Table of Contents

  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-K**   þ **Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934****For the fiscal year ended December 31, 2005**   o **Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934****For the transition period from                    to                    .****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, including zip code Registrant’s telephone number,  including area codeSecurities registered pursuant to Section 12(b) of the Act:**None**Securities registered pursuant to Section 12(g) of the Act:**Common Stock, $.01 par value**Title of each class     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule405 of the Securities Act.o   Yes   þ   No     Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section 15(d) of the Act.o   Yes   þ   No     Indicate by check mark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.þ   Yes   o   No     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. þ     Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act.(Check one)Largeaccelerated filero          Accelerated filer þ           Non-accelerated filer o     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Act).o   Yes   þ   No     Based on the closing sale price of the registrant’s Common Stock at June 30, 2005 of $31.31,the aggregate market value of the registrant’s Common Stock held by nonaffiliates was $366,386,453.     As of February 28, 2006, 27,117,788 shares of the registrant’s Common Stock were issued andoutstanding.**DOCUMENTS INCORPORATED BY REFERENCE:**     Portions of the registrant’s Proxy Statement for its June 2, 2006 Annual Meeting, which willbe filed by April 30, 2006, are incorporated by reference in Part III of this Annual Report on Form10-K.  
 

**TABLE OF CONTENTS**
PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 6.Selected Financial DataItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and Procedures Item 9B. Other Information PART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and Services PART IVItem 15. Exhibits and Financial Statement Schedules SIGNATURES EXHIBIT INDEXStatement Re: Computation of Per Share EarningsSubsidiariesConsent of Grant Thornton LLPSection 302 Certification of the CEOSection 302 Certification of the CFOSection 906 Certification of the CEOSection 906 Certification of the CFO

Table of Contents
**PART I****Item 1. Business****General**     A.S.V., Inc. was incorporated in Minnesota in July 1983 and our wholly-owned subsidiary,A.S.V. Distribution, Inc., was incorporated in Minnesota in January 1989. In October 2004, A.S.V.,Inc. acquired all the outstanding Common Stock of Loegering Mfg. Inc. (“Loegering”) of Casselton,North Dakota in a merger transaction. Following completion of the transaction, Loegering became awholly-owned subsidiary of A.S.V., Inc. A.S.V., Inc., A.S.V. Distribution, Inc. and Loegering arecollectively referred to herein as “ASV”,the “Company”, “we”, “us” or “our.”     We design, manufacture and sell track-driven all-season vehicles. We have three principalproduct lines, the Posi-TrackTM product line, the undercarriage product line and the Loegeringproduct line. The Posi-Track and undercarriage product lines use a rubber track suspension systemthat takes advantage of the benefits of both traditional rubber wheels and steel tracks. Rubbertrack vehicles provide the traction, stability and low ground pressure necessary for operation onsoft, wet, muddy, rough, boggy, slippery, snowy or hilly terrain, but, unlike steel track vehicles,can be driven on groomed, landscaped and paved surfaces without causing damage. Our Posi-Trackproducts are versatile machines used in the construction, agricultural, landscaping, rental,military, and other markets. Our undercarriages are sold to Caterpillar Inc. (“Caterpillar”) as aprimary component on Caterpillar’s Multi-Terrain Loader (“MTL”) product line. Loegering is amanufacturer of traction products for wheeled skid-steers and also provides attachments for theskid-steer market.**Current Year Developments**     *New Models*     In January 2005, we introduced a new model in our Posi-Track product line, the RCV. The RCVis built on the RC-85/100 platform and features a vertical lift loader and higher lift heights thanany of our machines. The RCV went into production in the second quarter of 2005.     In January 2006, we introduced two new models in our Posi-Track product line, the SR-70 andSR-80. These new models are built on our next generation undercarriage designs and have featuresnot found on our other models. The SR-70 has a list price of $40,500 and the SR-80 has a list priceof $45,500. The SR-80 went into production in February 2006 and the SR-70 is expected to go intoproduction in the second quarter of 2006.     *Stock Split*     On August 25, 2005, we completed a two-for-one stock split. All share data information in thisAnnual Report on Form 10-K has been restated to reflect the stock split.     *Supply Agreement with Vermeer Manufacturing Inc.*     On September 23, 2005, we entered into a Commercial Alliance Agreement (“Vermeer Agreement”)with Vermeer Manufacturing Inc. (“Vermeer”). Under the Vermeer Agreement, we will be the exclusivesupplier of rubber track undercarriages and service parts to Vermeer for use on select products inVermeer’s line of horizontal directional drills, utility trenchers and other products (the “VermeerMachines”). We had very limited production of some of these undercarriages in the fourth quarterof 2005. The term of the Vermeer Agreement is eight years, with automatic one-year renewal periodsunless either party gives the other party at least six months written notice of termination.     *Supply Agreement with Caterpillar Inc.*     On September 29, 2005 we signed a five-year Supply Agreement (“Supply Agreement”) withCaterpillar, effective November 1, 2005. The Supply Agreement replaced the Multi-TerrainRubber-Tracked Loader Alliance Agreement (“Alliance Agreement”) that had been in effect sinceOctober 2000, and expired October 31, 2005. Under the Supply Agreement, Caterpillar will purchase100% of its undercarriage and original equipment manufacturer service parts requirements forcurrent and specified future Caterpillar MTLs, as defined, from us. We will continue to be
2

Table of Contents
allowed to sell our rubber track undercarriages to other equipment manufacturers for machinesthat do not compete with Caterpillar’s MTLs, and we will continue to utilize Caterpillar componentsin the manufacture of our products. The Supply Agreement commenced on November 1, 2005 and willcontinue through November 1, 2010. The Supply Agreement will automatically renew for successiveone-year renewal terms unless either party provides at least six months prior written notice oftermination.     *Registration Rights Agreement and Board Representation*     Along with the Supply Agreement, ASV and Caterpillar also entered into a Registration RightsAgreement that provides Caterpillar registration rights forunregistered shares of our Common Stockit currently holds. However, so long as the Supply Agreement remains in effect, Caterpillar hasagreed not to sell or dispose of any of its ASV shares prior to January 1, 2009. In addition, aspart of the Registration Rights Agreement, Caterpillar retained itsability to designate director nominees toour Board of Directors in proportion to its ownership of our shares, similar to the rights it heldunder the previous Securities Purchase Agreement with us.**Markets for Our Products**     We believe our Posi-Track products are very versatile and can be used in a wide variety ofapplications. The main markets we expect these products to be sold into include the construction,landscape and agriculture markets. In addition, the Posi-Track model MD-70 is being sold for usein specialty military applications.     We also believe our Posi-Track products are ideal for the rental equipment market. The designof our products makes them very easy to learn how to operate, especially for those individuals notfamiliar with the operation of similarly-sized equipment.     Our undercarriage products are a primary component in Caterpillar’s MTL products which areused in a wide variety of applications, including construction, excavation, landscape, demolitionand material handling.     OurLoegering products consist primarily of the Versatile Track System ® (“VTS”), a bolt onbolt off track system that will convert most skid-steers from wheels to rubber tracks,over-the-tire steel tracks used on skid-steers and various attachments for use by the skid-steermarket.**Benefits of a Rubber Track Undercarriage**     Our Posi-Track products are most often compared to skid-steer vehicles. Skid-steers are smallfour-wheeled vehicles that were originally designed and used primarily as loaders, but in the lastdecade have become increasingly more popular for a variety of functions and more versatile with theavailability of attachments such as backhoes, forklifts, breakers, planers, rakes and augers.     The primary disadvantage of skid-steer vehicles is that they are wheeled vehicles and are notdesigned for operation on wet, soft, slippery or rough ground, which means that they are inherentlylimited as to when and where they can function. Skid-steers often sit idle in the winter and springor after rain because the ground is not suitable for their operation. A wheeled skid-steer exertsat least ten times more ground pressure than our Posi-Track products, which makes a skid-steer lesssuitable for operation on landscaped or groomed ground.     Recognizing the benefits of tracked vehicles, several manufacturers, including Loegering, havecreated tracks that can be placed around a skid-steer’s wheels which can increase the traction of awheeled skid-steer, but do not improve the skid-steer’s ground pressure significantly. Add-ontracks are generally steel; however, rubber add-on tracks are also available due to the limitationsimposed by steel tracks. Although rubber add-on tracks can decrease a skid-steer’s ground pressuresomewhat, the overall design of our products gives them more versatility and less ground pressurethan a skid-steer with add-on tracks.     We believe our Posi-Track products are ideal replacements to skid-steers, small dozers andsmall tractors, and can perform many of the jobs handled by these vehicles without thedisadvantages they possess. The weight of our Posi-Track products is distributed over its twotracks, which have a ground surface much greater than that of a wheeled skid-steer, which resultsin an average ground pressure of approximately 3 pounds per square inch, compared to approximately
3

