Form 10-Q for Collins Industries, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 2005
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.
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(Exact name of registrant as specified in its charter)
Missouri 43-0985160
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
15 Compound Drive Hutchinson, Kansas 67502-4349
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 620-663-5551
-------------------------------
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 wither the registrant is an accelerated Filer (as defined
under rule 12b-2 of the Act). Yes No X
----- -----
Indicate by check mark wither the registrant is a shell company (as defined
under rule 12b-2 of the Act). Yes No X
----- -----
-------- ----
Number of shares of common stock outstanding as of July 25, 2005: 6,625,324
COLLINS INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
July 31, 2005
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
-------
Consolidated Condensed Balance Sheets
July 31, 2005 and October 31, 2004 2
Consolidated Condensed Statements of Income and
Comprehensive Income
Three and Nine Months Ended July 31, 2005 and 2004 3
Consolidated Condensed Statements of Cash Flow
Nine Months Ended July 31, 2005 and 2004 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
------- Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures
------- About Market Risk 25
Item 4. Controls and Procedures 25
-------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
-------
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 27
-------
Item 3. Defaults upon Senior Securities 27
-------
Item 4. Submission of Matters to a Vote of Security-Holders 27
-------
Item 5. Other Information 27
-------
Item 6. Exhibits 27
-------
SIGNATURES 28
1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
July 31, October 31,
2005 2004
------------------- --------------------
ASSETS
Current Assets:
Cash $ 152,770 $ 163,098
Receivables, trade & other 16,270,668 10,979,087
Inventories, lower of cost (FIFO) or market 46,088,701 39,059,185
Prepaid expenses and other current assets 3,413,067 4,368,191
----------- -----------
Total current assets 65,925,206 54,569,561
Restricted cash 317,659 359,810
Property and equipment, at cost 53,768,619 49,604,273
Less: accumulated depreciation 32,012,877 30,239,053
----------- -----------
Net property and equipment 21,755,742 19,365,220
Goodwill 5,050,232 5,050,232
Other assets 1,239,449 1,382,482
----------- -----------
Total assets $94,288,288 $80,727,305
=========== ===========
LIABILITIES & SHAREHOLDER'S INVESTMENT
Current liabilities:
Current maturities of long-term debt & capitalized leases $ 2,931,733 $ 2,371,734
Controlled disbursements 4,276,708 5,668,517
Accounts payable 23,662,071 18,408,291
Accrued expenses 11,990,898 9,469,165
----------- -----------
Total current liabilities 42,861,410 35,917,707
Long-term debt and capitalized leases 25,200,807 18,515,178
Deferred income tax 1,525,560 1,525,560
Shareholders' investment:
Common stock 662,533 636,933
Paid-in capital 13,353,447 13,342,600
Deferred compensation (1,699,013) (1,472,590)
Accumulated other comprehensive income (loss), net - (25,562)
Retained earnings 12,383,544 12,287,479
----------- -----------
Total shareholders' investment 24,700,511 24,768,860
----------- -----------
Total liabilities & shareholders' investment $94,288,288 $80,727,305
=========== ===========
(See accompanying notes)
2
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
2005 2004 2005 2004
------------------ ------------------ ------------------ -------------------
(as restated) (as restated)
Sales $80,617,600 $59,069,576 $193,459,400 $150,228,298
Cost of sales 72,059,819 52,309,263 174,370,129 132,815,730
---------- ---------- ----------- -----------
Gross profit 8,557,781 6,760,313 19,089,271 17,412,568
Selling, general and administrative expenses 5,288,328 5,020,542 16,219,953 14,194,802
--------- --------- ---------- ----------
Income from operations 3,269,453 1,739,771 2,869,318 3,217,766
Other income (expense):
Interest expense (564,233) (351,900) (1,497,250) (1,111,049)
Other, net 4,055 17,770 30,653 333,490
--------- --------- ---------- ----------
(560,178) (334,130) (1,466,597) (777,559)
--------- --------- ---------- ----------
Income before income taxes 2,709,275 1,405,641 1,402,721 2,440,207
Income tax expense 1,060,000 540,000 530,000 920,000
--------- ---------- ---------- ----------
Net income $1,649,275 $ 865,641 $ 872,721 $ 1,520,207
Other comprehensive income, net of tax:
Unrealized gain on interest rate swap 0 20,307 25,562 56,196
--------- --------- ---------- ----------
Comprehensive income $1,649,275 $ 885,948 $ 898,283 $ 1,576,403
========== ========= ========== ===========
Earnings per share:
Basic $ .27 $ .15 $ .15 $ .26
========== ========= ========== ===========
Diluted $ .26 $ .14 $ .14 $ .25
