10-Q 1 c80757e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2003 Commission file number: 0-25620 A.S.V., INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1459569 --------- ---------- State or other jurisdiction of I.R.S. Employer Identification No. incorporation of organization 840 LILY LANE GRAND RAPIDS, MN 55744 (218) 327-3434 ---------------------- -------------- Address of principal executive offices Registrant's telephone number Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. [X] Yes [ ] No Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). [X] Yes [ ] No As of October 31, 2003, 10,338,739 shares of registrant's $.01 par value Common Stock were outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS A.S.V., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, December 31, 2003 2002 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents .............................. $14,985,852 $ 4,058,091 Short-term investments ................................. 305,662 739,307 Accounts receivable, net ............................... 21,738,951 14,397,958 Inventories ............................................ 26,833,705 31,834,620 Prepaid expenses and other ............................. 517,830 1,099,685 ----------- ----------- Total current assets ........................ 64,382,000 52,129,661 PROPERTY AND EQUIPMENT, net ............................... 6,077,102 5,080,536 ----------- ----------- Total Assets ................................ $70,459,102 $57,210,197 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term liabilities ............... 134,655 129,550 Accounts payable ....................................... 6,615,550 2,838,370 Accrued liabilities Compensation ......................................... 291,669 265,649 Warranty reimbursements .............................. 508,000 555,200 Warranties ........................................... 750,000 600,000 Other ................................................ 696,527 374,707 Income taxes payable ................................... 1,475,148 - ----------- ----------- Total current liabilities ................... 10,471,549 4,763,476 ----------- ----------- LONG-TERM LIABILITIES, less current portion ............... 1,879,391 1,979,798 ----------- ----------- COMMITMENTS AND CONTINGENCIES ............................. - - SHAREHOLDERS' EQUITY Capital stock, $.01 par value: Preferred stock, 11,250,000 shares authorized; no shares outstanding .............................. - - Common stock, 33,750,000 shares authorized; shares issued and outstanding -- 10,187,711 in 2003; 10,063,901 in 2002 ................................. 101,877 100,639 Additional paid-in capital ............................. 40,174,482 38,666,925 Retained earnings ...................................... 17,831,803 11,699,359 ----------- ----------- 58,108,162 50,466,923 ----------- ----------- Total Liabilities and Shareholders' Equity $70,459,102 $57,210,197 =========== ===========
See notes to consolidated financial statements. 2 A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ------------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net sales .......................................... $ 29,188,649 $ 11,474,655 $ 70,215,357 $ 32,366,419 Cost of goods sold ................................. 22,676,469 9,352,291 55,567,464 25,347,394 ------------ ------------ ------------ ------------ Gross profit .............................. 6,512,180 2,122,364 14,647,893 7,019,025 Operating expenses: Selling, general and administrative ........... 1,510,603 1,120,999 4,554,786 3,705,835 Research and development ...................... 192,909 248,663 556,795 1,631,408 ------------ ------------ ------------ ------------ Operating income .......................... 4,808,668 752,702 9,536,312 1,681,782 Other income (expense) Interest expense .............................. (31,292) (31,536) (99,968) (95,233) Other, net ................................... 19,067 60,444 106,100 172,983 ------------ ------------ ------------ ------------ Income before income taxes ................ 4,796,443 781,610 9,542,444 1,759,532 Provision for income taxes ......................... 1,717,000 255,000 3,410,000 585,000 ------------ ------------ ------------ ------------ NET EARNINGS .............................. $ 3,079,443 $ 526,610 $ 6,132,444 $ 1,174,532 ============ ============ ============ ============ Net earnings per common share Basic ......................................... $ .30 $ .05 $ .60 $ .12 ============ ============ ============ ============ Diluted ....................................... $ .29 $ .05 $ .59 $ .11 ============ ============ ============ ============ Weighted average number of common shares outstanding Basic ......................................... 10,152,916 10,176,714 10,101,992 10,183,965 ============ ============ ============ ============ Diluted ....................................... 10,743,850 10,253,347 10,430,048 10,248,290 ============ ============ ============ ============