Table of Contents
35 pounds per square inch for a typical wheeled skid-steer weighing approximately the same asour Posi-Track products. Their low ground pressure allows them to operate on wet, soft, slippery,rough and hilly terrain. Conventional wheeled vehicles may not be able to operate or may bedestructive in these conditions. Low ground pressure also reduces compaction which decreases theneed for frequent tilling and conditioning of the soil.     The longer track base on our Posi-Track products also provides for a much smoother ride forthe operator of the machine. In addition, our Posi-Track products have a built-in suspension intheir undercarriage design, further minimizing the effects of an uneven or rough operating surface.     We believe the ability of our Posi-Track products to operate in conditions that would requirewheeled machines to sit idle makes them a more attractive option due to greater productivity. Theability to operate when wheeled vehicles cannot extends the work season of those operators in areaswhere climate is a factor.**Products – Posi-Track Products**     We have three primary product lines, the Posi-Track product line, the undercarriage productline and the Loegering product line. The Posi-Track product line and the undercarriage productline utilize a rubber track suspension system that takes advantage of the benefits of traditionalrubber wheels and steel tracks, without the disadvantages possessed by each.     The rubber tracks used on our Posi-Track products are made of molded rubber reinforced withlayers of nylon and polyester cord. Our Posi-Track products feature a maintenance-free suspensionwith no grease fittings and utilize diesel engines manufactured by Perkins Engines Company Ltd.     All of our Posi-Track products are ride-on machines, which add to their safety and comfort,and are equipped with pilot-operated hydraulic controls. Safety features include full ROPS/FOPScanopy (roll over protection structure, falling object protection structure), lap bar, seat beltand parking brake.     The following contains a summary of our current Posi-Track products:                 **Model** **Weight(w/out bucket)** **Operating Capacity*** **Engine Horsepower** **List Price ($)** RC-30 2,935 lbs 800 lbs  31.5   22,609  RC-50 4,750 lbs 1,500 lbs  50   31,635  RC-60 5,500 lbs 1,900 lbs  60   37,100  SR-70** 7,890 lbs 2,750 lbs  71   40,500  SR-80** 8,060 lbs 3,100 lbs  81   45,500  RC-85 8,800 lbs 3,400 lbs  86   46,627  RC-100 9,200 lbs 3,800 lbs  99.5   53,490  RCV 9,595 lbs 4,000 lbs  86   51,449   ***** Operating capacity shown is based on 50% of tipping load. ****** The SR-80 went into production in February 2006 and the SR-70 is expected to go intoproduction in the second quarter of 2006.     All machines shown above have no more than 3.5 pounds per square inch ground pressure.     The RC-30, RC-50 and RC-60 Turf Edition products have the same specifications as the RC-30,RC-50 and RC-60 listed above, but are equipped with smooth, non-treaded rubber tracks.
4

Table of Contents
     Most skid-steer attachments are designed to be used with an industry standard quick-attachmechanism which allows attachments to be used on all similarly equipped vehicles. Our Posi-Trackproducts utilize this standard quick-attach mechanism which enables them to operate the attachmentsused by skid-steers. Our Posi-Track products are also designed for use with a dozer attachment.We believe our Posi-Track products provide a more stable platform on which these attachments canoperate, due to their significantly longer track base in contact with the ground, compared to thewheelbase of a typical wheeled skid-steer.     In addition to the attachments already available on the market from other manufacturers, wealso manufacture and sell attachments for our Posi-Track products for special functions notperformed by other competing vehicles. Because skid-steers are not designed for performing dozerfunctions, dozers have traditionally been separate, single-function vehicles. However, because oftheir rubber track and design, our Posi-Track products are able to perform dozer functions with thedozer attachment manufactured for us. We also sell other attachments for special purposes.     All of our Posi-Track products can be equipped with various options such as cab enclosure,heater, air conditioner, horn and back-up alarm.     We have also introduced a utility vehicle which we anticipate will go into production in thesecond half of 2006. This utility vehicle shares many of the same components as our Posi-Trackproducts, but is intended for the utility vehicle market. We anticipate the utility vehicle may beequipped with various attachments on the machine’s flat-bed.**Products – Undercarriages**     We manufacture rubber track undercarriages for use by Caterpillar on their MTLs. The fivemodels of MTLs feature Caterpillar’s patented skid steer loader technology and our patented MaximumTraction Support System rubber track undercarriage. We began manufacturing undercarriages for thefirst two MTL models in 2001. The undercarriage for the next two MTL models went into productionin the second quarter of 2002. The undercarriage for the final MTL model went into production inthe first quarter of 2003. The MTLs are being sold through the Caterpillar dealer network.     We also manufacture rubber track undercarriages for use by Vermeer on the Vermeer Machines. Weexpect to supply Vermeer with undercarriages for use on three models of trenchers and one model ofunderground directional drill. We had very limited production of some of these undercarriages inthe fourth quarter of 2005. The Vermeer Machines are being sold through the Vermeer dealer network.**Products – Loegering**     Our Loegering products consist primarily of the VTS product, a bolt on bolt off track systemthat will convert most skid-steers from wheels to rubber tracks, over-the-tire steel tracks used onskid-steers and various attachments for use by the skid-steer market. Loegering products are soldthrough the Loegering dealer network. The VTS product was introduced in the second half of 2004. Inthe third quarter of 2005, Loegering introduced an additional model in the VTS product line. Thisadditional model was for smaller skid-steers than the original VTS model.**Products – Other**     We have also produced the following models under the Posi-Track model name: the MD-70, the2800 series, the HD 4500 series and the 4810. Of these models, the MD-70, our original Posi-Trackmodel, is the only model we anticipate manufacturing in the future. We anticipate futureproduction will be devoted to specialty applications. In the past three years, total sales of theMD-70 have been less than 1% of our net sales each year.**Sales and Marketing**     We sell our Posi-Track products primarily through independent equipment dealers in the UnitedStates, Canada, Australia and New Zealand. As of February 28, 2006, 266 independent dealers selland service our Posi-Track products. The MTL products, which are Caterpillar products thatincorporate our undercarriages, are available on a worldwide basis through Caterpillar dealersonly. The Vermeer Machines, which incorporate our undercarriages, are available through Vermeerdealers only. Loegering sells its products primarily through independent equipment dealers in NorthAmerica. As of February 28, 2006, Loegering had approximately 1,000 active dealers.
5

Table of Contents
     Product sales data as a percentage of net sales for 2005, 2004 and 2003 is set forth in Item7. of this Annual Report on Form 10-K. Sales to customers outside the United States accounted for6%, 9% and 6% of our net sales in 2005, 2004 and 2003, respectively. Revenue is recognized forsales to customers outside the United States in the same manner as customers within the UnitedStates.     In 2005, sales to Caterpillar accounted for 39% of our net sales, while sales to Caterpillaraccounted for 40% and 54% of our net sales in 2004 and 2003, respectively. We anticipate that salesto Caterpillar will represent a lesser percentage of our net sales in 2006. We believe thedecreased percentage sales to Caterpillar has been and is expected to be due to sales of ourproducts to other customers increasing at a faster rate, from increased offerings and an expandingdealer network.     The construction, agricultural and landscape equipment industries, in which our productscompete, have historically been cyclical. Sales of construction, agricultural and landscapeequipment are generally affected by the level of activity in the construction and agriculturalindustries as well as farm production and demand, weather conditions, interest rates, constructionlevels (especially housing starts) and general economic conditions. In addition, the demand forour products may be affected by the seasonal nature of the activities in which they are used.Sales of our products have generally been greater in the spring and summer.     In October 2005, we announced that we had entered into an agreement with CIT Group Inc.(“CIT”) to form ASV Capital, a private label finance program to offer wholesale and retailfinancing options on the sale of our Posi-Track products. Representatives of ASV and CIT make jointcredit decisions, with CIT retaining the risk of the credit portfolio. We have no ownership in ASVCapital and have no share in the profit or loss of ASV Capital.     We have an arrangement with one other finance company to finance the sale of ourPosi-Track products to our dealers and end purchasers. In addition, we may, from time totime, offer extended payment terms on the sale of our products to our dealers for periods up to twoyears.     We have also agreed to assist this finance company with the costs related to remarketingcertain financed equipment should it become necessary for the finance company to take possession ofthe equipment in the event of nonpayment by the debtor. As of February 28, 2006, we were notobligated to the finance company for any costs related to the remarketing of any financed equipmentdue to nonpayment by the debtor.     As of February 28, 2006, we had orders for approximately $31 million of our Posi-Trackand Loegering products, all of which are expected to be filled in 2006. As of February 23,2005, we had orders for approximately $32 million of ourPosi-Track and Loegeringproducts all of which were filled in 2005.     In 2006, we intend to focus our marketing efforts on increasing the number of dealer outletsfor our Posi-Track products, increasing the number of rental facilities that have our Posi-Trackproducts available for rent and increasing the distribution of our VTS track system.**Affiliation with Caterpillar**     *Supply Agreement*     On September 29, 2005 we signed a five-year Supply Agreement with Caterpillar, effectiveNovember 1, 2005. The Supply Agreement replaced the Alliance Agreement that had been in effectsince October 2000 and expired October 31, 2005. Under the Supply Agreement, Caterpillar willpurchase 100% of its undercarriage and original equipment manufacturer service parts requirementsfor current and specified future Caterpillar MTLs, as defined, from us. We will continue to beallowed to sell our rubber track undercarriages to other equipment manufacturers for machines thatdo not compete with Caterpillar’s MTLs and we will continue to utilize Caterpillar components inthe manufacture of our products. The Supply Agreement commenced on November 1, 2005 and willcontinue through November 1, 2010. The Supply Agreement will automatically renew for successiveone-year renewal terms unless either party provides at least six months prior written notice oftermination.     In connection with the new Supply Agreement entered into with Caterpillar, all agreementspreviously entered into between the two companies have been terminated. The terminated agreementsinclude the Securities Purchase
6