========== ========= ========== ===========
Dividends per share $ .040 $ .035 $ .120 $ .100
========== ========= ========== ===========
Weighted average common and common
equivalent shares outstanding:
Basic 6,053,430 5,758,562 5,936,733 5,842,652
========= ========= ========= =========
Diluted 6,289,658 6,178,537 6,257,081 6,200,556
========= ========= ========= =========
(See accompanying notes)
3
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
July 31,
2005 2004
------------------- --------------------
Cash flow from operations: (as restated)
Cash received from customers $188,167,819 $145,550,587
Cash paid to suppliers and employees (187,339,593) (138,609,194)
Interest paid (1,378,545) (1,135,575)
Income taxes paid (743,150) (1,175,281)
------------ ------------
Cash provided by (used in) operations (1,293,469) 4,630,537
------------ ------------
Cash flow from investing activities:
Capital expenditures (4,164,346) (1,187,145)
Net proceeds from sale of building and land - 399,810
Other, net (177,532) (64,833)
------------ ------------
Cash used in investing activities (4,341,878) (852,168)
------------ ------------
Cash flow from financing activities:
Borrowings of long-term debt 8,817,376 4,288,444
Principal payments of long-term debt and
capitalized leases (1,571,748) (2,247,964)
Expenditures of restricted cash 42,151 115,735
Purchase of common stock and other capital transactions (886,103) (5,275,874)
Payment of dividends (776,657) (628,130)
------------ ------------
Cash provided by financing activities 5,625,019 (3,747,789)
------------ ------------
Net increase (decrease) in cash (10,328) 30,580
------------ ------------
Cash at beginning of period 163,098 77,012
------------ ------------
Cash at end of period $ 152,770 $ 107,592
============ ============
Reconciliation of net income to net cash provided by
(used in) operations:
Net income $ 872,721 $ 1,520,207
Depreciation and amortization 2,381,017 2,540,723
Restricted stock vesting as severance pay 409,500 -
Increase in receivables (5,291,581) (4,620,425)
Increase in inventories (7,029,516) (2,503,042)
Decrease in prepaid expenses and other current assets 980,687 1,324,612
Increase in accounts payable and accrued expenses 6,383,704 6,664,361
Gain on sale of building and land - (295,899)
------------ ------------
Cash provided by (used in) operations $ (1,293,469) $ 4,630,537
============ ============
(See accompanying notes)
4
COLLINS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(1) 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.
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring items) necessary to present fairly the Company's financial position at
July 31, 2005 and the results of operations and the cash flows for the three and
nine months ended July 31, 2005 and 2004.
The Company suggests that the unaudited Consolidated Condensed Financial
Statements for the three and nine months ended July 31, 2005 be read in
conjunction with the Company's Annual Report for the year ended October 31,
2004.
(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 9. 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
Effects of Restatement on Net Income
The following table identifies the adjustments made to previously-released
consolidated financial statements:
Three Months Nine Months
Ended Ended
Description of Adjustment July 31, July 31,
($ In thousands 000's) 2004(1) 2004(1)
--------------------------------------------------------------------------------
Workers Compensation Reserve Adjustments(2) $ 82 $ 274
Uncollectible Rebates(3) (44) (58)
Other Accrued Expenses(4) (22) (69)
--------------------------------------------------------------------------------
Total pre-tax impact $ 16 $ 147
Income tax(5) (10) (50)
--------------------------------------------------------------------------------
Total Net Income Impact $ 6 $ 97
--------------------------------------------------------------------------------
5
(1) As originally reported by the Company for the quarter ended July 31, 2004
on Form 10-Q.
(2) Reflects adjustments to workers' compensation liability reserves which had
not previously been recorded. Amounts in the three-month and nine-month
period ended July 31, 2004 also reflect adjustment to expense which should
have been recorded in prior periods.
Consolidated Statements of Income and Comprehensive Income: Adjustments
decreased cost of sales by the amounts set forth in this table.
Consolidated Balance Sheets: Cumulative adjustments increased accrued
expenses by $1,651 for the period ending July 31, 2004.
(3) Corrections to the estimate of rebate collectibility at July 31, 2004.
Consolidated Statements of Income and Comprehensive Income: Adjustments
increased cost of sales by the amounts set forth in this table.
Consolidated Balance Sheets: Cumulative adjustments decreased accounts
receivable by $64 for the period ending July 31, 2004.
