LAW FIRM
BLACKWELL SANDERS PEPER MARTIN LLP
4801 MAIN STREET SUITE 1000 KANSAS CITY, MO 64112
P.O. BOX 219777 KANSAS CITY, MO 64121-6777
TEL: (816) 983-8000 FAX: (816) 983-8080
WEBSITE: www.blackwellsanders.com
Greg S. Steinberg DIRECT FAX: (816) 983-8080
DIRECT: (816) 983-8387 E-MAIL: gsteinberg@blackwellsanders.com
October 28, 2005
VIA EDGAR TRANSMISSION
Ms. Linda Crvkel
Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549
Re: Collins Industries, Inc.
Form 10-K for the fiscal year ended October 31, 2004
Filed March 3, 2005
Form 10-Q for the fiscal quarter ended July 31, 2005
(File No. 0-12619)
Dear Ms. Crvkel:
On behalf of Collins Industries, Inc. (the "company"), I am writing to
respond to the comments of the staff (the "staff") of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Commission")
set forth in your letter dated October 11, 2005 with respect to the
above-referenced filings (the "comment letter"). This letter is being filed with
the Commission today.
We are also providing a copy of this letter to Timothy P. Davis, Trial
Counsel for the Commission in the Ft. Worth, Texas office.
For ease of reference, each of the staff's comments is reproduced below in
its entirety in bold, followed by the corresponding response.
Form 10-K for the year ended October 31, 2004
Item 1. Business, page 1
Research and Development Costs, page 5
1. We note that you have included in costs of sales research and
development work performed on the production line. Please clarify for
us why these amounts are
KANSAS CITY, MISSOURI•ST. LOUIS, MISSOURI•OVERLAND PARK, KANSAS•OMAHA, NEBRASKA
SPRINGFIELD, MISSOURI•EDWARDSVILLE, ILLINOIS•WASHINGTON, D.C.•LONDON, UNITED KINGDOM
AFFILIATES: LEEDS•MANCHESTER
MEMBER OF THE WORLD SERVICES GROUP
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 2
properly classified in cost of sales and quantity amounts for each
year presented. Include in your response, if the research and
development costs were a material component of cost of sales, the
impact on your profit margin.
Response: The Form 10-K narrative discusses day-to-day operations, process
improvements, and customer directed and paid-for specifications. The
company performs customer-directed research and development work under
contract, which is why these amounts were included in cost of sales. In the
future, we propose to revise the disclosure to note that the company
performs customer-directed research and development work under contract.
The research and development costs were $137,515, $23,123, and $26,561 for
fiscal years 2002, 2003, and 2004, respectively. The research and
development costs were not a material component of cost of sales and,
therefore, did not materially impact the company's profit margin.
Financial Statements, page 30
Consolidated Statements of Income and Comprehensive Income, page 31
2. We note from the discussion in MD&A that you have reflected gains on
sales of land and buildings as a component of other income (expense)
in your consolidated statements of income. In future filings, please
revise to reflect any gains or losses on the disposal of such property
as a component of income from operations. Refer to the requirements of
footnote 68 to SAB Topic 13 and paragraph 45 of SFAS No. 144. In
addition, revise the notes to your financial statements to include the
disclosures outlined in 47 of SFAS No. 144 with respect to assets sold
during the periods presented in your consolidated statements of
income.
Response: The company will revise future filings (i) to reflect any gains
or losses on the disposal of such property as a component of income from
operations and (ii) to include the disclosures outlined in 47 of SFAS No.
144 with respect to assets sold during the periods presented in the
company's consolidated statements of income.
Notes to Consolidated Financial Statements, page 35
Note 1. Summary of Significant Accounting Policies, page 35
(d) Inventories, page 35
3. Please clarify for us your accounting for the consigned chassis. We
note from page 3 that you take title to the chassis when you select an
individual item and subsequently become liable for payment of the
consigned item. We further note from paragraph (f) on page 49 that
"the Company accounts for the chassis as consigned inventory" and that
you have a line item in your inventory breakdown on
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 3
page 35 for chassis. Please explain what comprises the line item
"Chassis" in your inventory breakdown. Also, please clarify if you
have title to the items included and explain how value the chassis
reflected in your inventory balances.