See notes to consolidated financial statements. 3 A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2003 2002 ------------ ------------ Cash flows from operating activities: Net earnings ........................................... $ 6,132,444 $ 1,174,532 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation ....................................... 489,072 316,424 Deferred income taxes .............................. 68,000 590,000 Tax benefit from exercise of stock options ......... 232,000 - Changes in assets and liabilities: Accounts receivable .............................. (7,340,993) (1,294,706) Inventories ...................................... 5,000,915 (6,347,392) Prepaid expenses and other ....................... 513,855 404,725 Accounts payable ................................. 3,777,180 1,723,520 Accrued liabilities .............................. 450,640 (228,530) Income taxes payable ............................. 1,475,148 (260,069) ------------ ------------ Net cash provided by (used in) operating activities ....... 10,798,261 (3,921,496) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment ..................... (1,485,638) (285,083) Purchase of short-term investments ..................... (305,662) (934,833) Redemption of short-term investments ................... 739,307 725,249 ------------ ------------ Net cash used in investing activities ..................... (1,051,993) (494,667) ------------ ------------ Cash flows from financing activities: Advances on line of credit, net ........................ - 440,000 Principal payments on long-term liabilities ............ (95,302) (77,732) Proceeds from exercise of stock options, net of costs... 1,628,356 47,130 Retirements of common stock ............................ (351,561) (501,290) ------------ ------------ Net cash provided by (used in) financing activities ....... 1,181,493 (91,892) ------------ ------------ Net increase (decrease) in cash and cash equivalents ...... 10,927,761 (4,508,055) Cash and cash equivalents at beginning of period .......... 4,058,091 5,221,591 ------------ ------------ Cash and cash equivalents at end of period ................ $ 14,985,852 $ 713,536 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest ................................. $ 96,548 $ 154,850 Cash paid for income taxes ............................. 1,391,630 845,069
See notes to consolidated financial statements. 4 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited, consolidated financial statements follows: REVENUE RECOGNITION The Company generally recognizes revenue on its product sales when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonable assured. The Company considers delivery to have occurred at the time of shipment. RESEARCH AND DEVELOPMENT All research and development costs are expensed as incurred. INTERIM FINANCIAL INFORMATION The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods are not necessarily indicative of the results for an entire year. Preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from these estimates. WARRANTIES The Company provides a limited warranty to its customers. Provision for estimated warranty costs are recorded when revenue is recognized based on the Company's estimate of product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual failure rates, material usage or service delivery costs differ from the Company's estimates, revisions to the accrued warranty liability may be required. Changes in the Company's accrued warranty liability are as follows:
Three Months ended September 30, -------------------------------- 2003 2002 --------- --------- Balance, beginning of period $ 650,000 $ 600,000 Expense for new warranties issued 323,655 139,868 Warranty claims (223,655) (139,868) --------- --------- Balance, end of period $ 750,000 $ 600,000 ========= =========
5 STOCK-BASED COMPENSATION At September 30, 2003, the Company has three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, 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. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2003 2002 2003 2002 ------------- -------------- ------------- -------------- Net earnings, as reported $ 3,079,443 $ 526,610 $ 6,132,444 $ 1,174,532 Less total stock-based employee compensation determined under fair value methods for all awards (204,603) (143,861) (586,965) (431,584) -------------- --------------- -------------- --------------- Pro forma net earnings $ 2,874,840 $ 382,749 $ 5,545,479 $ 742,948 ============= ============== ============= ============== Earnings per share: Basic -- as reported $ .30 $ .05 $ .60 $ .12 ============= ============== ============= ============== Basic -- pro forma $ .28 $ .04 $ .55 $ .07 ============= ============== ============= ============== Diluted -- as reported $ .29 $ .05 $ .59 $ .11 ============= ============== ============= ============== Diluted -- pro forma $ .27 $ .04 $ .53 $ .07 ============= ============== ============= ==============
NOTE 2. INVENTORIES
Inventories consist of the following: SEPTEMBER 30, December 31, 2003 2002 ------------------ ----------------- Raw materials, semi-finished and work in process inventory $ 16,605,504 $ 16,502,994 Finished goods 7,406,175 10,779,010 Used equipment held for resale 2,822,026 4,552,616 ------------------ ----------------- $ 26,833,705 $ 31,834,620 ================== =================
