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ASV leads all rubber-tracked, all-purpose crawlers in technology and innovation. ASV is dedicated to quality, reliability and total customer satisfaction.
ASV, Inc. designs, builds, and markets the Posi-Track, an all-season, rubber-tracked, work vehicle notable for its versatility. The crawler, which exerts a low level of ground pressure, is marketed primarily to the construction, agriculture, and landscaping industries and performs the functions of skid-steer loaders, small dozers, and small tractors. Rapidly growing demand led to a 1998 agreement with Caterpillar, Inc., which gave ASV access to vast financial resources and a worldwide distribution network.
Off the Beaten Trail: 1950s-80s
Sparsely populated northern Minnesota provided the perfect proving ground for off-road vehicle industries beginning in the 1950s. Edgar Hetteen founded two of the snowmobile industry's largest companies, first Polaris Industries Inc. and later Arctic Enterprises. Gary D. Lemke, in turn, built one of the country's largest Arctic Cat dealerships, in Grand Rapids, Minnesota. But a shortage of snow, high interest rates, and foreign competition sideswiped the seasonal industry in the early 1980s. Arctic Cat filed for chapter 11 reorganization, and Lemke's dealership went under.
Hetteen and Lemke, who were friends as well as fellow veterans of the highs and lows of the snowmobile industry, decided to use their combined expertise to build a year-round work vehicle using snowmobile-like track technology. Lemke had begun selling a winter-only, Swedish-built vehicle sporting a full-length metal track, but found customers wanted something that would give them a wider range of use, something that did less damage to ground and paved surfaces.
Since neither of the men could fund the endeavor, Lemke asked his friends and neighbors on North Star Lake in Marcell, Minnesota, to back the concept, which was still in design form. Lemke and Hetteen's salesmanship raised $70,000 from seven local investors. Included among them was Twin Cities real estate magnate Philip Smaby, who owned a cabin in the area and had purchased one of Lemke's first snowmobiles. Many of the other investors had retired to the area, which was blessed with hundreds of lakes.
In 1983, Lemke and Hetteen established All Seasons Vehicles, Inc. (ASV) in Marcell. The village was located about 200 miles north of the Twin Cities or around 30 miles from Grand Rapids, on the edge of Minnesota's iron mining region. 'The only evidence ASV even existed was its one tin building stuck in the sand by the only road through Marcell. When it rained, the parking lot was a muddy stew; when it froze, a jagged, rutted mess. To make it all work under those conditions, Hetteen told Corporate Report Minnesota in 1999, `You have to be a little naive.'
The local investors stopped by regularly to check on the progress. When the first unit rolled out for a test drive, one of them went along for the ride. Seventeen additional investors signed on once the prototype was completed. All Season Vehicles sold the second unit off the line to the State of Minnesota's Department of Natural Resources (DNR) for cross-country ski trail grooming.
The Track Truck, more versatile than full-length metal track vehicles, could maneuver through snow, sand, brush, swamps, and bogs. The patented steering system allowed the driver to separately control the dual rubber tracks located under the rear three-quarters of the small truck. The front end could be equipped with either wheels or skis. By October 1985, the company employed 15 people and was selling Track Trucks to companies, government agencies, and individuals for search and rescue missions and worker transport, as well as for farm and recreation purposes. Nine U.S. distributors carried the $16,000 vehicle.
A couple years later, Lemke and Hetteen discovered customers had been adapting the Track Truck for unintended purposes, like bolting on attachments to create a snowblower or plow. Picking up the cue, the men began working on a second vehicle, one with more flexibility than the Track Truck.
On Track with a New Product: Late 1980s to Early 1990s
In 1988, ASV presented a prototype to trade shows. The vehicle's undercarriage support system stood out from tractors, dozers, and skid-steers and quickly garnered interest. ASV's new product weighed in at 5,800 pounds but exerted ground pressure of just 1.5 pounds per square foot, about the same as a child.
A lengthy research and development stage was out of the question--just meeting weekly payroll had been known to cause some tense moments. Lemke and Hetteen decided to sell the fully tracked machine to a hand-picked group of customers who would be willing to test the product on the job. (The field testing would ultimately lead to the development of ASV's patent-pending Maximum Traction and Support System undercarriage.)