(4) Relates to the correction of accumulated depreciation and unaccrued
facility expense. Consolidated Statements of Income and Comprehensive
Income: Adjustments increased cost of sales by the amounts set forth in
this table.
Consolidated Balance Sheets: Adjustments decreased accumulated depreciation
by $20 and cumulative adjustments increased accounts payable by $40 for the
period ending July 31, 2004
(5) Income tax benefit related to the adjustments above.
Consolidated Statements of Income and Comprehensive Income: Adjustments
increased income tax expense by the amounts set forth in this table.
Consolidated Balance Sheets: Cumulative adjustment increased prepaid
expenses and other current assets by $700 for the period ended July 31,
2004.
As a result of the foregoing factors, the Company's unaudited condensed
consolidated financial statements for the three month and nine month periods
ended July 31, 2004 have 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 three months
and nine months ended July 31, 2004 and Consolidated Balance Sheet as of July
31, 2004 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 and
Financing Activities.
As a result of the restatement of the consolidated financial statements for the
quarter ended July 31, 2004 net income increased by $6, or less than $.01 per
share - diluted to $866 from $860 or $.14 per share - diluted as previously
reported. For the nine months ended July 31, 2004 net income increased by $97,
or $.02 per share - diluted to $1,520 from $1,423 or $.25 per share - diluted as
previously reported. All applicable financial information contained in this
Quarterly Report on Form 10-Q gives effect to these restatements.
6
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
July 31, July 31
2004 2004
----------------------- --------------------
(as restated)
ASSETS
Current Assets:
Cash $ 107,592 $ 107,592
Receivables, trade & other 11,304,224 11,240,824
Inventories, lower of cost (FIFO) or market 38,894,644 38,894,644
Prepaid expenses and other current assets 2,209,611 2,909,611
----------- -----------
Total current assets 52,516,071 53,152,671
Restricted cash 657,068 657,068
Property and equipment, at cost 50,443,208 50,443,208
Less: accumulated depreciation 31,117,010 31,097,010
---------- ----------
Net property and equipment 19,326,198 19,346,198
Goodwill 5,050,232 5,050,232
Other assets 1,328,541 1,328,541
----------- -----------
Total assets $78,878,110 $79,534,710
=========== ===========
LIABILITIES & SHAREHOLDER'S INVESTMENT
Current liabilities:
Current maturities of long-term debt & capitalized leases $2,483,140 $2,483,140
Accounts payable 24,374,724 24,415,225
Accrued expenses 7,072,044 8,722,424
----------- -----------
Total current liabilities 33,929,908 35,620,789
Long-term debt and capitalized leases 18,583,591 18,583,591
Deferred income tax 1,333,571 1,333,571
Shareholders' investment:
Common stock 636,920 636,920
Paid-in capital 13,341,803 13,341,803
Deferred compensation (1,636,814) (1,636,814)
Accumulated other comprehensive income (loss), net (45,020) (45,020)
Retained earnings 12,734,151 11,699,870
----------- -----------
Total shareholders' investment 25,031,040 23,996,759
----------- -----------
Total liabilities & shareholders' investment $78,878,110 $79,534,710
=========== ===========
7
Collins Industries, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
2004 2004 2004 2004
-------------------- ---------------- -------------------- -------------------
(as restated) (as restated)
Sales $59,069,576 $59,069,576 $150,174,904 $150,228,298
Cost of sales 52,325,095 52,309,263 132,934,959 132,815,730
----------- ----------- ------------ ------------
Gross profits 6,744,481 6,760,313 17,239,945 17,412,568
Selling, general and administrative
expenses 5,020,542 5,020,542 14,168,913 14,194,802
----------- ----------- ------------ ------------
Income from operations 1,723,939 1,739,771 3,071,032 3,217,766
Other income (expense):
Interest expense (351,900) (351,900) (1,111,049) (1,111,049)
Other, net 17,770 17,770 333,490 333,490
----------- ----------- ------------ ------------
(334,130) (334,130) (777,559) (777,559)
----------- ----------- ------------ ------------
Income before income taxes 1,389,909 1,405,641 2,293,473 2,440,207
Income tax expense 530,000 540,000 870,000 920,000
----------- ----------- ------------ ------------
Net income $ 859,809 $ 865,641 $ 1,423,473 $ 1,520,207
Other comprehensive income, net of tax:
Unrealized gain on interest rate swap 20,307 20,307 56,196 56,196
----------- ----------- ------------ ------------
Comprehensive income $ 880,116 $ 885,948 $ 1,479,669 $ 1,576,403
=========== =========== ============ ============
Earnings per share:
Basic $ .15 $ .15 $ .24 $ .26
=========== =========== ============ ============
Diluted $ .14 $ .14 $ .23 $ .25
=========== =========== ============ ============
Dividends per share $ .035 $ .035 $ .10 $ .10
=========== =========== ============ ============
Weighted average common and common
equivalent shares outstanding:
Basic 5,758,562 5,758,562 5,842,652 5,842,652
========= ========= ========= =========
Diluted 6,178,537 6,178,537 6,200,556 6,200,556
========= ========= ========= =========
8
(3) Inventories
Inventories, which include material, labor, and manufacturing overhead, are
stated at the lower of cost (FIFO) or market.