Table of Contents
Agreement, the Commercial Alliance Agreement, the Marketing Agreement, the Trademark and TradeDress License Agreement, the Management Services Agreement and the Multi-Terrain Rubber-TrackedLoader Alliance Agreement.     *Registration Rights Agreement and Board Representation*     Along with the Supply Agreement, ASV and Caterpillar also entered into a Registration RightsAgreement that provides Caterpillar registration rights forunregistered shares of our Common Stockit currently holds. However, so long as the Supply Agreement remains in effect, Caterpillar hasagreed not to sell or dispose of any of its ASV shares prior to January 1, 2009. In addition, aspart of the Registration Rights Agreement, Caterpillar retained itsability to designate director nominees for election toour Board of Directors in proportion to its ownership of our shares, similar to the rights it heldunder the Securities Purchase Agreement. Currently, one of our nine directors has been designatedby Caterpillar, for election to our Board despite the fact that Caterpillar is entitled todesignate two director nominees, assuminga board comprised of nine directors. If Caterpillar were to exercise its right to designate anadditional director nominee, based on its current stock ownership interest, we anticipate that, assumingthere were no vacancies on our board, we would expand the size of ourboard to acomodate the additionaldirector nominee designated by Caterpillar.     *Sale of Product Line*     In the fourth quarter of 2005, Loegering sold the intellectual property and the tangiblepersonal property related to Loegering’s snowblower product line to Caterpillar for $350,000,resulting in a gain of $325,000. This gain has been recorded in Other Income in the accompanyingconsolidated financial statements for 2005. In addition, Loegering has agreed to sell its inventoryof snowblower service parts to Caterpillar at an amount to be mutually agreed on by the twoparties, not to exceed $50,000, during 2006. Loegering does not anticipate that it will incur aloss on the sale of such service parts to Caterpillar in 2006. As a result of this transaction,Loegering will no longer offer snowblowers in its product line. Snowblower sales totaledapproximately $1,100,000 in 2005.**Competition**     The markets in which our RC-50 through RC-100 and the SR-70 and SR-80 products compete aregenerally comprised of small to medium sized tractor-type vehicles including skid-steers. Theskid-steer market is dominated by large corporations producing models with substantial namerecognition, including Ingersoll Rand, which manufactures the Bobcat, Case, Caterpillar, NewHolland, John Deere and Gehl. The competitors primarily produce wheeled vehicles in the markets inwhich our products compete. All of these competitors also manufacture a form of rubber trackloader. However, all of the competitors, with the exception of Caterpillar, which utilizes ourundercarriages on its rubber track loaders, utilize a track that is comprised primarily of steelwith rubber bonded to it. We believe this “rubber coated” track does not offer the same comfort,durability or performance that our all-rubber track offers. ASV and Caterpillar are the onlymanufacturers that utilize an all-rubber track on their tracked product offerings. We have thewidest range of rubber track products, with more models and horsepower offerings, than any othermanufacturer.     The markets in which our RC-30 competes are also generally comprised of vehicles manufacturedby large corporations producing models with substantial name recognition, including Toro, whichmanufactures the Dingo, as well as those companies listed above that manufacture skid-steerproducts.     The markets in which our Loegering products compete are highly fragmented with many companiescompeting in the same market.     We expect our products to compete in the market based on, among other things: tracktechnology, adaptability, versatility, performance, ease of operation, features, quality, size,brand loyalty, price and reputation. Some of our competitors possess significantly greaterresources than us, as well as established reputations within the industry. There is no assurancethat a competitor with greater capital resources will not enter and exploit our markets to ourdetriment. We believe the introduction of additional competitors could enhance market acceptanceof rubber track vehicles.
7

Table of Contents
**Warranty**     We provide limited warranties to purchasers of our products which vary by product. Thewarranties generally cover defects in materials and workmanship for one year from the delivery dateto the first end user. The rubber tracks used on our products carry a pro-rated warranty up to1,500 hours of usage. Those components that are not manufactured by us are subject only to thewarranty of the component manufacturer and may be greater in length than the limited warrantyprovided by us.     We offer an extended warranty through an unaffiliated company. This unaffiliated company isresponsible for administering and paying all warranty claims under the extended warranty program.**Manufacturing and Suppliers**     We manufacture and assemble our products at our facilities in Grand Rapids and Cohasset,Minnesota and Casselton, North Dakota. See “Item 2. Properties.” The majority of the componentparts are purchased from outside vendors. Certain parts, such as engines and transmissions, arestandard “off-the-shelf” parts purchased by us and incorporated into our vehicles. Others, such asthe rubber track, undercarriage components, machine chassis and loader, are manufacturedspecifically for us. Certain fabricated parts are manufactured on site for incorporation into ourproducts. In order to help reduce production costs, we periodically review those parts that may bemore cost-effective to manufacture in-house.     We own the tooling used by outside vendors for manufacturing customized parts. While currentvendors are meeting our quality and performance expectations, we believe alternative contractmanufacturers are available should the necessity arise. However, shortages of parts or the need tochange vendors could result in production delays or reductions in product shipments that couldadversely affect our business. In addition, certain parts, such as bogie wheels and rubber tracks,have a limited number of vendors and a disruption in supply could affect our ability to deliverfinished goods.     During 2005, we made investments in production equipment at certain of our suppliers to ensurea steady supply of component parts and potentially reduce the unit cost of such items. We haverecorded the cost of this equipment on our balance sheet in property and equipment and aredepreciating the cost of the equipment in accordance with our depreciation policies.     Due to the increased sales and production levels we have experienced, the expected increase insales and production levels in 2006 and lead times of up to twenty weeks on certain of our rawmaterials, we expect that it will be necessary to maintain similar or increased levels of inventoryand working capital in the foreseeable future.**Intellectual Property Rights**     We have been granted four patents by the U.S. Patent Office pertaining to our undercarriagesystem, which expire in the years 2018-2019. We also acquired four patents in our acquisition ofLoegering, two of which are related to over-the-tire steel tracks and two of which are related toattachments. The Loegering patents expire in the years 2012-2021. There can be no guarantee thatthese patents will be a deterrent to other manufacturers from producing similar technology.     We have applied for additional patents pertaining to our undercarriage systems. We alsoacquired the rights to one additional patent application related to the VTS track system in ouracquisition of Loegering. There can be no assurance that patents will ever be granted under thesepatent applications.     Wehave registered the trademark Track Truck ® with the U.S. Patent and Trademark Office andclaim common law trademark rights in the names Posi-TrackTM, RC-30TM, RC-50TM, RC-60TM,RC-85TM, RC-100TM, Turf EditionTM, Maximum Traction Support SystemTM, Posi-TurnTM and SnowSaverTM. Loegering claims the trademarks VTS Versatile Track SystemTM, EliminatorTM, Mud BucketTM andLoegeringTM. Despite these protections, it may be possible for competitors or users to copy aspectsof our products.
8

