**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **Form
        10-Q**
 
 (MARK
        ONE)
 x  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 
 For
        the
        quarterly period ended September
        30, 2005
 
 OR
 
 **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 1-7160
 
 
  **COACHMEN
                  INDUSTRIES, INC.**(Exact
                  name of registrant as specified in its
                  charter)
 
 **INDIANA**
              
              **35-1101097**(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  number)**2831
                  Dexter Drive, Elkhart, Indiana**
              
              **46514**(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 Registrant’s
                  telephone number, including area code
              
              **574-262-0123**
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to the filing requirements
        for
        at least the past 90 days.  Yes x No o
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act).   Yes x  No o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).   Yes o  No x
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date:
 
 At
        October 31, 2005:
 
 Common
        Shares, without par value 15,817,263shares outstanding including an equivalent number of common share
        purchase rights.
  
  
 **FORM
        10-Q**
 
 
 **INDEX**Page
                  No.Part
                  I. Financial InformationFinancial
                  Statements:Consolidated
                  Balance Sheets-
              3-4September
                  30, 2005 and December 31, 2004Consolidated
                  Statements of Operations-
              5Three
                  and Nine Months Ended September 30, 2005 and 2004Consolidated
                  Statements of Cash Flows-
              6Nine
                  Months Ended September 30, 2005 and 2004Notes
                  to Consolidated Financial Statements
              7-16Management’s
                  Discussion and Analysis of Financial
              17-22Condition
                  and Results of OperationsQuantitative
                  and Qualitative Disclosures About Market Risk
              23Controls
                  and Procedures
              23Part
                  II. Other InformationItem
                  6. Exhibits
              24Signatures
              25Index
                  to Exhibits
              26
   -
            2
            -
 Index
  **Coachmen
        Industries, Inc. and
        Subsidiaries**
 **Consolidated
        Balance Sheets**
 (in
        thousands)
 
 
 September
                  30,
              
              December
                  31,2005
              
              2004(Unaudited)**Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              16,175
              
              $
              14,992Marketable
                  securities
              
              
              -
              
              
              1,747Trade
                  receivables, less allowance fordoubtful
                  receivables 2005 - $1,362and
                  2004 - $919
              
              
              43,366
              
              
              58,805Other
                  receivables
              
              
              2,415
              
              
              4,209Refundable
                  income taxes
              
              
              6,746
              
              
              244Inventories
              
              
              129,738
              
              
              136,088Prepaid
                  expenses and other
              
              
              4,343
              
              
              4,144Deferred
                  income taxes
              
              
              10,054
              
              
              6,014Total
                  current assets
              
              
              212,837
              
              
              226,243Property,
                  plant and equipment, at cost
              
              
              153,657
              
              
              163,709Less,
                  accumulated depreciation
              
              
              (79,862
              )
              
              (81,358
              )Property,
                  plant and equipment, net
              
              
              73,795
              
              
              82,351Goodwill
              
              
              18,132
              
              
              18,132Cash
                  value of life insurance, net of loans of $15,000
              
              
              28,293
              
              
              25,162Real
                  estate held for sale
              
              
              -
              
              
              60Other
              
              
              5,582
              
              
              5,775Total
                  assets
              
              **$**
              **338,639**
              
              **$**
              **357,723**
 *See
        Notes to Consolidated Financial Statements.*
  -
            3
            -
 Index
  **Coachmen
        Industries, Inc. and Subsidiaries**
 **Consolidated
        Balance Sheets** (continued)
 (in
        thousands)
 
 
 September
                  30,
              
              December
                  31,2005
              
              2004(Unaudited)**Liabilities**Current
                  liabilities:Short-term
                  borrowings
              
              $
              -
              
              $
              20,000Accounts
                  payable, trade
              
              
              49,459
              
              
              33,805Accrued
                  income taxes
              
              
              -
              
              
              2,479Accrued
                  expenses and other liabilities
              
              
              49,066
              
              
              39,466Floorplan
                  notes payable
              
              
              4,176
              
              
              6,986Current
                  portion of long-term debt
              
              
              2,217
              
              
              2,195Total
                  current liabilities
              
              
              104,918
              
              
              104,931Long-term
                  debt
              
              
              13,883
              
              
              14,943Deferred
                  income taxes
              
              
              1,157
              
              
              3,512Postretirement
                  deferred compensation benefits
              
              
              10,213
              
              
              9,724Other
              
              
              38
              
              
              195Total
                  liabilities
              
              
              130,209
              
              
              133,305**Shareholders’
                  equity**Common
                  shares, without par value:authorized
                  60,000 shares; issued 2005 - 21,128 shares
                and
                  2004 - 21,108 shares
              
              
              92,102
              
              
              91,850Additional
                  paid-in capital
              
              
              5,769
              
              
              8,894Retained
                  earnings
              
              
              169,328
              
              
              184,284Treasury
                  shares, at cost: 2005 - 5,311 sharesand
                  2004 - 5,384 shares
              
              
              (58,558
              )
              
              (59,002
              )Unearned
                  compensation
              
              
              (191
              )
              
              (1,700
              )Accumulated
                  other comprehensive income (loss)
              
              
              (20
              )
              
              92Total
                  shareholders’ equity
              
              
              208,430
              
              
              224,418Total
                  liabilities and shareholders’ equity
              
              **$**
              **338,639**
              
              **$**
              **357,723**
  *See
        Notes to Consolidated Financial Statements.*
  -
            4
            -
 Index
 **Coachmen
        Industries, Inc. and
        Subsidiaries**
 **Consolidated
        Statements of Operations**
 (in
        thousands, except per share amounts)
 (Unaudited)
 Three
                  Months Ended September 30,
              
              Nine
                  Months Ended September 30,2005
              
              2004
              
              2005
              
              2004Net
                  sales
              
              $
              198,036
              
              $
              232,310
              
              $
              612,131
              
              $
              660,913Cost
                  of sales
              
              
              180,391
              
              
              195,035
              
              
              549,215
              
              
              563,683Gross
                  profit
              
              
              17,645
              
              
              37,275
              
              
              62,916
              
              
              97,230Operating
                  expenses:Delivery
              
              
              10,596
              
              
              11,515
              
              
              30,972
              
              
              30,651Selling
              
              
              7,431
              
              
              8,367
              
              
              24,003
              
              
              23,575General
                  and administrative
              
              
              10,423
              
              
              8,853
              
              
              24,442
              
              
              27,442Asset
                  impairments
              
              
              6,986
              
              
              -
              
              
              6,986
              
              
              -Gain
                  on sale of properties, net
              
              
              (255
              )
              
              (189
              )
              
              (304
              )
              
              (1,268
              )Total
                  operating expenses
              
              
              35,181
              
              
              28,546
              
              
              86,099
              
              
              80,400Operating
                  income (loss)
              
              
              (17,536
              )
              
              8,729
              
              
              (23,183
              )
              
              16,830Nonoperating
                  (income) expenses:Interest
                  expense
              
              
              971
              
              
              551
              
              
              2,899
              
              
              1,442Investment
                  income
              
              
              (355
              )
              
              (533
              )
              
              (1,612
              )
              
              (1,808
              )Other
                  income, net
              
              
              (137
              )
              
              (234
              )
              
              (430
              )
              
              (320
              )Total
                  nonoperating (income) expenses
              
              
              479
              
              
              (216
              )
              
              857
              
              
              (686
              )Income
                  (loss) from continuing operations before income taxes
              
              
              (18,015
              )
              
              8,945
              
              
              (24,040
              )
              
              17,516Income
                  taxes (credit)
              
              
              (8,669
              )
              
              3,060
              
              
              (11,838
              )
              
              5,969Net
                  income (loss) from continuing operations
              
              
              (9,346
              )
              
              5,885
              
              
              (12,202
              )
              
              11,547Discontinued
                  operations:Income
                  from operations of discontinued entity (net of taxes)
              
              
              -
              
              
              55
              
              
              -
              
              
              220Net
                  income (loss)
              
              $
              (9,346
              )
              $
              5,940
              
              $
              (12,202
              )
              $
              11,767Earnings
                  per share - BasicContinuing
                  operations
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .75Discontinued
                  operations
              
              
              -
              
              
              -
              
              
              -
              
              
              .01Net
                  earnings per share
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .76Earnings
                  per share - DilutedContinuing
                  operations
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .75Discontinued
                  operations
              
              
              -
              
              
              -
              
              
              -
              
              
              .01Net
                  earnings per share
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .76Number
                  of common shares used in computation of earnings per
                  share:Basic
              
              
              15,556
              
              
              15,479
              
              
              15,545
              
              
              15,469Diluted
              
              
              15,556
              
              
              15,544
              
              
              15,545
              
              
              15,545Cash
                  dividends per common share
              
              $
              .06
              
              $
              .06
              
              $
              .18
              
              $
              .18
  *See
        Notes to Consolidated Financial Statements* .
 -
            5
            -
 Index
  **Coachmen
        Industries, Inc. and
        Subsidiaries**
 **Consolidated
        Statements of Cash Flows**
 (in
        thousands)
 (Unaudited)
 Nine
                  Months Ended September 30,2005
              
