##### 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 March 31, 2006
 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 5160Grand Rapids, MN 55744
    
    (218) 327-3434(Address of principal executive offices,
    
    (Registrants telephone number,including zip code)
    
    including area code)
 Not
Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer 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 the CEO Pursuant to Section 302Certification of the CFO Pursuant to Section 302Certification of the CEO Pursuant to Section 906Certification of the CFO Pursuant to Section 906    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 A.S.V., INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    30,034
    
    
    $
    35,517Short-term investments
    
    
    216
    
    
    
    1,224Accounts receivable, netTrade
    
    
    41,615
    
    
    
    33,706Caterpillar Inc.
    
    
    9,446
    
    
    
    10,087Inventories
    
    
    61,204
    
    
    
    52,362Deferred income taxes
    
    
    3,650
    
    
    
    3,545Other current assets
    
    
    766
    
    
    
    1,083Total current assets
    
    
    146,931
    
    
    
    137,524PROPERTY AND EQUIPMENT, net
    
    
    22,045
    
    
    
    20,907LONG-TERM INVESTMENTS
    
    
    14,199
    
    
    
    7,995OTHER NON-CURRENT ASSET
    
    
    483
    
    
    
    535INTANGIBLES, net
    
    
    7,849
    
    
    
    7,874GOODWILL
    
    
    8,386
    
    
    
    8,386$
    199,893
    
    
    $
    183,221LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term liabilities
    
    $
    40
    
    
    $
    71Accounts payable
    
    
    19,015
    
    
    
    15,498Accrued liabilitiesWarranties
    
    
    5,431
    
    
    
    5,077Other
    
    
    2,693
    
    
    
    2,195Income taxes payable
    
    
    3,459
    
    
    
    855Total current liabilities
    
    
    30,638
    
    
    
    23,696LONG-TERM LIABILITIES, less current portion
    
    
    66
    
    
    
    138DEFERRED INCOME TAXES
    
    
    1,075
    
    
    
    1,300COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITYCapital stock, $.01 par value:Preferred stock, 11,250,000 shares authorized; no shares issued or outstanding
    
    
    
    
    
    
    Common stock, 33,750,000 shares authorized; shares issued and outstanding -
27,155,008 in 2006; 26,988,187 in 2005
    
    
    272
    
    
    
    270Additional paid-in capital
    
    
    95,416
    
    
    
    92,327Retained earnings
    
    
    72,426
    
    
    
    65,490168,114
    
    
    
    158,087$
    199,893
    
    
    $
    183,221
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A.S.V., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except earnings per share data)
 Three months ended March 31,
 2006
    
    
    2005Net salesTrade
    
    $
    42,136
    
    
    $
    30,242Caterpillar Inc.
    
    
    22,741
    
    
    
    22,938Total net sales
    
    
    64,877
    
    
    
    53,180Cost of goods sold
    
    
    48,593
    
    
    
    40,421Gross profit
    
    
    16,284
    
    
    
    12,759Operating expensesSelling, general and administrative
    
    
    5,526
    
    
    
    3,784Research and development
    
    
    348
    
    
    
    428Operating income
    
    
    10,410
    
    
    
    8,547Other income (expense)Interest income
    
    
    465
    
    
    
    303Interest expense
    
    
    
    
    
    
    (28
    )Other, net
    
    
    16
    
    
    
    46Income before income taxes
    
    
    10,891
    
    
    
    8,868Provision for income taxes
    
    
    3,955
    
    
    
    3,325NET EARNINGS
    
    $
    6,936
    
    
    $
    5,543Net earnings per common share:Basic
    
    $
    .26
    
    
    $
    .21Diluted
    
    $
    .25
    
    
    $
    .20Weighted average number of common shares outstanding:Basic
    
    
    27,089,275
    
    
    
    26,727,076Diluted
    
    
    27,875,219
    
    
    
    27,641,794
  3




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A.S.V., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three months ended March 31,
 2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    6,936
    
    
    $
    5,543Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:Depreciation
    
    
    651
    
    
    
    419Amortization
    
    
    25
    
    
    
    26Deferred income taxes
    
    
    (330
    )
    
    
    (425
    )Stock-based compensation expense
    
    
    646
    
    
    
    Tax benefit from stock option exercises
    
    
    646
    
    
    
    500Changes in assets and liabilitiesAccounts receivable
    
    
    (7,268
    )
    
    
    (200
    )Inventories
    
    
    (8,842
    )
    
    
    (11,233
    )Other assets
    
    
    369
    
    
    
