-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HkxlqAVLMGrV1jSr0miIKt7TLy1PL6GhIwC52IYj9wVnL6kbFGXVH9WEqjOTlAGt e/KL1/IS0DlM2nHBMAHp0g== 0000950134-04-011702.txt : 20040809 0000950134-04-011702.hdr.sgml : 20040809 20040809102235 ACCESSION NUMBER: 0000950134-04-011702 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASV INC /MN/ CENTRAL INDEX KEY: 0000926763 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 411459569 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25620 FILM NUMBER: 04959715 BUSINESS ADDRESS: STREET 1: P O BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 BUSINESS PHONE: 2183273434 MAIL ADDRESS: STREET 1: PO BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 10-Q 1 c87291e10vq.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 JUNE 30, 2004 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 or organization 840 LILY LANE P.O. BOX 5160 GRAND RAPIDS, MN 55744 (218) 327-3434 Address of principal executive offices, Registrant's telephone number, including zip code including area code Check 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. |X| Yes |_| No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). |X| Yes |_| No As of July 30, 2004, 12,630,069 shares of the issuer's Common Stock were issued and outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS A.S.V., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31, 2004 2003 ------------ ----------- ASSETS CURRENT ASSETS Cash and cash equivalents ........................................... $ 38,680,006 $29,402,756 Short-term investments .............................................. 4,226,006 305,662 Accounts receivable, net ............................................ 28,032,210 16,484,603 Inventories ......................................................... 29,637,257 26,686,707 Other current assets ................................................ 880,573 3,614,506 ------------ ----------- Total current assets ..................................... 101,456,052 76,494,234 PROPERTY AND EQUIPMENT, net ............................................ 7,757,600 6,129,922 ------------ ----------- Total Assets ............................................. $109,213,652 $82,624,156 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term liabilities ............................ $ 140,022 $ 136,414 Accounts payable .................................................... 9,010,158 6,004,890 Accrued liabilities Compensation ...................................................... 439,776 372,027 Warranty reimbursements ........................................... 491,100 491,100 Warranties ........................................................ 1,685,000 850,000 Other ............................................................. 534,122 645,346 Income taxes payable ................................................ 540,776 -- ------------ ----------- Total current liabilities ..................................... 12,840,954 8,499,777 ------------ ----------- LONG-TERM LIABILITIES, less current portion ............................ 1,774,604 1,844,858 ------------ ----------- 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 - 12,621,919 in 2004; 11,053,588 in 2003 ........ 126,219 110,536 Additional paid-in capital .......................................... 66,277,384 51,751,723 Retained earnings ................................................... 28,194,491 20,417,262 ------------ ----------- 94,598,094 72,279,521 ------------ ----------- Total Liabilities and Shareholders' Equity ............... $109,213,652 $82,624,156 ============ ===========
See notes to consolidated financial statements. 2 A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net sales .................................................. $ 39,081,165 $ 26,414,478 $ 72,134,936 $ 41,026,708 Cost of goods sold ......................................... 30,313,383 21,082,229 55,796,952 32,890,995 ------------ ------------ ------------ ------------ Gross profit ...................................... 8,767,782 5,332,249 16,337,984 8,135,713 Operating expenses: Selling, general and administrative ................... 2,095,334 1,591,223 3,995,856 3,044,183 Research and development .............................. 181,980 202,182 337,535 363,886 ------------ ------------ ------------ ------------ Operating income .................................. 6,490,468 3,538,844 12,004,593 4,727,644 Other income (expense) Interest expense ...................................... (28,168) (32,053) (56,777) (68,676) Other, net ............................................ 181,896 49,627 361,413 87,033 ------------ ------------ ------------ ------------ Income before income taxes ........................ 6,644,196 3,556,418 12,309,229 4,746,001 Income taxes ............................................... 2,462,000 1,271,000 4,532,000 1,693,000 ------------ ------------ ------------ ------------ NET EARNINGS ...................................... $ 4,182,196 $ 2,285,418 $ 7,777,229 $ 3,053,001 ============ ============ ============ ============ Net earnings per common share Basic ................................................. $ .33 $ .23 $ .62 $ .30 ============ ============ ============ ============ Diluted ............................................... $ .32 $ .22 $ .58 $ .30 ============ ============ ============ ============ Weighted average number of common shares outstanding Basic ................................................. 12,632,363 10,089,161 12,548,440 10,076,531 ============ ============ ============ ============ Diluted ............................................... 13,110,823 10,432,661 13,408,714 10,273,147 ============ ============ ============ ============
See notes to consolidated financial statements. 3 A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2004 2003 ------------ ----------- Cash flows from operating activities: Net earnings .................................................. $ 7,777,229 $ 3,053,001 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation .............................................. 442,753 316,693 Tax benefit from stock option exercises ................... 686,000 50,000 Deferred income taxes ..................................... 720,000 100,000 Changes in assets and liabilities: Accounts receivable ..................................... (11,547,607) (5,552,518) Inventories ............................................. (2,950,550) 2,600,569 Other current assets .................................... 2,013,933 318,035 Accounts payable ........................................ 3,005,268 2,491,516 Accrued liabilities ..................................... 791,525 188,195 Income taxes payable .................................... 540,776 569,231 ------------ ----------- Net cash provided by operating activities ........................ 1,479,327 4,134,722 ------------ ----------- Cash flows from investing activities: Purchase of property and equipment ............................ (2,070,431) (598,240) Purchase of short-term investments ............................ (4,126,238) (300,894) Redemption of short-term investments .......................... 205,894 739,307 ------------ ----------- Net cash used in investing activities ............................ (5,990,775) (159,827) ------------ ----------- Cash flows from financing activities: Principal payments on long-term liabilities ................... (66,646) (63,143) Proceeds from issuance of common stock, net ................... 21,826,431 -- Proceeds from exercise of stock options, net of costs ......... 1,340,311 581,600 Retirements of common stock ................................... (9,311,398) (35,000) ------------ ----------- Net cash provided by financing activities ........................ 13,788,698 483,457 ------------ ----------- Net increase in cash and cash equivalents ........................ 9,277,250 4,458,352 Cash and cash equivalents at beginning of period ................. 29,402,756 4,058,091 ------------ ----------- Cash and cash equivalents at end of period ....................... $ 38,680,006 $ 8,516,443 ============ =========== Supplemental disclosure of cash flow information: Cash paid for interest ........................................ $ 57,257 $ 65,118 Cash paid for income taxes .................................... 2,506,414 730,547