Table of Contents
     We believe that patent and trademark protection is less significant to our competitiveposition than the knowledge, ability and experience of our personnel, product enhancements, newproduct development and our ongoing reputation.**Research and Development**     During the years ended December 31, 2005, 2004 and 2003, we spent approximately $1,721,000,$1,107,000 and $795,000, respectively, on research and development. Our research and developmentexpenses have been incurred in connection with development of new models, enhancements to existingproducts and additional products to be offered through our alliances with Caterpillar and Vermeer.We anticipate our future spending on research and development activities will focus on additionalproduct offerings and additional applications of our track technology and will be approximately0.7% of net sales in 2006.**Insurance**     We maintain product liability insurance as well as a commercial umbrella insurance policy inamounts we believe are adequate. We also maintain key-person life insurance on the lives of Mr.Lemke and Mr. Glasnapp.**Employees**     As of February 28, 2006, we had 264 employees. Our employees include 7 in management, 42 inadministration, 28 in sales and marketing and 187 in manufacturing, engineering and research anddevelopment. We believe relations with our employees are good. None of our employees arerepresented by a labor union. Through June 30, 2005, we reimbursed Caterpillar for thesalary-related costs of one Caterpillar employee that worked at our Grand Rapids facility. Thisindividual became our employee in July 2005, at which point the reimbursement to Caterpillarceased.**Website Access to SEC Reports**     Our internet website can be found at www.asvi.com. We make available free of charge on orthrough our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K, and amendments to those reports filed or furnished to the Securities andExchange Commission (the “SEC”) pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934, as amended, (the “Exchange Act”), as soon as reasonably practicable after electronicallyfiled with, or furnished to, the SEC.**Item 1A. Risk Factors**     Our business faces many risks. Any of the risks discussed below, or elsewhere in this Form10-K or our other SEC filings, could have a material impact on our business, financial condition orresults of operations. Additional risks and uncertainties not presently known to us or that wecurrently believe to be immaterial may also impair our business operations.**Our revenue and business would be harmed if Caterpillar ceased manufacturing and marketing productsthat relate to our Supply Agreement.**     Under the terms of the Supply Agreement we entered into with Caterpillar effective November 1,2005, we agreed to supply Caterpillar with rubber track undercarriages for use on its five-modelline of Caterpillar branded rubber tracked loaders called Multi-Terrain Loaders (“MTL Machines”).The term of the Supply Agreement expires October 31, 2010. The MTL Machines utilize Caterpillar’sskid steer technology and our rubber track undercarriage technology. All five models have beendeveloped and are available to all Caterpillar dealers. The MTL Machines are assembled in Sanford,North Carolina, at Caterpillar’s skid steer loader facility. The undercarriages are manufacturedat our facility in Cohasset, Minnesota.
9

Table of Contents
     The successful manufacturing and marketing of the MTL Machines entail significant risks asdescribed below: **•** The development and introduction of the MTL Machines were scheduled on an aggressivetime table and there exists the possibility that this time table may not have detectedall potential issues regarding the production or function of the machines. Forexample, in 2002, Caterpillar experienced production issues which caused them to stopproduction of the MTL Machines. As a result, we did not ship undercarriages toCaterpillar while the production issues were resolved, resulting in decreased revenueto us. Additional production or other issues may be experienced by Caterpillar or usin the future, which could cause our sales of undercarriages to Caterpillar to decreaseor terminate while the issues are resolved.  **•** The overall market for rubber track machines is relatively new and the benefits ofrubber track machines are not currently widely known. Caterpillar and we believe themarket potential for rubber track machines justifies the necessary investment in theMTL Machines. However, there is no assurance the MTL Machines will attract sufficientdemand to warrant their continued production and produce the returns anticipated by usand Caterpillar. We will be relying significantly on Caterpillar for their continuedinterest in manufacturing and marketing the MTL Machines. In 2005, total sales toCaterpillar accounted for 39% of our net sales. If Caterpillar stopped manufacturingthe MTL Machines, stopped marketing the MTL Machines to its dealers or the Caterpillardealers did not adequately promote the sale of the MTL Machines, our revenue would bedecreased and our business would be harmed.  **•** As part of the Supply Agreement, we may not knowingly sell our undercarriages to anyparty who shall manufacture, or resell an undercarriage to a party who shallmanufacture a machine that substantially competes with the MTL Machines.  **•** While Caterpillar has agreed it will purchase 100% of its requirements forundercarriages, as defined, from us, the Supply Agreement contains no guarantee as tothe quantity of undercarriages or service parts Caterpillar must purchase from us.  **•** The Supply Agreement calls for specified prices for the undercarriages we sell toCaterpillar for the life of the contract, subject to adjustment for mutually agreedadjustments for abnormal cost changes outside of our control for certain costfluctuations. If general raw material prices increase during the term of the SupplyAgreement, or if we are unable to mutually agree on cost changes, the gross profit wemay receive on the sale of undercarriages may be reduced. The Supply Agreement alsocalls for specified prices for the service parts we sell to Caterpillar for the life ofthe contract. Should the prices we pay to manufacture or purchase these service partsincrease during the term of the Supply Agreement, the gross profit we may receive onthe sale of these service parts may be reduced.**Our business could be materially harmed if Caterpillar did not actively support and cooperate withus to provide us with various commercial services.**     As a result of our transactions with Caterpillar, we may rely on commercial services providedby or through Caterpillar for the provision of warranty services as they pertain to the MTLMachines. As a result, we may become dependent upon the cooperation of Caterpillar for theprovision of these services. If Caterpillar were to decide not to actively support and cooperatewith us to provide us with these services, our business could be materially harmed.**Caterpillar has the ability to influence or control us, which could negatively affect othershareholders and could discourage offers by third parties to acquire us.**     As of February 28, 2006, Caterpillar owns approximately 23.2% of the outstanding shares of ourCommon Stock. Accordingly, Caterpillar has the ability to influence our business and operations toa certain extent. In addition to its rights as a shareholder to influence us, under theRegistration Rights Agreement, Caterpillar has the right to designatedirector nominees for election to theBoard of Directors proportionate to its stock ownership interest, which increases Caterpillar’sability to influence us. Currently, one of our nine directors has been designated by Caterpillar,for election to our Boarddespite the fact that Caterpillar would be entitled to designate twodirector nominees, assuming a boardcomprised of nine directors. If Caterpillar were to exercise its right to designate an additionaldirector nominee, based on its current stock ownership interest, we anticipate that, assuming there were novacancies on our board, we would expand the size of our board toaccomodate the additional director nominee designated by Caterpillar.
10

Table of Contents
     Given the significant percentage of the outstanding shares of our Common Stock owned byCaterpillar, third parties also may be discouraged from making an offer to acquire control orownership of us.**If Caterpillar begins selling, or is perceived to be selling, its shares of our Common Stock, themarket price of our Common Stock may fall.**     Asof February 28, 2006, Caterpillar owns approximately 23.2% of the outstanding shares of our Common Stock. Under theRegistration Rights Agreement, so long as the Supply Agreement remains in effect, Caterpillar hasagreed not to sell or dispose of any of its ASV shares prior to January 1, 2009. However, sales byCaterpillar of substantial amounts of our Common Stock, or the perception that such sales couldtake place, could negatively affect the market price of our Common Stock. If this happens, thenstockholders may face difficulty in selling their shares and the price at which they sell theirshares may be reduced.**If we are unable to manage growth effectively, our business, results of operations and financialcondition would be materially adversely affected.**     Our management has had limited experience in managing companies experiencing growth like ours.Further growth and expansion of our business will place additional demands upon our currentmanagement and other resources. We believe that future growth and success depends to a significantextent on our ability to be able to effectively manage our growth in several areas, including, butnot limited to: (1) production facility expansion/construction; (2) entrance to new geographic anduse markets; (3) international sales, service and production; and (4) employee and managementdevelopment. No assurance can be given that our business will grow in the future and that we willbe able to effectively manage such growth. If we are unable to manage growth effectively, ourbusiness, results of operations and financial condition would be materially adversely affected.**A disruption or termination of our relationships with certain suppliers could have a materialadverse effect on our operations.**     Certain of the components included in our products are obtained from a limited number ofsuppliers, including the rubber track component used on our products. Disruption or termination ofsupplier relationships could have a material adverse effect on our operations. We believe thatalternative sources could be obtained, if necessary, but the inability to obtain sufficientquantities of the components or the need to develop alternative sources, if and as required in thefuture, could result in delays or reductions in product shipments which in turn may have an adverseeffect on our operating results and customer relationships.**A number of our competitors have more resources and more established reputations than us. If we donot compete effectively, our business will be harmed.**     Companies whose products compete in the same markets as the Posi-Track have substantially morefinancial, production and other resources than us, as well as established reputations within theindustry and more extensive dealer networks. For 2005, sales of our Posi-Track products accountedfor approximately 46% of our net sales. Also, the growth potential of the markets being pursuedhas attracted more competitors. There can be no assurance that we will be able to competeeffectively in the marketplace or that we will be able to establish a significantly dominantposition in the marketplace before our competitors are able to develop similar products.**If our rubber track vehicles do not continue to receive market acceptance, our operating resultswill be harmed.**     Our success is dependent upon increasing market acceptance of rubber track vehicles in themarkets in which our products compete. Most small to medium sized tractor-type vehicles incompetition with our Posi-Track products are wheeled vehicles and most track-driven vehicles aredesigned for specific limited tasks. The market for rubber track vehicles is relatively new andthere can be no assurance that our products will gain sufficient market acceptance to enable us tosustain profitable operations.
11

