##### Table of Contents



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, 2007
 Commission file number: 0-25620
 A.S.V., Inc.
  Minnesota
    
    41-1459569(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)840 Lily Lane 
P.O. Box 5160
Grand Rapids, MN 55744
    
    (218) 327-3434(Address of principal executive offices, 
including zip code)
    
    (Registrants telephone number,
including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTSITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND            RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESStatement re: Computation of Per Share EarningsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 A.S.V., INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share data)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    33,974
    
    
    $
    17,090Short-term investments
    
    
    3,295
    
    
    
    220Accounts receivable, netTrade
    
    
    38,178
    
    
    
    39,777Caterpillar Inc.
    
    
    12,986
    
    
    
    4,407Inventories
    
    
    59,216
    
    
    
    71,384Deferred income taxes
    
    
    4,120
    
    
    
    4,840Other current assets
    
    
    775
    
    
    
    903Total current assets
    
    
    152,544
    
    
    
    138,621PROPERTY AND EQUIPMENT, net
    
    
    28,600
    
    
    
    29,342LONG-TERM INVESTMENTS
    
    
    11,041
    
    
    
    14,155OTHER NON-CURRENT ASSET
    
    
    364
    
    
    
    313INTANGIBLES, net
    
    
    7,684
    
    
    
    7,771GOODWILL
    
    
    8,386
    
    
    
    8,386$
    208,619
    
    
    $
    198,588LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term liabilities
    
    $
    22
    
    
    $
    37Accounts payableTrade
    
    
    11,081
    
    
    
    10,660Caterpillar
    
    
    932
    
    
    
    857Accrued liabilitiesWarranties
    
    
    4,699
    
    
    
    5,894Other
    
    
    3,020
    
    
    
    2,582Income taxes payable
    
    
    153
    
    
    
    686Total current liabilities
    
    
    19,907
    
    
    
    20,716LONG-TERM LIABILITIES, less current portion
    
    
    32
    
    
    
    40INCOME TAXES PAYABLE
    
    
    1,850
    
    
    
    DEFERRED INCOME TAXES
    
    
    2,065
    
    
    
    1,630COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITYCapital stock, $.01 par value:Preferred stock, 5,000,000 shares authorized; no shares issued or outstanding
    
    
    
    
    
    
    Common stock, 70,000,000 shares authorized; shares issued and outstanding -
26,716,922 in 2007; 26,716,420 in 2006
    
    
    267
    
    
    
    267Additional paid-in capital
    
    
    89,957
    
    
    
    88,398Retained earnings
    
    
    94,541
    
    
    
    87,537Total shareholders equity
    
    
    184,765
    
    
    
    176,202$
    208,619
    
    
    $
    198,588
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A.S.V., INC.
 CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited and in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net salesTrade
    
    $
    32,524
    
    
    $
    42,209
    
    
    $
    103,720
    
    
    $
    133,895Caterpillar
    
    
    23,736
    
    
    
    20,789
    
    
    
    50,066
    
    
    
    66,129Total net sales
    
    
    56,260
    
    
    
    62,998
    
    
    
    153,786
    
    
    
    200,024Cost of goods sold
    
    
    45,833
    
    
    
    49,143
    
    
    
    122,135
    
    
    
    152,869Gross profit
    
    
    10,427
    
    
    
    13,855
    
    
    
    31,651
    
    
    
    47,155Operating expenses:Selling, general and administrative
    
    
    5,546
    
    
    
    5,817
    
    
    
    18,023
    
    
    
    16,564Research and development
    
    
    551
    
    
    
    406
    
    
    
    1,655
    
    
    
    1,185Operating income
    
    
    4,330
    
    
    
    7,632
    
    
    
    11,973
    
    
    
    29,406Other incomeInterest income
    
    
    517
    
    
    
    384
    
    
    
    1,345
    
    
    
    1,287Other, net
    
    
    20
    
    
    
    12
    
    
    
    76
    
    
    
    22Income before income taxes
    
    
    4,867
    
    
    
    8,028
    
    
    
    13,394
    
    
    
    30,715Income taxes
    
    
    1,360
    
    
    
    2,950
    
    
    
    4,555
    
    
    