Major classes of inventories as of July 31, 2005 and October 31, 2004 consisted
of the following:
July 31, 2005 October 31, 2004
--------------- ------------------
Chassis $ 8,781,645 $ 5,767,019
Raw materials & components 16,766,235 14,997,408
Work-in-process 11,006,069 9,037,199
Finished goods 9,534,752 9,257,559
--------- ---------
$46,088,701 $39,059,185
=========== ===========
(4) Earnings per Share
Dilutive securities, consisting of options to purchase the Company's common
stock and restricted stock awards, are included in the calculation of diluted
weighted average common shares. Dilutive securities for the three month period
ended July 31, 2005 were 236,228. Dilutive securities for the three month period
ended July 31, 2004 were 419,975. Dilutive securities for the nine months ended
July 31, 2005 were 320,348. Dilutive securities for the nine months ended July
31, 2004 were 357,904.
(5) Contingencies and Litigation
At July 31, 2005 the Company had contingencies and pending litigation 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 would not result
in liabilities that would have a material adverse effect on the Company's
consolidated financial position or results of operations or cash flows.
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.
The Company was advised on February 25, 2005 that the SEC had initiated a
preliminary investigation of certain accounting practices of the Company. The
Company has provided the SEC with the results of the Audit Committee
investigation described in Note 9 and does not anticipate any further inquiry
into this matter.
9
(6) 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 truck/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.
Three Months Ended Nine Months Ended
(In Thousands) July 31, July 31,
2005 2004 2005 2004
----------------- ------------- ------------- --------------
Revenues from external customers: (as restated) (as restated)
Ambulance $29,106 $20,376 $ 72,951 $ 59,460
Buses 28,531 19,817 56,212 42,211
Terminal Trucks/Road Construction
Equipment 22,981 18,877 64,296 48,557
------ ------ ------ ------
Consolidated Total $80,618 $59,070 $193,459 $150,228
======= ======= ======== ========
Pretax segment profit (loss):
Ambulance $ 517 $ 555 $ 361 $ 1,929
Buses 1,364 949 1,403 814
Terminal Trucks/Road Construction
Equipment 2,389 910 4,536 2,227
Other (1,561) (1,009) (4,897) (2,530)
------- ------- --------- --------
Consolidated Total $ 2,709 $ 1,405 $ 1,403 $ 2,440
======= ======= ========= ========
As of
July 31, October 31,
2005 2004
----------------- ----------------
Segment assets:
Ambulance $39,035 $35,165
Buses 21,450 18,100
Terminal Trucks/Road Construction
Equipment 24,441 21,866
Other 9,362 5,596
------- -------
Consolidated Total $94,288 $80,727
======= =======
10
(7) Guarantees and Warranties
Letters of Credit
The Company has issued various standby letters of credit in the ordinary course
of business. No liability has been reflected in the accompanying balance sheet
and no draws on the Company's standby letters of credit have ever been made. The
current outstanding standby letters of credit are limited to (i) a letter of
credit originally issued approximately 15 years ago (renewable annually) as
required under Kansas law to backup self-insured reserves for workers
compensation insurance, (ii) a declining standby letter of credit required under
Texas law to backup certain industrial revenue bonds issued for a plant
expansion in Longview, Texas in 1999 that is renewable annually and (iii) other
standby letters of credit related to periodic bids and issued for other similar
purposes. A default in meeting an obligation or condition under the
above-referenced standby letters of credit could require the Company to record a
liability. The letters of credit outstanding at July 31, 2005 are summarized as
follows:
Date of
Purpose Amount Expiration
------- ------ ----------
Workers compensation - Kansas self-insurance reserves $1,373,000 April 1, 2006
Industrial revenue bond-Longview, Texas [a] 1,314,911 June 30, 2006
Bids and other 638,454 Various
[a] All assets (originally $3.0 million) acquired with the proceeds of the
Longview, Texas industrial revenue bonds would also be available to offset any
defaults under these obligations. The liquidation amount of such assets is not
reasonably estimable.