Response: A "chassis" is basically a truck frame, engine, and driver
compartment supplied by a large manufacturer, such as General Motors or
Ford.
Consigned inventory refers to chassis units that have been delivered by the
supplier to the company and stored on company facilities. However, the consigned
chassis are not the property of the company and the company has no obligation to
pay for these chassis unless and until the company determines to purchase the
chassis and use it in the production process.
Chassis inventory is comprised of any chassis that the company has
purchased and taken title from the manufacturer. Chassis inventory is valued on
the balance sheet at cost.
(h) Revenue Recognition, page 37
4. We note from page 2 that you sell products through both direct sales
and distributors. Please describe the significant terms of your
agreements with resellers or distributors, including payment, return,
exchange, price protection and other significant matters. Also address
your accounting for any of the referenced items that are applicable to
you. Consider the need to revise future filings to address our
concerns.
Response: Wheeled Coach dealer terms are cash on delivery. There are no
return, exchange, or price protection agreements. Collins Bus and Mid Bus
dealer terms require payment prior to delivery. Title passes upon payment
for each unit. Dealers have no return or exchange rights and no price
protection.
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
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 4
dealer still holds title. The company's contingent obligation under such
agreements was approximately $1,188,000 at October 31, 2004.
The company will revise future filings to reflect these additional
disclosures.
5. In a related matter, please expand your discussion in future filings
to explain your revenue recognition policies concerning all customers
that are offered return or price protection rights. This would include
addressing whether end users are offered rights of return and your
need for an allowance, if any, related thereto. Finally, demonstrate
your compliance with SFAS 48 for all such transactions. We may have
further comments after reviewing your response.
Response: The company does not currently offer any return or price
protection rights to its customers. In future filings, the company will
expand its discussion to explain its revenue recognition policies
concerning all customers, if any, that are offered return or price
protection rights, including addressing whether end users are offered
rights of return and the company's need for an allowance, if any, related
thereto by describing the general return or price protection rights.
The company meets all of the requirements of SFAS 48, which allows the
company to recognize revenue when the right to return exists if all of the
following conditions are met:
• Price to buyer is substantially fixed at the date of sale.
• Buyer has or is obligated to pay seller, and it is not contingent on
product resale.
• Buyer obligation not changed in event of theft or product damage.
• Buyer acquiring the product for resale has economic substance apart
from that provided by the seller.
• Seller does not have significant obligations for future performance to
bring about resale of the product by the buyer.
• Amount of future returns can be reasonably estimated.
In future filings, the company will demonstrate its compliance with SFAS 48
for all such transactions by listing the requirements of SFAS 48.
6. You disclose that you recognize revenue "at the earlier of completion
of the vehicle and receipt of full payment or shipment or delivery to
the customer." Please clarify for us how the four revenue recognition
criteria of SAB 104 are met prior to recognizing revenue in each of
these circumstances.
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 5
Response: Staff Accounting Bulletin No. 104 states: "The staff believes
that revenue generally is realized or realizable and earned when all of the
following criteria are met:
• Persuasive evidence of an arrangement exists;
• Delivery has occurred or services have been rendered;
• The seller's price to the buyer is fixed or determinable; and
• Collectibility is reasonably assured."
The company does not recognize revenue until each of the four criteria
listed above are met. In most cases, revenue is recognized upon delivery of the
company's product to the buyer.
