SecProbe.io

CORRESP
1
filename1.htm

SEC Correspondence dated August 19, 2005

                       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

                                 August 19, 2005

VIA EDGAR TRANSMISSION

Ms. Beverly A. Singleton
Staff Accountant
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549

     Re:  Collins  Industries,  Inc. - Form 8-K,  filed August 9, 2005
          (File No. 0-32369)

Dear Ms. Singleton:

     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 August 12, 2005 with respect to the
above-referenced filing (the "comment letter"). This letter is being filed with
the Commission today.

     We are providing a copy of this letter to Timothy P. Davis, Trial Counsel
for the Commission in the Ft. Worth, Texas office, who has been informed of the
workers' compensation investigation discussed in more detail below.

     For ease of reference, each of the staff's comments is reproduced below in
its entirety in bold, followed by the corresponding response.

Item 4.01 of Form 8-K

Reportable Condition:  Material Internal Control Weaknesses

1.   See the fourth paragraph regarding the disclosure of material weaknesses in
     your internal controls. Please provide us with a copy of any letter or
     written communication to and from the former accountants, KPMG LLP, to
     management, the Board of Directors or the audit committee regarding the
     material weaknesses in your internal controls.

  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

Ms. Beverly A. Singleton
August 19, 2005
Page 2

Response: For your information and review, we have enclosed as supplemental
materials copies of all written communications to and from KPMG LLP ("KPMG") to
management, the Board of Directors or the audit committee regarding the material
weaknesses in the company's internal controls:

     •    Audit committee representation letter to KPMG dated June 23, 2005.

     •    Management representation letter to KPMG dated July 28, 2005.

     •    Letter from KPMG to the audit committee dated July 28, 2005 (the
          "SAS-61 Letter").

     •    Letter from KPMG to the audit committee dated July 28, 2005 (the
          "Material Weaknesses Letter").

2.   In detail, describe for us the nature of each material weakness in internal
     controls cited by the former auditors and the amounts involved, if any.
     Also, tell us in what period the reportable event occurred and whether or
     not you restated (or intend to restate) any prior period for any adjustment
     resulting from the reportable event; and if not, why not. Tell us in detail
     the steps you have taken (or plan to take) and procedures you implemented
     (or plan to implement) to correct each reportable event.

Response: The company's material weaknesses identified in the Form 8-K filed
August 9, 2005 were described in detail in its Form 10-K ("Form 10-K") for the
fiscal year ended October 31, 2004, filed on August 3, 2005, and are as follows:

(1) 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 of this material weakness, the company 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.

The descriptions referred to below indicate in what period the events related to
this material weakness occurred and the amounts involved, if any. The company
has restated prior periods for the related adjustments, if appropriate.

Ms. Beverly A. Singleton
August 19, 2005
Page 3

     1.   Workers' compensation: Please see (a) the discussion of the second
          material weakness provided in response to Question #2 below; (b)
          footnote (2) to the Description of Adjustments Table in response to
          Question #3 below; and (c) the first bullet point on Page 2 of the
          Material Weaknesses Letter.

     2.   Environmental liabilities: Please see (a) footnote (4) to the
          Description of Adjustments Table in response to Question #3 below and
          (b) the second bullet point on Page 2 of the Material Weaknesses
          Letter.

     3.   Facility expenses: Please see (a) footnote (6) to the Description of
          Adjustments Table in response to Question #3 below and (b) the third
          bullet point on Page 2 of the Material Weaknesses Letter.

     4.   Report of amounts of work-in-progress units: Please see the fourth
          bullet point on Page 2 of the Material Weaknesses Letter. It was not
          necessary to restate any prior period for this item because the report
          is used only by operational personnel and not for financial reporting
          purposes.

To address this material weakness, 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. It is believed that
these changes in senior personnel will lead to more open and candid
communication within the company. The Board of Directors will also evaluate and
modify, as appropriate, its policies and procedures implementing the company's
Code of Conduct.

(2) The company had inadequate controls in place to record workers' compensation
reserves in accordance with generally accepted accounting principles.

The company 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 discovered issues with workers' compensation claims for injuries
dating back to 1990. The special investigation conducted by the audit committee
revealed that company

Ms. Beverly A. Singleton
August 19, 2005
Page 4

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.

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 workers' compensation liability. Previously reported unaudited
net income for the first three quarters of fiscal 2004 increased by $106,734, or
$.02 per share (diluted), to $1,530,207. 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.

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.

The Company's General Plans and Procedures to Address Both Material Weaknesses

In addition to the steps taken and procedures implemented by the company as set
forth above, now that the 2004 audit process is complete, the audit committee is
scheduled to meet August 22,

Ms. Beverly A. Singleton
August 19, 2005
Page 5

2005, and the Board of Directors is scheduled to meet August 23, 2005, to
identify and address the steps the company will take and the procedures the
company will implement to correct each material weakness. Any steps and
procedures adopted pursuant to these meetings will be provided supplementally to
the staff under separate cover.

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 any other control
deficiencies, if any. At this time, the company has not completed its review of
the existing controls and their effectiveness.

The management and the Board are committed to correcting the material weaknesses
and will take all necessary action to accomplish this. 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.

3.   Please provide us with a schedule of your fiscal year end October 31, 2004
     fourth quarter adjustments recorded in connection with or as a result of
     the audit. Clearly explain the reason for each adjustment. For each
     adjustment, show us the impact on pre-tax net loss. Quantify the net effect
     of all adjustments on pre-tax net income (loss). Also, tell us if any of
     the adjustments relate to a prior period. Explain in detail why you believe
     the timing of each adjustment is appropriate.

Response: The information contained in the Description of Adjustments Table and
related footnotes is disclosed in Item 7 of the company's Form 10-K. The table
identifies the adjustments made to previously-released consolidated financial
statements. Each adjustment described below was recorded in the period in which
the event giving rise to the adjustment occurred. The company also adjusted
estimated accruals for actual values for certain items during the fourth quarter
of 2004. In addition, the financial statements were adjusted for certain events
which occurred subsequent to the balance sheet date but prior to issuance of the
financial statements, which met the criteria set forth in AU 560.

Ms. Beverly A. Singleton
August 19, 2005
Page 6

                        Description of Adjustments Table

Description of Adjustments                                                   Periods Prior
($ In thousands)                                                                   To
                                                 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)  The 2004 amounts have been revised by the company for the quarters ended
     January 31, 2004, April 30, 2004 and July 30, 2004 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 c