Table of Contents
**Our business could be harmed if the Commercial Alliance Agreement with Vermeer Manufacturing Inc.does not prove to be beneficial.**     Under the Vermeer Agreement, we will be the exclusive supplier of rubber track undercarriagesand service parts to Vermeer for use on the Vermeer Machines. We had very limited production ofsome of these undercarriages in the fourth quarter of 2005. The term of the Vermeer Agreement iseight years, with automatic one-year renewal periods unless either party gives the other party atleast six months written notice of termination.     The Vermeer Machines are new to the Vermeer product line and there is no assurance that theywill gain market acceptance. Also, there is no assurance the Vermeer Machines will attractsufficient demand to warrant their continued production and produce the returns anticipated byVermeer. We will be relying significantly on Vermeer for its continued interest in manufacturingand marketing the Vermeer Machines.     We have agreed not to sell our undercarriages for use in direct competition to the VermeerMachines. Our revenue could be impacted if the Vermeer Machines do not gain market acceptance as wewould be unable to supply other manufacturers with undercarriages for equipment that would be indirect competition to the Vermeer Machines.**If we are not able to manage and fully integrate the operations of Loegering Mfg. Inc., ouroperating results will be harmed.**     In October 2004, we acquired all the outstanding Common Stock of Loegering of Casselton, NorthDakota for a combination of cash and shares of our Common Stock. We have not previously beeninvolved in an acquisition of this nature, and there can be no assurance that we will be able tosuccessfully manage and integrate the operations of Loegering.     The process of fully integrating Loegering may be a difficult and time-consuming process. Inparticular, the process of combining sales and marketing forces, consolidating administrativefunctions, and coordinating product offerings can take longer, cost more, and provide fewerbenefits than initially anticipated. Management may face difficulties, delays and costs as itworks to retain customers, to minimize the risk of loss or reduction of customer orders due to thepotential for market confusion, hesitation and delay, to coordinate infrastructure operations in aneffective and efficient manner and to combine certain operations and functions using commoninformation and communication systems, operating procedures, financial controls and human resourcepractices. To the extent any of these events occurs, the benefits of the transaction may bereduced, at least for a period of time.**Our business may be adversely affected if we are unable to successfully develop new products or ifnew products developed are unable to gain market acceptance.**     We intend to increase our market penetration by developing and marketing new rubber-trackedvehicles and other new products. There can be no assurance that we will be able to successfullydevelop new products, or that any new products developed by us will gain market acceptance.     One of the expected benefits of the Loegering acquisition is future sales of its proprietaryVTS product, which we expect to account for a majority of Loegering’s net sales for 2006. If weare unable to achieve our expected sales of the VTS product, or if adequate quantities of rawmaterials to meet the expected demand for this product are not available, the benefits of thetransaction may be reduced or delayed for a period of time. Our business may also be adverselyaffected if the VTS product does not gain market acceptance as quickly as we anticipate or at all.**A cyclical, economic downturn in the construction and farm equipment industries could materiallyharm our business.**     The construction and farm equipment industries, in which our products compete, havehistorically been cyclical. Sales of construction and agricultural equipment are generallyaffected by the level of activity in the construction and agricultural industries, including farmproduction and demand, weather conditions, interest rates and construction levels (especiallyhousing starts). In addition, the demand for our products may be affected by the seasonal natureof the activities in which they are used and by overall economic conditions in general. Therefore,an economic downturn in the
12

Table of Contents
construction and farm equipment industries, which could result in part based upon seasonalfactors, could materially harm our business.**The loss of the services of any key member of our management could have a material adverse effecton our ability to achieve our objectives.**     Our future success depends to a significant extent upon the continued service of certain keypersonnel, including our Chief Executive Officer, Gary Lemke. We have key-person life insurance onthe life of Mr. Lemke, but we do not have an employment agreement with Mr. Lemke. The loss of theservices of any key member of our management could have a material adverse effect on our ability toachieve our objectives.**We may face product liability claims, which could result in losses in excess of our insurancecoverage or in our inability to obtain adequate insurance coverage in the future.**     Like most manufacturing companies, we may be subject to significant claims for productliability and may have difficulty in obtaining product liability insurance or be forced to pay highpremiums. We currently have product liability insurance and have not been subject to materialclaims for product liability. However, there can be no assurance that we will be able to obtainadequate insurance in the future or that our present or future insurance would prove adequate tocover potential product claims.**Our business would be adversely affected if we are not able to protect our intellectual propertyrights or if we get involved in litigation relating to our intellectual property rights.**     We currently hold four patents on certain aspects of the suspension and drive mechanisms usedin certain of our products. We have also filed additional patent applications. There can be noassurance that the patents will be granted or that patents under any future applications will beissued, or that the scope of the current or any future patent will exclude competitors or providecompetitive advantages to us, that any of our patents will be held valid if subsequently challengedor that others will not claim rights in or ownership to the patents and other proprietary rightsheld by us. Furthermore, there can be no assurance that others have not developed or will notdevelop similar products, duplicate any of our products or design around such patents. Litigation,which could result in substantial cost to and diversion of effort by us, may be necessary toenforce patents issued to us, to defend us against claimed infringement of the rights of others orto determine the ownership, scope or validity of our and other’s proprietary rights.**We may be unable to manufacture our products if either of our manufacturing facilities is damaged,destroyed or becomes otherwise inoperable.**     Our products are manufactured exclusively at our manufacturing facilities in Grand Rapids andCohasset, Minnesota and at our Loegering facility in Casselton, North Dakota. In the event thatany of these manufacturing facilities were to be damaged or destroyed or become otherwiseinoperable, we may be unable to manufacture our products for sale until the facility is eitherrepaired or replaced, either of which could take a considerable period of time. Although wemaintain business interruption insurance, there can be no assurance that such insurance wouldadequately compensate us for the losses we would sustain in the event that our manufacturingfacilities were unavailable for any reason.**We are subject to extensive governmental regulations, and compliance with such regulations iscostly.**     Our operations, products and properties are subject to environmental and safety regulations bygovernmental authorities. We may be liable under environmental laws for waste disposal andreleases into the environment. In addition, our products are subject to regulations regardingemissions and other environmental and safety requirements. While we believe that compliance withexisting and proposed environmental and safety regulations will not have a material adverse effecton our financial condition or results of operations, there can be no assurance that futureregulations or the cost of complying with existing regulations will not exceed current estimates.
13

Table of Contents
**Item 1B. Unresolved Staff Comments**          None**Item 2. Properties**     We have manufacturing and office facilities in Grand Rapids, Minnesota and Casselton, NorthDakota, and a manufacturing facility located in Cohasset, Minnesota. Our manufacturing and officefacility located in Grand Rapids consists of approximately 95,000 square feet of production spaceand approximately 10,000 square feet of office space. Our manufacturing and office facility locatedin Casselton, North Dakota consists of approximately 35,000 square feet of production and warehousespace and approximately 6,000 square feet of office space. We acquired the Casselton property inconnection with our acquisition of Loegering in October 2004 from Loegering affiliates.Our Grand Rapids facility had been leased under a 20-year lease from the Grand Rapids EconomicDevelopment Authority. The lease agreement provided for monthly rental payments until January2018, with a balloon payment of approximately $543,000 in December 2006. We had an option topurchase the facility at any time at the present value of the remaining lease payments plus thecurrent purchase price of the land on which the facility was constructed. We exercised this optionin December 2005 with a payment of $1.7 million from available operating cash. The Grand Rapidsfacility has been our primary production and office facility since the original 40,000 square footfacility was first occupied by us in May 1995. The facility was expanded to its present size in1997. We also acquired approximately 10 acres of raw land contiguous to our Grand Rapids facilityin November 2005 for possible future expansion.     Our facility in Cohasset contains approximately 90,000 square feet of manufacturing space,18,000 square feet of office and support space and approximately 8 acres of land. We purchased andoccupied the manufacturing space of this facility in 2004 and have utilized this facility for allour undercarriage production since that time. The facility’s purchase price of $1.2 million wasfunded with available operating cash.     We own a facility contiguous to our Grand Rapids facility consisting of 7 acres of land and a10,000 square foot building. We use this facility for engineering, new product development andresearch and development operations.     We also own a parcel of land located in Grand Rapids, Minnesota consisting of 63 acres and sixbuildings with a total of 47,000 square feet, which we use for research and development testing andadditional warehousing.     We believe that our properties are adequately covered by insurance.**Item 3. Legal Proceedings**          None.**Item 4. Submission of Matters to a Vote of Security Holders**     There were no matters submitted to a vote of security holders during the fourth quarter of thefiscal year covered by this report.
14