In a small number of cases, the company will recognize revenue when
physical delivery has not occurred when the following criteria are met:
• Risk of ownership has passed to the buyer;
• The buyer has made a fixed commitment to purchase the goods;
• The buyer has requested the transaction be on a bill and hold basis
and the buyer has a substantial business purpose for ordering the
goods on a bill and hold basis;
• There is a fixed schedule for delivery of the goods;
• The company does not retain any specific performance obligations such
that the earnings process is not complete;
• The goods are segregated from the company's inventory and are not
subject to being used to fill other orders; and
• The goods are complete and ready for shipment.
The value of the bill and hold units at October 31, 2004, was $2.3 million.
Note 6. Capital Stock, page 46
Stock-based Compensation Plans, page 46
7. We note from the disclosures provided in Note 6 that the Company has
issued restricted stock awards to its officers, employees, and
directors during all periods presented in the Company's financial
statements. In future filings, please revise the notes to the
Company's financial statements to disclose the weighted-average grant
date fair value of the restricted shares issued each period as well as
the amount of compensation expense recognized in the Company's
financial statements in connection with these awards. Refer to the
requirements of paragraphs 47c and 47e of SFAS No. 123.
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 6
Response: In future filings, the company will revise the disclosure in the
notes to the company's financial statements to meet the requirements of
paragraphs 47c and 47e of SFAS No. 123.
Note 8. Commitments and Contingencies, page 48
(b) Repurchase Agreements, page 48
8. We note the disclosure indicating that the Company may be required to
repurchase its products in the event one of its dealers defaults under
their floor plan financing arrangements. Please tell us and clarify in
your footnote disclosures whether any accruals for potential losses in
connection with these arrangements have been reflected in your
financial statements, including the methods and significant
assumptions used in estimating the accruals. If no accruals have been
recognized, please explain why. In addition, please explain why your
contingent obligations with respect to these arrangements have
increased from approximately $1.1 million at October 1, 2004 to
approximately $3.7 million at July 31, 2005.
Response: There is no accrual reflected in the financial statements because
the company has no evidence or expectation of a dealer default. Since 2000,
the company has only had one event of default by a dealer under the floor
plan financing arrangement in which the company was required to repurchase
units. This event represents 8 units of the approximately 14,000 units that
the company has delivered since 2000. The company honored the arrangement
and sold the units to another buyer. In this case, the proceeds from the
defaulting dealer and the ultimate buyer were such that no loss was
recognized on this transaction. Lastly, the increase in the amount of the
contingent obligation is due to the seasonality of the School Bus market.
General
9. In future filings please provide Schedule II or tell us why you are
not required to do so.
Response: As of October 31, 2004, the company's allowance for doubtful
accounts was $174,000. The company's Valuation and Qualifying Accounts are
not material and therefore, Schedule II is not currently required. In
future filings, the company will disclose the required information in the
footnotes rather than in Schedule II.
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 7
Form 10-Q for the quarter ended July 31, 2005
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page 15
Results of Operations, page 16
Bus Segment, page 18
Nine months ended July 31, page 18
10. We refer you to the last sentence of the first paragraph on page 19.
Please clarify what is meant by "sales policy allowances" and why
these amounts are classified in selling, general and administrative
expenses. Your response should explain how these allowances are
recognized in your financial statements and why you believe
classification in selling, general and administrative expense is
appropriate.
Response: Sales policy allowances are items that fall outside of the
company's warranty requirements and are provided at the discretion of
management. For example, the allowance could relate to a repair that would
have normally been covered by warranty but the mileage and/or timeframe
have been exceeded. Sales policy allowances are expensed as incurred unless
the company becomes aware of a persuasive issue that would require accrual.
The company's sales policy allowances were higher in FY 2004 because it
made payments to several contractors as a customer accommodation due to their
overall dissatisfaction with the quality of the company's products, to settle
several old outstanding claims. These payments were not related to specific
claims, but rather were related to a contractor's overall dissatisfaction with
the quality of the company's products in the past. These payments were
authorized to help ensure that the company retained these contractors as
customers and to help improve customer relations. Therefore, the company
considers these payments to be a selling expense.