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 tables
provide the changes in the Company's product warranties (in thousands):
11
Reconciliation of Accrued Warranties
For the Three Months Ended July 31, 2005 2004
----------------------------------------------------- ---------- ----------
Accrued warranties at beginning of period $1,350 $1,146
Provisions for warranties charged against income 621 373
Payments and adjustments of warranties (565) (348)
---- ----
Accrued warranties at end of period $1,406 $1,171
====== ======
Reconciliation of Accrued Warranties
For the Nine Months Ended July 31, 2005 2004
----------------------------------------------------- ---------- ----------
Accrued warranties at beginning of period $1,184 $1,133
Provisions for warranties charged against income 1,552 1,021
Payments and adjustments of warranties (1,330) (983)
------ ----
Accrued warranties at end of period $1,406 $1,171
====== ======
(8) Stock Based Compensation
At July 31, 2005 the Company had two stock-based employee compensation plans,
which are more fully described in Note 6 of the "Notes to Consolidated Financial
Statements" in the Company's 2004 Form 10-K. The Company accounts for these
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. No stock
based compensation cost is reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. No stock options have been granted since 1999
and therefore, no proforma net income disclosures are required.
(9) Audit Committee Investigation
On January 31, 2005, the Company announced that it was delaying filing of the
Form 10-K for the year ended 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 year 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
12
amount in each case, additional time was needed to ensure a complete
investigation and this factor 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.
(10) Other Matters
The delay in providing audited financial statements for the year ending October
31, 2004 would have constituted a covenant violation pursuant to the Company's
Loan and Security 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.
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 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
financed by the Company's lead bank. This property was leased prior to being
purchased. In addition to the purchase price, the Company agreed to purchase up
to $1,000,000 of parts or products at customary prices and terms 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.
13
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. On April 1, 2005, Randall Swift became Vice President
and Chief Operating Officer of the Company. On May 23, 2005, Cletus Glasener
became Vice President of Finance 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 to the two executives who retired.
14
Item 2 - Management's Discussion and Analysis of Financial Condition and Result
of Operations
GENERAL
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.
Three Months Ended Nine Months Ended
July 31, July 31,
2005 2004 2005 2004
---- ---- ---- ----
(restated) (restated)
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.4 88.5 90.1 88.4
---- ---- ---- ----
Gross profit 10.6 11.5 9.9 11.6
Selling, general and administrative expenses 6.5 8.5 8.4 9.4
--- --- --- ---
Income from operations 4.1 3.0 1.5 2.2
Other income (expense):
Interest, net (0.7) (0.6) (0.8) (0.7)
Other, net 0.0 0.0 0.0 0.2
--- --- --- ---
Income before provision for
income taxes 3.4 2.4 0.7 1.7
Income tax provision (1.4) (0.9) (0.3) (0.6)
----- ---- ----- ----
Net income 2.0% 1.5% 0.4% 1.1%
OVERVIEW
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
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" in the
15
Company's 2004 Form 10-K. The Company evaluates performance based on profit or
loss from operations before income taxes not including nonrecurring gains and
losses.
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 Company posted a 56% increase in its sales backlog at July 31, 2005 to
$116.0 million compared to $74.3 million at July 31, 2004. The backlog at
October 31, 2004 was $68.5 million. The increased backlog at July 31, 2005
resulted from increased orders primarily in the Terminal Truck / Road
Construction and Ambulance segments. Approximately 63% and 35% of the backlog is
expected to be converted into sales during the remainder of FY 2005 and in FY
2006, respectively, with the remaining backlog coverted to sales subsequent to
October 31, 2006.
See "Segment Information" (Note 6 to the Consolidated Financial Statements) for
quantitative segment information.
RESULTS OF OPERATIONS
Three months ended July 31
Consolidated sales for the three months ended July 31, 2005 increased 36% to
$80.6 million compared to $59.1 million for the same period last year. This was
the result of increases of 43%, 44% and 22% in the ambulance, bus and terminal
truck/road construction product segments, respectively.
Consolidated gross profit for the three months ended July 31, 2005 increased
$1.8 million or 26.6% over the same period last year. This increase was
principally due to the impact of higher sales and was partially offset by the
impact of raw material cost increases absorbed on units before sales price
increases were initiated.
Consolidated selling, general and administrative expenses for the three months
ended July 31, 2005 increased $0.3 million or 5% over the same period last year.