              2004Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              (12,202
              )
              $
              11,767Adjustments
                  to reconcile net income (loss) to netcash
                  provided by (used in) operating activities:Depreciation
              
              
              6,638
              
              
              6,973Provision
                  for doubtful receivables, net of recoveries
              
              
              574
              
              
              89Provision
                  for write-down of property to net realizable value
              
              
              6,986
              
              
              -Gain
                  on sale of properties and other assets
              
              
              (304
              )
              
              (1,268
              )Increase
                  in cash surrender value of life insurance policies
              
              
              (923
              )
              
              (504
              )Net
                  realized and unrealized (gains) losses on marketable securities
                  and
                  derivatives
              
              
              (325
              )
              
              147Deferred
                  income tax benefit
              
              
              (6,395
              )
              
              (684
              )Tax
                  benefit from stock options exercised
              
              
              5
              
              
              23Other
              
              
              (876
              )
              
              1,964Changes
                  in certain assets and liabilities:Trade
                  receivables
              
              
              16,659
              
              
              (7,036
              )Inventories
              
              
              6,350
              
              
              (48,514
              )Prepaid
                  expenses and other
              
              
              (199
              )
              
              (243
              )Accounts
                  payable, trade
              
              
              14,720
              
              
              19,334Income
                  taxes - accrued and refundable
              
              
              (8,981
              )
              
              1,417Accrued
                  expenses and other liabilities
              
              
              6,790
              
              
              5,518Net
                  cash provided by (used in) operating activities
              
              
              28,517
              
              
              (11,017
              )Cash
                  flows from investing activities:Proceeds
                  from sales of marketable securities
              
              
              1,933
              
              
              1,932Proceeds
                  from sale of property and other assets
              
              
              395
              
              
              2,618Investments
                  in marketable securities
              
              
              (2,181
              )
              
              (2,476
              )Purchases
                  of property and equipment
              
              
              (5,046
              )
              
              (13,235
              )Other
              
              
              140
              
              
              (1,281
              )Net
                  cash used in investing activities
              
              
              (4,759
              )
              
              (12,442
              )Cash
                  flows from financing activities:Proceeds
                  from short-term borrowings
              
              
              232
              
              
              28,500Payments
                  of short-term borrowings
              
              
              (20,232
              )
              
              (8,917
              )Proceeds
                  from long-term debt
              
              
              241
              
              
              8,012Payments
                  of long-term debt
              
              
              (1,279
              )
              
              (572
              )Issuance
                  of common shares under stock incentive plans
              
              
              283
              
              
              458Cash
                  dividends paid
              
              
              (1,887
              )
              
              (2,814
              )Other
              
              
              67
              
              
              -Net
                  cash provided by (used in) financing activities
              
              
              (22,575
              )
              
              24,667Increase
                  in cash and cash equivalents
              
              
              1,183
              
              
              1,208Cash
                  and cash equivalents:Beginning
                  of period
              
              
              14,992
              
              
              6,408End
                  of period
              
              **$**
              **16,175**
              
              **$**
              **7,616**
  *See
        Notes to Consolidated Financial Statements.*
 -
            6
            -
 Index
  **Coachmen
        Industries, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 (Unaudited)
 
 **1. 
        BASIS OF PRESENTATION**
 
 The
        condensed consolidated financial statements have been prepared in accordance
        with generally accepted accounting principles for interim financial information
        and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
        Accordingly, they do not include all of the information and footnotes required
        by generally accepted accounting principles for complete financial statements.
         In the opinion of management, all adjustments (consisting of normal
        recurring accruals) considered necessary for a fair presentation have been
        included.  Operating results for the nine-month period ended September
        30,
        2005 are not necessarily indicative of the results that may be expected for
        the
        year ending December 31, 2005.  For further information, refer to
        the
        consolidated financial statements and footnotes thereto included in the
        Company's Annual Report on Form 10-K for the year ended December 31, 2004.
 
 **2. 
        SEGMENT INFORMATION**
 
 The
        Company has determined that its reportable segments are those that are based
        on
        the Company’s method of internal reporting, which disaggregates its business by
        product category. The Company’s two reportable segments are Recreational
        Vehicles, including related parts and supplies, and Housing and Building.
        The
        Company evaluates the performance of its segments based primarily on net
        sales
        and pretax income and allocates resources to them based on performance.
        Differences between reported segment amounts and corresponding consolidated
        totals represent corporate expenses for administrative functions and income
        or
        expenses relating to property and equipment or other items that are not
        allocated to segments.
 
 The
        table
        below presents information about segments used by the chief operating decision
        maker of the Company for the three and nine-month periods ended September
        30,
        2005 (in thousands):
  
 Three
                  Months Ended
              
              Nine
                  Months EndedSeptember
                  30,
              
              September
                  30,2005
              
              2004
              
              2005
              
              2004Net
                  salesRecreational
                  Vehicles
              
              $
              133,545
              
              $
              157,634
              
              $
              436,590
              
              $
              470,548Housing
                  and Building
              
              
              64,491
              
              
              74,676
              
              
              175,541
              
              
              190,365Total
              
              **$**
              **198,036**
              
              **$**
              **232,310**
              
              **$**
              **612,131**
              
              **$**
              **660,913**Gross
                  profitRecreational
                  Vehicles
              
              $
              2,215
              
              $
              17,397
              
              $
              22,643
              
              $
              49,746Housing
                  and Building
              
              
              15,430
              
              
              19,878
              
              
              40,273
              
              
              47,282Other
              
              
              -
              
              
              -
              
              
              -
              
              
              202Total
              
              **$**
              **17,645**
              
              **$**
              **37,275**
              
              **$**
              **62,916**
              
              **$**
              **97,230**Operating
                  expensesRecreational
                  Vehicles
              
              $
              17,252
              
              $
              13,237
              
              $
              45,053
              
              $
              36,767Housing
                  and Building
              
              
              19,817
              
              
              15,360
              
              
              46,496
              
              
              42,146Other
              
              
              (1,888
              )
              
              (51
              )
              
              (5,450
              )
              
              1,487Total
              
              **$**
              **35,181**
              
              **$**
              **28,546**
              
              **$**
              **86,099**
              
              **$**
              **80,400**
  -
            7
            -
 Index
  Three
                  Months
                  Ended
              Nine
                  Months EndedSeptember
                  30,
              September
                  30,2005
              
              
              2004
              
              
              2005
              
              
              2004Operating
                  income (loss)Recreational
                  Vehicles
              
              $
              (15,037
              )
              $
              4,160
              
              $
              (22,410
              )
              $
              12,979Housing
                  and Building
              
              
              (4,387
              )
              
              4,518
              
              
              (6,223
              )
              
              5,136Other
              
              
              1,888
              
              
              51
              
              
              5,450
              
              
              (1,285
              )Total
              
              **$**
              **(17,536**
              **)**
              **$**
              **8,729**
              
              **$**
              **(23,183**
              **)**
              **$**
              **16,830**Pre-tax
                  income (loss) fromcontinuing
                  operationsRecreational
                  Vehicles
              
              $
              (15,373
              )
              $
              4,147
              
              $
              (23,106
              )
              $
              12,941Housing
                  and Building
              
              
              (4,408
              )
              
              4,738
              
              
              (6,386
              )
              
              5,494Other
              
              
              1,766
              
              
              60
              
              
              5,452
              
              
              (919
              )Total
              
              **$**
              **(18,015**
              **)**
              **$**
              **8,945**
              
              **$**
              **(24,040**
              **)**
              **$**
              **17,516**
 
 
 September
                  30,
              
              December
                  31,2005
              
              2004Total
                  assetsRecreational
                  Vehicles
              
              $
              156,530
              
              $
              174,101Housing
                  and Building
              
              
              97,231
              
              
              111,099Other
              
              
              84,878
              
              
              72,523Total
              
              **$**
              **338,639**
              
              **$**
              **357,723**
 
 **3.**   **INVENTORIES**
 
 Inventories
        consist of the following (in thousands):
 
 September
                  30,
              
              December
                  31,2005
              
              2004Raw
                  materials
              
              $
              37,365
              
              $
              39,524Work
                  in process
              
              
              22,334
              
              
              21,173Improved
                  lots
              
              
              359
              
              
              2,236Finished
                  goods
              
              
              69,680
              
              
              73,155Total
              
              **$**
              **129,738**
              
              **$**
              **136,088**
  -
            8
            -
 Index
  **4.**   **ACCRUED
        EXPENSES AND OTHER LIABILITIES**
 
 Accrued
        expenses and other liabilities consist of the following (in
        thousands):
 
 September
                  30,
              
              December
                  31,2005
              
              2004Wages,
                  salaries, bonuses and commissions
              
              $
              3,918
              
              $
              5,366Dealer
                  incentives, including volumebonuses,
                  dealer trips, interestreimbursement,
                  co-op advertising andother
                  rebates
              