Item 4. Controls and Procedures, pages 25 and 26
11. We note that per the evaluation carried out by the CEO and CFO,
controls were deemed effective for the first time in several fiscal
quarters. However, the disclosure does not include specific changes in
controls made to address the material weaknesses previously
identified. Please tell us and explain in future filings what measures
you took to ensure that the material weaknesses were remediated in
order to conclude that controls were effective. Revise future filings
to provide the proper disclosures concerning changes in internal
controls. Please note that ANY changes in internal controls which have
materially affected or are reasonably likely to affect the Company's
internal control over financial reporting should be reported in your
disclosures. Refer to SEC Release No. 33-8238, Section II.F.
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 8
Response: As a basis for concluding that controls were effective as of the
end of the third quarter of FY 2005, the company took several measures to ensure
that the material weaknesses previously identified were remediated. As reported
in the company's Form 10-K for the fiscal year ended October 31, 2004 and Form
10-Q for the fiscal quarter ended July 31, 2005, on March 21, 2005, the company
reported that the chief financial officer and the executive vice president of
operations of the company had retired from the company, effective March 18,
2005. On March 30, 2005, the company reported the appointment of a new chief
operating officer of the company, effective April 1, 2005. On May 12, 2005, the
company reported the hiring of a new chief financial officer of the company. The
company believes that these changes in senior personnel have lead to more open
and candid communication within the company.
Additionally, prior to the third quarter of FY 2005, management instituted
the following procedures to address the material weaknesses previously
identified:
(i) The President and Vice President - Finance and Chief Financial
Officer of the company discuss at the annual President's Meeting
the importance and seriousness of timely, accurate and complete
financial reporting with the Vice President - Finance and Chief
Financial Officer, Chief Operating Officer and Vice President of
Marketing, each of whom report directly to the President, and
each of their direct reports.
(ii) The President and Vice President - Finance and Chief Financial
Officer of the company meet quarterly with the subsidiary
presidents and subsidiary controllers to formally review the
financial statements.
(iii) The subsidiary presidents and the subsidiary controllers, on a
quarterly basis, certify in writing in a Quarterly Disclosure
Control Checklist the financial statements for their operations.
The Board of Directors of the company formally ratified these procedures in
the fourth quarter of FY 2005. The company continues to review its internal
controls and will disclose in future filings the proper disclosures concerning
changes in internal controls.
* * * * *
In accordance with your request in the comment letter, we have included a
statement from the company acknowledging that:
LAW FIRM
BLACKWELL SANDERS PEPER MARTIN
LLP
Ms. Linda Crvkel
October 28, 2005
Page 9
• the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
• staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filings; and
• the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have any questions regarding any of the responses, please feel free
to call me at 816-983-8387.
Very truly yours,
BLACKWELL SANDERS PEPER MARTIN LLP
By: /s/ Gregory S. Steinberg
--------------------------------------
Gregory S. Steinberg
cc: Timothy P. Davis, Securities and Exchange Commission
Donald Lynn Collins
Cletus Glasener
Collins Industries, Inc.
15 Compound Drive Hutchinson, Kansas 67502-4349
(620) 663-5551
_______________________________________________
 |
October 27, 2005
Via EDGAR Transmission
Ms. Linda Cvrkel
Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549
Re: Collins Industries, Inc.
Form 10-K for the fiscal year ended October 31, 2004
Filed March 3, 2005
Form 10-Q for the fiscal quarter ended July 31, 2005
(File No. 0-12619)
Dear Ms. Cvrkel:
In accordance with your request in your letter dated October 11, 2005 with
respect to the above-referenced filings, we acknowledge that:
• the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
• staff comments or changes to disclosure in response to staff comments
do not foreclose the Securities and Exchange Commission ("Commission")
from taking any action with respect to the filings; and
• the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Very truly yours,
COLLINS INDUSTRIES, INC.
By: /s/ Cletus Glasener
--------------------------------------
Cletus Glasener, Vice President of
Finance and Chief Financial Officer