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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, 2006
 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. EXHIBITSSIGNATURESThird Restated Articles of IncorporationStatement 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)
(In thousands, except share data)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    19,027
    
    
    $
    35,517Short-term investments
    
    
    217
    
    
    
    1,224Accounts receivable, netTrade
    
    
    41,012
    
    
    
    33,706Caterpillar Inc.
    
    
    10,245
    
    
    
    10,087Inventories
    
    
    64,953
    
    
    
    52,362Deferred income taxes
    
    
    3,860
    
    
    
    3,545Other current assets
    
    
    2,287
    
    
    
    1,083Total current assets
    
    
    141,601
    
    
    
    137,524PROPERTY AND EQUIPMENT, net
    
    
    22,605
    
    
    
    20,907LONG-TERM INVESTMENTS
    
    
    14,185
    
    
    
    7,995OTHER NON-CURRENT ASSET
    
    
    426
    
    
    
    535INTANGIBLES, net
    
    
    7,823
    
    
    
    7,874GOODWILL
    
    
    8,386
    
    
    
    8,386$
    195,026
    
    
    $
    183,221LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term liabilities
    
    $
    40
    
    
    $
    71Accounts payable
    
    
    18,162
    
    
    
    15,498Accrued liabilitiesWarranties
    
    
    6,013
    
    
    
    5,077Other
    
    
    2,871
    
    
    
    2,195Income taxes payable
    
    
    
    
    
    
    855Total current liabilities
    
    
    27,086
    
    
    
    23,696LONG-TERM LIABILITIES, less current portion
    
    
    53
    
    
    
    138DEFERRED INCOME TAXES
    
    
    1,230
    
    
    
    1,300COMMITMENTS 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 
26,664,895 in 2006; 26,988,187 in 2005
    
    
    267
    
    
    
    270Additional paid-in capital
    
    
    86,363
    
    
    
    92,327Retained earnings
    
    
    80,027
    
    
    
    65,490166,657
    
    
    
    158,087$
    195,026
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net salesTrade
    
    $
    49,550
    
    
    $
    37,565
    
    
    $
    91,686
    
    
    $
    67,807Caterpillar
    
    
    22,599
    
    
    
    19,127
    
    
    
    45,340
    
    
    
    42,065Total net sales
    
    
    72,149
    
    
    
    56,692
    
    
    
    137,026
    
    
    
    109,872Cost of goods sold
    
    
    55,133
    
    
    
    42,826
    
    
    
    103,726
    
    
    
    83,247Gross profit
    
    
    17,016
    
    
    
    13,866
    
    
    
    33,300
    
    
    
    26,625Operating expenses:Selling, general and administrative
    
    
    5,221
    
    
    
    3,900
    
    
    
    10,747
    
    
    
    7,684Research and development
    
    
    431
    
    
    
    440
    
    
    
    779
    
    
    
    868Operating income
    
    
    11,364
    
    
    
    9,526
    
    
    
    21,774
    
    
    
    18,073Other income (expense)Interest income
    
    
    438
    
    
    
    326
    
    
    
    903
    
    
    
    629Interest expense
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (56
    )Other, net
    
    
    (6
    )
    
    
    5
    
    
    
    10
    
    
    
    51Income before income taxes
    
    
    11,796
    
    
    
    9,829
    
    
    
    22,687
    
    
    
    18,697Income taxes
    
    
    4,195
    
    
    
    3,645
    
    
    
    8,150
    
    
    
    6,970NET EARNINGS
    
    $
    7,601
    
    
    $
    6,184
    
    
    $
    14,537
    
    
    $
    11,727Net earnings per common shareBasic
    
    $
    .28
    
    
    $
    .23
    
    
    $
    .54
    
    
    $
    .44Diluted
    
    $
    .28
    
    
    $
    .22
    
    
    $
    .52
    
    
    $
    .42Weighted average number of common
shares outstandingBasic
    
    
    26,996,267
    
    
    
    26,787,204
    
    
    
    27,042,771
    
    
    
    26,757,140Diluted
    
    
    27,526,027
    
    
    
    27,610,372
    
    
    
    27,700,623
    
    
    
    27,626,082
  3




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A.S.V., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Six months ended June 30,2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    14,537
    
    
    $
    11,727Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    1,368
    
    
    
    909Amortization
    
    
    51
    
    
    
    51Deferred income taxes
    
    
    (385
    )
    
    
    (550
    )Stock-based compensation expense
    
    
    1,423
    
    
    
    Tax benefit from stock option exercises
    
    
    1,175
    
    
    
    630Changes in assets and liabilitiesAccounts receivable
    
    
    (7,464
    )
    
    
    395Inventories
    
    
    (12,591
    )
    
    
    (17,413
    )Other assets
    
    
    (1,095
    )
    
    
    370Accounts payable
    
    
    2,664
    
    
    
    3,000Accrued liabilities
    
    
    1,612
    
    
    