Table of Contents
**PART II****Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities****Market Information**     Our Common Stock trades on the Nasdaq Stock Market® under the ticker symbol ASVI. Thefollowing represents the high and low sales price for the periods indicated:         Year Ended December 31, 2005 High  Low First Quarter $24.03  $18.24 Second Quarter  20.73   16.39 Third Quarter  24.69   19.89 Fourth Quarter  27.38   18.50          Year Ended December 31, 2004 High  Low First Quarter $20.75  $13.37 Second Quarter  18.10   14.05 Third Quarter  19.15   14.21 Fourth Quarter  24.89   16.13      The above figures reflect inter-dealer prices, without retail mark-up, mark-down orcommissions, and may not represent actual transactions.**Holders**     As of February 28, 2006, we had 197 holders of record of our Common Stock (not includingbeneficial holders). We believe we have approximately 7,000 beneficial holders of our CommonStock.**Dividends**     We have never declared or paid a cash dividend on our Common Stock. We currently intend toretain earnings for use in the operation and expansion of our business.**Purchases of Equity Securities**     The following table provides information about repurchases by us of our Common Stock duringthe quarter ended December 31, 2005.                           **Total Number of** **Approximate Dollar**          **Shares Purchased** **Value of Shares that**  **Total Number**     **as 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**10/1/05 – 10/31/05  —   —   —   — 11/1/05 – 11/30/05  261  $25.67   —   — 12/1/05 – 12/31/05  —   —   —   — **Total**  261  $25.67   —   —  (1) The total number of shares purchased represents previously owned shares tendered by anoptionholder in payment of the exercise price of a stock option. (2) We do not currently have a stock repurchase program.
15

Table of Contents
**Item 6.Selected Financial Data**                     *(Dollar amounts in thousands,* **Year ended December 31,** *except per share data)* **2005**  **2004**  **2003**  **2002**  **2001**  Net Sales  $245,082  $160,873  $96,387  $44,237  $50,081 Net Earnings   27,898   17,175   8,718   1,353   756 Net Earnings Per Share-Diluted   1.01   .64   .39   .07   .04 Total Assets   183,221   145,275   82,624   57,210   57,941 Long-Term Liabilities   138   1,874   1,845   1,980   2,013 Shareholders’ Equity   158,087   126,071   72,280   50,467   50,571 **Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations****Overview**     We design, manufacture and sell rubber-tracked, all-season vehicles and related accessoriesand attachments. We also manufacture rubber-tracked undercarriages, which are a primary componenton Caterpillar’s MTLs. Our products are able to traverse nearly any terrain with minimal damage tothe ground, making them useful in industries such as construction, landscaping and agriculture. Wedistribute our products through an independent dealer network in the United States, Canada,Australia and New Zealand. The undercarriages sold to Caterpillar are incorporated by Caterpillarin its MTL products and sold exclusively through the Caterpillar dealer network, primarily in NorthAmerica.     We experienced a significant increase in sales for the year ended December 31, 2005 due toseveral reasons as explained below: **•** We believe there is a greater acceptance of rubber track machines in themarketplace as users experience the benefits that a rubber track machine canprovide over a standard wheeled machine.  **•** The number of companies entering into the rubber track machine market hasincreased in the last few years, thereby contributing to the increased awarenessand market acceptance of the products.  **•** We have increased our number of product offerings over the past few yearsthereby making it easier to attract prospective dealers to carry our Posi-Trackproduct line. In addition, the number of dealers selling our Posi-Track productline has increased over the past few years.  **•** The current low interest rate environment has provided for easier financing byend users.  **•** Our results of operations for the year ended December 31, 2005 include sales of$24.3 million from Loegering, compared with $6.8 million for the three months endedDecember 31, 2004. On October 4, 2004, we closed on our acquisition of Loegeringin a merger transaction.  **•** We believe our sales were benefited in 2005 by approximately $5-6 million ofsales to customers in areas of the United States affected by Hurricanes Katrina andRita.**Critical Accounting Policies**     The following discussion and analysis of our financial condition and results of operations isbased upon our consolidated financial statements, which have been prepared in accordance with USGAAP. The preparation of these financial statements requires management to make estimates andjudgments that affect the reported amounts of assets, liabilities and expenses, and relateddisclosures. On an on-going basis, management evaluates its estimates and judgments, includingthose related to accounts receivable, inventories and warranty obligations. By their nature, theseestimates and judgments are subject to an inherent degree of uncertainty. Management bases itsestimates and judgments on historical experience, observance of trends in the industry, informationprovided by customers and other outside sources and on various other factors that are believed tobe reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under different assumptions or conditions.
16

Table of Contents
     Management believes the following critical accounting policies, among others, affect our moresignificant judgments and estimates used in the preparation of our consolidated financialstatements.     *Revenue Recognition and Accounts Receivable.*Revenue is recognized when persuasive evidence ofan arrangement exists, delivery has occurred, the price is fixed or determinable and collectibilityis reasonably assured. We have determined that the time of shipment is the most appropriate pointto recognize revenue as the risk of loss passes to the customer when placed with a carrier fordelivery (*i.e.*, upon shipment). Any post-sale obligations on our part, consisting primarily ofwarranty obligations, are estimated and accrued for at the time of shipment. We obtain verbal orwritten purchase authorizations from customers for a specified amount of product at a specifiedprice and consider delivery to have occurred at the time of shipment. We maintain an allowance fordoubtful accounts for estimated losses resulting from the inability of our customers to makerequired payments. If the financial condition of our customers were to deteriorate, resulting in animpairment 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 onthe first-in, first-out method. Adjustments to slow moving and obsolete inventories to the lower ofcost or market are provided based on historical experience and current product demand. We do notbelieve our inventories are subject to rapid obsolescence. We evaluate the adequacy of theinventories’ carrying value quarterly.     *Warranties.*We provide limited warranties to purchasers of our products which vary by product.The warranties generally cover defects in materials and workmanship for one year from the deliverydate to the first end user. The rubber tracks used on our products carry a pro-rated warranty up to1,500 hours of usage. While we engage in extensive product quality programs and processes,including actively monitoring and evaluating the quality of our component suppliers, our warrantyobligation is affected by product failure rates, material usage and service delivery costs incurredin correcting a product failure. Should actual product failure rates, material usage or servicedelivery costs differ from our estimates, revisions to the estimated warranty liability may berequired.     *Income Taxes*. We record income taxes using an asset and liability approach that requires therecognition of deferred tax assets and liabilities for the expected future tax consequences ofevents that have been recognized in our financial statements or tax returns. A valuation allowanceis established when management determines it is more likely than not that a deferred tax asset isnot realizable in the foreseeable future.     *Stock-Based Compensation.*We account for employee stock-based compensation under the“intrinsic value” method prescribed in APB Opinion No. 25, *Accounting for Stock Issued toEmployees*, and related interpretations, as opposed to the “fair value” method prescribed byStatement of Financial Accounting Standards (SFAS) No. 123, *Accounting for Stock-BasedCompensation*. Pursuant to the provisions of APB 25, we do not record an expense for the value ofstock-based awards granted to employees.     The FASB issued an amendment to SFAS No. 123, *Share-Based Payment*, (SFAS No. 123R), which iseffective for public companies for periods beginning after December 15, 2005. We are required toimplement the proposed standard no later than the quarter that begins January 1, 2006. SFAS No.123R eliminates the ability to account for share-based compensation transactions using APB OpinionNo. 25, and generally would require instead that such transactions be accounted for using afair-value-based method. Companies are required to recognize an expense for compensation costrelated to share-based payment arrangements including stock options and employee stock purchaseplans. We anticipate the effect of adopting this Statement will reduce our diluted earnings pershare by approximately $.08 for the year ended December 31, 2006.
17