    11,100NET EARNINGS
    
    $
    3,507
    
    
    $
    5,078
    
    
    $
    8,839
    
    
    $
    19,615Net earnings per common shareBasic
    
    $
    .13
    
    
    $
    .19
    
    
    $
    .33
    
    
    $
    .73Diluted
    
    $
    .13
    
    
    $
    .19
    
    
    $
    .33
    
    
    $
    .72Weighted average number of common shares outstandingBasic
    
    
    26,707,498
    
    
    
    26,669,269
    
    
    
    26,697,146
    
    
    
    26,918,270Diluted
    
    
    27,096,211
    
    
    
    26,871,671
    
    
    
    27,119,688
    
    
    
    27,424,305
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A.S.V., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 Nine months ended September 30,2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    8,839
    
    
    $
    19,615Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    2,416
    
    
    
    2,112Amortization
    
    
    87
    
    
    
    77Deferred income taxes
    
    
    1,155
    
    
    
    (480
    )Stock-based compensation expense
    
    
    2,045
    
    
    
    2,198Tax benefit from stock option exercises
    
    
    375
    
    
    
    1,200Changes in assets and liabilitiesAccounts receivable
    
    
    (6,980
    )
    
    
    (6,724
    )Inventories
    
    
    12,168
    
    
    
    (13,724
    )Other assets
    
    
    77
    
    
    
    282Accounts payable
    
    
    496
    
    
    
    2,040Accrued liabilities
    
    
    (757
    )
    
    
    1,515Income taxes payable
    
    
    (518
    )
    
    
    (855
    )Net cash provided by operating activities
    
    
    19,403
    
    
    
    7,256Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,674
    )
    
    
    (9,030
    )Purchase of short-term investments
    
    
    (112
    )
    
    
    (116
    )Redemption (purchase) of long-term investments
    
    
    33
    
    
    
    (6,175
    )Redemption of short-term investments
    
    
    118
    
    
    
    1,120Net cash used in investing activities
    
    
    (1,635
    )
    
    
    (14,201
    )Cash flows from financing activities:Principal payments on long-term liabilities
    
    
    (23
    )
    
    
    (125
    )Proceeds from exercise of stock options, net
    
    
    627
    
    
    
    1,538Retirement of common stock
    
    
    (1,488
    )
    
    
    (10,051
    )Net cash used in financing activities
    
    
    (884
    )
    
    
    (8,638
    )Net increase (decrease) in cash and cash equivalents
    
    
    16,884
    
    
    
    (15,583
    )Cash and cash equivalents at beginning of period
    
    
    17,090
    
    
    
    35,517Cash and cash equivalents at end of period
    
    $
    33,974
    
    
    $
    19,934Supplemental disclosure of cash flow information:Cash paid for income taxes
    
    $
    3,543
    
    
    $
    11,501Adoption of FASB Interpretation 48
    
    $
    1,850
    
    
    $
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 September 30, 2007
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Revenue Recognition
  Research and Development
  Interim Financial Information
   Warranties
   Three Months Ended September 30,2007
    
    
    2006Balance, June 30
    
    $
    5,131,000
    
    
    $
    6,013,000Expense for new warranties issued
    
    
    880,000
    
    
    
    1,332,000Warranty claims
    
    
    (1,312,000
    )
    
    
    (1,403,000
    )Balance, September 30
    
    $
    4,699,000
    
    
    $
    5,942,000
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation .
  Net Earnings per Common Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Dilutive common stock equivalents
    
    
    388,713
    
    
    
    202,402
    
    
    
    422,542
    
    
    
    506,035Anti-dilutive options
    
    
    911,343
    
    
    
    364,163
    
    
    
    796,325
    
    
    
    328,554
 NOTE 2. INVENTORIES
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials, service parts and
work in process
    
    $
    44,861,000
    
    
    $
    53,390,000Finished goods
    
    
    13,423,000
    
    
    
    16,682,000Used equipment held for resale
    
    
    932,000
    
    
    
    1,312,000Balance
    
    $
    59,216,000
    
    
    $
    71,384,000
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 3. STOCK-BASED COMPENSATION
   Nine months ended September 30,2007
    
    2006Risk-free interest rate
    
    
    4.63
    %
    
    
    4.73
    %Expected volatility
    
    
    33.95
    %
    
    
    34.95
    %Expected term (in years)
    