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The following discussion and analysis of the Company's financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories and warranty obligations. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the amount of expenses and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue Recognition and Accounts Receivable. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. The Company generally obtains oral or written purchase authorizations from customers for a specified amount of product at a specified price and considers delivery to have occurred at the time of shipment. ASV maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of ASV's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventories. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Adjustments to slow moving and obsolete inventories to the lower of cost or market are provided based on historical experience and current product demand. The Company evaluates the adequacy of the inventories carrying value quarterly. Warranties. ASV provides for the estimated cost of product warranties at the time revenue is recognized. While ASV engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, ASV's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from ASV's estimates, revisions to the estimated warranty liability may be required. RESULTS OF OPERATIONS The following table sets forth certain Statement of Earnings data as a percentage of net sales:
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 -------- -------- -------- -------- Net sales.............................. 100.0% 100.0% 100.0% 100.0% Gross profit........................... 22.3 18.5 20.9 21.7 Selling, general and administrative.... 5.2 9.8 6.5 11.4 Research and development............... 0.7 2.2 0.8 5.0 Operating income....................... 16.4 6.6 13.6 5.2 Net earnings........................... 10.6 4.6 8.7 3.6
7 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002. Net Sales. Net sales for the three months ended September 30, 2003 increased 154% to approximately $29,189,000, compared with approximately $11,475,000 for the same period in 2002. The increase in sales was due to additional products available in 2003 and increased market acceptance of rubber track machines. In the third quarter of 2003, the Company was selling three models of undercarriages to Caterpillar Inc. (Caterpillar) for the jointly developed Multi-Terrain Loader (MTL) product line manufactured by Caterpillar. In the third quarter of 2002, the Company sold only one model of undercarriage to Caterpillar due to a production issue experienced by Caterpillar unrelated to ASV's undercarriages. The Company also experienced increased sales of its ASV branded products during the third quarter of 2003, due, in part, to one additional model, the RC-100 Posi-Track, which went into production in the first quarter of 2003. In addition, the Company experienced increased sales of service parts during the third quarter of 2003 as the number of machines in the field continues to increase. Included in this increase was approximately $450,000 of MTL service parts to Caterpillar as the Company began supplying Caterpillar distribution facilities with MTL service parts during the third quarter of 2003. Caterpillar dealers now order MTL service parts directly from Caterpillar rather than ASV. Gross Profit. Gross profit for the three months ended September 30, 2003 was approximately $6,512,000, or 22.3% of net sales, compared to approximately $2,122,000, or 18.5% of net sales, for the same period in 2002. The increase in gross profit percentage was due a shift in the mix of products sold during the third quarter of 2003. The Company sold a greater percentage of higher margin undercarriages and ASV branded products during the third quarter of 2003 as compared with the third quarter of 2002. The increased sale of service parts also contributed to the increased gross profit percentage as service parts generally carry a higher gross profit percentage than whole goods. Selling, General and Administrative Expenses. Selling, general and administrative (S, G & A) expenses increased from approximately $1,121,000, or 9.8% of net sales, in the third quarter of 2002, to approximately $1,511,000, or 5.2% of net sales, in the third quarter of 2003. The increase in S, G & A expenses was due primarily to increased commissions paid to the Company's sales force. The decrease in S, G & A expenses, when expressed as a percentage of net sales, was due to undercarriage sales to Caterpillar not requiring the same level of S, G & A expenses as sales to ASV's independent dealers. Research and Development Expenses. Research and development expenses decreased from approximately $249,000 in the third quarter of 2002 to approximately $193,000 in the third quarter of 2003. The decrease was due to the Company completing the development of undercarriages for Caterpillar's MTL product line in 2002. Net Earnings. Net earnings for the third quarter of 2003 were approximately $3,079,000, compared with approximately $527,000 for the third quarter of 2002. The increase was primarily a result of significantly increased sales and an increased gross profit percentage, offset in part by increased operating expenses and a higher effective income tax rate. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002. Net Sales. Net sales for the nine months ended September 30, 2003 increased 117%, to approximately $70,215,000 compared with approximately $32,366,000 for the same period in 2002. This increase was due primarily to increased sales of MTL undercarriages to Caterpillar in 2003. The Company is selling three models of MTL undercarriages to Caterpillar for use on five models of MTLs in 2003. In contrast, the Company was only selling two models of undercarriages for use on four MTL models in 2002. In addition, during 2002, ASV only supplied MTL undercarriages to Caterpillar during the second and third quarters, as Caterpillar had placed its MTLs on production hold for the first quarter, thereby preventing ASV from shipping undercarriages in the first quarter of 2002. Also contributing to the sales increase in 2003 were increased sales of the Company's RC-50 and RC-100 Posi-Track products due to increased popularity and increased market acceptance. Offsetting these increases were decreases in the sales of ASV's model 4810 Posi-Track and 2800 series Posi-Tracks in 2003. The Company believes these decreases were due to the introduction of the RC-100 Posi-Track in January of 2003 and the introduction of additional MTL models in 2002 and 2003. Gross Profit. Gross profit for the nine months ended September 30, 2003 was approximately $14,648,000, or 20.9% of net sales, compared with approximately $7,019,000, or 21.7% of net sales, for the nine months ended September 30, 2002. The increased gross profit was due to the increased sales experienced in 2003. The decrease in the gross profit percentage for the nine month period ended September 30, 2003 was due primarily to a greater number of lower margin MTL undercarriages sold in 2003. 8 Selling, General and Administrative Expenses. S, G & A expenses increased from approximately $3,706,000, or 11.4% of net sales, for the nine months ended September 30, 2002, to approximately $4,555,000, or 6.5% of net sales, for the nine months ended September 30, 2003. The increase in expenses was due primarily to two factors. First, the Company had increased marketing costs related to the introduction of new products and the Company's marketing efforts to rental facilities in 2003. Second, commissions to ASV's sales force increased in 2003 due to the increased sales. In addition,in the second quarter of 2002, selling, general and administrative expenses were lower than historical levels due primarily to the reversal of a portion of a remarketing reserve during the second quarter of 2002. The Company had previously established a remarketing reserve of $250,000 for any expected costs associated with remarketing existing machines at one customer's locations, some of which were ultimately returned to Company. ASV had originally anticipated these machines would be remarketed to other dealers, but instead chose to have certain of these machines returned to ASV for use in its new rental program which began in the second quarter of 2002. As these machines were returned to ASV and reflected as sales returns with a corresponding decrease in gross profit of approximately $148,000, a portion of the remarketing reserve was no longer needed. The Company reversed the portion of the remarketing reserve that related to the returned machines, which decreased selling, general and administrative expenses by approximately $148,000. Research and Development Expenses. Research and development expenses decreased from approximately $1,631,000 for the nine months ended September 30, 2002 to approximately $557,000 for the nine months ended September 30, 2003. The decrease was due to the Company completing the development of undercarriages for Caterpillar's MTL product line in 2002. Net Earnings. Net earnings for the nine months ended September 30, 2003 increased to approximately $6,132,000 from approximately $1,175,000 for the nine months ended September 30, 2002. The increase was primarily a result of significantly increased sales and decreased operating expenses, offset in part by a decreased gross profit percentage and a higher effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2003, the Company had working capital of approximately $53.9 million compared with approximately $47.4 million at December 31, 2002, an increase of approximately $6.5 million. Cash and short-term investments increased approximately $10.5 million due to increased sales, better accounts receivable collection, proceeds received from the Company's used equipment auction and proceeds received from the exercise of stock options. Accounts receivable increased approximately $7.3 million due to the increased sales experienced during 2003. Inventories decreased approximately $5.0 million during 2003, due primarily to the sale of finished goods and used equipment in inventory at December 31, 2002. Current liabilities increased approximately $5.7 million due primarily to increased accounts payable from increased production levels. In addition, the Company's income taxes payable increased approximately $1.5 million due to increased profitability in 2003. In October 2000, the Company and Caterpillar entered into an alliance agreement to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders, or MTLs. The product line, which includes five new models, features Caterpillar's patented skid steer loader technology and ASV's patented Maximum Traction Support System(TM) rubber track undercarriage. The machines complement existing models in both ASV's and Caterpillar's current product lines. They are being sold through the Caterpillar dealer network. The