Table of Contents
**Results of Operations**     The following table sets forth, for the periods indicated, certain Statements of Earnings dataas a percentage of net sales:               **Year Ended December 31,**  **2005** **2004** **2003**Net sales   100.0%  100.0%  100.0%Gross profit   24.6   22.6   21.3 Selling, general and administrative expense   6.7   6.0   6.4 Research and development   0.7   0.7   0.8 Operating income   17.2   16.0   14.0 Net earnings   11.4   10.7   9.0      The following table sets forth product sales data as a percentage of net sales:               **Year Ended December 31,**  **2005** **2004** **2003**R-Series products   46.3%  47.5%  37.3%OEM Undercarriages   30.5   33.6   48.1 Parts and other   13.3   14.7   14.6 Loegering   9.9   4.2   0.0      *Net Sales*. For the year ended December 31, 2005, net sales increased 52% to $245.1 million,compared with $160.9 million for 2004. This increase was primarily the result of four factors.First, sales of our Posi-Track products increased 45% due to a greater number of Posi-Track dealersin 2005, the addition of one new model, the RCV, which went into production in the second quarterof 2005, and additional sales to the hurricane stricken areas in the United States. The number ofPosi-Track dealers increased 20% in 2005, with the majority of dealers added in North America.Second, sales from Loegering, acquired in October 2004, totaled $24.3 million for 2005, compared to$6.8 million for the three month period in 2004. Third, sales of our undercarriages to Caterpillarfor use on its MTL product line increased 39% for 2005 compared with 2004 due to greater demand forthe MTL products. Finally, sales of service parts and other items increased 48% in 2005 compared to2004 due primarily to the increased population of machines and undercarriages in service thatconsume service parts. We anticipate our net sales for 2006 will be in the range of $300-320million based on our current and projected level of orders for our Posi-Track products andundercarriages and projected future service parts demand.     Net sales for the year ended December 31, 2004 increased 67% to $160.9 million, compared with$96.4 million for 2003. This increase was primarily the result of four factors. First, sales ofour Posi-Track products increased 112% in 2004, due to the addition of two new models in January2004, a greater number of Posi-Track dealers in 2004 and a full year of sales of the RC-100 in2004, which was introduced in the first quarter of 2003. Second, sales of MTL undercarriagesincreased 17% in 2004, due to three models of undercarriages being sold for the first nine monthsof 2004 and increased market demand. In 2003, one undercarriage model was added during the firstquarter and, as such, had sales for only a portion of 2003. Third, sales of service parts morethan doubled in 2004 due to a greater number of machines and undercarriages in service. Finally,net sales included $6.8 million of sales from Loegering, which was acquired in October 2004.     *Gross Profit.*Gross profit for the year ended December 31, 2005 increased to $60.3 million,compared with $36.4 million for 2004, and the gross profit percentage increased from 22.6% in 2004to 24.6% in 2005. The increase in gross profit was due primarily to the increased sales weexperienced during 2005 as discussed above. The increase in gross profit percentage was due toseveral offsetting factors. First, we believe the 3% list price increase that was put in place forall Posi-Track machines ordered after February 15, 2005 contributed to the increase in gross profitpercentage for 2005. Second, we believe our gross profit percentage increased from a change in thesales mix for 2005. We experienced a greater concentration of sales of higher priced machines,primarily the RCV and the RC-100, in 2005 as compared to 2004. In addition, more of these machineswere sold with additional accessories, such as cabs and air conditioning, in 2005 as compared to2004. Both of these factors increased our gross profit percentage, as these machines andaccessories carry a greater than average gross profit percentage. Also contributing to the increasein 2005 was the increase in the sale of service parts, which generally carry a higher gross profitpercentage than machines. In addition, the inclusion of Loegering’s sales for the entire 2005fiscal year helped increase the overall gross profit percentage as Loegering’s products carry ahigher gross profit percentage, on average, when compared with our products. Third, we
18

Table of Contents
believe operational efficiencies obtained from higher production volumes helped increase thegross profit percentage in 2005. Offsetting these increases were planned decreases in the sellingprice (and ultimately the gross profit percentage) of undercarriages to Caterpillar on January 1,2005 for two of the three undercarriage models sold to Caterpillar and service parts as of November1, 2005. Finally, gross profit percentage was also negatively affected by steel surcharges of $5.6million in 2005, compared with $2.4 million in 2004. Due to the price changes contained in theSupply Agreement with Caterpillar and based on the anticipated sales mix for 2006, we anticipateour gross profit percentage for 2006 will be in the range of 23.3-23.6%.     For the year ended December 31, 2004, gross profit increased to $36.4 million, compared with$20.5 million for 2003, and the gross profit percentage increased from 21.3% in 2003 to 22.6% in2004. The increase in gross profit was due primarily to the increased sales experienced during2004 as discussed above. The increase in gross profit percentage was due primarily to a shift inthe mix of products sold in 2004 as we had increased sales of Posi-Track products in 2004 over2003. Posi-Track products generally carry a higher gross profit percentage than MTLundercarriages. We also believe our raw material unit cost reduction project initiated in the firstquarter of 2004 as well as operational efficiencies obtained from higher production volumes helpedincrease the gross profit percentage in 2004. Offsetting these increases were steel surcharges ofapproximately $2.4 million in 2004. We experienced no steel surcharges in 2003.     *Selling, General and Administrative Expenses.*Selling, general and administrative expensesincreased to $16.5 million, or 6.7% of net sales, compared with $9.6 million, or 6.0% of net sales,for 2004. The increase was due primarily to the inclusion of Loegering, which does not yetexperience the same degree of leverage as we do. Loegering’s selling, general and administrativeexpenses totaled $4.6 million for 2005, compared with $842,000 for the three months Loegering’soperations were included with ours for 2004. In addition, selling, general and administrativeexpenses increased due to increase sales commissions from the increased sales of our Posi-Trackproducts of approximately $1.4 million, increased advertising and promotion costs to promote thetechnology benefits of our products of approximately $661,000 and the overall increase in thevolume of our business.     For the year ended December 31, 2004, selling, general and administrative expenses increasedto $9.6 million, or 6.0% of net sales, compared with $6.2 million, or 6.4% of net sales, for 2003.The increase in expenses was due primarily to increased advertising and promotion to promote thetechnology benefits of our products, increased sales commissions from increased sales of ourPosi-Track products, costs related to the acquisition of Loegering, initial compliance costsrelated to Sarbanes-Oxley implementation and the overall increase in the volume of our business.     *Research and Development.*Research and development expenses increased from $1.1 million in2004 to $1.7 million in 2005. The increase was due to the on-going development of new products(namely the SR-70 and SR-80) and additional applications of our track technology (such asundercarriages for the Vermeer Machines). We also developed a smaller version of the Loegering VTSproduct, which went into production in the third quarter of 2005. We anticipate our future spendingon research and development activities will focus on additional product offerings and additionalapplications of our track technology and will be approximately 0.7% of net sales in 2006.     For the year ended December 31, 2004, research and development expenses increased to $1.1million, compared with $795,000 for 2003. The increase was due primarily to the on-goingdevelopment of new products, including the RCV, which was introduced in January 2005.     *Other Income (Expense).*Other income (expense) was $1.7 million for the year ended December31, 2005, compared with $737,000 for 2004. This increase was due primarily to greater fundsavailable for investment and increased short-term interest rates in 2005. Funds increased in 2005due to proceeds received from the exercise of employee stock options and net earnings generated in2005 and 2004. In addition, Loegering sold the intellectual property and the tangible personalproperty related to its snowblower product line to Caterpillar in 2005 for $350,000, resulting in again of $325,000.     For the year ended December 31, 2004, other income was $737,000, compared with $49,000 for2003. This increase was due primarily to increased interest income from greater funds available forinvestment in 2004. Funds increased in 2004 due to proceeds received from the sale of Common Stockto Caterpillar in January 2004, proceeds received from the exercise of employee stock options andnet earnings generated in 2004 and 2003.
19

Table of Contents
     *Net Earnings.*Net earnings were $27.9 million for the year ended December 31, 2005, comparedwith $17.2 million for the year ended December 31, 2004. The increase was primarily a result ofincreased sales with an increased gross profit percentage and increased non-operating income,offset in part by increased operating expenses and a higher effective income tax rate. Weanticipate our diluted earnings per share for 2006, before the effect of adopting SFAS No. 123R,*Accounting for Stock-Based Compensation*, will be in the range of $1.14-$1.23 based on ouranticipated sales, gross profit and expense levels for 2006. The impact on diluted earnings pershare for the expensing of stock options and other compensation expenses related to this adoptionis anticipated to be $.08 per share for 2006.     For the year ended December 31, 2004, net earnings were $17.2 million, compared with $8.7million for 2003. The increase was primarily a result of increased sales with an increased grossprofit percentage, offset in part by increased operating expenses. We also realized a slightlylower effective income tax rate in 2004 due to increased international sales and increased taxcredits from increased research and development expenditures in 2004.**Liquidity and Capital Resources**     For the year ended December 31, 2005, we generated $8.1 million of cash and cash equivalentscompared with generating $35,000 of cash and cash equivalents for the year ended December 31, 2004.During 2005, we generated $12.7 million of cash from operations, as increased profitability andincreased payables were offset primarily by increased accounts receivables from increased sales andincreased raw materials to facilitate expected future production levels and parts sales. We used$5.3 million of cash in investing activities during 2005, as we invested $11.9 million to purchaseproperty and equipment, the majority of which is integral to the manufacturing of certain inventorycomponents. We also purchased $3.3 million of short-term and long-term investments in 2005. Thiscash use was partially offset by the redemption of certain short-term investments. In 2005, wechose to eliminate the use of auction-rate securities from our investment portfolio, which wereclassified as short-term investments, and replaced them with short-term tax-exempt investments,which are classified as cash equivalents. Financing activities generated $694,000 of cash from theexercise of stock options by employees and directors, offset by payments made on long-termliabilities in 2005. In December 2005, we exercised our purchase option on the capital lease forour Grand Rapids manufacturing facility with a payment of $1.7 million from available cash.**Table of Contractual Commitments**     The following table represents our contractual obligations at December 31, 2005:                       Payments due by period (000’s omitted) Contractual Obligations Total  Less than 1 year  1-3 years  3-5 years  More than 5 years Long-Term Debt $116  $40  $76  $—  $— Capital Lease Obligations  93   31   62   —   — Operating Leases  216   54   146   16   — Purchase Obligations  97,300   96,884   416   —   — Financing Guarantee  35   35   —   —   —    Total $97,760  $97,044  $700  $16  $—         Purchase obligations represent the total value of all open purchase orders for the purchase ofraw materials and components used in the manufacture of our products as of December 31, 2005. Ourfinancing guarantee is described in Note J to the financial statements filed in connection withthis Annual Report on Form 10-K.**Caterpillar Revenue Recognition/Gross Profit**     Through October 31, 2005, we sold our undercarriages and service parts to Caterpillar underthe terms of the Alliance Agreement. The Alliance Agreement has been replaced, effective November1, 2005, with a Supply Agreement as described below.     Through October 31, 2005, we recognized as sales our cost for the MTL undercarriages, asdefined in the Alliance Agreement between us and Caterpillar, plus a portion of the anticipatedgross profit that Caterpillar expected to recognize upon sale of the MTLs to Caterpillar dealers,when we shipped undercarriages to Caterpillar. The gross profit percentage that we received fortwo of the three undercarriages sold to Caterpillar was reduced by 33% on January 1,
20