    1,296Income taxes payable
    
    
    (855
    )
    
    
    (328
    )Net cash provided by operating activities
    
    
    440
    
    
    
    87Cash flows from investing activities:Purchase of property and equipment
    
    
    (3,066
    )
    
    
    (10,371
    )Purchase of short-term investments
    
    
    (113
    )
    
    
    (108
    )Purchase of long-term investments
    
    
    (6,190
    )
    
    
    (2,080
    )Redemption of short-term investments
    
    
    1,120
    
    
    
    9,461Net cash used in investing activities
    
    
    (8,249
    )
    
    
    (3,098
    )Cash flows provided by financing activities:Principal payments on long-term liabilities
    
    
    (116
    )
    
    
    (97
    )Costs from issuance of common stock
    
    
    
    
    
    
    (36
    )Proceeds from exercise of stock options, net
    
    
    1,486
    
    
    
    1,160Retirement of common stock
    
    
    (10,051
    )
    
    
    (110
    )Net cash provided by (used in) financing activities
    
    
    (8,681
    )
    
    
    917Net decrease in cash and cash equivalents
    
    
    (16,490
    )
    
    
    (2,094
    )Cash and cash equivalents at beginning of period
    
    
    35,517
    
    
    
    27,438Cash and cash equivalents at end of period
    
    $
    19,027
    
    
    $
    25,344Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    57Cash paid for income taxes
    
    $
    9,767
    
    
    $
    7,236
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 June 30, 2006
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Revenue Recognition
  Research and Development
  Interim Financial Information
  Warranties
   June 30,2006
    
    
    2005(In thousands)Balance, beginning of period
    
    $
    5,431
    
    
    $
    3,006Expense for new warranties issued
    
    
    1,922
    
    
    
    1,018Warranty claims
    
    
    (1,340
    )
    
    
    (538
    )Balance, end of period
    
    $
    6,013
    
    
    $
    3,486
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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 Reclassification
  NOTE 2. INVENTORIES
  June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Raw materials, service parts
and work-in-process
    
    $
    51,864
    
    
    $
    42,122Finished goods
    
    
    11,840
    
    
    
    8,922Used equipment held for resale
    
    
    1,249
    
    
    
    1,318$
    64,953
    
    
    $
    52,362
 NOTE 3. STOCK-BASED COMPENSATION
  Share-Based Payment
 Accounting for Stock Issued to Employees,
  6




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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 3. STOCK-BASED COMPENSATION-continued
   Three months ended
    
    
    Six months endedJune 30, 2005
    
    
    June 30, 2005(In thousand, except share data)Net earnings, as reported
    
    $
    6,184
    
    
    $
    11,727Less total stock-based employee
compensation determined under
fair value methods for all awards,
net of income taxes
    
    
    (418
    )
    
    
    (820
    )Pro forma net earnings
    
    $
    5,766
    
    
    $
    10,907Earnings per share:Basic  as reported
    
    $
    .23
    
    
    $
    .44Basic  pro forma
    
    $
    .22
    
    
    $
    .41Diluted  as reported
    
    $
    .22
    
    
    $
    .42Diluted  pro forma
    
    $
    .21
    
    
    $
    .39
  Six months endedJune 30,2006
    
    2005Risk-free interest rate
    
    
    4.73
    %
    
    
    4.09
    %Expected volatility
    
    
    34.95
    %
    
    
    39.45
    %Expected life (in years)
    
    
    3.75
    
    
    
    6.05Dividend yield
    
    
    
    
    
    
    
  7




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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 3. STOCK-BASED COMPENSATION-continued
  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
    
    
    $
    12.33Granted
    
    
    75,000
    
    
    
    29.59Exercised
    
    
    (8,887
    )
    
    
    11.49Canceled
    
    
    (500
    )
    
    
    32.22Outstanding at June 30, 2006
    
    
    2,037,963
    
    
    $
    13.07
  Options OutstandingWeighted-Number
    
    
    average
    
    
    Weighted-Range of
    
    outstanding
    
    
    remaining
    
    
    averageexercise
    
    at
    
    
    contractual
    
    
    exerciseprices
    
    period end
    
    
    life
    
    
    price$    4.046.06
    
    
    860,050
    
    
    
    3.37
    
    
    $
    4.56$    6.139.19
    
    
    90,300
    
    
    
    1.24
    
    
    
    6.67$14.4521.67
    
    
    779,613
    
    
    
    4.94
    
    
    
    16.73$22.6032.22
    
    
    308,000
    
    
    
    4.58
    
    
    
    29.412,037,963
    
    
    
    
    
    
    $
    13.07
 Options exercisableRange of
    
    Number
    
    
    Weighted-exercise
    
    exercisable at
    
    
    averageprices
    
    period end
    
    
    exercise price$    4.046.06
    
    
    621,311
    
    
    $
    4.62$    6.139.19
    
    
    90,300
    
    
    