              
              3,202
              
              
              5,119Warranty
              
              
              16,104
              
              
              10,140Insurance-products
                  and general liability,workers’
                  compensation, group health and other
              
              
              6,612
              
              
              5,589Customer
                  deposits and unearned revenues
              
              
              8,775
              
              
              7,340Other
                  current liabilities
              
              
              10,455
              
              
              5,912Total
              
              **$**
              **49,066**
              
              **$**
              **39,466**
      Changes
        in the Company’s warranty liability during the three and nine-month periods
        ended September 30 were as follows (in thousands):
 
 Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,2005
              
              2004
              
              2005
              
              2004Balance
                  of accrued warranty at beginning of period
              
              $
              10,780
              
              $
              10,510
              
              $
              10,140
              
              $
              8,658Warranties
                  issued during the period and changes in liability for pre-existing
                  warranties
              
              
              12,114
              
              
              5,024
              
              
              23,657
              
              
              16,862Cash
                  settlements made during the period
              
              
              (6,790
              )
              
              (5,114
              )
              
              (17,693
              )
              
              (15,100
              )Balance
                  of accrued warranty at September 30
              
              **$**
              **16,104**
              
              **$**
              **10,420**
              
              **$**
              **16,104**
              
              **$**
              **10,420**
  -
            9
            -
 Index
  **5.**   **EARNINGS
        PER SHARE**
 
 Basic
        earnings per share is based on the weighted average number of shares outstanding
        during the period. Diluted earnings per common share is based on the weighted
        average number of shares outstanding during the period, after consideration
        of
        the dilutive effect of stock options and awards. Basic and diluted earnings
        per
        share for the three and nine-month periods ended September 30 were calculated
        as
        follows (in thousands):
   Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,2005
              
              
              2004
              
              
              2005
              
              
              2004Numerator:Net
                  income (loss) applicable to common stock
              
              $
              (9,346
              )
              $
              5,940
              
              $
              (12,202
              )
              $
              11,767Denominator:Number
                  of shares outstanding, end of period:Common
                  stock
              
              
              15,817
              
              
              15,706
              
              
              15,817
              
              
              15,706Effect
                  of weighted average contingentlyissuable
                  shares outstanding during period
              
              
              (268
              )
              
              (202
              )
              
              (244
              )
              
              (167
              )Effect
                  of weighted average sharesoutstanding
                  during period
              
              
              7
              
              
              (25
              )
              
              (28
              )
              
              (70
              )Weighted
                  average number of common sharesused
                  in basic EPS
              
              
              15,556
              
              
              15,479
              
              
              15,545
              
              
              15,469Effect
                  of dilutive securities, stock optionsand
                  awards
              
              
              -
              
              
              65
              
              
              -
              
              
              76Weighted
                  average number of common sharesused
                  in diluted EPS
              
              
              15,556
              
              
              15,544
              
              
              15,545
              
              
              15,545
 As
        the
        Company reported a net loss for the three and nine-month periods ended September
        30, 2005, the dilutive effect of stock options and awards did not enter into
        the
        computation of diluted earnings per share because their inclusion would have
        been antidilutive.
 
 For
        both
        the three and nine-month periods ended September 30, 2004, outstanding stock
        options covering 85,400 shares were not included in the computation of diluted
        earnings per share because their exercise price was greater than the average
        market prices for the periods and their inclusion would have been
        antidilutive.
  -
            10
            -
 Index
  **6.**   **COMPREHENSIVE
        INCOME (LOSS)**
 
 The
        changes in components of comprehensive income (loss) for the three and
        nine-month periods ended September 30 are as follows (in
        thousands):
 
 Three
                  Months Ended
              
              Nine
                  Months EndedSeptember
                  30,
              September
                  30,2005
              
              
              2004
              
              
              2005
              
              
              2004Net
                  income (loss)
              
              $
              (9,346
              )
              $
              5,940
              
              $
              (12,202
              )
              $
              11,767Unrealized
                  losses on securities held for sale, net of taxes
              
              
              -
              
              
              (58
              )
              
              
              
              
              (204
              )Reclassification
                  adjustment for realized gains included in net income
              
              
              
              
              
              
              
              
              (188
              )Unrealized
                  gains (losses) on cash flow hedges, net of taxes
              
              
              44
              
              
              (44
              )
              
              76
              
              
              31Comprehensive
                  income (loss)
              
              $
              (9,302
              )
              $
              5,838
              
              **$**
              (12,314
              )
              **$**
              11,594
 
 
 As
        of
        September 30, 2005 and 2004, the accumulated other comprehensive income (loss),
        net of tax, relating to unrealized gains (losses) on securities available
        for
        sale was $0  and
        $246,000, respectively, and relating to deferred losses on cash flow hedges
        was
        ($20,000) and ($129,000), respectively.
  **7.**   **COMMITMENTS,
        CONTINGENCIES AND GUARANTEES**
 
 **Obligation
        to Purchase Consigned Inventories**
 
 The
        Company obtains vehicle chassis for its recreational vehicle products directly
        from automobile manufacturers under converter pool agreements. The agreements
        generally provide that the manufacturer will provide a supply of chassis
        at the
        Company's various production facilities under the terms and conditions as
        set
        forth in the agreement. Chassis are accounted for as consigned inventory
        until
        either assigned to a unit in the production process or 90 days have passed.
        At
        the earlier of these dates, the Company is obligated to purchase the chassis
        and
        it is recorded as inventory. At September 30, 2005 and December 31, 2004,
        consigned chassis inventory approximated $31.4 million and $29.7 million,
        respectively.
 
 **Repurchase
        Agreements**
 
 The
        Company was contingently liable at September 30, 2005 to banks and other
        financial institutions on repurchase agreements in connection with financing
        provided by such institutions to most of the Company’s independent dealers in
        connection with their purchase of the Company’s recreational vehicle products.
        These agreements provide for the Company to repurchase its products from
        the
        financing institution in the event that they have repossessed them upon a
        dealer’s default. Products repurchased from dealers under these agreements are
        accounted for as a reduction in revenue at the time of repurchase. Although
        the
        estimated contingent liability approximates $293 million at September 30,
        2005
        ($298 million at December 31, 2004), the risk of loss resulting from these
        agreements is spread over the Company’s numerous dealers and is further reduced
        by the resale value of the products repurchased. Based on losses previously
        experienced under these obligations, the Company has established a reserve
        for
        estimated losses under repurchase agreements. At September 30, 2005, $0.4
        million ($0.3 million at December 31, 2004) was recorded as an accrual for
        estimated losses under repurchase agreements.
  -
            11
            -
 Index
  The
        Company was also contingently liable at September 30, 2005 to a financial
        institution on repurchase agreements in connection with financing provided
        by
        the institution to certain of the Company’s independent home builders in
        connection with their purchase of the Company’s housing products. This agreement
        provides for the Company to repurchase its products from the financing
        institution in the event that they have repossessed them upon a builder’s
        default. Products repurchased from builders under this agreement are accounted
        for as a reduction in revenue at the time of repurchase. Although the estimated
        contingent liability approximates $12.6 million at September 30, 2005 ($4.5
        million at December 31, 2004), the risk of loss resulting from these agreements
        is spread over the Company’s numerous builders and is further reduced by the
        resale value of the products repurchased. The Company has evaluated the
        potential for losses under this agreement and has recorded an accrual of
        $0.2
        million at September 30, 2005 ($0.1 million at December 31, 2004) for estimated
        losses under the repurchase agreement.
 
 **Corporate
        Guarantees**
 
 During
        2003, the Company entered into an agreement with a financial institution
        to form
        a private-label financing program to provide wholesale inventory financing
        to
        the Company’s dealers in the Recreational Vehicles Segment. The agreement
        provides for a preferred program that provides financing that is subject
        to the
        standard repurchase agreement described above. In addition, the agreement
        provides for a reserve pool whereby the financial institution makes available
        an
        aggregate line of credit not to exceed $40 million that will provide financing
        for dealers that may not otherwise qualify for credit approval under the
        preferred program. No dealer being provided financing from the reserve pool
        can
        receive an aggregate line of credit exceeding $5 million. In addition to
        the
        standard repurchase agreement described above, for the remainder of 2005
        the
        Company will be liable to the financial institution for a maximum of $2.8
        million of aggregate losses, as defined by the agreement, incurred by the
        financial institution on designated dealers with higher credit risks that
        are
        accepted into the reserve pool financing program. Thereafter, the Company
        will
        be liable to the financial institution for the first $2 million of aggregate
        losses annually. The total amount financed under the reserve pool arrangement
        totaled approximately $13.4 million at September 30, 2005 ($19.2 million
        at
        December 31, 2004). The Company has recorded a loss reserve of $0.2
        million  at
        September 30, 2005 ($0.3 million at December 31, 2004) associated with these
        guarantees.
 