ASV's new offering, the Posi-Track, produced sales of $223,000 in 1991. The company's first product, the Track Truck, brought in $750,000 that year and served primarily as a utility vehicle and trail groomer. The Posi-Track, on the other hand, was built to carry a wide range of attachments and targeted the landscaping, construction, and agricultural industries. Looking much like a small front-end loader on rubber tracks, the Posi-Track could traverse wet, steep, fragile, or rough terrain.
By 1993, the Posi-Track had nearly overtaken the Track Truck in sales, and its strong showing encouraged Lemke and Hetteen to take the 30-employee company public. ASV netted $3.4 million in the August 1994 initial public offering (IPO) of 1.2 million shares at $3.25 per share. ASV planned to use part of the money raised for debt retirement and part for working capital. Two Iron Range economic development organizations funded the construction of a 42,000-square-foot manufacturing facility in Grand Rapids. The new facility, opened in 1995, tripled the company's available production space and allowed ASV to bring some processes, previously outsourced, in-house.
The $34,000 Posi-Track's closest competitor, the well-known Bobcat skid-steer, held 50 percent of its market. JI Case followed behind with a 20 percent market share. The multipurpose Posi-Track, however, was unique. 'They're kind of out there with a totally new product and normally those things don't sell in large numbers overnight. But I think [ASV] has the potential to do that,' said Tom Niemiec in a 1995 Corporate Report Minnesota article. Niemiec was vice-president of corporate finance for Minneapolis-based Summit Investment Company, the underwriter for ASV's IPO.
Negotiating New Terrain: Mid-to-Late 1990s
ASV's overall sales had grown by 50 percent annually since Posi-Track's introduction in 1991, reaching $8.2 million in 1995. The Minnesota company exceeded Wall Street estimates in the first half of 1996. Sales jumped 44 percent, and earnings more than doubled.
For the first decade of business, early investors such as Hazel Harris saw no returns from ASV but kept faith in the company's future. Harris served on the board from 1983 to 1996 and knew each employee by name up until the time the operation moved to Grand Rapids. Another early board member, ad executive Leland T. Lynch of Minneapolis-based Carmichael Lynch, had come on as a director in 1987, serving without a fee for many years. Lynch's agency had worked with both Polaris and Arctic Cat.
The board makeup began to shift as the company's fortunes headed upward. James H. Dahl, Florida investment firm head and junk bond pioneer, saw a Posi-Track at a Florida Caterpillar dealership in the mid-1990s. Impressed, he went to Minnesota to find out more and became an investor and board member in 1996. Dahl would bring in R.E. (Teddy) Turner IV, son of Turner Communication's Ted Turner. From January to September 1996 ASV stock climbed from $6.25 to $18.50.
Demand also continued to climb, but ASV's limited manufacturing capacity forced the company to turn away potential Posi-Track dealers. To alleviate the problem, ASV made a $5 million private placement of convertible debentures, during fourth quarter 1996, to enlarge the Grand Rapids manufacturing plant, purchase equipment, and infuse working capital. An additional $1.8 million from the Iron Range Resource and Rehabilitation Board helped fund the 60,000-square-foot expansion.
Net sales for 1996 were $12.3 million with earnings nearing the $1 million mark. In February 1997, the company moved from a NASDAQ small cap listing to the NASDAQ national market.
ASV ramped up product development as well as production during 1997 as customers continued to find new ways to use the vehicle. A range of attachments allowed the Posi-Track to work, for example, as a loader, backhoe, planer, auger, mover, or snowplow, but because the vehicle exerted such low ground pressure the Posi-Track had been seen leveling grain inside cargo ships, laying out large rolls of sod, and moving between rows of grapevines. The military had used a remote-controlled unit to clear surface munitions from a Nevada test and training range, and ASV was developing an attachment for antiterrorist operations.
Mark Rupe, a John Kinnard analyst, predicted continued rapid growth for the company during 1998 but also saw some potential pitfalls, according to a December 1997 St. Paul Pioneer Press article by Dave Beal. 'Rupe ticks off a list of adversities that could rise to smite the company: less acceptance of its products; a relatively illiquid stock; trouble in expanding its dealer network; and inability to manage fast growth; too much dependence on key suppliers; competition from big-hitter companies such as John Deere, Caterpillar, Case, Ingersoll-Rand.'
According to Investor's Business Daily, Melroe Co., the Ingersoll-Rand Co. subsidiary that built Bobcat skid-steer loaders and excavators, sold 40,000 units through 900 dealers in 75 countries during 1997. ASV expected to sell about 850 vehicles through its 116 dealers in 37 states in 1998.