Company recognizes as sales its cost for the undercarriage, as defined in the agreement, plus a portion of the gross profit that Caterpillar recognizes upon sale of the MTL to Caterpillar dealers, when the Company ships undercarriages to Caterpillar. The MTLs are not a commissionable product under the Company's Commercial Alliance Agreement with Caterpillar. The Company anticipates sales of MTL undercarriages to Caterpillar could be in the range of $45-47 million for the twelve months ended December 31, 2003. In December 2000, the Company made a sale to one customer totaling approximately $4.0 million. During 2001, this customer did not make payments in accordance with the terms of its agreement with the Company, including approximately $800,000 of machines and attachments sold by the customer for which payment was not remitted to the Company. 9 In January 2002, the Company and the customer entered into a note agreement for the value of the machines that had been previously sold by the customer for which payment was not remitted to the Company. The initial amount of the note was $800,000 and is due in 48 monthly installments plus interest at the prime rate plus 2%, beginning March 15, 2002. As of October 31, 2003, the customer was six payments in arrears under this note. The Company anticipates it may refinance the existing note balance over a term not to exceed 60 months with payments due in monthly principal installments plus interest at the prime rate plus 2%. The Company has also obtained a security interest in the machines that have not yet been sold by the customer. In addition, the customer has agreed to remit payment to the Company for any machines it sells, which the customer has been doing. This customer is in the process of pursuing $6-7 million of debt and equity financing through a private placement offering with non-affiliated investors. The customer is also pursuing external financing for approximately $600,000 of the amount owed the Company under its trade account receivable balance. The Company anticipates it may convert a portion of the amount owed to it under its trade account receivable balance to equity in the private placement, such amount not to exceed $300,000. The Company does not currently anticipate it will incur a loss on the amounts owed to it by this customer. In October 2002, the Company began a program to market its RC-30 and RC-50 products directly to rental facilities. Under this program, ASV identifies rental facilities that will lease ASV machines from an unaffiliated finance company. ASV records the sale of the machines to the finance company when they are delivered to the rental facility and receives payment from the finance company at that time. At the end of the four-year lease, should the rental facility elect not to purchase the leased machines, ASV has guaranteed to pay a residual value equal to 25% of the original selling price of the financed equipment should the rental facility choose not to make the residual payment. At that point, ASV would take possession of the equipment. As of September 30, 2003, the total amount of future residual payments the Company may be required to make in the event of nonpayment by rental facilities totaled approximately $165,000. The Company believes the value of the related equipment will equal or exceed the amount of residual payment. Accordingly, the Company does not anticipate any loss will be incurred should any residual payments need to be made. Through June 30, 2003, the lease agreement between the rental facility and the finance company provided the rental facility a 90-day period during which any rental income generated was split between the rental facility and ASV. After the 90-day period expired, the rental facility had the option of terminating the lease, in which case ASV was responsible for the costs associated with transferring the machines to another rental facility. If the rental facility elected to continue the lease, ASV refunded any rental payments received during the 90-day period. Beginning July 1, 2003, this rental program was revised such that all new leases between the finance company and the rental facility did not include the lease termination option after the initial 90-day period. As of September 30, 2003, the Company was still responsible for the remarketing of approximately $1,321,000 of machines and attachments. The Company has accrued the estimated costs to remarket these machines and attachments as of September 30, 2003 and does not anticipate it will incur any loss as a result of marketing these machines and attachments. In October 2003, the Company's 2002 stock repurchase program expired. On October 14, 2003, the Company's Board of Directors approved a new stock repurchase program whereby ASV may repurchase up to $10 million of its common stock in the open market. The Company intends to fund any repurchases with available funds. The repurchase program is expected to last until October 14, 2004 or until such amount of common stock is repurchased. The Company had repurchased 195,580 shares of its common stock under all prior repurchase programs at an aggregate purchase price of approximately $1,974,000. On October 21, 2003 ASV issued an Acceleration Notice to Caterpillar with respect to 1,040,069 shares of ASV's common stock issuable pursuant to the warrant