**FORM
      10-K**




**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


(Mark
      one)


**x** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934**


For
      the
      fiscal year ended December 31, 2005.


OR


** ̈** **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
                of incorporation or organization*)
            *(IRS
                Employer Identification No.)*





**2831
      Dexter Drive, Elkhart, Indiana 46514**


*(Address
      of principal executive offices) (Zip Code)*





**(574)
      262-0123**


( *Registrant's
      telephone number, including area code)*





Securities
      registered pursuant to Section 12(b) of the Act:





**Common
                Stock, Without Par Value,**
            **New
                York Stock Exchange****and
                associated Common Share Purchase Rights**
            *(Name
                of each exchange on which registered)**(Title
                of each class)*





Securities
      registered pursuant to Section 12(g) of the Act: **None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities
      Act.    Yes  ̈ No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange
      Act.    Yes  ̈ No x





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 such filing requirements
      for
      the past 90 days. Yes 
      **x** No 
       ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment
      hereto. **x**





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filer ̈
            
            Accelerated
                filerx
            
            Non-accelerated
                filer ̈





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**





The
      aggregate market value of Common Stock held by non-affiliates of the registrant
      on June 30, 2005 (the last business day of the registrant's most recently
      completed second fiscal quarter) was $177.3 million (based upon the closing
      price on the New York Stock Exchange and that 89.4% of such shares are owned
      by
      non-affiliates).





As
      of
      January 31, 2006, 15,754,413 shares of the registrant's Common Stock were
      outstanding.




**Documents
      Incorporated by Reference**




Document
            Parts
                of Form 10-K into whichthe
                Document is IncorporatedPortions
                of the Proxy Statement forthe
                Annual Meeting
              of
                Shareholdersto
                be held onMay
                4, 2006
            Part
                III










**Part
      I**





**Item
                1.**
            **Business**





Coachmen
      Industries, Inc. (the "Company" or the "Registrant") was incorporated under
      the
      laws of the State of Indiana on December 31, 1964, as the successor to a
      proprietorship established earlier that year. All references to the Company
      include its wholly-owned subsidiaries and divisions. The Company is publicly
      held with stock listed on the New York Stock Exchange (NYSE) under the ticker
      symbol COA.





The
      Company operates in two primary business segments, recreational vehicles and
      housing and buildings. The Recreational Vehicle ("RV") Segment manufactures
      and
      distributes Class A and Class C motorhomes, travel trailers, fifth wheels,
      camping trailers and related parts and supplies. The Housing and Building
      Segment manufactures and distributes system-built modules for residential and
      commercial buildings.




The
      Company is one of America's leading manufacturers of recreational vehicles
      with
      well-known brand names including Coachmen®, Georgie Boy ® ,
      Sportscoach®, and Viking®. Through its housing and building group, Coachmen
      Industries also comprises one of the nation's largest producers of both
      system-built homes and commercial structures with its All American Homes®,
      Mod-U-Kraf®, All American Building SystemsTM, and Miller Building SystemsTM
products. Prodesign, LLC is a subsidiary that produces custom thermoformed
      plastic parts for numerous industries under the Prodesign® brand. Subsequent to
      year-end, the Company sold all operating assets of Prodesign, LLC and is in
      the
      process of selling its Miller Building Systems subsidiary, therefore these
      entities, along with the All American Homes of Kansas operation which was sold
      in December 2005, are considered discontinued operations and have been reported
      as such in the accompanying financial statements.





The
      Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current
      reports on Form 8-K, and all amendments to those reports are made available
      free
      of charge through the Investor Relations section of the Company's Internet
      website (http://www.coachmen.com) as soon as practicable after such material
      is
      electronically filed with or furnished to the Securities and Exchange
      Commission.





**Recreational
      Vehicle Segment**





**RV
      Segment Products**





The
      RV
      Segment consists of recreational vehicles and parts. At December 31, 2005,
      this
      group consists of the following operating companies: Coachmen RV Company, LLC;
      Coachmen RV Company of Georgia, LLC; Georgie Boy Manufacturing, LLC; Viking
      Recreational Vehicles, LLC; and Prodesign, LLC (a producer of plastic parts
      which was sold January 13, 2006); a Company-owned retail dealership located
      in
      Indiana and a service facility located in Chino, California.





