ASV, Inc. History

Address:

840 Lily Lane
Grand Rapids, Minnesota 55744
U.S.A.

Telephone: (218) 327-3434
Toll Free: 800-346-5954
Fax: (218) 327-9122

Public Company
Incorporated: 1983
Employees: 151
Sales: $96.38 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: ASVI
NAIC: 333120 Construction Machinery Manufacturing

Company Perspectives:

ASV's patented rubber track undercarriage technology is unique and leads a rapidly growing industry of rubber track loaders. Rubber track loaders are widely used within industries such as construction, utility, landscaping, agriculture and the military. ASV's undercarriage technology gives users a unique combination of benefits. It offers mobility superior to traditional rubber tire vehicles, plus flotation and traction surpassing that of steel track machines. The result is a highly versatile work platform that can effectively operate in virtually any environment .

Key Dates:

1983:: ASV is founded and begins development of the Track Truck.
1990:: ASV introduces the Posi-Track.
1994:: ASV completes its initial public offering of stock.
1995:: ASV moves into a 40,000-square-foot manufacturing facility in Grand Rapids, Minnesota.
1998:: Caterpillar Inc., intrigued by ASV's Maximum Traction and Support System, forms an alliance with ASV.
2000:: ASV introduces its R-Series product line.
2004:: Caterpillar increases its stake in ASV to 24.9 percent.

Company History:

ASV, Inc., is a designer and manufacturer of track-driven vehicles renowned for their ability to traverse a variety of surface conditions while exerting minimal pressure on the ground. All of the company's vehicles use a rubber track suspension system that provides traction on soft, wet, slippery, rough, or hilly terrain. ASV's product lines comprise the R-Series Posi-Track group of vehicles and the Multi-Terrain Loader undercarriage systems it produces through a partnership with Caterpillar Inc. The company conducts its manufacturing activities at a 100,000-square-foot facility in Grand Rapids, Minnesota. The vehicles are sold through Caterpillar's distribution network, which includes dealerships in more than 200 countries. Caterpillar Inc. owns 24.9 percent of ASV.

Origins

Two years of little snowfall forced ASV's founders, Edgar Hetteen and Gary Lemke, to find new occupations. Their livelihoods depended on snowfall: Hetteen, often referred to as the "grandfather of snowmobiles," had founded two companies that pioneered snowmobiles, Arctic Cat and Polaris Industries; Lemke, starting with a small shop in 1968, built one of the largest Arctic Cat dealerships in the country. When high interest rates in the early 1980s exacerbated the financial damage of two winters with only a trace of snow, the pair found themselves insolvent. Lemke's snowmobile dealership in Grand Rapids, Minnesota, foundered, declaring bankruptcy and leaving its owner in debt. Arctic Cat, meanwhile, was in Chapter 11 proceedings. The company would recover, but its collapse in the early 1980s stripped Hetteen of his personal fortune.

Hetteen and Lemke were without money, but they had an idea, one that offered to free them from the caprice of winter weather. Hetteen's feats as a mechanic were legendary to those involved in winter recreation, expressed in the founding of Polaris Industries in 1945 and Arctic Cat in 1961. Lemke, too, was well versed in mechanics, having opened a small shop in 1980 called Marcell Manufacturing that built snow-grooming equipment and an assortment of other small machines used in the construction and snow industries. When his dealership went under at the beginning of the 1980s, Lemke was working on an innovative piece of machinery that both he and Hetteen believed had broad commercial potential. Lemke's sketches of his invention revealed a unique all-season vehicle whose design represented a cross between a snowmobile and a tractor. The vehicle, dubbed the Track Truck, was the size of a small pick-up with rubber tracks that distributed the machine's weight extremely well, enabling the nearly 6,000-pound vehicle to move across a variety of surfaces leaving less of an impression than a human foot. Designed as such, the Track Truck's rubber track system, using rubber wheels and tracks, offered the traction, stability, and low ground pressure needed to operate on soft, wet, muddy, rough, boggy, slippery, snowy, or hilly terrain. Unlike traditional steel tracks, the rubber track system did not cause damage to the surface it operated on, making it particularly useful for groomed, landscaped, and paved surfaces.

