##### 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 June 30, 2007
 Commission file number: 0-25620
 A.S.V., Inc.
  Minnesota
    
    41-1459569(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)840 Lily LaneP.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
  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 the Chief Executive Officer Pursuant to Section 302Certification of the Chief Financial Officer Pursuant to Section 302Certification of the Chief Executive Officer Pursuant to Section 906Certification of the Chief Financial Officer 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)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    26,240
    
    
    $
    17,090Short-term investments
    
    
    3,301
    
    
    
    220Accounts receivable, netTrade
    
    
    40,176
    
    
    
    39,777Caterpillar Inc.
    
    
    9,350
    
    
    
    4,407Inventories
    
    
    62,504
    
    
    
    71,384Deferred income taxes
    
    
    4,635
    
    
    
    4,840Other current assets
    
    
    1,177
    
    
    
    903Total current assets
    
    
    147,383
    
    
    
    138,621PROPERTY AND EQUIPMENT, net
    
    
    28,856
    
    
    
    29,342LONG-TERM INVESTMENTS
    
    
    11,050
    
    
    
    14,155OTHER NON-CURRENT ASSET
    
    
    172
    
    
    
    313INTANGIBLES, net
    
    
    7,720
    
    
    
    7,771GOODWILL
    
    
    8,386
    
    
    
    8,386$
    203,567
    
    
    $
    198,588LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term liabilities
    
    $
    27
    
    
    $
    37Accounts payableTrade
    
    
    9,117
    
    
    
    10,660Caterpillar
    
    
    1,280
    
    
    
    857Accrued liabilitiesWarranties
    
    
    5,131
    
    
    
    5,894Other
    
    
    2,947
    
    
    
    2,582Income taxes payable
    
    
    894
    
    
    
    686Total current liabilities
    
    
    19,396
    
    
    
    20,716LONG-TERM LIABILITIES, less current portion
    
    
    36
    
    
    
    40INCOME TAXES PAYABLE
    
    
    1,835
    
    
    
    DEFERRED INCOME TAXES
    
    
    1,870
    
    
    
    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 -
26,698,922 in 2007; 26,716,420 in 2006
    
    
    267
    
    
    
    267Additional paid-in capital
    
    
    89,129
    
    
    
    88,398Retained earnings
    
    
    91,034
    
    
    
    87,537Total shareholders equity
    
    
    180,430
    
    
    
    176,202$
    203,567
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net salesTrade
    
    $
    37,117
    
    
    $
    49,550
    
    
    $
    71,196
    
    
    $
    91,686Caterpillar
    
    
    14,092
    
    
    
    22,599
    
    
    
    26,330
    
    
    
    45,340Total net sales
    
    $
    51,209
    
    
    $
    72,149
    
    
    $
    97,526
    
    
    $
    137,026Cost of goods sold
    
    
    39,541
    
    
    
    55,133
    
    
    
    76,302
    
    
    
    103,726Gross profit
    
    
    11,668
    
    
    
    17,016
    
    
    
    21,224
    
    
    
    33,300Operating expenses:Selling, general and administrative
    
    
    6,317
    
    
    
    5,221
    
    
    
    12,477
    
    
    
    10,747Research and development
    
    
    578
    
    
    
    431
    
    
    
    1,104
    
    
    
    779Operating income
    
    
    4,773
    
    
    
    11,364
    
    
    
    7,643
    
    
    
    21,774Other income (expense)Interest income
    
    
    451
    
    
    
    438
    
    
    
    828
    
    
    
    903Other, net
    
    
    8
    
    
    
    (6
    )
    
    
    56
    
    
    
    10Income before income taxes
    
    
    5,232
    
    
    
    11,796
    
    
    
    8,527
    
    
    
    22,687Provision for income taxes
    
    
    1,959
    
    
    
    4,195
    
    
    
    3,195
    
    
    
    8,150NET EARNINGS
    
    $
    3,273
    
    
    $
    7,601
    
    
    $
    5,332
    
    
    $
    14,537Net earnings per common shareBasic
    
    $
    .12
    
    
    $
    .28
    
    
    $
    .20
    
    
    $
    .54Diluted
    
    $
    .12
    
    
    $
    .28
    
    
    $
    .20
    
    
    $
    .52Weighted average number of
common shares outstandingBasic
    
    
    26,667,845
    
    
    
    26,996,267
    
    
    
    26,691,970
    
    
    
    27,042,771Diluted
    
    
    27,075,639
    
    
    
    27,526,027
    
    
    
    27,131,425
    
    
    
    27,700,623
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A.S.V., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
Six months ended June 30,
 2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    5,332
    
    
    $
    14,537Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    1,602
    
    
    
    1,368Amortization
    
    
    51
    
    
    
    51Deferred income taxes
    
    
    445
    
    
    
    (385
    )Stock-based compensation expense
    
    
    1,369
    
    
    
    1,423Tax benefit from stock option exercises
    
    
    300
    
    
    
    1,175Changes in assets and liabilitiesAccounts receivable
    
    
    (5,342
    )
    
    
    (7,464
    )Inventories
    
    
    8,880
    
    
    
    (12,591
    )Other assets
    
    
    (133
    )
    
    
    (1,095
    )Accounts payable
    
    
    (1,120
    )
    
    
    2,664Accrued liabilities
    
    
    (398
    )
    
    
    1,612Income taxes payable
    
    
    208
    
    
    
    (855
    )Net cash provided by operating activities
    
    
    11,194
    
    
    
    440Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,116
    )
    
    
    (3,066
    )Purchase of short-term investments
    
    
    (112
    )
    
    
    (113
    )Redemption of short-term investments
    
    
    112
    
    
    
    1,120Redemption (purchase) of long-term investments
    
    
    24
    
    
    