This increase was principally due to auditing and legal expense associated with
the restatement of the 2004 financial statements.
Interest expense for the three months ended July 31, 2005 increased to $0.56
million compared to $0.35 million in the same period last year. This increase
was principally a result of an overall increase of the Company's average
borrowings throughout most of the third quarter of fiscal 2005 to fund increased
inventory and interest rate increases.
The Company posted consolidated net income of $1.65 million ($0.26 per share -
diluted) for the three months ended July 31, 2005 compared to net income of
$0.87 million ($0.14 per share - diluted) for the same period last year. The
improvement for the three months ended July 31, 2005 principally resulted from
increased revenue and gross profits.
Nine months ended July 31
Consolidated sales for the nine months ended July 31, 2005 increased 29% to
$193.5 million compared to $150.2 million the same period last year. This was
the result of increases of 23%,
16
33% and 32% in the ambulance, bus and terminal truck/road construction product
segments, respectively.
Consolidated gross profit for the nine months ended July 31, 2005 increased
$1.68 million or approximately 10% over the same period last year. This increase
was principally due to the increased sales volume.
Consolidated selling, general and administrative expenses for the nine months
ended July 31, 2005 increased $2.0 million over same period last year. This
increase was principally due to severance accruals and auditing and legal
expense associated with the restatement of the 2004 financial statements.
Interest expense for the nine months ended July 31, 2005 increased to $1.50
million compared to $1.11 million in the same period last year. This increase
was principally a result of an overall increase of the Company's average
borrowings throughout most of fiscal 2005 combined with interest rate increases.
Other income for the nine months ended July 31, 2005 was $0.03 million compared
to $0.33 million for the same period last year. Of the amount for the period in
2004, $0.30 million resulted from a nonrecurring gain from the sale of a
building and land.
The Company posted consolidated net income of $0.87 million ($0.14 per share -
diluted) for the nine months ended July 31, 2005 compared to net income of $1.52
million ($0.25 per share - diluted) for the same period last year. The decrease
in net income for the nine months ended July 31, 2005 resulted principally from
increases in general and administrative expenses associated with the restatement
of the 2004 financials combined with a reduction in gross margins from the
impact of raw material cost increases absorbed on units before sales price
increases were initiated.
AMBULANCE SEGMENT
Three months ended July 31
For the three months ended July 31, 2005, the ambulance segment sales were $29.1
million or 36.1% of the Company's consolidated sales compared to $20.4 million
or 34.5% for the same period in fiscal 2004. Unit volume sales of ambulance
products increased 34.7% for the three months ended July 31, 2005 compared to
the same period in fiscal 2004. This increase was principally due to increased
unit sales in all model types. Ambulance products average selling prices in the
three months ended July 31, 2005 increased 6.0% compared to the same period in
fiscal 2004 primarily due to model mix.
For the three months ended July 31, 2005, ambulance segment gross profit
decreased 1.6% and selling, general and administrative expenses decreased 7.1%
compared to the same period last year. The gross profit decline was principally
due to reduced chassis and parts margins.
Pretax profit of the ambulance segment decreased by 6.8% to $0.52 million for
the three months ended July 31, 2005 compared to $0.56 million for the same
period last year principally as a result of the materials cost increases
discussed above.
17
Nine months ended July 31
For the nine months ended July 31, 2005, the ambulance segment sales were $73.0
million or 37.7% of the Company's consolidated sales compared to $59.5 million
or 39.6% for the same period last year. Unit volume sales of ambulance products
increased 18.0% for the nine months ended July 31, 2005 compared to the same
period in fiscal 2004. This increase was principally due to increased unit sales
to governmental agencies. Ambulance products selling prices increased
approximately 4.4% in the nine months ended July 31, 2005 compared to the same
period in fiscal 2004. This increase principally resulted from changes in
product mix.
For the nine months ended July 31, 2005, ambulance segment gross profit
decreased 18.9% and selling, general and administrative expenses were flat
compared to the same period in fiscal 2004. Substantially all of the gross
profit decrease was principally due to the impact of raw material cost increases
absorbed on units before sales price increases were initiated.
Pretax profit of the ambulance segment was $0.36 million for the nine months
ended July 31, 2005 compared to $1.9 million for the same period last year. The
reduction in pretax income principally resulted from the result of raw material
cost increases absorbed on units before sales price increases were initiated.
