Inc. 1997 Omnibus Incentive Plan
effective as of February 28, 1997. (Incorporated herein by
reference to Appendix A to the Registrant's Report on the DEF
14A Filed February 1997.)
10.3 * - Collins Industries, Inc. 1995 Stock Option Plan effective as
of February 24, 1995. (Incorporated herein by reference to
Appendix A to the Registrant's Report on the DEF 14A Filed
February 1995.)
71
Exhibit Number Document
-------------- --------
10.4 - Form of Indemnification Agreement between Registrant and its
directors.
10.5 - Amended and Restated Lease dated November 15, 1997, between
the Registrant and the City of South Hutchinson, Kansas.
(Incorporated herein by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-K for the fiscal year ended
October 31, 1998.)
10.6 - 1999 Supplemental Lease dated June 1, 1999, by and between
the City of South Hutchinson, Kansas and Collins Bus
Corporation. Original Lease dated August 1, 1984 and a
November 15, 1997, Amended and Restated Lease between the
same parties. (Incorporated herein by reference to Exhibit
10.1 to the Registrant's Report on Form 10-Q for the
quarterly period ended July 31, 1999.)
10.7 - Loan Agreement dated April 1, 1999, between Longview
Industrial Corporation
and Collins Industries,
Inc. (Incorporated herein
by reference to Exhibit
10.2 to the Registrant's
Report on Form 10-Q for
the quarterly period
ended July 31, 1999.)
72
Exhibit Number Document
-------------- --------
10.8 - Loan and Security Agreement dated as of May 17, 2002, by and
between Collins Industries, Inc., and Fleet Capital
Corporation. (Incorporated herein by reference to Exhibit
10.1 to the Registrant's Report on Form 10-Q for the
quarterly period ended April 30, 2002.)
10.9 * - Deferred Compensation Plan dated as of November 27, 2001,
between Collins Industries, Inc and Intrust Bank N.A.
(Incorporated herein by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarterly period
ended April 30, 2002.)
10.10 - Lease dated June 20, 2002, by and between Reno County, Kansas
and Wheeled Coach Industries, Inc. (Incorporated herein by
reference to Exhibit 10.8 to the Registrant's Report on Form
10-K for the fiscal year ended October 31, 2002.)
10.11 - Amendment No. 1 dated as of October 15, 2002, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
(Incorporated herein by reference to Exhibit 10.9 to the
Registrant's Report on Form 10-K for the fiscal year ended
October 31, 2002.)
10.12 - Financing Agreement dated October 16, 2002, between the
Orange County Industrial Development Authority, Orange
County Florida, and Wheeled Coach Industries, Inc.
(Incorporated herein by reference to Exhibit 10.10 to the
Registrant's Report on Form 10-K for the fiscal year ended
October 31, 2002.)
10.13 - Amendment No. 2 dated as of December 31, 2002, to the Loan
and Security Agreement dated as of May 17, 2002, by and
between Collins Industries, Inc., and Fleet Capital
Corporation. (Incorporated herein by reference to Exhibit
99(b)(3) to the Registrant's Report on Form SC TO-I filed
October 10, 2003.)
73
Exhibit Number Document
-------------- --------
10.14 - Amendment No. 3 dated as of October 9, 2003, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
(Incorporated herein by reference to Exhibit 99(b)(4) to the
Registrant's Report on Form SC TO-I filed October 10, 2003.)
10.15 - Amendment No. 4 dated as of December 5, 2003, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
(Incorporated herein by reference to Exhibit 10.13 to the
Registrant's Report on Form 10-K for the fiscal year ended
October 31, 2003.)
10.16 - Amendment No. 5 dated as of January 7, 2004, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
(Incorporated herein by reference to Exhibit 10.14 to the
Registrant's Report on Form 10-K for the fiscal year ended
October 31, 2003.)
10.17 - Amendment No. 6 dated as of January 31, 2004, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
10.18 - Amendment No. 7 dated as of August 31, 2004, to the Loan and
Security Agreement dated as of May 17, 2002, by and between
Collins Industries, Inc., and Fleet Capital Corporation.
(Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarterly period
ended July 31, 2004.)
21.1 - List of Subsidiaries of Collins Industries, Inc.
23.1 - Accountants Consent
74
Exhibit Number Document
-------------- --------
31.1 - Section 302 Certification of Periodic
Report-CEO
31.1 - Section 302 Certification of Periodic
Report-CFO
32.1 - Section 906 Certification of Periodic
Report-CEO
32.2 - Section 906 Certification of Periodic
Report-CFO
* Management contract or compensatory plan or agreement
75