    (6,190
    )Net cash used in investing activities
    
    
    (1,092
    )
    
    
    (8,249
    )Cash flows provided by financing activities:Principal payments on long-term liabilities
    
    
    (14
    )
    
    
    (116
    )Proceeds from exercise of stock options, net
    
    
    550
    
    
    
    1,486Repurchase and retirement of common stock
    
    
    (1,488
    )
    
    
    (10,051
    )Net cash used in financing activities
    
    
    (952
    )
    
    
    (8,681
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,150
    
    
    
    (16,490
    )Cash and cash equivalents at beginning of period
    
    
    17,090
    
    
    
    35,517Cash and cash equivalents at end of period
    
    $
    26,240
    
    
    $
    19,027Supplemental disclosure of cash flow information:Cash paid for income taxes
    
    $
    2,242
    
    
    $
    9,767Adoption of FASB Interpretation 48
    
    $
    1,835
    
    
    $
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 June 30, 2007
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Revenue Recognition
  Research and Development
  Interim Financial Information
   Warranties
   Three Months Ended June 30,2007
    
    
    2006Balance, March 31
    
    $
    5,758,000
    
    
    $
    5,431,000Expense for new warranties issued
    
    
    778,000
    
    
    
    1,922,000Warranty claims
    
    
    (1,405,000
    )
    
    
    (1,340,000
    )Balance, June 30
    
    $
    5,131,000
    
    
    $
    6,013,000
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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
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Dilutive common stock equivalents
    
    
    407,794
    
    
    
    529,760
    
    
    
    439,455
    
    
    
    657,852Anti-dilutive options
    
    
    582,868
    
    
    
    272,000
    
    
    
    738,815
    
    
    
    210,750
 NOTE 2. INVENTORIES
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials, service parts
and work-in-process
    
    $
    50,177,000
    
    
    $
    53,390,000Finished goods
    
    
    11,359,000
    
    
    
    16,682,000Used equipment held for resale
    
    
    968,000
    
    
    
    1,312,000$
    62,504,000
    
    
    $
    71,384,000
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 3. STOCK-BASED COMPENSATION
   Six months ended June 30,2007
    
    2006Risk-free interest rate
    
    
    4.63
    %
    
    
    4.73
    %Expected volatility
    
    
    32.39
    %
    
    
    34.95
    %Expected term (in years)
    
    
    3.75
    
    
    
    3.75Dividend yield
    
    
    
    
    
    
    
    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
    
    
    $
    13.64
    
    
    
    3.36
    
    
    $
    11,831,000Exercisable at June 30, 2007
    
    
    1,352,071
    
    
    $
    10.03
    
    
    
    2.87
    
    
    $
    11,015,000
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 4  STOCK BUYBACK PLAN
   NOTE 5. ADOPTION OF NEW ACCOUNTING STANDARD
 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
 8




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ITEM 2 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Six Month Overview
  Critical Accounting Policies
   Revenue Recognition and Accounts Receivable. i.e.
 9




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Inventories.
 Intangible Assets.
  Goodwill.
 Warranties.
 Income Taxes
  10




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Stock-Based Compensation. . .
  Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    22.8
    
    
    
    23.6
    
    
    
    21.8
    
    
    
    24.3Selling, general and administrative
    
    
    12.3
    
    
    
    7.2
    
    
    
    12.8
    
    
    
    7.8Research and development
    
    
    1.1
    
    
    
    0.6
    
    
    
    1.1
    
    
    
    0.6Operating income
    
    
    9.3
    
    
    
    15.8
    
    
    
    7.8
    
    
    
    15.9Net earnings
    
    
    6.4
    
    
    
    10.5
    
    
    
    5.5
    
    
    
    10.6
 For the three months ended June 30, 2007 and 2006.
 Net Sales.
 Gross Profit.
 11




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Selling, General and Administrative.
 Research and Development.
 Other Income.
 Income Taxes.
 Net Earnings.
 For the six months ended June 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.
 Liquidity and Capital Resources
     13




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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
 ,
 14




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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
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   15




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (a)
    
    Election of Directors.The following directors were elected at the Annual Meeting, each with the
following votes:
 For
    
    WithheldRichard A. Benson
    
    
    24,796,273
    
    
    
    678,163Lynn M. Cortright
    
    
    24,853,109
    
    
    
    621,327Bruce D. Iserman
    
    
    24,853,300
    
    
    
    621,136Leland T. Lynch
    
    
    22,512,645
    
    
    
    2,961,791Jerome T. Miner
    
    
    25,177,808
    
    
    
    296,628William D. Morton
    
    
    24,862,532
    
    
    
    611,904Karlin S. Symons
    
    
    24,855,542
    
    
    
    618,894Kenneth J. Zika
    
    
    24,805,047
    
    
    
    669,389
 (b)
    
    Ratification of Appointment of Independent Registered Public Accounting Firm.Shareholders ratified the appointment of Grant Thornton LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2007 with a vote of 25,194,300 shares for, 53,810 shares
against and 226,326 shares abstaining.
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Third Restated Articles of Incorporation of the Company (a)3.2
    
    
    Bylaws of the Company (b)3.3
    
    
    Amendment to Bylaws of the Company adopted April 13, 1999 (c)4.1
    
    
    Specimen form of the Companys Common Stock Certificate (b)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.(b)
    
    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.(c)
    
    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. 16




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SIGNATURES
  A.S.V., Inc.Dated: August 9, 2007
    
    By
    
    /s/ Richard A. BensonRichard A. BensonChief Executive Officer(principal executive officer)Dated: August 9, 2007
    
    By
    
    /s/ Thomas R. KargesThomas R. KargesChief Financial Officer(principal financial and accounting officer)
 17