See notes to consolidated financial statements. 4 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 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 A.S.V., Inc. ("ASV" or 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 reasonably 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. WARRANTIES The Company provides a limited warranty to its customers. Provision for estimated warranty costs are recorded when revenue is recognized based on estimated 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 warranty liability may be required. Changes in the Company's warranty liability are as follows:
Three months ended June 30, --------------------------- 2004 2003 ----------- --------- Balance, beginning of period $ 1,150,000 $ 600,000 Expense for new warranties issued 929,475 237,430 Warranty claims (394,475) (187,430) ----------- --------- Balance, end of period $ 1,685,000 $ 650,000 =========== =========
STOCK-BASED COMPENSATION At June 30, 2004, the Company had 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. 5 A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) STOCK-BASED COMPENSATION (Continued) 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, Accounting for Stock-Based Compensation. The weighted average fair values of the options granted during 2004 and 2003 are $18.30 and $4.52, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants in 2004 and 2003: zero dividend yield; expected volatility of 52.3% and 44.8%, risk-free interest rate of 3.64 and 3.55% and expected lives of 6.88 and 6.95 years.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net earnings, as reported $ 4,182,196 $ 2,285,418 $ 7,777,229 $ 3,053,001 Less total stock-based employee compensation determined under fair value methods for all awards, net of income taxes (267,635) (129,188) (488,659) (241,177) ------------ ------------ ------------ ------------ Pro forma net earnings $ 3,914,561 $ 2,156,230 $ 7,288,570 $ 2,811,824 ============ ============ ============ ============ Earnings per share: Basic - as reported $ .33 $ .23 $ .62 $ .30 ============ ============ ============ ============ Basic - pro forma $ .31 $ .21 $ .58 $ .28 ============ ============ ============ ============ Diluted - as reported $ .32 $ .22 $ .58 $ .30 ============ ============ ============ ============ Diluted - pro forma $ .30 $ .21 $ .54 $ .27 ============ ============ ============ ============
NOTE 2. INVENTORIES Inventories consist of the following:
JUNE 30, December 31, 2004 2003 ----------- ----------- Raw materials, service parts and work-in-process $21,814,541 $16,589,121 Finished goods 4,755,193 7,385,768 Used equipment held for resale 3,067,523 2,711,818 ----------- ----------- $29,637,257 $26,686,707 =========== ===========
NOTE 3. LINE OF CREDIT In July of 2004, the Company elected not to renew its $10 million line of credit agreement with its primary bank. NOTE 4. LETTER OF INTENT On July 20, 2004, the Company announced it had signed a non-binding letter of intent to acquire all the outstanding common stock of Loegering Mfg. Inc. (Loegering) of Casselton, North Dakota for a combination of currently existing cash and ASV common stock. Loegering is a manufacturer of over-the-tire steel tracks for wheeled skid-steers and also provides attachments for the skid-steer market. The transaction is subject to due diligence by ASV, negotiation of a definitive acquisition agreement and satisfaction of other customary conditions to closing. The Company anticipates it will complete the transaction in the third quarter of 2004 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW ASV designs, manufactures and sells rubber-tracked, all-purpose crawlers and related accessories and attachments. ASV also manufactures rubber-tracked undercarriages, which are a primary component on Caterpillar Inc.'s (Caterpillar) Multi Terrain Loaders (MTL). ASV's products are able to traverse nearly any terrain with minimal damage to the ground, making it effective in industries such as construction, landscaping and agriculture. ASV distributes its products through an independent dealer network in the United States, Canada, Australia, New Zealand and Portugal. The undercarriages sold to Caterpillar are incorporated by Caterpillar in its MTL products and sold exclusively through the Caterpillar dealer network, primarily in North America. ASV experienced a significant increase in sales in the first half of 2004 due to several reasons as explained below: - The Company believes there is a greater acceptance of rubber track machines in the marketplace as users experience the benefits that a rubber track machine can provide over a standard wheeled machine. - The number of companies entering into the rubber track machine market has increased in the last few years, thereby contributing to the increased awareness and market acceptance of the products. - ASV has increased its number of product offerings over the past few years thereby making it easier to attract prospective dealers to carry the R-Series Posi-Track product line. - Caterpillar has increased the number of MTL models it offers to its dealers from two models in 2001 to five in 2004. In addition, the number of Caterpillar dealers that are able to carry the MTL product line has increased from 16 pilot dealers in 2001 to all North American dealers (approximately 65) in 2004. - The current low interest rate environment has provided for easier financing by end users. - Recent tax legislation has provided increased depreciation allowances allowing end users to depreciate a greater portion of machine purchases in the first year of ownership, thereby potentially reducing the cost of machine ownership in the first year of operation. CRITICAL ACCOUNTING POLICIES The following discussion and analysis of the Company's financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with US GAAP. 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 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, among others, affect its more significant judgments and estimates used in the preparation of the Company's 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 7 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 does not believe its inventories are subject to rapid obsolescence. 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 June 30, Six Months Ended June 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net sales ................................ 100.0% 100.0% 100.0% 100.0% Gross profit ............................. 22.4 20.2 22.6 19.8 Selling, general and administrative ...... 5.4 6.0 5.5 7.4 Research and development ................. 0.5 0.8 0.5 0.9 Operating income ......................... 16.6 13.4 16.6 11.5 Net earnings ............................. 10.7 8.7 10.8 7.4