    6.67$14.4521.67
    
    
    252,738
    
    
    
    16.55$22.6032.22
    
    
    9,000
    
    
    
    22.60973,349
    
    
    $
    8.08
 NOTE 4. BUILDING EXPANSION PROJECT
  8




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A.S.V., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(UNAUDITED)
 NOTE 5. STOCK BUYBACK PROGRAM
  9




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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.
 10




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Warranties.
 Income Taxes
 Stock-Based Compensation. Share-Based Payment
 Results of Operations
   Three Months Ended June 30,
    


    Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    23.6
    
    
    
    24.5
    
    
    
    24.3
    
    
    
    24.2Selling, general and administrative
    
    
    7.2
    
    
    
    6.9
    
    
    
    7.8
    
    
    
    7.0Research and development
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.8Operating income
    
    
    15.8
    
    
    
    16.8
    
    
    
    15.9
    
    
    
    16.4Net earnings
    
    
    10.5
    
    
    
    10.9
    
    
    
    10.6
    
    
    
    10.7
 For the three months ended June 30, 2006 and 2005.
 Net Sales.
 11




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Gross Profit.
 Selling, General and Administrative.
 Research and Development.
 Other Income (Expense).
 Net Earnings.
 For the six months ended June 30, 2006 and 2005.
 Net Sales.
 12




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Gross Profit.
 Selling, General and Administrative.
 Research and Development.
 Other Income (Expense).
 Net Earnings.
 13




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Liquidity and Capital Resources
  Customer Note Receivable
  Off-Balance Sheet Arrangements
  Relationship with Finance Companies
   Facility Expansion
  14




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Stock Buyback Program
  Stock-Based Compensation
  Share-Based Payment
 Accounting for Stock Issued to Employees,
   Cash Requirements
  15




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Forward-Looking Statements
  
 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
  16




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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
    
    per Share
    
    or Programs
    
    Programs4/1/06  4/30/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5/1/06  5/31/06
    
    
    282,300
    
    
    $
    21.15
    
    
    
    282,300
    
    
    $
    4,029,5616/1/06  6/30/06
    
    
    216,700
    
    
    $
    18.59
    
    
    
    216,700
    
    
    $
    1,844Total
    
    
    499,000
    
    
    $
    20.04
    
    
    
    499,000
    
    
    $
    1,844
  
 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
    
    
    26,052,246
    
    
    
    103,841James H. Dahl
    
    
    26,093,927
    
    
    
    62,160Bruce D. Iserman
    
    
    26,098,015
    
    
    
    58,072Leland T. Lynch
    
    
    20,149,323
    
    
    
    6,006,764Jerome T. Miner
    
    
    26,050,640
    
    
    
    105,447Karlin S. Symons
    
    
    26,097,321
    
    
    
    58,766R. E. Teddy Turner, IV
    
    
    26,093,176
    
    
    
    62,911Kenneth J. Zika
    
    
    26,098,060
    
    
    
    58,027
 (b)
    
    Approval of Amendment to the Second Restated Articles of Incorporation.Shareholders approved the amendment to the Second Restated Articles of
Incorporation to increase the number of authorized shares of common stock
from 33,750,000 shares to 70,000,000 shares and decrease the number of
authorized shares of preferred stock from 11,250,000 shares to 5,000,000
shares with a vote of 21,005,140 shares for, 578,549 shares against, 158,342
shares abstaining and 4,415,056 broker non-votes.(c)
    
    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, 2006 with a vote of 26,046,819 shares for, 95,661 shares
against and 13,607 shares abstaining.
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ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Third Restated Articles of Incorporation of the Company3.2
    
    
    Bylaws of the Company (a)3.3
    
    
    Amendment to Bylaws of the Company adopted April 13, 1999 (b)4.1
    
    
    Specimen form of the Companys Common Stock Certificate (a)10.1
    
    
    Agreement between Caterpillar Inc. and Richard A. Benson, effective as of May 3, 2006 (c)10.2
    
    
    Employment and Supplement Executive Retirement Pay Agreement between Mark Glasnapp
and the Company, effective as of July 12, 2004 (d)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 3.2 to the Companys Registration
Statement on Form SB-2 (File No. 33-61284C) filed July 7, 1994.(b)
    
    Incorporated by reference to Exhibit 3.3 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.(c)
    
    Incorporated by reference to Exhibit 10.1 the Companys Current
Report on Form 8-K filed electronically on May 8, 2006.(d)
    
    Incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed electronically on May 8, 2006. 18




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SIGNATURES
  A.S.V., Inc.Dated: August 9, 2006
    
    By /s/ Richard A. Benson

Richard A. BensonChief Executive Officer(duly authorized officer)Dated: August 9, 2006
    
    By /s/ Thomas R. KargesThomas R. KargesChief Financial Officer(principal financial and accounting officer)
 19