 During
        the first quarter of 2004, the Company entered into an agreement to guarantee
        the indebtedness incurred by a recreational vehicle dealer towards the purchase
        of a dealership facility. The guarantee is in the principal amount of $1
        million
        for a period of five years or until all indebtedness has been fully paid,
        whichever occurs first. The Company has evaluated the potential for losses
        under
        this agreement and has determined that the resolution of any claims that
        may
        arise in the future would not materially affect the Company’s financial
        statements.
 
 In
        addition, the Company is liable under a guarantee to a financial institution
        for
        model home financing provided to certain independent builders doing business
        with the Company’s Housing and Building Segment. The amount outstanding under
        this agreement at September 30, 2005 is $0.6 million ($1.2 million at December
        31, 2004). Any losses incurred under this guarantee would be offset by the
        proceeds from the resale of the model home and losses are limited to 20%
        of the
        original contract price, and cannot exceed $2.0 million. As of September
        30,
        2005, no losses have been incurred by the Company under the model home financing
        program.
 
 **Financing
        Obligation**
 
 During
        2004, the Company entered into an agreement to provide financing of up to
        $4.9
        million to a developer for the construction of a hotel. After the construction
        loan financing period, as defined in the agreement, the construction loan
        may be
        converted to a term loan for a period of two years, provided the terms and
        conditions of the agreement are met. The loans are collateralized by a first
        priority interest in all tangible and intangible property of the borrower.
        As of
        September 30, 2005, the Company has provided $2.1 million in financing to
        the
        developer.
  -
            12
            -
 Index
  **Litigation**
 
 In
        January 2004, the Company entered into a long-term exclusive licensing agreement
        with The Coleman Company, Inc. to design, produce and market a full line
        of new
        Coleman® brand recreational vehicles. In November 2004, the judge presiding over
        the legal dispute between Fleetwood Enterprises, Inc. and The Coleman Company,
        Inc. entered an order granting Fleetwood’s request for an injunction against
        Coleman, prohibiting their use of the trademark registration “Coleman” in the
        recreational vehicle industry. To protect its rights under its existing license
        agreement with Coleman, Consolidated Leisure Industries, LLC, doing business
        as
        the Coachmen RV Group, filed suit against The Coleman Company, Inc. in federal
        court in Kansas City, Kansas, to enforce its rights under the License
        Agreement.
 
 On
        March
        21, 2005, the Company entered into a settlement agreement with The Coleman
        Company, Inc. to resolve the licensing agreement suit. Pursuant to the
        settlement agreement, the Company has received $4,425,000 from The Coleman
        Company, Inc. in exchange for releasing all claims in the suit. The settlement
        of $4,425,000 was paid in two installments of $2,212,500, one of which was
        received by the Company on March 23, 2005 and the second of which was received
        on April 20, 2005, plus interest. In addition, the agreement provides for
        the
        potential of an additional payment of $500,000 if certain provisions of the
        agreement are breached. The settlement of $4,425,000 was reflected in the
        first
        quarter results as a reduction of $1,721,000 to cost of sales and a reduction
        of
        $461,000 to operating expenses at the RV Segment plus a reduction of $2,243,000
        to the Company’s general and administrative expenses.
 
 During
        the three months ended June 30, 2005, the Company settled a personal injury
        suit
        for $5,000,000, $1,000,000 of which has been paid by the Company’s primary
        insurance carrier. The Company’s self-insured retention is $250,000. Although
        the excess carrier has currently denied coverage, the Company initially believed
        it was probable that the excess carrier would ultimately be required to honor
        its obligation to fund the remaining settlement costs of $3,750,000. As of
        June
        30, 2005, the Company had paid $1,500,000 in addition to the amount paid
        by its
        primary carrier and had recorded an other current liability of $2,500,000
        to
        recognize the remaining amount to be paid on the settlement and the $250,000
        retention. Due to the probable coverage of the claim by the
        excess
        carrier, a receivable of $3,750,000 had been recorded as an other current
        receivable as of June 30, 2005.
 
 During
        the third quarter, the Company’s suit against the excess carrier was moved from
        state court to federal court. This change in jurisdiction results in the
        Company’s assessment of prevailing against the excess carrier to now be less
        than probable. As a result, the $3,750,000 receivable that had been recorded
        in
        the second quarter was written off and charged to general and administrative
        expense in the third quarter.
 
 The
        Company is involved in various legal proceedings, most of which are ordinary
        disputes incidental to the industry and most of which are covered in whole
        or in
        part by insurance. Management believes that the ultimate outcome of these
        matters and any liabilities in excess of insurance coverage and self-insurance
        accruals will not have a material adverse impact on the Company’s consolidated
        financial position, future business operations or cash flows.
 
 **8.**   **STOCK-BASED
        COMPENSATION**
 
 In
        2003,
        the Company adopted the Performance Based Restricted Stock Plan to permit
        grants
        of shares, subject to restrictions, to key employees of the Company as a
        means
        of retaining and rewarding them for long-term performance and to increase
        their
        ownership in the Company. The plan is accounted for in accordance with the
        variable plan accounting provisions of FASB Interpretation No. 44, *Accounting
        for Certain Transactions Involving Stock Compensation* ,
        and
        therefore awards are expensed based upon the fair value of the estimated
        shares
        to be earned over the vesting period. The exact number of shares that each
        employee will receive is dependent on the Company’s performance, with respect to
        net income, over a three-year period. The weighted-average grant-date fair
        value
        was $13.60 in 2005 and $16.65 in 2004, for the shares awarded under the plan
        during the respective years. The market value of the shares awarded is
        recognized as unearned compensation in the consolidated statements of
        shareholders’ equity and is amortized to operations over the vesting period.
 
 -
            13
            -
 Index
  During
          the first quarter of 2005, the Company determined that it was probable
          that the
          performance requirements of the 2003 Plan would not be achieved and as
          a result,
          reversed the expenses that had been previously recorded related to this
          plan.
          During the third quarter of 2005, the Company determined that it was probable
          that the performance requirements of the 2004 and 2005 Plans would not
          be
          achieved and as a result, reversed the expenses that had been previously
          recorded related to these two plans. For the three months ended September
          30,
          2005, the Company reduced compensation expense, which is a component of
          general
          and administrative expenses, by $690,000 related to these programs. For
          the nine
          months ended September 30, 2005, the Company reduced compensation expense
          by
          $1,400,000 related to these three programs. The Company amortized $216,000
          and
          $651,000 to compensation expense for the three and nine-month periods ended
          September 30, 2004.
 The
          Company has stock option plans and an employee stock purchase plan. The
          Company
          accounts for these plans under the recognition and measurement principles
          of APB
          Opinion No. 25, *Accounting
          for Stock Issued to Employees,* and
          related interpretations. No stock-based employee compensation cost is reflected
          in net earnings for these plans, as all options granted under these plans
          have
          an exercise price equal to the market value of the underlying common stock
          at
          the date of grant. The table below illustrates the effect on net income
          (loss)
          and earnings per share if the Company had applied the fair value recognition
          provisions of SFAS No. 123, *Accounting
          for Stock-Based Compensation.*
 
 Three
                  Months Ended
              
              Nine
                  Months EndedSeptember
                  30,
              
              September
                  30,2005
              
              2004
              
              2005
              
              2004(in
                  thousands, except per share amounts)Net
                  income (loss), as reported
              
              $
              (9,346
              )
              $
              5,940
              
              $
              (12,202
              )
              $
              11,767Add:
                  Stock-based compensation expense (credit) under variable plan included
                  in
                  reporting net income, net of taxes
              
              
              (353
              )
              
              141
              
              
              (865
              )
              
              429Deduct:
                  Total stock-based employee compensation expense (credit) determined
                  under
                  fair value based method for all awards, net of taxes
              
              
              505
              
              
              (206
              )
              
              795
              
              
              (621
              )Pro
                  forma net income (loss)
              
              $
              (9,194
              )
              $
              5,875
              
              $
              (12,272
              )
              $
              11,575Net
                  earnings per share:Basic
                  - as reported
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .76Basic
                  - pro forma
              
              $
              (.59
              )
              $
              .38
              
              $
              (.79
              )
              $
              .75Diluted
                  - as reported
              
              $
              (.60
              )
              $
              .38
              
              $
              (.78
              )
              $
              .76Diluted
                  - pro forma
              
              $
              (.59
              )
              $
              .38
              
              $
              (.79
              )
              $
              .74
 
  **9.**  **RESTRUCTURING CHARGES**
  During
        the third quarter, the Company’s Board of Directors approved a comprehensive
        operational and cost structure realignment and restructuring plan (the Intensive
        Recovery Plan), which is intended to improve operating performance and ensure
        financial strength. Determinations of the fair value of long-lived assets
        were
        based upon comparable market values for similar assets.
  The
        restructuring plans discussed below by segment are all in addition to previous
        corrective actions implemented during the second quarter, which consisted
        primarily of reductions in workforce and consolidation of facilities and
        operations.
 