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003. Net Sales. For the three months ended June 30, 2004, net sales increased 48% to $39.1 million, compared with $26.4 million for the same period in 2003. This increase was primarily the result of three offsetting factors. First, sales of the Company's R-Series products more than doubled due to the addition of two new models, the RC-60 and RC-85, in January 2004, and a greater number of R-Series dealers in 2004. Sales of R-Series products represented 58%, or $22.7 million, of the Company's sales in the second quarter of 2004, compared with 41%, or $10.8 million, in the second quarter of 2003. Second, sales of service parts more than doubled during the second quarter of 2004 compared with the second quarter of 2003 due to a greater number of machines and undercarriages in service. Offsetting these increases was a decrease of approximately $1 million in the sale of the Company's undercarriages to Caterpillar for use on its MTLs in the second quarter of 2004 compared with the same period in 2003. This decrease was a result of Caterpillar changing over its production of MTLs to a newer series in the first half of 2004. Gross Profit. Gross profit for the three months ended June 30, 2004 increased to $8.8 million, compared with $5.3 million for the same period in 2003, and the gross profit percentage increased from 20.2% in the second quarter of 2003 to 22.4% in the second quarter of 2004. The increase in gross profit was due primarily to the increased sales experienced during the second quarter of 2004. The increase in gross profit percentage was due primarily to a shift in the mix of products sold in the second quarter of 2004. The Company had increased sales of R-Series Posi-Track products and slightly decreased sales of MTL undercarriages in the second quarter of 2004. R-Series products generally carry a higher gross profit percentage than MTL undercarriages. The Company also believes its raw material unit cost reduction project initiated in the first quarter of 2004 as well as operational efficiencies obtained from higher production volumes helped increase the gross profit percentage in the second quarter of 2004. Offsetting these increases were steel surcharges of approximately $550,000 during the second quarter of 2004. The Company experienced no steel surcharges in the second quarter of 2003. Selling, General and Administrative. Selling, general and administrative expenses increased from $1.6 million, or 6.0% of net sales, in the second quarter of 2003, to $2.1 million, or 5.4% of net sales, in the second quarter of 2004. 8 The increase in expenses was due primarily to increased advertising and promotion to promote the technology benefits of the Company's products, increased sales commissions from increased sales of the Company's R-Series products and the overall increase in the volume of the Company's business. Research and Development. Research and development expenses decreased from $202,000 in the second quarter of 2003 to $182,000 in the second quarter of 2004. The decrease was due to the Company's completion of the development of the RC-60 and RC-85 products in the first quarter of 2004. Other Income (Expense). Other income increased from $50,000 in the second quarter of 2003 to $182,000 in the second quarter of 2004. This increase was due primarily to greater funds available for investment in 2004, due to proceeds received from the sale of common stock to Caterpillar in January 2004, proceeds received from the exercise of employee stock options and net earnings generated in 2003 and 2004. Net Earnings. For the second quarter of 2004, net earnings were $4.2 million, compared with net earnings of $2.3 million for the second quarter of 2003. The increase was primarily a result of increased sales with an increased gross profit percentage, offset in part by increased operating expenses and a higher effective income tax rate. The higher effective income tax rate is due to lower anticipated research and development tax credits and a higher marginal income tax rate for anticipated earnings in excess of $10 million for 2004. FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003. Net Sales. Net sales for the six months ended June 30, 2004 increased 76% to $72.1million, compared with $41.0 million for the same period in 2003. This increase was primarily the result of three factors. First, sales of the Company's R-Series products increased in 2004 due to the addition of two new models in January 2004, a greater number of R-Series dealers in 2004 and a full six months of sales of the RC-100 in 2004, which was introduced in the first quarter of 2003. Second, sales of service parts more than doubled during the six months ended June 30, 2004 compared with the same period in 2003 due to a greater number of machines and undercarriages in service. Third, sales of MTL undercarriages increased slightly for the six months ended June 30, 2004. This increase was due to three models of undercarriages being sold for the first half of 2004. In 2003, one undercarriage model was added during the first quarter and, as such, had sales for only a portion of the first half of 2003. Gross Profit. For the six months ended June 30, 2004, gross profit increased to $16.3 million, compared with $8.1 million for the same period in 2003, and the gross profit percentage increased from 19.8% in 2003 to 22.6% in 2004. The increase in gross profit was due primarily to the increased sales experienced during the first half of 2004 as discussed above. The increase in gross profit percentage was due primarily to a shift in the mix of products sold in the second quarter of 2004. The Company had increased sales of R-Series Posi-Track products in the first half of 2004. R-Series products generally carry a higher gross profit percentage than MTL undercarriages. The Company also believes its raw material unit cost reduction project initiated in the first quarter of 2004 as well as operational efficiencies obtained from higher production volumes helped increase the gross profit percentage in the second quarter of 2004. Offsetting these increases were steel surcharges of approximately $670,000. The Company experienced no steel surcharges in the six months ended June 30, 2003. Selling, General and Administrative. For the six months ended June 30, 2004, selling, general and administrative expenses increased to $4.0 million, or 5.5% of net sales, compared with $3.0 million, or 7.4% of net sales, for the same period in 2003. The increase in expenses was due primarily to increased advertising and promotion to promote the technology benefits of the Company's products, increased sales commissions from increased sales of the Company's R-Series products and the overall increase in the volume of the Company's business. Research and Development. Research and development expenses decreased to $338,000 for the six months ended June 30, 2004, compared with $364,000 for the six months ended June 30, 2003. The decrease was due to the Company's completion of the development of the RC-60 and RC-85 products in the first quarter of 2004. The Company anticipates its spending on research and development activities will increase in the second half of 2004, to fund additional product offerings and additional applications of our track technology. Other Income (Expense). For the six months ended June 30, 2004, other income was $361,000, compared with $87,000 for the same period in 2003. This increase was due primarily to greater funds available for investment in 2004, due to proceeds received from the sale of common stock to Caterpillar