Table of Contents
2005. The gross profit percentage for the third undercarriage sold to Caterpillar was scheduled tobe reduced by 33% effective January 1, 2006, had the Alliance Agreement been extended into 2006.**Caterpillar Supply Agreement**     On September 29, 2005 we signed a five-year Supply Agreement with Caterpillar, effectiveNovember 1, 2005. The Supply Agreement replaces the Alliance Agreement, which expired October 31,2005. The key terms of the Supply Agreement are as follows:     **Scope:** **•** Consistent with the original Alliance Agreement, Caterpillar will purchase from us100% of its undercarriage requirements for current and specified future CaterpillarMTLs, as defined.  **•** If Caterpillar chooses to manufacture MTLs outside North America for non-NorthAmerican markets, Caterpillar will purchase from us 100% of its undercarriagerequirements for these MTLs, provided we meet the Capacity Requirements and the LocalRequirements, as defined, for the applicable geographic area.  **•** Should we choose not to supply undercarriages to Caterpillar for these non-NorthAmerican sales, we would grant a royalty-bearing license to Caterpillar to use ourintellectual property to manufacture undercarriages for use on MTLs manufacturedoutside North America for the non-North American markets.  **•** Caterpillar will continue to purchase 100% of its requirements for proprietaryoriginal equipment manufacturer aftermarket service parts from us.  **•** We will continue to be allowed to sell our rubber track undercarriages to otherequipment manufacturers for machines that do not compete with Caterpillar’sMulti-Terrain Loaders.  **•** We will continue to utilize Caterpillar components in the manufacture of our products.     **Pricing:** **•** There was no change to the current MTL undercarriage pricing through December 31, 2005.  **•** Starting in 2006, we expect to earn gross profit percentages on the sale of ourundercarriages similar to those expected, had the original Alliance Agreement withCaterpillar been extended to 2006.  **•** With the expected increased volume of service parts, we have agreed to accept alower gross margin on the sale of those service parts, effective November 1, 2005.  **•** We anticipate the impact of the new Supply Agreement may reduce our overall grossprofit percentage for 2006 between zero and two percentage points.     **Term:** **•** The Supply Agreement will commence on November 1, 2005 and will continue throughNovember 1, 2010.  **•** The Supply Agreement will automatically renew for successive one-year renewal termsunless either party provides at least six months prior written notice of termination.     Along with the new Supply Agreement, Caterpillar entered into a Registration Rights Agreementwith us that provides Caterpillar registration rights forunregistered shares of our Common Stockit currently holds. However, so long as the Supply Agreement remains in effect, Caterpillar hasagreed not to sell or dispose of any of its ASV shares prior to January 1, 2009.**Vermeer Commercial Alliance Agreement**     On September 23, 2005, we entered into the Vermeer Agreement with Vermeer. Under the VermeerAgreement, we will be the exclusive supplier of rubber track undercarriages and service parts toVermeer for use on select products in Vermeer’s line of horizontal directional drills, utilitytrenchers and other products. The term of the Vermeer Agreement is eight years, with automaticone-year renewal periods unless either party gives the other party at least six months writtennotice of termination.
21

Table of Contents
**Customer Note Receivable**     Included in accounts receivable and other non-current assets at December 31, 2005 is a notereceivable for $724,000 from a customer. The note bears interest at 6% and is due in monthlyinstallments through January 2009. As of February 28, 2006, the customer is current on the amountowed us under this note.**Off-Balance Sheet Arrangements**     We have guaranteed the repayment of a note made by a customer to a non-affiliated financecompany for payment of amounts owed to us by this customer. To determine the value of thefinancing guarantee, the lending institution provided us with the cost of the financing both withand without the guarantee. This differential was used to determine the amount of the financingguarantee of $35,000. This amount was recorded as a reduction of net sales for the year endedDecember 31, 2003, when the note and guarantee were entered into. A similar amount has beenincluded in other accrued liabilities since December 31, 2003. The balance of this note atDecember 31, 2005 was $309,000. As of February 28, 2006, the customer is current on the amountsowed to the finance company under this note.**Relationship with Finance Companies**     In October 2005, we announced we had entered into an agreement with CIT to form ASV Capital, aprivate label finance program to offer wholesale and retail financing options on the sale of ourPosi-Track products. Representatives of ASV and CIT will make joint credit decisions, with CITretaining the risk of the credit portfolio. We have no ownership in ASV Capital and have no sharein the profit or loss of ASV Capital. We have also affiliated ourselves with one other financecompany that finances the sale of our products.     By using these finance companies, we receive payment for our products shortly after theirshipment. We pay a portion of the interest cost associated with financing these shipments thatwould normally be paid by the customer, over a period generally ranging from three to twelvemonths, depending on the amount of down payment made by the customer. We are also providingtwelve-month terms for one machine to be used for demonstration purposes for each qualifyingdealer. In addition, we offer, from time to time, extended term financing on the sale of certainproducts to our dealers for periods ranging from 90 days to two years.**New Accounting Pronouncements**     *SFAS 123 (Revised 2004) Share-Based Payment*. This revision to Statement No. 123, *Accountingfor Stock-Based Compensation*, requires the fair value from all share-based payment transactions berecognized in the financial statements. SFAS 123 (Revised 2004) establishes fair value as themeasurement objective in accounting for share-based payment arrangements and requires all entitiesto apply a fair-value-based measurement method in accounting for share-based payment transactionswith employees, except for equity instruments held by employee share ownership plans. ThisStatement is effective for us beginning January 1, 2006. We anticipate the effect of adopting thisStatement will reduce our diluted earnings per share by approximately $.08 for the year endedDecember 31, 2006.     *SFAS 151 Inventory Costs*. This Statement requires the accounting for idle facility expense,freight, handling costs and wasted material be recognized as current period charges. This Statementalso requires that allocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This Statement is effective for us beginningJanuary 1, 2006. Management does not believe the adoption of this pronouncement will have amaterial effect on us.**Stock Split**     On August 25, 2005, we completed a two-for-one stock split. All share data information hasbeen restated to reflect the stock split.**Cash Requirements**     We believe cash expected to be generated from operations and our existing cash, cashequivalents and investments will satisfy our projected working capital needs and other cashrequirements for the next twelve months and
22

Table of Contents
the foreseeable future.**Forward-Looking Statements**     The statements set forth above under “Results of Operations” and elsewhere in this AnnualReport on Form 10-K regarding the effect of new accounting pronouncements, our future sales levels,our sales to Caterpillar, gross profit percentage, earnings per share, new product availability,product mix, profitability, expense levels and liquidity are forward-looking statements based oncurrent expectations and assumptions, and entail various risks and uncertainties that could causeactual results to differ materially from those expressed in such forward-looking statements.Certain factors may affect whether these anticipated events occur, including our ability tosuccessfully manufacture our machines and undercarriages, unanticipated delays, costs or otherdifficulties in the manufacture of the machines and undercarriages, unanticipated problems ordelays experienced by Caterpillar or Vermeer relating to the manufacturing or marketing of theirmachines, market acceptance of the machines, deterioration of the general market and economicconditions, corporate developments at ASV, Caterpillar or Vermeer, our ability to realize theanticipated benefits from our relationships with Caterpillar and Vermeer and the other factorsdescribed in Item 1A. “Risk Factors”. Any forward-looking statements provided from time-to-time byus represent only management’s then-best current estimate of future results or trends.**Item 7A. Quantitative and Qualitative Disclosures About Market Risk**     We have no history of investing in derivative financial instruments, derivative commodityinstruments or other such financial instruments, and do not anticipate making such investments inthe future. Transactions with international customers are entered into in U.S. dollars, precludingthe need for foreign currency hedges. Additionally, we invest in money market funds and fixed rateU.S. government and corporate obligations, which experience minimal volatility. Thus, the exposureto market risk is not material.**Item 8. Financial Statements and Supplementary Data**     **Financial Statements**     The following financial statements are attached as a separate section on pages F-1 throughF-15 following the signature page to this Annual Report on Form 10-K:Consolidated Balance Sheets as of December 31, 2005 and 2004