 During
        the nine-month period ended September 30, 2005, approximately 130 salaried
        positions were eliminated throughout the Company. Severance costs related
        to the
        eliminations were $0.7 million, of which $0.5 million had been paid as of
        September 30 and $0.2 million was accrued at September 30 and will predominantly
        be paid by December 31, 2005.
  -
            14
            -
 Index
  **Housing
          and Building Segment**
  As
          a part
          of the Intensive Recovery Plan, the Company has decided to evaluate its
          strategic alternatives with its Miller Building Systems, Inc. commercial
          structures subsidiary, acquired in 2000, and is exploring options for its
          sale.
          As a result of this decision, an asset impairment charge of $4.3 million
          was
          recorded in the third quarter, and it may be necessary to recognize an
          additional non-cash charge of up to $9.0 million upon the determination
          that
          Miller meets the requirements to be classified as held for sale, largely
          due to
          the goodwill that will be allocated to the operating unit at that time.
  The
        Company also decided to close its All American Homes operation in Springfield,
        Tennessee. Pending completion of current backlogs, the closure should be
        completed by the end of 2005. As a result of the decision to close this
        operation, an asset impairment charge of $1.1 million was recorded in the
        third
        quarter. In addition, a reserve to reduce finished goods and model home
        inventory to the lower of cost or market of $0.5 million was recorded during
        the
        third quarter. The closure of the Tennessee facility should have no impact
        on
        revenues, as all existing builders in that region will continue to be served
        by
        the Company’s housing operations in Indiana, Ohio and North
        Carolina.
  The
        Company has also signed a binding letter of intent to sell its housing operation
        in Osage City, Kansas to a local investor group, with an anticipated closing
        in
        the fourth quarter, upon completion of current in-process production. As
        a
        result of this impending sale, an asset impairment charge of $1.6 million
        has
        been recorded in the third quarter.
  In
        conjunction with the asset impairments noted above, management performed
        a
        goodwill impairment test of the Housing and Building Segment in the third
        quarter of 2005 and determined that there was no goodwill impairment as of
        September 30, 2005.
  **Recreational
        Vehicle Segment**
  In
        September, the Company announced the relocation of Georgie Boy Manufacturing
        (GBM), LLC from Edwardsburg, Michigan to a newer, more efficient motorhome
        production facility within its Middlebury, Indiana manufacturing complex.
        GBM
        will continue to control and focus on its independent product design, sales,
        and
        marketing efforts to ensure the continued strength of the GBM brand with
        consumers and its separate dealer body, while realizing operating and
        administrative synergies. The relocation will be completed late in the fourth
        quarter after which the old GBM manufacturing complex will be sold; however,
        no
        loss on disposal is anticipated.
  Finally,
        consistent with its determination to focus on its two core businesses, in
        October the Company reached an agreement to sell its Prodesign thermoformed
        plastics subsidiary to an investor group.  The transaction is expected
        to
        close in the fourth quarter and no loss on disposal is anticipated from this
        transaction.
  **10.**  **INCOME
        TAXES**
 
 For
        the
        third quarter ended September 30, 2005, the effective tax rate was a credit
        of
        (48.1)% and the year-to-date effective tax rate was a credit of (49.2)% compared
        to the 2004 third quarter and year-to-date effective tax rate from continuing
        operations of 34.3% and 34.1%, respectively. The Company’s effective tax rate
        fluctuates based upon income levels, the states where sales occur, the amount
        of
        export sales, nontaxable dividends on investments, nontaxable increases in
        cash
        value of life insurance contracts and recognized federal and state tax credits.
        The impact of nontaxable income and tax credits in profitable years reduces
        the
        effective tax rate; however, in loss years the impact of these items causes
        an
        increase in the effective tax rate credit.
 
 The
        Company’s effective tax rate credit for 2005 was favorably impacted by 1.7% for
        estimated current year's research and development (R&D) tax credits. In
        addition, during the 2005 second quarter the Company completed a project
        to
        identify eligible R&D expenditures for the purpose of filing amended Federal
        and Indiana income tax returns to claim tax credits for eligible R&D
        activities. The Company is in the process of preparing those amended income
        tax
        returns for 1999 - 2003 which will reflect refund claims for R&D tax
        credits. The Company’s 2004 Federal and Indiana income tax returns also included
        R&D tax credits which were not considered in the calculation of the 2004
        income tax provision. In the 2005 second quarter, the Company recorded $1.5
        million for prior years’ R&D tax credits which has increased the Company’s
        effective tax benefit rate by 6.5% for the 2005 year-to-date
        period.
 
 During
        the third quarter of 2005, the Company recorded an increase in current deferred
        tax assets of $4.0 million to recognize the tax impact of increases in reserves
        and accruals discussed in Note 4. The Company also reduced its net long-term
        deferred tax liability by $2.4 million for asset impairments recognized during
        the quarter, offset by a write-down in the liability for the Company’s long-term
        incentive compensation plan.
 
  -
            15
            -
 Index
  **11.**  **NEW
          ACCOUNTING PRONOUNCEMENTS**
 
 On
          December 16, 2004, the Financial Accounting Standards Board (FASB) issued
          FASB
          Statement No. 123 (revised 2004), *Share-Based
          Payment* ,
          which
          is a revision of FASB Statement No. 123, *Accounting
          for Stock-Based Compensation* .
          Statement 123(R) supersedes APB Opinion No. 25, *Accounting
          for Stock Issued to Employees* ,
          and
          amends FASB Statement No. 95, *Statement
          of Cash Flows* .
          Generally, the approach in Statement 123(R) is similar to the approach
          described
          in Statement 123. However, Statement 123(R) requires all share-based payments
          to
          employees, including grants of employee stock options, to be recognized
          in the
          income statement based on their fair values. Pro forma disclosure is no
          longer
          an alternative.
 
 Statement
          123(R) must be adopted no later than January 1, 2006 for the Company. Early
          adoption will be permitted in periods in which financial statements have
          not yet
          been issued. The Company expects to adopt Statement 123(R) on January 1,
          2006.
 Statement
          123(R) permits public companies to adopt its requirements using one of
          two
          methods:
 
 1. A
        “modified prospective” method in which compensation cost is recognized beginning
        with the effective date (a) based on the requirements of Statement 123(R)
        for
        all share-based payments granted after the effective date and (b) based on
        the
        requirements of Statement 123 for all awards granted to employees prior to
        the
        effective date of Statement 123(R) that remain unvested on the effective
        date.
 
 2.  A
        “modified retrospective” method which includes the requirements of the modified
        prospective method described above, but also permits entities to restate
        based
        on the amounts previously recognized under Statement 123 for purposes of
        pro
        forma disclosures for all prior periods presented.
 
 The
        Company is still evaluating the adoption alternatives available to adopt
        Statement 123(R).
 
 As
        permitted by Statement 123, the Company currently accounts for share-based
        payments to employees using the intrinsic value method of APB Opinion 25
        and, as
        such, generally recognizes no compensation cost for employee stock options.
        Accordingly, the adoption of Statement 123(R)’s fair value method will have an
        impact on our results of operations, although it will have no impact on our
        overall financial position. The impact of adoption of Statement 123(R) cannot
        be
        predicted at this time because it will depend on levels of share-based payments
        granted in the future. However, had we adopted Statement 123(R) in prior
        periods, the impact of that standard would have approximated the impact of
        Statement 123 as described in the disclosure of pro forma net income and
        earnings per share as previously noted. Statement 123(R) also requires the
        benefits of tax deductions in excess of recognized compensation cost to be
        reported as a financing cash flow, rather than as an operating cash flow
        as
        required under current literature. This requirement will reduce net operating
        cash flows and increase net financing cash flows in periods after
        adoption.
  -
            16
            -
 Index
  **Coachmen
        Industries, Inc. and Subsidiaries**
 **Management’s
        Discussion and Analysis**
 **Of
        Financial Condition and Results of Operations**
 
 
 The
        following is management’s discussion and analysis of certain significant
        factors, which have affected the Company’s financial condition, results of
        operations and cash flows during the periods included in the accompanying
        consolidated financial statements.
 