'It's the versatility that sells the machine,' said Kevin Robbins, vice-president of the Posi-Track's largest U.S. dealer, in a June 1998 Duluth News-Tribune article. Since the concept was unfamiliar, June Brissett reported, potential customers needed to see the Posi-Track in action. ASV vastly improved its visibility quotient in October 1998, when it struck a deal with Caterpillar, Inc.
Big Deal for Small Company: For 1999 and Beyond
The world's largest manufacturer of construction and mining equipment agreed to buy one million shares of ASV stock at $18 per share, 8.8 percent of the company, and received warrants to buy up to 51 percent of ASV at $21 per share. ASV eventually would gain access to Caterpillar's worldwide distribution network--1,400 dealers in more than 200 countries. Conversely, Caterpillar, which had sales of $18.93 billion in 1997, gained a foothold in the small equipment market and access to ASV's low pressure technology.
Caterpillar Vice-President Dick Benson, quoted in a Duluth News-Tribune article, said, 'By combining ASV's suspension system technology with Caterpillar's legendary track know-how, ASV will be ideally positioned to develop new business and new products around the world.'
ASV President Lemke said in a company news release, 'We've known for 10 years that we're building, pound-for-pound, the best work vehicle in the world. With Caterpillar behind us, we expect to push our company's momentum years ahead of schedule.'
Via the agreement, ASV would receive management, financial, and engineering support, and two Caterpillar members would join the board of directors. For the meantime, ASV would retain its independent status, and yet be in a stronger position to compete with big companies such as John Deere should they enter the low-pressure niche.
On the heels of the announcement, ASV debuted at number 14 on the Forbes list of the 200 Best Small Companies based on factors such as profitability, growth, sales, net income, and market value. Earlier in the year, ASV found a spot on Individual Investor magazine's 100 fastest-growing companies list. On Investor Business Daily's top issues list, ASV ranked 11th, outperforming high-profile issues such as Starbucks Corporation and Yahoo! Inc. ASV stock price climbed by more than 1,000 percent from August 1994 to 1998, and the company racked up a string of 15 quarters of record sales as of October 1998.
ASV shareholders ratified the Caterpillar deal by an overwhelming margin in January 1999. The $18 million raised was earmarked for capital equipment, research and development, and working capital.
ASV's transition to the Caterpillar distribution network hurt performance from fourth quarter 1998 into third quarter 1999. Some existing dealers dropped the line following the announcement of ASV's deal with Caterpillar, resulting in canceled orders and product returns. New Caterpillar dealers, in line for product training, held off on placing substantial orders.
Another glitch occurred when a Florida Caterpillar dealer, one that served seven southern states and produced 21 percent of ASV's 1998 sales, pulled out of Georgia, Mississippi, Alabama, Louisiana, and North and South Carolina, leaving Caterpillar dealers in those states to pick up Posi-Track distribution. (About 40 percent of ASV's total sales had already been coming by way of Caterpillar dealers prior to the stock agreement.) Analysts generally agreed that the downturn was temporary and, by year end, revenue, earnings, and stock price would again turn upward.
Caterpillar, meanwhile, reassigned one of its project managers to assist ASV with the dealership system changes. Furthermore, during the period, ASV had its first chance to show off its products for dealers and customers at Caterpillar's Arizona testing ground. The two companies also began planning their first joint project, a rubber-tracked tractor for agricultural use. Finally, the Posi-Track MD2800 Series had been receiving recognition from construction trade journals as one of the top products of 1998.
The Posi-Track produced virtually all of ASV's sales, and the company worked to deliver new models for ever broadening applications. The Posi-Track 4810, the first ASV vehicle to carry a Caterpillar engine, had start-up delays during 1999, which contributed to lower third quarter earnings but helped boost sales in the fourth quarter.
For the year overall numbers dropped. The slower-than-expected dealership overhaul, R & D costs, and sales commissions to Caterpillar resulted in lower net income: $1.4 million in 1999 versus $3.4 million in 1998. Net sales for 1999 were $36.2 million, down from $39 million in 1998.
Despite the ups and downs of the transition period following ASV and Caterpillar's agreement, the Posi-Track line appeared poised for a bright future, based on its solid technology and access to an international market.
Principal Competitors: Ingersoll-Rand Co. (Bobcat).
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