in January 2004, proceeds received from the 9 exercise of employee stock options and net earnings generated in 2003 and 2004. Net Earnings. Net earnings were $7.8 million for the six months ended June 30, 2004, compared with $3.1 million for the six months ended June 30, 2003. The increase was primarily a result of increased sales with an increased gross profit percentage, offset in part by increased operating expenses and a higher effective income tax rate. The higher effective income tax rate is due to lower anticipated research and development tax credits and a higher marginal income tax rate for anticipated earnings in excess of $10 million for 2004. LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 2004, the Company generated $9.3 million of cash, compared with $4.1 million of cash for the six months ended June 30, 2003. During the first half of 2004, the Company generated $1.5 million of cash from operations, due primarily to the increased profitability experienced in 2004 and an increase in accounts payable due to increased volume, offset in part by increased accounts receivable from the increased sales during 2004 and increased inventory levels to support higher production. The Company used $6.0 million of cash in 2004 to purchase short-term investments and invest in property, plant and equipment, consisting primarily of additional manufacturing space. Financing activities generated an additional $13.8 million in 2004, due primarily to the sale of common stock to Caterpillar in January 2004 and the exercise of employee stock options, offset by the repurchase of the warrant held by Caterpillar in January 2004 and repurchases of shares under the Company's stock repurchase program. ACQUISITION OF LOEGERING MFG. INC. On July 20, 2004, the Company announced it had signed a non-binding letter of intent to acquire all the outstanding common stock of Loegering Mfg. Inc. (Loegering) of Casselton, North Dakota for a combination of currently existing cash and ASV common stock. Loegering is a manufacturer of over-the-tire steel tracks for wheeled skid-steers and also provides attachments for the skid-steer market. The transaction is subject to due diligence by ASV, negotiation of a definitive acquisition agreement and satisfaction of other customary conditions to closing. The Company anticipates it will complete the transaction in the third quarter of 2004 and anticipates the transaction will be accretive to earnings. CATERPILLAR REVENUE RECOGNITION/GROSS PROFIT The Company recognizes as sales its cost for the MTL undercarriages, as defined in the Commercial Alliance Agreement between the Company and Caterpillar, plus a portion of the anticipated gross profit that Caterpillar expects to recognize upon sale of the MTLs to Caterpillar dealers, when the Company ships undercarriages to Caterpillar. On January 1, 2005, the Company's portion of the anticipated gross profit that Caterpillar expects to recognize upon sale of the MTLs to Caterpillar dealers will be reduced by 33% for two of the three undercarriages the Company currently sells to Caterpillar. On January 1, 2006, the Company's portion of the anticipated gross profit that Caterpillar expects to recognize upon sale of the MTLs to Caterpillar dealers will be reduced by 33% for the other undercarriage the Company currently sells to Caterpillar. The Company believes these revisions may cause its overall gross profit percentage generated on the sale of MTL undercarriages in 2005 to be less than the overall gross profit percentage it has generated on the sale of MTL undercarriages for the six months ended June 30, 2004. The MTL undercarriages are not a commissionable product under the Company's Commercial Alliance Agreement with Caterpillar. CUSTOMER NOTE AND FINANCING ARRANGEMENT Included in accounts receivable at June 30, 2004 is a note receivable for approximately $867,000 from a customer. The note bears interest at the prime rate plus 2% and is due in 60 monthly installments beginning February 2004. As of July 31, 2004, the customer is current on all amounts owed the Company under this note. The Company has guaranteed the repayment of a $589,000 note made by this same customer to a non-affiliated finance company in payment of amounts owed to the Company by this customer. The Company has computed the value of the guarantee at $35,000 and has recorded this amount as a reduction of net sales for the year ended December 31, 2003, when the note and guarantee were entered into. A similar amount has been included in other accrued liabilities at June 30, 2004. RENTAL PROGRAM 10 Through June 2004, the Company had a program to market its RC-30 and RC-50 products directly to rental facilities. Under this program, ASV identified rental facilities that would lease ASV machines from an unaffiliated finance company. ASV recorded the sale of the machines to the finance company when they were delivered to the rental facility and collectibility was reasonably assured. At the end of the four-year lease, should the rental facility elect not to purchase the leased machines from the finance company, ASV has guaranteed to pay a residual value equal to 25% of the original selling price of the financed equipment. At that point, ASV would take possession of the equipment. As of June 30, 2004, the total amount of future residual payments the Company may be required to make in the event of nonpayment by rental facilities totaled approximately $100,000. 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. The lease agreements 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 only 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. In June 2004, the Company terminated this rental marketing program and repurchased approximately $735,000 of machines that had not been remarketed. This amount has been recorded as a reduction of sales for the three months ended June 30, 2004 and the machines have been included in used equipment inventory at June 30, 2004 at cost. The Company does not anticipate it will incur any future loss as a result of marketing these machines. RELATIONSHIP WITH FINANCE COMPANIES The Company has affiliated itself with several finance companies that finance the sale of the Company's products. By using these finance companies, the Company receives payment for its products shortly after their shipment. The Company pays a portion of the interest cost associated with financing these shipments that would normally be paid by the customer, over a period generally ranging from three to twelve months, depending on the amount of down payment made by the customer. The Company is also providing twelve-month terms for one machine to be used for demonstration purposes for each qualifying dealer. In addition, the Company does, from time to time, offer extended term financing on the sale of certain products to its dealers for periods ranging from 90 days to two years. STOCK REPURCHASE PROGRAM In October 2003, the Company announced a new stock buy-back program whereby ASV may repurchase up to $10 million of its common stock in the open market. The Company intends to fund the repurchases with available funds. The term of the repurchase program is through October 2004 or until such amount of common stock is repurchased. During the second quarter of 2004, the Company repurchased 44,000 shares of its common stock under this program, at an aggregate cost of $1.3 million. As of July 30, 2004, the Company had repurchased 66,000 shares of its common stock under this program, at an aggregate cost of $1.9 million. Under previous programs, the