Armed with the idea of the Track Truck, but no money to finance its construction, Lemke and Hetteen turned to their friends and neighbors in Marcell, Minnesota, 30 miles north of Grand Rapids. The pair made a presentation to a group of invited guests and, within a short time, succeeded in raising $70,000 from 10 investors. With the start-up capital, Hetteen and Lemke set up shop in a long and narrow tin building in Marcell and began building their first Track Truck. ASV, an acronym for All Season Vehicle, was incorporated in July 1983.

The Track Truck offered several advantages over other track-driven vehicles on the market. ASV's vehicle was smaller and more maneuverable than its competition and it was less expensive, selling for roughly $50,000 rather than the more than $80,000 charged by manufacturers of similar track-driven vehicles. The Track Truck also featured front wheels, which stabilized it on steep grades, and it came equipped with a steering wheel rather than the levers employed by all other track-driven vehicles. Financially, the company was aided greatly by receiving a $100,000 low-interest, economic-development loan from the state of Minnesota, which buoyed manufacturing activity in ASV's tin building, but its principal problem during the 1980s was the Track Truck itself. The vehicle performed admirably, but it suffered from exposure to a limited market. The product only found a receptive audience among those involved in grooming snowmobile and cross-country skiing trails, still leaving Lemke and Hetteen confined to the world of winter recreation. The founders listened to their customers who asked for a more versatile machine and responded with a new product. Although money was scarce, with their research and development coffers empty, Lemke and Hetteen came up with a new product in the late 1980s. The new ASV vehicle, the Posi-Track, was introduced in 1990 and quickly became the driving force of the company, achieving everything the Track Truck had promised to achieve.

The Posi-Track Lends Stability in the 1990s

The Posi-Track Model MD-70 realized Lemke's vision of a multi-use vehicle that would revolutionize the equipment market. Equipped with a rubber track system, the Posi-Track, retailing for $34,000, performed the tasks of small steel-track bulldozers. Unlike the Track Truck, the Posi-Track featured a quick-attach mechanism and three-point hitch. By securing attachments to the hitch, the Posi-Track took on the capabilities of a number of different pieces of equipment, performing the tasks of a mower, a brush cutter, an augur, a backhoe, a snow remover, a plow, and more. The Posi-Track, once outfitted with a remote control unit, was used in the Middle East to disarm bomb-laden tracks. Because its ground pressure was only 1.5 pounds per square inch, the 5,800-pound Posi-Track was virtually weightless, allowing Cargill Inc. to use the machine on its ships to move up and over grain piles. E. & J. Gallo Winery and other California vineyards used the Posi-Track to work between rows of vines, choosing the vehicle because its weight distribution did not compact the soil or create ruts. The applications for the Posi-Track seemed endless, finding customers involved in a variety of markets, including construction, agricultural, landscaping, and wildlife management. "The world is basically our market potential," Hetteen exclaimed in a February 1995 interview with Corporate Report--Minnesota.

As the acceptance of the Posi-Track increased, so did the ambitions of ASV's leaders. A dealer network comprising independent construction and farm equipment retailers brought the company in contact with potential customers from California to Maine. By 1994, the company's annual sales reached $5 million, virtually all derived from the sale of Posi-Tracks. At this point, Lemke and Hetteen acted upon the need to expand their company. ASV had outgrown its long and narrow confines in Marcell. In August 1994, they completed the company's initial public offering (IPO) of stock, giving its 10 investors, all of whom would become millionaires, a chance to recoup their investments. The IPO gave ASV $3.3 million in net proceeds, enabling it to reduce its debt, purchase inventory and equipment, and relocate its operations to Grand Rapids. In May 1995, ASV moved into its new offices in Grand Rapids, where it quickly put to use 40,000 square feet of manufacturing space.

Growth came quickly following the move to Grand Rapids, making ASV one of the fastest-growing companies in the United States. After only a year at its new manufacturing facility, the company needed substantially more space. The approval for a financing package for the expansion was received in late 1996, enabling the company to increase the size of its manufacturing facility from 40,000 square feet to 100,000 square feet. The expansion was completed in September 1997. Shortly before occupying its much larger quarters, ASV introduced the Posi-Track HD 4500 series, which was larger and equipped with more features than the MD-70 model. In October 1997, four months after the introduction of the HD 4500, the company introduced the HD 125 (later renamed the DX 4530), the largest of all Posi-Track models produced.