BUS SEGMENT
Three months ended July 31
For the three months ended July 31, 2005, bus segment sales were $28.5 million
or 35.4% of the Company's consolidated sales compared to $19.8 million or 33.5%
for the same period last year. This increase was principally due to increased
sales to child care providers and contractors and increased chassis sales. The
average unit selling price of bus products increased by 33.4% in the three
months ended July 31, 2005 compared to the same period in fiscal 2004.
Substantially all of this unit price increase resulted from increased chassis
sales.
For the three months ended July 31, 2005, gross profit increased 2.6% and
selling, general and administrative expenses decreased by 12.2% compared to the
same period last year. The increase in gross profit was principally due to
increase in sales volume for the three months. The reduction in selling, general
and administrative expense was principally a result of lower promotion, and
sales policy allowance expenses.
Pretax profit of the bus segment increased by 43.7% to $1.4 million for the
three months ended July 31, 2005 compared to $0.95 million for the same period
last year. This increase principally resulted from an increase in sales volume
combined with the reduction of selling, general and administrative expenses for
the three months.
Nine months ended July 31
For the nine months ended July 31, 2005, bus segment sales were $56.2 million or
29.1% of the Company's consolidated sales compared to $42.2 million or 28.1% for
the same period last year. The increase was principally due to increased chassis
sales and increased sales to child care providers and contractors. Unit volume
sales of bus products increased by 8.4% for the nine months ended July 31, 2005
compared to the same period in fiscal 2004. This increase was principally due to
increased sales to child care providers and contractors. The average unit price
of bus products increased by 30.7% in the nine months ended July 31, 2005
compared to the same period in fiscal 2004. Substantially all of this unit price
increase resulted from increased chassis sales.
18
For the nine months ended July 31, 2005, bus segment gross profit increased
22.5% compared to the same period last year. The increase in gross profit was
principally attributable to increases in sales volumes discussed above combined
with temporary production inefficiencies during the first nine months of fiscal
2004. For the nine months ended July 31, 2005, selling, general and
administrative expenses increased by 1.8% compared to the same period last year.
This increase was principally a result of higher promotional expenses, partially
offset by a reduction in sales policy allowances.
The bus segment earned $1.4 million for the nine months ended July 31, 2005
compared to pretax earnings of $0.8 million in the same period in fiscal 2004.
The improvement was principally attributable to increases in sales volumes
discussed above, partially offset by increases in selling, general and
administrative expenses and increases in interest expense.
TERMINAL TRUCK/ROAD CONSTRUCTION SEGMENT
Three months ended July 31
For the three months ended July 31, 2005, terminal truck/road construction
segment sales were $23.0 million or 28.5% of the Company's consolidated sales
compared to $18.9 million or 32.0% for the same period last year. Unit volume
sales of terminal truck/road construction products increased by 10.7% for the
three months ended July 31, 2005 compared to the same period in fiscal 2004.
This increase was principally due to the impact of additional export sales
associated with foreign stevedoring operations. Additionally, this segment
continued to experience 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 10.7% in the three months ended July 31, 2005
compared to the same period in fiscal 2004. Substantially all of this increase
related to the product mix of terminal truck products.
For the three months ended July 31, 2005, terminal truck/road construction
segment gross profit increased 85.2% and selling, general and administrative
expenses increased by 17.0% compared to the same period last year. The increase
in gross profit was principally a result of the higher sales volumes described
above. The increase in selling, general and administrative expenses was
principally due to higher commissions associated with improved sales and
profitability.
The pretax income of the terminal truck/road construction segment increased to
$2.4 million for the three months ended July 31, 2005 compared to $0.91 million
in the same period last year. The pretax income of the terminal truck/road
construction segment increased principally as a result of the sales volume gains
discussed above.
Nine months ended July 31
For the nine months ended July 31, 2005, terminal truck/road construction
segment sales were $64.3 million or 33.2% of the Company's consolidated sales
compared to $48.6 million or 32.3% for the same period last year. Unit volume
sales of terminal truck/road construction products increased by 26.4% for the
nine months ended July 31, 2005 compared to the same period in fiscal 2004. This
increase was principally due to the impact of additional export sales associated
with foreign stevedoring operations and higher domestic sales to intermodal and
warehousing customers. Additionally, this segment continues to experience an
increase in the number of road sweepers sold to the domestic rental market. The
average unit price of terminal truck/road construction products increased by
8.7% in the nine months ended July 31, 2005 compared to the
19
same period in fiscal 2004. Substantially all of this unit price increase
related to the product mix of terminal truck products.
For the nine months ended July 31, 2005, terminal truck/road construction
segment gross profit increased 50.7% and selling, general and administrative
expenses increased by 15.4% compared to the same period last year. The increase
in gross profit was principally a result of higher sales volumes described
above. The increase in selling, general and administrative expenses was
principally due to higher promotional expenses and commissions associated with
improved sales and profitability.