most recent of which expired in September 2003, the Company repurchased 195,580 shares of its own common stock at an aggregate purchase price of $2.0 million. CASH REQUIREMENTS The Company believes cash expected to be generated from operations, cash generated from the sale of stock to Caterpillar in January 2004 and its existing cash and short-term investments will satisfy the Company's projected working capital needs and other cash requirements for the next twelve months and for the foreseeable future. FORWARD-LOOKING STATEMENTS The statements set forth in this "Liquidity and Capital Resources" section and elsewhere in this Form 10-Q regarding ASV's future sales levels, product mix, profitability, expense levels and liquidity, ASV's proposed acquisition of Loegering, the benefits of Loegering's products and technology and the timing of the proposed acquisition, 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, 11 unanticipated delays, costs or other difficulties in the development and manufacture of the machines, market acceptance of the machines, satisfactory completion of ASV's due diligence investigation of Loegering, ASV's ability to successfully negotiate a definitive agreement for the acquisition of Loegering, the possible inability of ASV or Loegering to satisfy conditions to closing the proposed acquisition, the risks and uncertainties associated with successfully integrating the two companies, 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 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 this Quarterly Report on Form 10-Q for the period ended June 30, 2004. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no history of investing in derivative financial instruments, derivative commodity instruments or other such financial instruments, and the Company does not anticipate making such investments in the future. 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 Securities and Exchange Act of 1934, as amended (the "Exchange Act")). 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 were adequately designed 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 time periods specified in applicable rules and forms. Changes in Internal Controls. During the second fiscal quarter of 2004, there has been no change in the Company's internal controls over financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) that has materially affected, or is 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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information about purchases by the Company during the quarter ended June 30, 2004 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.
TOTAL NUMBER OF APPROXIMATE DOLLAR SHARES PURCHASED AS VALUE OF SHARES THAT TOTAL NUMBER PART OF PUBLICLY MAY YET BE PURCHASED OF SHARES AVERAGE PRICE PAID ANNOUNCED PLANS UNDER THE PLANS OR PERIOD PURCHASED (1) PER SHARE OR PROGRAMS (2) PROGRAMS ------ ------------- ------------------ ------------------- -------------------- 04/01/04 - 04/30/04 10,277 $ 30.47 8,000 $9,115,209 05/01/04 - 05/31/04 36,000 $ 28.64 36,000 $8,084,089
12 06/01/04 - 06/30/04 1,353 $ 30.42 -- $8,084,089 TOTAL 47,630 $ 29.09 44,000 $8,084,089
(1) The Company repurchased an aggregate of 44,000 shares of its common stock pursuant to the repurchase program that it publicly announced on October 22, 2003 (the "Program"). Also includes an aggregate of 3,630 shares of the Company's common stock that were tendered to pay the option exercise price of employee stock options exercised during the quarter. (2) The board of directors approved the repurchase by the Company of shares of the Company's common stock having a value of up to $10 million in the aggregate pursuant to the Program. The expiration date of this Program is the earlier of October 14, 2004 or until such amount of common stock is repurchased. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of A.S.V., Inc. was held on June 4, 2004. Matters submitted at the meeting for vote by the shareholders were as follows: (a) Election of Directors. The following directors were elected at the Annual Meeting, each with the following votes:
For Against --- ------- Gary D. Lemke 11,829,402 471,301 Edgar E. Hetteen 11,823,977 476,726 Jerome T. Miner 11,738,852 561,851 Leland T. Lynch 11,763,763 536,940 James H. Dahl 11,839,629 461,074 R. E. "Teddy" Turner, IV 11,739,875 560,828 Richard A. Benson 11,743,073 557,630 Karlin S. Symons 11,772,137 528,566
(b) Approval of the A.S.V., Inc. 2004 Stock Incentive Plan. Shareholders approved the 2004 Stock Incentive Plan with a vote of 6,019,588 votes for, 3,231,234 votes against, 8,174 shares abstaining and 3,041,707 broker non-votes. (c) Ratification of Appointment of Independent Public Accountants. Shareholders ratified the appointment of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending December 31, 2004, with a vote of 12,256,640 votes for, 39,513 votes against and 4,550 shares abstaining. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 13 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 (c) 3.1b Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (f) 3.2 Bylaws of the Company (a) 3.3 Amendment to Bylaws of the Company adopted April 13, 1999 (k) 4.1 Specimen form of the Company's Common Stock Certificate (a) 4.2* 1994 Long-Term Incentive and Stock Option Plan (a) 4.3 Warrant issued to Leo Partners, Inc. on December 1, 1996 (c) 4.4* 1996 Incentive and Stock Option Plan (d) 4.5* 1996 Incentive and Stock Option Plan, as amended (e) 4.6* 1998 Non-Employee Director Stock Option Plan (e) 4.7* Amendment to 1998 Non-Employee Director Stock Option Plan (l) 4.8 Securities Purchase Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (g) 4.9 Securities Purchase Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (m) 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 (d) 10.5 Supplemental Development Agreement dated April 18, 1997 between the EDA and the Company (d) 10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota North, N.A. and the Company (d) 10.7 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (f) 10.8 First Amendment to Credit Agreement dated June 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (f) 10.9 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (g) 10.10 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (i) 10.11 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (i) 14 10.12 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (j) 10.13 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (l) 10.14** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company (m) 10.15** Manufacturing and Distribution Agreement dated January 2, 2001 between Polaris Industries Inc. and the Company (n) 10.16 Fifth Amendment to Credit Agreement dated June 1, 2001 between Wells Fargo Bank Minnesota, N.A. and the Company (o) 10.17 Sixth Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (p) 10.18 Seventh Amendment to Credit Agreement dated June 1, 2002 between Wells Fargo Bank Minnesota, N.A. and the Company (q) 10.19** Marketing Agreement dated March 13, 2003 between Jacobsen, a division of Textron, Inc., and the Company (r) 10.20 Business Loan Agreement dated July 7, 2003 between Wells Fargo Bank Minnesota, N.A. and the Company (s) 11 Statement re: Computation of Per Share Earnings 21 Subsidiaries (a) 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 (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 Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No. 0-25620) filed electronically March 28, 1997. (d) 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. (e) 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. 