    235Accounts payable
    
    
    3,517
    
    
    
    2,892Accrued liabilities
    
    
    852
    
    
    
    584Income taxes payable
    
    
    2,604
    
    
    
    2,806Net cash provided by (used in) operating activities
    
    
    (194
    )
    
    
    1,147Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,789
    )
    
    
    (1,033
    )Purchase of short-term investments
    
    
    (112
    )
    
    
    (108
    )Purchase of long-term investments
    
    
    (6,204
    )
    
    
    (5
    )Redemption of short-term investments
    
    
    1,120
    
    
    
    8,461Net cash provided by (used in) investing activities
    
    
    (6,985
    )
    
    
    7,315Cash flows provided by financing activities:Principal payments on long-term liabilities
    
    
    (103
    )
    
    
    (42
    )Proceeds (costs) from issuance of common stock, net
    
    
    
    
    
    
    (23
    )Proceeds from exercise of stock options, net
    
    
    1,388
    
    
    
    854Excess tax benefit from stock option exercises
    
    
    464
    
    
    
    Retirement of common stock and warrant
    
    
    (53
    )
    
    
    (110
    )Net cash provided by financing activities
    
    
    1,696
    
    
    
    679Net increase (decrease) in cash and cash equivalents
    
    
    (5,483
    )
    
    
    9,141Cash and cash equivalents at beginning of period
    
    
    35,517
    
    
    
    27,438Cash and cash equivalents at end of period
    
    $
    30,034
    
    
    $
    36,579Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    28Cash paid for income taxes
    
    $
    571
    
    
    $
    492
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 March 31, 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Revenue Recognition
  Research and Development
  Interim Financial Information
  Warranties
   March 31,2006
    
    
    2005(In thousands)Balance, beginning of period
    
    $
    5,077
    
    
    $
    3,078Expense for new warranties issued
    
    
    1,475
    
    
    
    982Warranty claims
    
    
    (1,121
    )
    
    
    (563
    )Balance, end of period
    
    $
    5,431
    
    
    $
    3,497
 Reclassification
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE
2. INVENTORIES
  March 31,
    
    
    December 31,2006
    
    
    2005(In thousands)Raw materials, service parts
and work-in-process
    
    $
    47,306
    
    
    $
    42,122Finished goods
    
    
    12,572
    
    
    
    8,922Used equipment held for resale
    
    
    1,326
    
    
    
    1,318$
    61,204
    
    
    $
    52,362
 NOTE 3. STOCK-BASED COMPENSATION
  Share
Based Payment
 Accounting for Stock Issued to Employees,
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE
3. STOCK-BASED COMPENSATION  continued
  Three months endedMarch 31, 2005(In thousands,except share data)Net earnings, as reported
    
    $
    5,543Less total stock-based employee
compensation determined under
fair value methods for all awards,
net of income taxes
    
    
    (401
    )Pro forma net earnings
    
    $
    5,142Earnings per share:Basic  as reported
    
    $
    .21Basic  pro forma
    
    $
    .19Diluted  as reported
    
    $
    .20Diluted  pro forma
    
    $
    .19
  Three months endedMarch 31,2006
    
    2005Risk-free interest rate
    
    
    4.69
    %
    
    
    4.11
    %Expected volatility
    
    
    35.03
    %
    
    
    39.45
    %Expected life (in years)
    
    
    3.75
    
    
    
    6.10Dividend yield
    
    
    
    
    
    
    
   Weighted-AverageExerciseShares
    
    
    PriceOutstanding at December 31, 2005
    
    
    1,950,520
    
    
    $
    10.14Granted
    
    
    197,500
    
    
    
    30.61Exercised
    
    
    (168,670
    )
    
    
    8.23Canceled
    
    
    (7,000
    )
    
    
    17.25Outstanding at March 31, 2006
    
    
    1,972,350
    
    
    $
    12.33
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE
3. STOCK-BASED COMPENSATION  continued
  Options OutstandingWeighted-Number
    
    
    average
    
    
    Weighted-Range of

    
    outstanding
    
    
    remaining
    
    
    averageexercise

    
    at
    
    
    contractual
    
    
    exerciseprices

    
    period end
    
    
    life
    
    
    price$
    4.04-6.06
    
    
    
    864,500
    
    
    
    3.62
    
    
    $
    4.56$
    6.13-9.19
    
    
    
    90,300
    
    
    
    1.49
    
    
    
    6.67$
    14.45-21.67
    
    
    
    784,050
    
    
    
    5.19
    
    
    