issued to Caterpillar. As a result of the Acceleration Notice, Caterpillar has 75 days to exercise its rights to purchase 1,040,069 newly issued shares of ASV common stock at $21.00 per share under its warrant with ASV, or lose the ability to acquire those shares under the terms of the warrant. The Company believes the revenues it is reporting in this Current Report on Form 10-Q will allow for the issuance of a second Acceleration Notice to Caterpillar with respect to an additional 2,054,426 shares of ASV's common stock issuable pursuant to the warrant issued to Caterpillar. Should the Company issue this second Acceleration Notice, Caterpillar would have 75 days from the date of the second Acceleration Notice to exercise its rights to purchase the additional 2,045,426 newly issued shares of ASV common stock at $21.00 per share under its warrant with ASV, or lose the ability to acquire those shares under the terms of the warrant. 10 The Company believes cash expected to be generated from operations, its existing cash and short-term investments, together with its available, unused $10 million credit line, will satisfy the Company's projected working capital needs and other cash requirements for the next twelve months and for the foreseeable future. The statements set forth above under "Liquidity and Capital Resources" and elsewhere in this Form 10-Q regarding ASV's future sales levels, product mix, profitability, expense levels and liquidity are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Certain factors may affect whether these anticipated events occur including ASV's ability to successfully manufacture the machines, unanticipated delays, costs or other difficulties in the development and manufacture of the machines, market acceptance of the machines, general market conditions, corporate developments at ASV or Caterpillar and ASV's ability to realize the anticipated benefits from its alliances with Caterpillar. Any forward-looking statements provided from time-to-time by the Company represent only management's then-best current estimate of future results or trends. Additional information regarding these risk factors and uncertainties is detailed in the Risk Factors filed as Exhibit 99 to its Current Report on Form 10-Q for the period ended June 30, 2003. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments, derivative commodity instruments or other such financial instruments. Transactions with international customers are entered into in US dollars, precluding the need for foreign currency hedges. Additionally, the Company invests in money market funds and fixed rate U.S. government and corporate obligations, which experience minimal volatility. Thus, the exposure to market risk is not material. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are adequately designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. Changes in Internal Controls. During our third fiscal quarter, there have not been any significant changes in the Company's internal control over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 11 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit Number Description 3.1 Second Restated Articles of Incorporation of the Company (a) 3.1a Amendment to Second Restated Articles of Incorporation of the Company filed January 6, 1997 (d) 3.1b Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (g) 3.2 Bylaws of the Company (a) 3.3 Amendment to Bylaws of the Company adopted April 13, 1999 (l) 4.1 Specimen form of the Company's Common Stock Certificate (a) 4.3* 1994 Long-Term Incentive and Stock Option Plan (a) 4.4 Warrant issued to Leo Partners, Inc. on December 1, 1996 (d) 4.5* 1996 Incentive and Stock Option Plan (e) 4.6* 1996 Incentive and Stock Option Plan, as amended (f) 4.7* 1998 Non-Employee Director Stock Option Plan (f) 4.8* Amendment to 1998 Non-Employee Director Stock Option Plan (m) 4.9 Securities Purchase Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 4.10 Warrant issued to Caterpillar Inc. on January 29, 1999 (i) 4.11 Securities Purchase Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 4.12 Replacement Warrant issued to Caterpillar Inc. on October 31, 2000 (n) 10.1 Development Agreement dated July 14, 1994 among the Iron Range Resources and Rehabilitation Board, the Grand Rapids Economic Development Authority ("EDA") and the Company (b) 10.2 Lease and Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.3 Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.4 Supplemental Lease Agreement dated April 18, 1997 between the EDA and the Company (e) 10.5 Supplemental Development Agreement dated April 18, 1997 between the EDA and the Company (e) 10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota North, N.A. and the Company (e) 10.7* Employment Agreement dated October 17, 1994 between the Company and Thomas R. Karges (c) 10.8 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (g) 12 10.9 First Amendment to Credit Agreement dated June 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (g) 10.10 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 10.11 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.12 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.13 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (k) 10.14 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (m) 