The pretax income of the terminal truck/road construction segment increased to
$4.54 million for the nine months ended July 31, 2005 compared to $2.23 million
in the same period last year. The pretax income of the terminal truck/road
construction segment increased principally as a result of the sales volume gains
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company used existing credit lines, proceeds from Industrial Revenue Bonds,
internally generated funds and supplier financing to fund its operations and
capital expenditures for the nine months ended July 31, 2005.
Cash used in operations was $1.3 million for the nine months ended July 31,
2005, compared to cash provided by operations of $4.6 million for the same
period last year. Cash used in operations was principally due to an increase in
inventories of $7.0 million and an increase in accounts receivable of $5.3
million. These uses of cash were partially offset by net income of $0.9 million,
an increase in accounts payable of $3.9 million, an increase in accrued expenses
of $2.5 million and a decrease in prepaid expenses of $1.0 million.
Cash used in investing activities was $4.4 million for the nine months ended
July 31, 2005 compared to $0.9 million for the same period last year. The
increase in cash used by investing activities was principally due to higher
capital expenditures for the nine months ended July 31, 2005 and proceeds from
the sale of a building and land in the first fiscal quarter of 2004.
Cash flow provided by financing activities was $5.6 million for the nine months
ended July 31, 2005 compared to a use of $3.7 million for the same period last
year. This change principally resulted from higher borrowing in fiscal 2005 to
finance increased inventory and capital expenditures and the use of $5.3 million
in fiscal 2004 for the repurchase of 1,050,879 shares of the Company's common
stock in a modified Dutch auction tender offer.
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 needs, capital
expenditure requirements and anticipated dividends. The total amount of unused
revolving credit available to the Company was $10.8 million at July 31, 2005.
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 constituted a covenant
violation pursuant to the
20
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.
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 and resale 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 $3.7 million at
July 31, 2005.
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 higher 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.
Goodwill and Other Assets
In June 2002, 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, 2002. Goodwill is no longer amortized over future periods,
but will be 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, the Company tested for impairment of 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 annually 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 evaluations.
21
Insurance Reserves
In periods prior to fiscal year 2005 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 worker's 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 reserves. At the time a workers' 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 analyses 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 adjusted, such amounts are
included in cost of sales. Group medical reserves are funded through a trust and
are estimated using historical claims' experience.
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.
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 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
22
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.
NEW ACCOUNTING PRONOUNCEMENTS
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 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.
23
CAUTIONARY STATEMENTS REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This report 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, all of which are
subject to risks and uncertainties. One can identify these forward-looking
statements by their use of words such as "expect", "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
or all potential risks or uncertainties.
The forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company believes
the assumptions underlying these forward-looking statements are reasonable;
however, any of the assumptions could be inaccurate, and therefore, actual
results may differ materially from those projected in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, changes in funds budgeted by Federal, state and local governments, changes
in product demand, the availability of key raw materials, components and
chassis, various inventory risks due to changes in market conditions, changes in
competition, 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 as
indicated in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events or circumstances
occurring after the date released or to reflect the occurrence of unanticipated
events.
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).
24
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in this disclosure.
Item 4 - 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, 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 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 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 this period that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. During their fiscal year
2004 year-end review, the Company's prior independent accountants, 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 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.
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.
25
(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.
The Company has taken steps to correct the material weaknesses identified and
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 and reportable
conditions 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.
26
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Unregistered Sale of Equity Securities and Use of Proceeds
Not applicable
Item 3 - Defaults upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security-Holders
Not applicable
Item 5 - Other Information
Not applicable
Item 6 - Exhibits
The exhibits required to be filed pursuant to Item 601 of Regulation
S-K are listed in the Exhibit Index that immediately follows the
signature page of this report.
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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.
Dated: September 14, 2005
By: /s/ Cletus C. Glasener
--------------------------------------
Cletus C. Glasener, Vice President of
Finance and Chief Financial Officer
(Signing on behalf of the registrant
and as principal accounting officer)
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EXHIBIT INDEX
Item Description
31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief
Executive Officer (Principal Executive Officer).
31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President of
Finance and Chief Financial Officer (Principal Financial and
Accounting Officer).
32.1 Section 1350 Certification of President and Chief Executive
Officer (Principal Executive Officer).
32.2 Section 1350 Certification of Vice President of Finance and Chief
Financial Officer (Principal Financial and Accounting Officer).
29