15 (f) 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. (g) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically October 27, 1998. (h) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically February 11, 1999. (i) 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. (j) 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. (k) 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. (l) 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. (m) 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. (n) 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. (o) 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. (p) 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. (q) 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. (r) 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. (s) 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 Exchange Act. (B) REPORTS ON FORM 8-K The following Current Reports on Form 8-K were filed by the Company during the quarter ended June 30, 2004: Current Report on Form 8-K filed April 22, 2004 reporting under Item 12. "Results of Operation and Financial Condition" that on April 22, 2004, ASV issued a press release disclosing its financial results for the three months ended March 31, 2004. In addition, the press release contained information regarding a conference call to be held April 22, 2004 during which ASV planned to discuss its financial results for the three months ended March 31, 2004 and its outlook for the balance of fiscal 2004. 16 Current Report on Form 8-K filed June 4, 2004 reporting under Item 9. "Regulation FD Disclosure" that on June 4, 2004, ASV issued a press release disclosing its updated financial outlook for 2004 which included a discussion of its estimated anticipated net sales and anticipated earnings per share for the twelve months ending December 31, 2004. 17 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: August 9, 2004 By /s/ Gary Lemke ----------------------------------- Gary Lemke Chief Executive Officer Dated: August 9, 2004 By /s/ Thomas R. Karges ----------------------------------- Thomas R. Karges Chief Financial Officer (principal financial and accounting officer) 18 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 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002................. Filed herewith electronically 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002................. Filed herewith electronically 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002................. Filed herewith electronically 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002................. Filed herewith electronically 99 Risk Factors.................................................. Filed herewith electronically
19 EX-11 2 c87291exv11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS . . . EXHIBIT 11 A.S.V., INC. EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- BASIC 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Earnings Net earnings $ 4,182,196 $ 2,285,418 $ 7,777,229 $ 3,053,001 =========== =========== =========== =========== Shares Weighted average number of common shares outstanding 12,632,363 10,089,161 12,548,440 10,076,531 =========== =========== =========== =========== Basic earnings per common share $ .33 $ .23 $ .62 $ .30 =========== =========== =========== =========== DILUTED Earnings Net earnings $ 4,182,196 $ 2,285,418 $ 7,777,229 $ 3,053,001 =========== =========== =========== =========== Shares Weighted average number of common shares outstanding 12,632,363 10,089,161 12,548,440 10,076,531 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options and warrants 478,460 343,500 860,274 196,616 ----------- ----------- ----------- ----------- Weighted average number of common and common equivalent shares outstanding 13,110,823 10,432,661 13,408,714 10,273,147 =========== =========== =========== =========== Diluted earnings per common share $ .32 $ .22 $ .58 $ .30 =========== =========== =========== ===========
20 EX-31.1 3 c87291exv31w1.txt CERTIFICATION OF THE CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, Gary Lemke, Chief Executive Officer of A.S.V., Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of A.S.V., Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ Gary Lemke ------------------------ Gary Lemke Chief Executive Officer 21 EX-31.2 4 c87291exv31w2.txt CERTIFICATION OF THE CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, Thomas R. Karges, Chief Financial Officer of A.S.V., Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of A.S.V., Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ Thomas R. Karges -------------------- Thomas R. Karges Chief Financial Officer 22 EX-32.1 5 c87291exv32w1.txt CERTIFICATION OF THE CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of A.S.V., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Gary Lemke, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gary Lemke ----------------------- Gary Lemke Chief Executive Officer August 9, 2004 23 EX-32.2 6 c87291exv32w2.txt CERTIFICATION OF THE CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of A.S.V., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Thomas R. Karges, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas R. Karges ----------------------- Thomas R. Karges Chief Financial Officer August 9, 2004 24 EX-99 7 c87291exv99.txt RISK FACTORS EXHIBIT 99 RISK FACTORS Forward-looking statements made by A.S.V., Inc. (the "Company" or "ASV") constitute the Company's current expectations or beliefs concerning future events. Any forward-looking statements made by the Company are qualified by important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors which may cause actual results to differ from those projected in forward-looking statements include the factors set forth herein. RELATIONSHIP WITH CATERPILLAR INC. In January 1999, Caterpillar Inc. ("Caterpillar") purchased 1,000,000 shares of the Company's Common Stock and a warrant to purchase an additional 10,267,127 shares of the Company's Common Stock (the "Warrant"). In connection with the purchase of the Common Stock and the Warrant, the Company and Caterpillar entered into several agreements, including a Commercial Alliance Agreement, a Marketing Agreement and a Management Services Agreement. These agreements contemplate that the Company and Caterpillar will also enter into several additional agreements, including a Trademark and Trade Dress License Agreement, Supply Agreements, a Services Agreement, a Technology License Agreement and a Joint Venture Agreement (these agreements, the Commercial Alliance Agreement, the Marketing Agreement and the Management Services Agreement are collectively referred to as the "Commercial Agreements"). In October 2000, Caterpillar Inc. purchased 500,000 newly issued shares of ASV Common Stock at $18 per share pursuant to the terms of a Securities Purchase Agreement. Concurrent with the closing of the Securities Purchase Agreement, the Company cancelled the Warrant and issued in its place, a replacement warrant to purchase 9,767,127 shares of the Company's Common Stock (the "Replacement Warrant"). In connection with the purchase of the Common Stock and the issuance of the Replacement Warrant, the Company and Caterpillar entered into a Multi-Terrain Rubber-Tracked Loader Alliance Agreement (the "Loader Alliance Agreement"). In January 2004, Caterpillar exercised the Replacement Warrant with respect to 1,040,069 shares of the Company's common stock at an