 A
        summary
        of the changes in the principal items included in the consolidated statements
        of
        operations is shown below (dollar amounts in thousands).
   Comparison
                  ofThree
                  Months
              
              Nine
                  MonthsEnded
                  September 30, 2005 and 2004Increase
                  (Decrease)Amount
              
              Percentage
              
              
              
              Amount
              
              PercentageNet
                  sales
              
              $
              (34,274
              )
              
              (14.8
              )%
              
              
              
              $
              (48,782
              )
              
              (7.4
              )%Cost
                  of sales
              
              
              (14,644
              )
              
              (7.5
              )
              
              
              
              
              (14,468
              )
              
              (2.6
              )Delivery expenses
              
              
              (919
              )
              
              (8.0
              )
              
              
              
              
              321
              
              
              1.0Selling
                  expenses
              
              
              (936
              )
              
              (11.2
              )
              
              
              
              
              428
              
              
              1.8General
                  and administrative expenses
              
              
              1,570
              
              
              17.7
              
              
              
              
              
              (3,000
              )
              
              (10.9
              )Asset
                  impairments
              
              
              6,986
              
              
              100
              
              
              
              
              
              6,986
              
              
              100Gain
                  on sale of properties, net
              
              
              66
              
              
              34.9
              
              
              
              
              
              (964
              )
              
              (76.0
              )Interest
                  expense
              
              
              420
              
              
              76.2
              
              
              
              
              
              1,457
              
              
              101.0Investment
                  income
              
              
              (178
              )
              
              (33.4
              )
              
              
              
              
              (196
              )
              
              (10.8
              )Other
                  income, net
              
              
              (97
              )
              
              (41.5
              )
              
              
              
              
              110
              
              
              34.4Income
                  (loss) from continuing operations before income
                  taxes
              
              
              (26,960
              )
              
              (301.4
              )
              
              
              
              
              (41,556
              )
              
              (237.2
              )Income
                  taxes (credit)
              
              
              (11,729
              )
              
              (383.3
              )
              
              
              
              
              (17,807
              )
              
              (298.3
              )Net
                  income (loss) from continuing operations
              
              
              (15,231
              )
              
              (258.8
              )
              
              
              
              
              (23,749
              )
              
              (205.7
              )Income
                  from operations of discontinued entity, net of
                  taxes
              
              
              (55
              )
              
              (100.0
              )
              
              
              
              
              (219
              )
              
              (100.0
              )Net
                  income (loss)
              
              
              (15,286
              )
              
              (257.3
              )
              
              
              
              
              (23,968
              )
              
              (203.7
              )
  -
            17
            -
 Index
 
 **NET
        SALES**
 
 Consolidated
        net sales for the quarter ended September 30, 2005 were  $198.0
        million, a decrease of $34.3 million, or 14.8%, from the $232.3 million reported
        for the corresponding quarter last year.  Net
        sales
        for the nine months were  $612.1
        million, representing a decrease of 7.4%, or $48.8 million, reported for
        the
        same period in 2004. The Company’s Recreational Vehicles Segment experienced a
        net sales decrease of 15.3% for the quarter and a decrease of  7.2%
        for
        the nine-month period. Wholesale unit shipments for the RV Segment decreased
        26.8% during the third quarter of 2005 and 16.8% for the nine-month period.
        Wholesale unit shipments of motorized products decreased 28.8% and 19.4%
        for the
        three and nine-month periods ended September 30, 2005, respectively, while
        wholesale unit shipments of towable products were down 25.9% and 15.7% for
        the
        three and nine-month periods ended September 30, 2005, respectively. Year
        to
        date through August, total industry wholesale shipments of Recreational Vehicles
        as reported by the Recreational Vehicle Industry Association (RVIA) have
        declined 0.6%, wholesale shipments of motorized products declined
        13.1%
        year to date, while shipments of towable products increased 2.4% during the
        same
        period. Backlog for the RV Segment  increased
        129.7% to $103.3 million from $45.0 million at the end of the third quarter
        of
        2004.
 
 The
        Company’s Housing and Building Segment experienced a net sales decrease for the
        quarter ended September 30, 2005 of 13.6% and a decrease of 7.8% for the
        nine-month period. The decreases in sales dollars were principally attributable
        to  wholesale
        unit shipments being down 22.9% for the quarter and down 17.3% for the
        nine-month period ended September 30.  Weakness
        in a number of markets for the Housing and Building Group, particularly in
        the
        Midwest, contributed to the decline in unit shipments during the three and
        nine-month periods ended September 30, 2005. The
        Housing and Building Segment continued to experience an increase in the average
        sales price per unit, thereby partially offsetting the reductions in
        shipments.  Backlog
        for the Housing and Building Segment as of September 30, 2005 has decreased
        15.5% to $54.0 million, compared with $63.9 million at September 30,
        2004.
 
 In
        order
        to supplement the Company’s single-family residential housing business, the
        Housing and Building Segment continues to pursue opportunities for larger
        projects in multifamily residential and commercial markets. In September,
        the
        Company was awarded its first military contract to provide barracks for Fort
        Bliss in Texas. This contract, worth approximately $4.4 million is the
        division’s initial penetration into the multi-billion dollar military housing
        market. In August, the Housing and Building Segment began construction of
        a
        4-story, 56,000 square-foot seniors condominium project in Morgantown, West
        Virginia, which is the largest single building produced by the Company in
        its
        history.
  Both
        the
        RV Segment and Housing and Building Segment have been presented with numerous
        opportunities to assist with the relief and reconstruction efforts in the
        areas
        impacted by Hurricane Katrina. This includes recreational vehicles as temporary
        shelters and modular homes as new permanent residences, as well as replacement
        commercial structures. Working in conjunction with the Company’s dealers, the RV
        Segment has received confirmed orders for approximately 3,000 travel trailers
        to
        be delivered in the fourth quarter, with a total value of approximately $30
        million. Production schedules have been shifted to support these needs, together
        with regular orders from the dealer body. Management expects the hurricane
        relief units to be modestly accretive to earnings. The RV Segment also has
        additional unconfirmed orders for a comparable number of units, pending
        confirmation of delivery requirements.
  The
        Housing and Building Segment is also providing a number of more permanent
        structures to aid in the relief and recovery efforts. The Segment has received
        orders for approximately $4.0 million in structures to be used as temporary
        medical clinics, on-site offices for construction contractors, and permanent
        offices for banks located in the region, which it expects to produce and
        deliver
        in the fourth quarter. On a longer-term basis, the Housing and Building Segment
        has opportunities to participate in the large-scale reconstruction efforts,
        especially with the rapid production times inherent with its modular
        construction techniques. All American Homes offers single-family residences
        that
        can ideally serve the market for affordable permanent housing in reconstructed
        areas. For larger multi-family residential projects, the Segment is able
        to
        offer a turn-key solution to provide structures for apartments, condominiums,
        assisted living centers or dormitories. The Company expects the initial bidding
        process for some of these longer-term rebuilding projects to commence in
        the
        fourth quarter.
  **COST
        OF SALES**
 
 Cost
        of
        sales decreased 7.5%, or $14.6 million, for the three months ended September
        30,
        2005. For the nine-month period, cost of sales decreased $14.5 million or
        2.6%.
        As a percentage of net sales, cost of sales was 91.1% and 89.7% for the three
        and nine-month periods ended September 30, 2005 compared to 84.0% and 85.3%
        for
        the three and nine months ended September 30, 2004. The change in the dollar
        amount of cost of sales in the current quarter and nine-month periods is
        attributable to the decrease in sales dollars offset by  higher
        labor, which included severance expenses, insurance, and workers’ compensation
        costs. In addition, reductions in the production levels caused lower overhead
        absorption and labor inefficiencies.
  -
            18
            -
 Index
 
 **OPERATING
        EXPENSES**
 
 As
        a
        percentage of net sales, operating expenses, which include delivery, selling,
        general and administrative expenses, were  14.4%
        and
        13.0% for the 2005 quarter and nine-month periods compared to 12.4% for both
        the
        2004 quarter and nine-month periods. As a percentage of sales,  delivery
        expenses increased by 0.4 and 0.5 percentage points for the three and nine-month
        periods of 2005 as compared to the prior year three and nine-month periods.
        The
        increase in delivery expense as a percent of sales during the quarter and
        nine-month period was primarily related to  higher
        fuel costs and higher utilization of outside carriers for delivery services,
        offset by reductions in payroll related costs.
 
 Selling
        expenses were 3.8% of net sales for the 2005 quarter compared to 3.6% of
        net
        sales for the three-month period ended September 30, 2004. For the nine-month
        periods, selling expenses were 3.9% of net sales for 2005 compared to 3.6%
        of
        net sales for 2004.  The
        increase in selling expense as a percentage of net sales during the quarter
        and
        nine months ended September 30, 2005 is related to increased expenses related
        to
        travel, new product shows, and promotional expenses, partially offset by
        reduced
        payroll related costs from the third quarter as a result of the reductions
        in
        force.
 