ASV's abilities to offer new models, new technologies, and new features had greatly increased by the late 1990s. Research and development capital, which had been once only a dream, was available to the company in increasing abundance, a product of its success that allowed it to expand and improve its product line. In 1994, ASV spent $30,000 on research and development. By 1997, the company's research and development budget had increased to more than $200,000, enabling it to introduce the HD 4500 and the DX 4530 and, of great significance, to introduce the Maximum Traction and Support System undercarriage in 1997. The new technology, which received a patent in 2001, offered improved traction, power, and reliability and further lessened ground pressure, but most important to ASV's future, the undercarriage system attracted the attention of Caterpillar Inc., the largest manufacturer of construction equipment in the world.

ASV and Caterpillar Form an Alliance in 1998

The interest of officials at Caterpillar in the Maximum Traction and Support System led to an alliance of considerable benefit to ASV. In October 1998, the details of the agreement were revealed. ASV sold 8.7 percent of its stock to Caterpillar for $18 million and gave it the option to purchase a controlling interest in the company within the ensuing decade. Caterpillar, at the time of the announcement, had recently diversified into lighter machinery, making the investment in ASV a good strategic fit for further expansion into the market segment. ASV, for its part, saw its dealer network expand exponentially. In exchange for Caterpillar's stake in the company, ASV gained access to Caterpillar's vast, global dealer network, which comprised 195 dealers in roughly 200 countries. In the United States alone, Caterpillar had 64 dealers, representing 400 separate locations. "It's just an immediate access to all the things that Caterpillar has," Lemke remarked in an October 15, 1998, interview in Knight Ridder/Tribune Business News.

ASV and Caterpillar officially began what promised to be a lasting relationship at the end of January 1999, when the alliance was approved by ASV's shareholders. Caterpillar increased its ownership of ASV to approximately 15 percent in October 2000, a transaction that involved the two companies increasing their commitments to each other. Under the terms of the agreement, the companies agreed to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders, or MTLs. The product offering, which was expected to included five new models, incorporated Caterpillar's patented skid steer loader technology and ASV's soon-to-be patented Maximum Traction and Support System undercarriage. ASV began manufacturing the undercarriage for two MTL models in mid-2001. The beginning of the new decade also saw ASV introduce its own new product line, the R-Series, which debuted with the RC-30 All Surface Loader in the summer of 2000. The RC-30, a compact, ATV-sized vehicle, allowed users to dig, haul, and lift on a scale eclipsing that of larger tractors and skid-steers.

As ASV neared its 20th anniversary, its innovative work was bearing fruit from every branch. Annual sales increased from $43.8 million in 2000 to $96.3 million in 2003. The company's net earnings swelled from $1.4 million in 2000 to $8.7 million. The company's business, which had depended on the Posi-track for 98 percent of its sales in the late 1990s, had diversified, with the introduction of MTLs and the R-Series reducing its reliance on a single product line. The family of R-Series vehicles grew during the early years of the decade, springing from research and development spending that reached $2.6 million in 2003. In early 2003, the company introduced three new models, the RC-30 Turf Edition and the RC-50 Turf Edition, both designed to have minimal impact on grass, and the RC-100, the largest model in the product line. In January 2004, the RC-60 and RC-85 were introduced, adding two new models that ranged in between the 2,935-pound RC-30 and the 9,200-pound RC-100.

As ASV moved passed its 20th anniversary, the company exuded admirable strength. Its commitment to research and development promised to deliver additional innovative vehicles to markets that had come to realize the benefits of rubber track suspension systems. Lemke's pioneering work in the 1980s, coupled with the technological advances achieved by ASV engineers in later years, created what many believed was a superior type of all-season, all-terrain vehicle. The company's electric growth during the late 1990s and early 21st century, which saw annual sales increase from $12 million in 1996 to $96 million in 2003, provided encouragement that ASV's future would bring robust growth. To prepare for the expected surge in demand for its products, the company purchased a vacant manufacturing facility in early 2004. Located in Cohasset, Minnesota, six miles from its existing production facility, the 108,000-square-foot complex was expected to be put use by the end of 2004.

Principal Subsidiaries: ASV Distribution, Inc.

Principal Competitors: Ingersoll-Rand Company Ltd.; Komatsu Ltd.; CNH Global N.V.; Deere & Company.

ASV, Inc. History

Company Perspectives:

Key Dates:

Company History:

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