exercise price of $21.00 per share. These shares were subject to an acceleration notice issued to Caterpillar by the Company in October 2003. Also in January 2004, the Company repurchased the remaining Replacement Warrant held by Caterpillar for a cash payment of $7.2 million and the issuance of 500,000 shares of the Company's common stock. DEPENDENCE ON LOADER ALLIANCE AGREEMENT WITH CATERPILLAR. Under the terms of the Loader Alliance Agreement, the Company and Caterpillar agreed to jointly develop and manufacture a five-model line of Caterpillar branded rubber tracked skid steer loaders called Multi-Terrain Loaders (the "Alliance Machines"). These new loaders utilize Caterpillar's skid steer technology and the Company's rubber track undercarriage technology. All five models have been developed and are available to all Caterpillar dealers. The Alliance Machines are assembled in Sanford, North Carolina, at Caterpillar's skid steer loader facility. The undercarriages are manufactured at ASV's facility in Cohasset, Minnesota. The successful manufacturing and marketing of the Alliance Machines entail significant risks as described below: The development and introduction of the Alliance Machines were scheduled on an aggressive time table and there exists the possibility this time table may not have detected all potential issues regarding the production or function of the machines. For example, in 2002, Caterpillar experienced production issues which caused them to stop production of the Alliance Machines. As a result, ASV did not ship its undercarriages to Caterpillar while the production issues were resolved, resulting in decreased revenue to ASV. Additional production or other issues may be experienced by Caterpillar or ASV in the future, which could cause ASV's sales of undercarriages to Caterpillar to decrease or terminate while the issues are resolved. The overall market for rubber track machines is relatively new and the benefits of rubber track machines are not currently widely known. The Company and Caterpillar believe the market potential for rubber track machines justifies the necessary investment in the Alliance Machines. However, there is no assurance the Alliance Machines will attract sufficient demand to warrant their continued production and produce the returns 25 anticipated by the Company and Caterpillar. The Company will be relying significantly on Caterpillar for their continued interest in manufacturing and marketing the Alliance Machines. For the six months ended June 30, 2004, sales of MTL undercarriages to Caterpillar accounted for approximately 29% of the Company's net sales. It is anticipated that MTL undercarriage sales to Caterpillar could account for approximately 40% of the Company's net sales for the twelve months ended December 31, 2004. If Caterpillar stopped manufacturing the Alliance Machines, or stopped marketing the Alliance Machines to its dealers or Caterpillar dealers did not adequately promote the sale of the Alliance Machines, the Company's revenue would be decreased and its business would be harmed. As part of the Loader Alliance Agreement, the Company has agreed not to manufacture machines that are similar to and would compete with the Alliance Machines. Also, the Company may not knowingly sell its undercarriages to any party who shall manufacture, or resell an undercarriage to a party who shall manufacture, a machine that substantially competes with the Alliance Machines. The Company may, however, continue to manufacture its own models that do not substantially compete with the Alliance Machines. The Loader Alliance Agreement calls for the Company to receive a portion of the gross profit on the sale of the Alliance Machines to Caterpillar dealers. Therefore, a portion of the Company's future revenue will be dependent on the success of Caterpillar in selling the Alliance Machines to Caterpillar dealers. In addition, the portion of the gross profit that the Company is expected to receive for two of the undercarriages sold to Caterpillar will be reduced by 33% effective January 1, 2005. The portion of the gross profit that the Company is expected to receive for the third undercarriages sold to Caterpillar will be reduced by 33% effective January 1, 2006. Both of these reductions will reduce the amount of gross profit the Company will recognize on the sale of these undercarriages to Caterpillar. DEPENDENCE ON CATERPILLAR DEALER NETWORK. The Company relies on the Caterpillar dealer network to sell certain of its products. Therefore, the Company is dependent upon the cooperation of Caterpillar and the Caterpillar dealers to sell its products. There can be no assurance that the Caterpillar dealers will dedicate adequate resources or attention to the sale of the Company's products or that Caterpillar will continue to encourage its dealers to promote the Company's products. If Caterpillar stopped promoting the Company's products to its dealers or Caterpillar dealers did not adequately promote the sale of the Company's products, the Company's revenue would be decreased and its business would be harmed. DEPENDENCE UPON SUCCESS OF RELATIONSHIP WITH CATERPILLAR. As a result of its transactions with Caterpillar, the Company intends to increasingly rely on services provided by or through Caterpillar for the operation of its business, including marketing, management, financing, development, warranty and parts services. As a result, the Company will become increasingly dependent upon the cooperation of Caterpillar for the operation of its business. Although Caterpillar is obligated under the terms of the Commercial Agreements to provide certain services to the Company, the specific obligations of Caterpillar under those agreements are not explicitly defined. Therefore, if Caterpillar chose not to cooperate with the Company in providing those services, it may be impractical for the Company to require Caterpillar to provide any such services to the extent necessary to be beneficial to the Company. If Caterpillar were to decide not to actively support the Company and to cooperate with the Company to provide it services, the Company's business would be materially harmed. ABILITY OF CATERPILLAR TO INFLUENCE OR CONTROL THE COMPANY. Caterpillar owns approximately 25% of the outstanding shares of Common Stock. Accordingly, Caterpillar has the ability to influence the business and operations of the Company to a certain extent. In addition to its rights as a shareholder to influence the Company, Caterpillar has certain rights under the Securities Purchase Agreement between the Company and Caterpillar dated October 14, 1998, including the right to designate directors for election to the Board of Directors, which increases Caterpillar's ability to influence the Company. MANAGEMENT OF GROWTH The Company's management has had limited experience in managing companies experiencing growth like that of the Company. Further growth and expansion of the Company's business will place additional demands upon the Company's current management and other resources. The Company believes that future growth and success depends to a 26 significant extent on the Company's ability to be able to effectively manage growth of the Company in several areas, including, but not limited to: (i) production facility expansion/construction; (ii) entrance to new geographic and use markets; (iii) international sales, service and production; and (iv) employee and management development. No assurance can be given that the Company's business will grow in the future and that the Company will be able to effectively manage such growth. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition would be materially adversely affected. DEPENDENCE ON CERTAIN SUPPLIERS Certain of the components included in the Company's products are obtained from a limited number of suppliers, including the rubber track component used on the Company's products. Disruption or termination of supplier relationships could have a material adverse effect on the Company's operations. The Company believes that alternative sources could be obtained, if necessary, but the inability to obtain sufficient quantities of the components or the need to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments which in turn may have an adverse effect on the Company's operating results and customer relationships. COMPETITION Companies whose products compete in the same markets as the Posi-Track have substantially more financial, production and other resources than the Company, as well as established reputations within the industry and more extensive dealer networks. Also, the growth potential of the markets being pursued by the Company could attract more competitors. There can be no assurance that the Company will be able to compete effectively in the marketplace or that it will be able to establish a significantly dominant position in the marketplace before its potential competitors are able to develop similar products. MARKET ACCEPTANCE OF RUBBER TRACK VEHICLES The success of the Company is dependent upon increasing market acceptance of rubber track vehicles in the markets in which the Company's products compete. Most small to medium sized tractor-type vehicles in competition with the Posi-Track are wheeled vehicles and most track-driven vehicles are designed for specific limited tasks. The market for rubber track vehicles is relatively new and there can be no assurance that the Company's products will gain sufficient market acceptance to enable the Company to sustain profitable operations. ACQUISITION OF LOEGERING MFG. INC. On July 20, 2004, the Company announced it had signed a non-binding letter of intent to acquire all the outstanding common stock of Loegering Mfg. Inc. (Loegering) of Casselton, North Dakota for a combination of cash and ASV common stock. Loegering is a manufacturer of over-the-tire steel tracks for wheeled skid-steers and also provides attachments for the skid-steer market. The transaction is subject to due diligence by ASV, negotiation of a definitive acquisition agreement and satisfaction of other customary conditions to closing. There can be no assurance that a definitive acquisition agreement can be reached, or that all conditions necessary to closing can be satisfied. In addition, the Company has not been involved in an acquisition of this nature, and there can be no assurance that the Company can successfully manage and integrate the operations of Loegering subsequent to closing. DEVELOPMENT OF NEW PRODUCTS The Company intends to increase its market penetration by developing and marketing new rubber-tracked vehicles. There can be no assurance that the Company will be able to successfully develop the new products, or that any new products developed by the Company will gain market acceptance. INDUSTRY CONDITIONS; CYCLICALITY; SEASONALITY The construction and farm equipment industries, in which the Posi-Track competes, have historically been cyclical. Sales of construction and agricultural equipment are generally affected by the level of activity in the construction and agricultural industries including farm production and demand, weather conditions, interest rates and construction levels (especially housing starts). In addition, the demand for the Company's products may be affected by the seasonal nature of the activities in which they are used and by overall economic conditions in general. 27 DEPENDENCE ON KEY PERSONNEL The Company's future success depends to a significant extent upon the continued service of certain key personnel, including its CEO, Gary Lemke. The loss of the services of any key member of the Company's management could have a material adverse effect on the Company's ability to achieve its objectives. The Company has key-person life insurance on the life of Mr. Lemke. RISK OF PRODUCT LIABILITY; PRODUCT LIABILITY INSURANCE Like most manufacturing companies, the Company may be subject to significant claims for product liability and may have difficulty in obtaining product liability insurance or be forced to pay high premiums. The Company currently has product liability insurance and has not been subject to material claims for product liability. There can be no assurance that the Company will be able to obtain adequate insurance in the future or that the Company's present or future insurance would prove adequate to cover potential product claims. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company currently holds two patents, one on certain aspects of the steering mechanism used in certain of the Company's products and the other on the certain aspects of the suspension and drive mechanism used in certain of the Company's products. The Company has also filed additional patent applications. There can be no assurance that the patents will be granted or that patents under any future applications will be issued, or that the scope of the current or any future patent will exclude competitors or provide competitive advantages to the Company, that any of the Company's patents will be held valid if subsequently challenged or that others will not claim rights in or ownership to the patents and other proprietary rights held by the Company. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of the Company's products or design around such patents. Litigation, which could result in substantial cost to and diversion of effort by the Company, may be necessary to enforce patents issued to the Company, to defend the Company against claimed infringement of the rights of others or to determine the ownership, scope or validity of the proprietary rights of the Company and others. DEPENDENCE ON LIMITED NUMBER OF MANUFACTURING FACILITIES The Company's products are manufactured exclusively at its two manufacturing facilities in Grand Rapids and Cohasset, Minnesota. In the event that either of these manufacturing facilities were to be damaged or destroyed or become otherwise inoperable, the Company may be unable to manufacture its products for sale until the facility is either repaired or replaced, either of which could take a considerable period of time. Although the Company maintains business interruption insurance, there can be no assurance that such insurance would adequately compensate the Company for the losses it would sustain in the event that its manufacturing facilities were unavailable for any reason. REGULATION The operations, products and properties of the Company are subject to environmental and safety regulations by governmental authorities. The Company may be liable under environmental laws for waste disposal and releases into the environment. In addition, the Company's products are subject to regulations regarding emissions and other environmental and safety requirements. While the Company believes that compliance with existing and proposed environmental and safety regulations will not have a material adverse effect on the financial condition or results of operations of the Company, there can be no assurance that future regulations or the cost of complying with existing regulations will not exceed current estimates. 28 -----END PRIVACY-ENHANCED MESSAGE-----