 General
        and administrative expenses were 5.3% of net sales for the quarter compared
        to
        3.8% for the 2004 corresponding quarter and 4.0% of net sales for the nine-month
        period compared to 4.2% for 2004. The increase in expenses for the three-month
        period was primarily a result of increased legal reserves of $3,750,000 related
        to a personal injury case, partially offset by reduced payroll related costs.
        Payroll costs were reduced during the quarter due to the reversal of expenses
        related to the Performance Based Restricted Stock Plan grants for 2004 and
        2005
        due to the probable failure to meet the Plan’s required thresholds for payment
        which reduced expenses by $690,000. In addition, payroll costs were reduced
        from
        2004 due to reductions in force which occurred in the second and third quarters
        of 2005, as well as, to a reduction in performance based compensation due
        to the
        operating results of the Company. The decrease in general and administrative
        expenses for the nine-month period was primarily related to the first quarter
        2005 settlement of the Company’s dispute over an RV licensing agreement with The
        Coleman Company, Inc., which reduced operating expenses by $2,704,000, the
        first
        and third quarter 2005 reversal of expenses related to the Performance Based
        Restricted Stock Plan grants for 2003, 2004 and 2005 due to the probable
        failure
        to meet the Plan’s required thresholds for payment, which reduced operating
        expenses by $1,400,000, and reduced payroll related costs due to the reductions
        in force, which occurred in the second and third quarters of 2005, as well
        as,
        to a reduction in performance based compensation due to the operating results
        of
        the Company. These expense reductions were partially offset by an increase
        of
        $3,750,000 of legal reserves related to a personal injury case.
 
 **ASSET
        IMPAIRMENTS**
  In
        August, the Company closed its All American Homes operation in Springfield,
        Tennessee. Pending completion of current backlogs, the closure should be
        completed by the end of 2005. In connection with the closure, an asset
        impairment charge of $1.1 million was recorded in the third quarter. No markets
        will be abandoned as a result of this closure, as all existing builders in
        that
        region will continue to be served by the Company’s housing operations in
        Indiana, Ohio and North Carolina.
  During
        the third quarter the Company signed a binding letter of intent to sell its
        housing operation in Osage City, Kansas to a local investor group, with an
        anticipated closing in the fourth quarter subsequent to the completion of
        certain production. The impending sale resulted in an impairment charge of
        $1.6
        million, which has been recorded in the third quarter.
  The
        Company has also decided to evaluate its strategic alternatives with its
        Miller
        Building Systems, Inc. commercial structures subsidiary, acquired in 2000,
        and
        is exploring options for its sale. As a result of this decision, an asset
        impairment charge of $4.3 million was recorded in the third quarter, and
        it may
        be necessary to recognize an additional non-cash charge of up to $9.0 million
        upon the determination that Miller meets the requirements to be classified
        as
        held for sale, largely due to the goodwill that will be allocated to the
        operating unit at that time.
  In
        conjunction with the asset impairments noted above, management performed
        a
        goodwill impairment test of the Housing and Building Segment in the third
        quarter of 2005 and determined that there was no goodwill impairment as of
        September 30, 2005.
  **GAIN
        ON THE SALE OF PROPERTIES, NET**
 
 There
        were no significant gains or losses from property transactions for the three
        or
        nine months ended September 30, 2005. For the nine months ended September
        30,
        2004, the gain on the sale of properties was $1.3 million. In late March
        2004,
        Coachmen RV Company sold its 70,000 square-foot facility in Goshen, Indiana,
        and
        moved production to a newly acquired replacement facility located five miles
        north of its Middlebury, Indiana complex. There were no significant gains
        or
        losses from property transactions for the three months ended September 30,
        2004.
  -
            19
            -
 Index
 
 **INTEREST
        EXPENSE**
 
 Interest
        expense was $971,000 and $2,899,000 for the three and nine-month periods
        ended
        September 30, 2005 compared to $551,000 and $1,442,000 in the same periods
        last
        year.  Interest
        expense increased based on the higher amount of average outstanding long-term
        debt, borrowings on the Company’s revolving credit facility and higher
        applicable interest rates.
 
 **INVESTMENT
        INCOME**
 
 There
        was
        a net investment income of $355,000 for the quarter ended September 30, 2005
        compared to $533,000 in the same quarter of 2004. For the nine-month period,
        the
        net investment income of $1,612,000 compared to investment income of $1,808,000
        in the previous year. The investment income for the three-month period ended
        September 30, 2005 was principally attributable to earnings of the life
        insurance policies held while the investment income for the three-month period
        ended September 30, 2004 was principally attributable to earnings of the
        life
        insurance policies held and realized gains on the sale of preferred stock.
        The
        investment income for the nine-month period ended September 30, 2005 was
        also
        attributable to earnings of the life insurance policies held and realized
        gains
        on the sale of preferred stock.  The
        investment income for the nine-month period ended September 30, 2004 was
        attributable to a cumulative preferred dividend of $536,000 from a utility
        company emerging from bankruptcy, earnings of the life insurance policies
        held
        and realized gains on the sale of preferred stock.
 
 **OTHER
        INCOME, NET**
 
 Other
        income, net, represents income of $137,000 for the third quarter of 2005
        and
        income of $234,000 for the same quarter of the previous year. For the nine-month
        period, other income, net for 2005 was $430,000 compared to income of $320,000
        in 2004. No items of significance caused the variances between the comparable
        quarters.
 
 **INCOME
        TAXES**
 
 For
        the
        third quarter ended September 30, 2005, the effective tax rate was a credit
        of
        (48.1)% and the year-to-date effective tax rate was a credit of (49.2)% compared
        to the 2004 third quarter and year-to-date effective tax rate from continuing
        operations of 34.3% and 34.1%, respectively. The Company’s effective tax rate
        fluctuates based upon income levels, the states where sales occur, the amount
        of
        export sales, nontaxable dividends on investments, nontaxable increases in
        cash
        value of life insurance contracts and recognized federal and state tax credits.
        The impact of nontaxable income and tax credits in profitable years reduces
        the
        effective tax rate; however, in loss years the impact of these items causes
        an
        increase in the effective tax rate credit.
 
 The
        Company’s effective tax rate credit for 2005 was favorably impacted by 1.7% for
        estimated current year's research and development (R&D) tax credits. In
        addition, during the 2005 second quarter the Company completed a project
        to
        identify eligible R&D expenditures for the purpose of filing amended Federal
        and Indiana income tax returns to claim tax credits for eligible R&D
        activities. The Company is in the process of preparing those amended income
        tax
        returns for 1999 - 2003 which will reflect refund claims for R&D tax
        credits. The Company’s 2004 Federal and Indiana income tax returns also included
        R&D tax credits which were not considered in the calculation of the 2004
        income tax provision. In the 2005 second quarter, the Company recorded $1.5
        million for prior years’ R&D tax credits which has increased the Company’s
        effective tax benefit rate by 6.5% for the 2005 year-to-date
        period.
 
 During
        the third quarter of 2005, the Company recorded an increase in current deferred
        tax assets of $4.0 million to recognize the tax impact of increases in reserves
        and accruals discussed in Note 4. The Company also reduced its net long-term
        deferred tax liability by $2.4 million for asset impairments recognized during
        the quarter, offset by a write-down in the liability for the Company’s long-term
        incentive compensation plan.
 
 **LIQUIDITY,
        CAPITAL RESOURCES AND FINANCIAL CONDITION**
 
 The
        Company generally relies on funds from operations as its primary source of
        liquidity. In addition, the Company maintains a  $35
        million, unsecured revolving credit facility, which expires on June 30, 2006,
        to
        meet its seasonal working capital needs. At September 30, 2005, there
        were  no
        outstanding borrowings against this bank line of credit. The Company was
        in
        compliance with all debt covenant requirements under the revolving credit
        agreement, as amended, at September 30, 2005. At December 31, 2004, there
        were
        short-term borrowings of $20.0 million outstanding. During 2004, the Company
        also borrowed against the cash surrender value of the Company’s investments in
        life insurance contracts. As of September 30, 2005 and December 31, 2004,
        $15
        million had been borrowed against the cash surrender value of Company-owned
        life
        insurance contracts.
  -
            20
            -
 Index
  At
        September 30, 2005, working capital decreased to $107.9 million from $121.3
        million at December 31, 2004. The $13.4 million decrease in current assets
        at
        September 30, 2005 versus December 31, 2004 was primarily due to decreased
        inventories and trade receivables, offset by increases in refundable income
        taxes and deferred income taxes. Current liabilities at September 31, 2005
        and
        December 31, 2004 were both $104.9 million; however, trade payables and other
        accrued expenses were higher at September 30, 2005 than at December 31, 2004
        offset by a decrease in short-term borrowings, floorplan notes payable and
        accrued income taxes.
 
 Management
        believes that the Company’s existing cash and cash equivalents as of September
        30, 2005, together with its available revolving credit facility and cash
        expected to be generated from future operations, will be sufficient to fund
        future planned capital expenditures and other operating cash requirements
        for
        the foreseeable future.
  **CRITICAL
        ACCOUNTING POLICIES**
 
 The
        preparation of the Company's consolidated financial statements, which have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States, requires management to make estimates and assumptions that
        affect
        the amounts reported in the financial statements and accompanying notes.
        On an
        ongoing basis, management evaluates these estimates. Estimates are based
        on
        historical experience and on various other assumptions that are believed
        to be
        reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying values of assets and liabilities that
        are
        not readily apparent from other sources. Historically, actual results have
        not
        been materially different from the Company's estimates. However, actual results
        may differ from these estimates under different assumptions or conditions.
        A
        summary of the Company’s more significant accounting policies that require the
        use of estimates and judgments in preparing the financial statements is provided
        in the Company’s 10-K report for the year ended December 31, 2004. During the
        first nine months of fiscal 2005, there was no material change in the accounting
        policies and assumptions previously disclosed.
 