10.15** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (n) 10.16** Manufacturing and Distribution Agreement dated January 2, 2001 between Polaris Industries Inc. and the Company (o) 10.17 Fifth Amendment to Credit Agreement dated June 1, 20021 between Wells Fargo Bank Minnesota, N.A. and the Company (p) 10.18 Sixth Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (q) 10.19 Seventh Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (r) 10.20** Marketing Agreement dated March 13, 2003 between Jacobsen, a division of Textron, Inc., and the Company (s) 10.21 Business Loan Agreement dated July 7, 2003 between Wells Fargo Bank Minnesota, N.A. and the Company (t) 11 Statement re: Computation of Per Share Earnings 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99 Risk Factors (t) -------------------------------------------------------------- (a) Incorporated by reference to the Company's Registration Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994. (b) Incorporated by reference to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form SB-2 (File No. 33-61284C) filed August 3, 1994. (c) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1994 (File No. 33-61284C) filed November 11, 1994. 13 (d) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No. 0-25620) filed electronically March 28, 1997. (e) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (File No. 0-25620) filed electronically August 13, 1997. (f) Incorporated by reference to the Company's Definitive Proxy Statement for the year ended December 31, 1997 (File No. 0-25620) filed electronically April 28, 1998. (g) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 0-25620) filed electronically August 12, 1998. (h) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically October 27, 1998. (i) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically February 11, 1999. (j) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-25620) filed electronically March 26, 1999. (k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 0-25620) filed electronically August 9, 1999. (l) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 0-25620) filed electronically November 12, 1999. (m) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 0-25620) filed electronically August 10, 2000. (n) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 0-25620) filed electronically November 13, 2000. (o) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-25620) filed electronically March 30, 2001. (p) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 0-25620) filed electronically August 13, 2001. (q) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 0-25620) filed electronically August 14, 2002. (r) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 0-25620) filed electronically November 14, 2002. (s) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 0-25620) filed electronically May 14, 2003. (t) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 0-25620) filed electronically August 14, 2003. * Indicates management contract or compensation plan or arrangement. ** Certain information contained in this document has been omitted and filed separately accompanied by a confidential request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 14 (b) REPORTS ON FORM 8-K The following current Reports on Form 8-K were filed by the Company during the quarter ended September 30, 2003: Current Report on Form 8-K dated July 10, 2003, reporting under Item 9. "Regulation FD Disclosure" that on July 10, 2003 ASV issued a press release announcing its preliminary net sales and earnings per share for the second quarter of 2003. ASV announced its final results for the second quarter of 2003 would be released the morning of Thursday, July 24, 2003. In addition, ASV announced it will hold a conference call to discuss its final results for the second quarter of 2003 at 9 a.m. Central time on Thursday, July 24, 2003. Current Report on Form 8-K dated July 24, 2003, reporting under Item 9. "Regulation FD Disclosure" that on July 24, 2003, ASV issued a press release disclosing its financial results for the three and six months ended June 30, 2003. In addition, the press release contained information regarding a conference call to be held July 24, 2003 during which ASV intends to discuss its financial results for the three months ended June 30, 2003 and its outlook for the remainder of fiscal 2003. 15 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. A.S.V., INC. Dated: November 7, 2003 By /s/ Gary Lemke ---------------------------------------------- Gary Lemke President Dated: November 7, 2003 By /s/ Thomas R. Karges ---------------------------------------------- Thomas R. Karges Chief Financial Officer (principal financial and accounting officer) 16 EXHIBIT INDEX
EXHIBIT METHOD OF FILING 11 Statement re: Computation of Per Share Earnings................... Filed herewith electronically 31.1 Certification of the Chief Executive Officer...................... Filed herewith electronically 31.2 Certification of the Chief Financial Officer...................... Filed herewith electronically 32.1 Certification of the Chief Executive Officer...................... Filed herewith electronically 32.2 Certification of the Chief Financial Officer...................... Filed herewith electronically
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