    16.48$
    22.60-32.22
    
    
    
    233,500
    
    
    
    4.76
    
    
    
    29.361,972,350
    
    
    
    
    
    
    $
    12.33
 Options exercisableRange of

    
    Number
    
    
    Weighted-exercise

    
    exercisable at
    
    
    averageprices

    
    period end
    
    
    exercise price$
    4.04-6.06
    
    
    
    625,761
    
    
    $
    4.62$
    6.13-9.19
    
    
    
    90,300
    
    
    
    6.67$
    14.45-21.67
    
    
    
    251,800
    
    
    
    16.41$
    22.60-32.22
    
    
    
    9,000
    
    
    
    22.60976,861
    
    
    $
    8.02
 NOTE 4. NEW ACCOUNTING PRONOUNCEMENT  SFAS 151, INVENTORY COSTS
 Inventory Costs
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ITEM 2 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Overview
   
    
    We believe 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.
    
    We have increased our number of product offerings over the past few years
thereby making it easier to attract prospective dealers to carry our Posi-Track
product line. In addition, the number of dealers selling our Posi-Track product
line has increased over the past few years.
 Critical Accounting Policies
   Revenue Recognition and Accounts Receivable. i.e.
 Inventories.
 9




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Warranties.
 Income Taxes
 Stock-Based Compensation Share Based Payment
 Results of Operations
  Three Months Ended March 31,2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    25.1
    
    
    
    24.0Selling, general and administrative
    
    
    8.5
    
    
    
    7.1Research and development
    
    
    0.5
    
    
    
    0.8Operating income
    
    
    16.0
    
    
    
    16.1Net earnings
    
    
    10.7
    
    
    
    10.4
 Net Sales.
 10




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Gross Profit.
 Selling, General and Administrative.
 Research and Development.
 Other Income (Expense).
 Net Earnings.
 Liquidity and Capital Resources
  11




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Customer Note Receivable
  Off-Balance Sheet Arrangements
  Relationship with Finance Companies
   Facility Expansion
  Cash Requirements
  12




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Stock Based Compensation
  Share
Based Payment
 Accounting for Stock Issued to Employees,
   New Accounting Pronouncement
 Inventory Costs
 Forward-Looking Statements
  13




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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
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  14




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Approximate DollarShares Purchased
    
    Value of Shares thatTotal Number
    
    
    
    
    
    as Part of Publicly
    
    May Yet Be Purchasedof Shares
    
    Average Price Paid
    
    Announced Plans
    
    Under the Plans orPeriod
    
    Purchased (1)
    
    per Share
    
    or Programs (2)
    
    Programs1/1/06  1/31/06
    
    
    1,849
    
    
    $
    28.56
    
    
    
    
    
    
    
    2/1/06  2/28/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3/1/06  3/31/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,849
    
    
    $
    28.56
    
    
    
    
    
    
    
    
 
 (1)
    
    The total number of shares purchased represents previously owned shares of our Common Stock
tendered by an optionholder in payment of the exercise price of an option.(2)
    
    We do not currently have a repurchase program. 
 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
    
    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 (b)3.1b
    
    Amendment to Second Restated Articles of Incorporation of the Company filed May
4, 1998 (c)3.2
    
    Bylaws of the Company (a)3.3
    
    Amendment to Bylaws of the Company adopted April 13, 1999 (d)4.1
    
    Specimen form of the Companys Common Stock Certificate (a)10.1
    
    Description of the Companys 2006 Bonus Plan for certain executive officers (e)10.2
    
    Employment and Supplement Executive Retirement Pay Agreement between Mark Glasnapp
and the Company, effective as of July 12, 2004 (f)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 2002
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ExhibitNumber
    
    Description31.2
    
    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 3.2 to the Companys Registration
Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994.(b)
    
    Incorporated by reference to Exhibit 3.1a 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.(c)
    
    Incorporated by reference to Exhibit 3.1b 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.(d)
    
    Incorporated by reference to Exhibit 3.3 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.(e)
    
    Incorporated by reference to Item 1.01 of the Companys Current
Report on Form 8-K filed electronically on April 17, 2006.(f)
    
    Incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed electronically on May 8, 2006. 
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SIGNATURES
  A.S.V., Inc.Dated: May 10, 2006
    
    By
    
    /s/ Gary LemkeGary LemkeChief Executive Officer(duly authorized officer)Dated: May 10, 2006
    
    By
    
    /s/ Thomas R. KargesThomas R. KargesChief Financial Officer(principal financial and accounting officer)
 17