 **FORWARD-LOOKING
        STATEMENTS**
 
 This
        Form
        10-Q Report contains certain statements that are "forward-looking" statements
        within the meaning of Section 27A of the Securities Act of 1933 and Section
        21E
        of the Securities Exchange Act of 1934, as amended. These forward-looking
        statements are based on management’s expectations and beliefs concerning future
        events. Forward-looking statements are necessarily subject to risks and
        uncertainties, and are dependent on various factors, many of which are outside
        the control of the Company. These uncertainties and other factors include,
        but
        are not limited to, the potential fluctuations in the Company’s operating
        results; the availability for floorplan financing for the Company's recreational
        vehicle dealers and corresponding availability of cash to the Company;
        uncertainties and timing with respect to sales resulting from recovery efforts
        in the Gulf Coast; uncertainties regarding the impact on sales of the disclosed
        restructuring steps in both the recreational vehicle and housing and building
        segments, the ability to sell and close the operations for sale as described,
        the accuracy of the estimates of the costs to remedy the disclosed recreational
        vehicle warranty issues; the impact of performance on the valuation of
        intangible assets; the availability and price of gasoline and diesel fuel,
        which
        can impact the sale of recreational vehicles; price volatility of raw materials
        used in production; the Company's dependence on chassis and appliance suppliers,
        which are used in the production of many of the Company's recreational vehicle
        products; interest rates, which affect the affordability of the Company's
        products; the availability and cost of real estate for residential housing;
        the
        ability of the Housing and Building Segment to perform in new market segments
        where it has limited experience; potential liabilities under repurchase
        agreements and guarantees; changing government regulations, such as those
        covering accounting standards; environmental matters or product warranties
        and
        recalls, which may affect costs of operations, revenues, product acceptance
        and
        profitability; legislation governing the relationships of the Company with
        its
        recreational vehicle dealers, which may affect the Company’s options and
        liabilities in the event of a general economic downturn; consolidation of
        distribution channels in the recreational vehicle industry; the impact of
        consumer confidence and economic uncertainty on high-cost discretionary product
        purchases, which can hinder the sales of recreational vehicles; the demand
        for
        commercial structures in the various industries that the Housing and Building
        Segment serves; and also on the state of the recreational vehicle and housing
        industries in the United States. Other factors affecting forward-looking
        statements include changes in property taxes and energy costs, changes in
        federal income tax laws and federal mortgage financing programs, changes
        in
        public policy, competition in these industries, the Company’s ability to
        increase gross margins which are critical to profitability whether there
        are or
        are not increased sales, the Company’s use of incentives at either the wholesale
        or retail level, further developments in the war on terrorism and related
        international crises, oil supplies, uncertainties of matters in litigation
        and
        other risks and uncertainties. In addition, investors should be aware that
        generally accepted accounting principles prescribe when a company must disclose
        or reserve for particular risks, including litigation exposures. Accordingly,
        results for a given reporting period could be significantly affected if and
        when
        a reserve is established for a major contingency. Reported results may therefore
        appear to be volatile in certain accounting periods. The foregoing lists
        are not
        exhaustive, and the Company disclaims any obligation to subsequently revise
        any
        forward-looking statements to reflect events or circumstances after the date
        of
        such statements.
  -
            21
            -
 Index
 
 At
        times,
        the Company's actual performance differs materially from its projections
        and
        estimates regarding the economy, the recreational vehicle and building
        industries and other key performance indicators. Readers of this Report are
        cautioned that reliance on any forward-looking statements involves risks
        and
        uncertainties. Although the Company believes that the assumptions on which
        the
        forward-looking statements contained herein are reasonable, any of those
        assumptions could prove to be inaccurate given the inherent uncertainties
        as to
        the occurrence or nonoccurrence of future events. There can be no assurance
        that
        the forward-looking statements contained in this Report will prove to be
        accurate. The inclusion of a forward-looking statement herein should not
        be
        regarded as a representation by the Company that the Company's objectives
        will
        be achieved.
  -
            22
            -
 Index
  **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 In
        the
        normal course of business, operations of the Company are exposed to fluctuations
        in interest rates. These fluctuations can vary the costs of financing and
        investing yields. During the first nine months of 2005, the Company has utilized
        its revolving credit facility to meet short-term working capital needs. The
        Company had no outstanding borrowings against the revolving credit facility
        on
        September 30, 2005.
 
 In
        January of 2003, the Company entered into various interest rate swap agreements
        that became effective beginning in October of 2003. These swap agreements,
        which
        are designated as cash flow hedges for accounting purposes, effectively convert
        a portion of the Company’s variable-rate borrowings to a fixed-rate basis
        through November of 2011, thus reducing the impact of changes in interest
        rates
        on future interest expense. The fair value of the Company’s interest rate swap
        agreements represents the estimated receipts or payments that would be made
        to
        terminate the agreements. A gain of $44,000, net of taxes, attributable to
        changes in the fair value of interest rate swap agreements was recorded as
        a
        component of accumulated other comprehensive income (loss) during the third
        quarter of 2005. Total accumulated gain on the swap agreements for
        the
        nine-month period ended September 30, 2005 was $76,000. If in the
        future
        the interest rate swap agreements were determined to be ineffective or were
        terminated before the contractual termination dates, or if it became probable
        that the hedged variable cash flows associated with the variable-rate borrowings
        would stop, the Company would be required to reclassify into earnings all
        or a
        portion of the unrealized losses on cash flow hedges included in accumulated
        other comprehensive income (loss).
 
 **ITEM
        4. CONTROLS AND PROCEDURES**
 
 The
        Company’s management, with the participation of the Company’s Chief Executive
        Officer and Chief Financial Officer, has evaluated the effectiveness of the
        Company’s disclosure controls and procedures as of September 30, 2005. Based on
        that evaluation, the Company’s Chief Executive Officer and Chief Financial
        Officer concluded that the Company’s disclosure controls and procedures were
        effective as of September 30, 2005.
 
 During
        the second quarter of 2005, the Company established a shared service center
        for
        the processing of accounts payable for its Recreational Vehicle Segment.
        During
        the third quarter, the Housing and Building Segment began using the shared
        service center for the processing of their accounts payable. Other than the
        expansion of this shared service center to the Housing and Building Segment,
        there have been no changes during the quarter ended September 30, 2005 that
        have
        materially affected, or are reasonably likely to materially affect, the
        Company's internal control over financial reporting.
  -
            23
            -
 Index
  **PART
        II. OTHER INFORMATION**
 
 
 Item
        6. Exhibits
 
 See
        Index
        to Exhibits incorporated by reference herein.
  -
            24
            -
 Index
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities and Exchange Act of 1934, the registrant
        has duly caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
 
 
 
 
 **COACHMEN
        INDUSTRIES, INC.**
 (Registrant)
 
 
 
 
 Date:
                  November 2, 2005
              By:
              /s/
                  Claire C. SkinnerClaire
                  C. Skinner, Chairman of theBoard
                  and Chief Executive OfficerDate:
                  November 2, 2005
              By:
              /s/
                  Joseph P. TomczakJoseph
                  P. Tomczak, Executive VicePresident
                  and Chief Financial OfficerDate:
                  November 2,
                  2005
              By:
              /s/
                  Colleen A. ZuhlColleen
                  A. Zuhl, Vice Presidentand
                  Controller
  -
            25
            -
 Index
  **INDEX
        TO EXHIBITS**
 Number
        Assigned
 In
        Regulation
 S-K,
        Item
        601   Description
        of Exhibit
 
 
 
 3(a)(i)   Articles
        of Incorporation of the Company as amended on May 30, 1995 (incorporated
        by
        reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for
        the
        fiscal year ended December 31, 1995)
 
 3(a)(ii)   Articles
        of Amendment to Articles of Incorporation (incorporated by reference to Exhibit
        4.2 to the Company's Form S-3 Registration Statement, File No.
        333-14579)
 
 3(b)  By-Laws
        as modified through September 9, 2005 (incorporated by reference to the
        Company's Form 8-K filed September 15, 2005)
 
 10(a)  Amendment
        No. 7 to Credit Agreement dated September 30, 2005 by and among Coachmen
        Industries, Inc., the Lenders named therein, and JPMorgan Chase Bank, N.A.,
        as
        successor to Bank One, Indiana, N.A.
  31.1  Certification
        of Chief Executive Officer Pursuant to Exchange Act Rules
        13(a)-14(a)/15(d)-14(a)
 
 31.2  Certification
        of Chief Financial Officer Pursuant to Exchange Act Rules
        13(a)-14(a)/15(d)-14(a)
 
 32.1  Certification
        of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
 
 32.2  Certification
        of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
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