    
    3.75
    
    
    
    3.75Dividend yield
    
    
    0.0
    
    
    
    0.0
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 3. STOCK-BASED COMPENSATION  Continued
 WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Life (Years)
    
    ValueOutstanding at December 31, 2006
    
    
    1,974,813
    
    
    $
    13.15Granted
    
    
    213,500
    
    
    
    15.43Exercised
    
    
    (24,350
    )
    
    
    5.93Canceled
    
    
    (2,500
    )
    
    
    24.30Outstanding at March 31, 2007
    
    
    2,161,463
    
    
    $
    13.45Granted
    
    
    60,830
    
    
    
    17.21Exercised
    
    
    (58,152
    )
    
    
    6.99Canceled
    
    
    (28,375
    )
    
    
    20.04Outstanding at June 30, 2007
    
    
    2,135,766
    
    
    $
    13.64Granted
    
    
    2,500
    
    
    
    15.45Exercised
    
    
    (18,000
    )
    
    
    4.51Canceled
    
    
    (7,375
    )
    
    
    20.74Outstanding at September 30, 2007
    
    
    2,112,891
    
    
    $
    13.70
    
    
    
    3.12
    
    
    $
    7,594,000Exercisable at September 30, 2007
    
    
    1,382,448
    
    
    $
    10.25
    
    
    
    2.67
    
    
    $
    7,594,000
  NOTE 4. STOCK BUYBACK PLAN
   8




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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 5. ADOPTION OF NEW ACCOUNTING STANDARD
 Accounting for Uncertainty in Income Taxes Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
   NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
 Fair
Value Measurement
 The
Fair Value Option for Financial Assets and Financial Liabilities
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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Nine Month Overview
  Critical Accounting Policies
   Revenue Recognition and Accounts Receivable. i.e.
 10




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Inventories.
 Intangible Assets.
  Goodwill.
 Warranties.
 Income Taxes
  11




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Stock-Based Compensation. . .
  Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    18.5
    
    
    
    22.0
    
    
    
    20.6
    
    
    
    23.6Selling general and administrative
    
    
    9.9
    
    
    
    9.2
    
    
    
    11.7
    
    
    
    8.3Research and development
    
    
    1.0
    
    
    
    0.6
    
    
    
    1.1
    
    
    
    0.6Operating income
    
    
    7.7
    
    
    
    12.1
    
    
    
    7.9
    
    
    
    14.7Net Earnings
    
    
    6.2
    
    
    
    8.1
    
    
    
    5.7
    
    
    
    9.8
 For the three months ended September 30, 2007 and 2006.
 Net Sales.
 Gross Profit.
 12




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Selling, General and Administrative.
 Research and Development.
 Other Income.
 Income Taxes.
 Net Earnings.
 For the nine months ended September 30, 2007 and 2006.
 Net Sales.
 Gross Profit.
 13




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Selling, General and Administrative.
 Research and Development.
 Other Income.
 Income Taxes.
 Net Earnings.
 Liquidity and Capital Resources
    14




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Relationship with Finance Companies
   Adoption of New Accounting Standard
 Accounting for Uncertainty in Income Taxes Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
  New Accounting Pronouncements
  Cash Requirements
  Forward-Looking Statements
  15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  16




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Our business would be adversely affected if we are not able to retain our existing dealer network
or find alternative dealers for those dealers who choose to no longer represent our products.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Third Restated Articles of Incorporation of the Company (a)3.2
    
    Second Amended and Restated Bylaws of the Company adopted October 23, 2007 (b)4.1
    
    Specimen form of the Companys Common Stock Certificate (c)11
    
    Statement re: Computation of Per Share Earnings31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (a)
    
    Incorporated by reference to Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No.
0-25620) filed electronically August 9, 2006. 17




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(b)
    
    Incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K (file No. 0-25620) filed electronically October 29,
2007.(c)
    
    Incorporated by reference to Exhibit 3.2 to the Companys
Registration Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994. 18




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SIGNATURES
  A.S.V., Inc.Dated:  November 9, 2007
    By
    /s/ Richard A. BensonRichard A. BensonChief Executive Officer
(principal executive officer)Dated:  November 9, 2007
    By
    /s/ Thomas R. KargesThomas R. KargesChief Financial Officer
(principal financial and accounting officer) 19