The
      principal brand names for the RV group are Coachmen®, Georgie BoyTM, Sportscoach®
and Viking®.





Recreational
      vehicles are either driven or towed and serve as temporary living quarters
      for
      camping, travel and other leisure activities. Recreational vehicles manufactured
      by the Company may be categorized as motorhomes, travel trailers or camping
      trailers. A motorhome is a self-powered mobile dwelling built on a special
      heavy-duty motor vehicle chassis. A travel trailer is a non-motorized mobile
      dwelling designed to be towed behind another vehicle. Camping trailers are
      smaller towed units constructed with sidewalls that may be raised up and folded
      out.





The
      RV
      group currently produces recreational vehicles on an assembly line basis in
      Indiana, Michigan, and Georgia. Components used in the manufacturing of
      recreational vehicles are primarily purchased from outside sources.  The
      RV
      group depends on the availability of chassis from a limited number of
      manufacturers. Occasionally, chassis availability has limited the group's
      production (see Note 12 of Notes to Consolidated Financial
      Statements for information concerning the use of converter pool agreements
      to
      purchase vehicle chassis).





Prodesign,
      LLC, located in Indiana, is a custom manufacturer of diversified thermoformed
      products for the automotive, marine, recreational vehicle, medical and heavy
      truck industries. On January 13, 2006, the Company sold all operating assets
      of
      Prodesign (see Note 11 of Notes to Consolidated Financial
      Statements).





-
          2
          -


**RV
      Segment Marketing**





Recreational
      vehicles are generally manufactured against orders received from RV dealers,
      who
      are responsible for the retail sale of the product. These products are marketed
      through approximately  673  independent
      dealers located in  48
      states
      and internationally and through the Company-owned dealership. Subject to
      applicable laws, agreements with most of its dealers are cancelable on short
      notice, provide for minimum inventory levels and establish sales
      territories . No
      dealer
      or dealer network accounts for 10% or more of the Company's consolidated net
      sales.





The
      RV
      group considers itself customer driven. Representatives from sales and service
      regularly visit dealers in their regions, and respond to questions and
      suggestions. Divisions host dealer advisory groups and conduct informative
      dealer seminars and specialized training classes in areas such as sales and
      service. Open forum meetings with owners are held at campouts, providing ongoing
      focus group feedback for product improvements. Engineers and product development
      team members are encouraged to travel and vacation in Company recreational
      vehicles to gain a complete understanding and appreciation for the products.





As
      a
      result of these efforts, the RV group believes it has the ability to adapt
      to
      changes in market conditions. Most of the manufacturing facilities can be
      changed over to the assembly of other existing products in two to six weeks.
      In
      addition, these facilities may be used for other types of light manufacturing
      or
      assembly operations. This flexibility enables the RV group to adjust its
      manufacturing capabilities in response to changes in demand for its
      products.




Most
      dealers' purchases of RV's from the RV group are financed through "floorplan"
      arrangements. Under these arrangements, a bank or other financial institution
      agrees to lend the dealer all or most of the purchase price of its recreational
      vehicle inventory, collateralized by a lien on such inventory. The RV group
      generally executes repurchase agreements at the request of the financing
      institution. These agreements typically provide that, for up to twelve months
      after a unit is financed, the Company will repurchase a unit that has been
      repossessed by the financing institution for the amount then due to the
      financing institution. This is usually less than 100% of the dealer's cost.
      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
      (see Note 12 of Notes to Consolidated Financial
      Statements). Resulting mainly from periodic business conditions negatively
      affecting the recreational vehicle industry, the Company has previously
      experienced some losses under repurchase agreements. Accordingly, the Company
      has recorded an accrual for estimated losses under repurchase agreements. In
      addition, at December 31, 2005, the group was contingently liable under
      guarantees to financial institutions of their loans to independent dealers
      for
      amounts totaling approximately $6.2 million, a decrease of approximately $13.0
      million  from
      the
      $19.2 million in guarantees at December 31, 2004. The RV group does not finance
      retail consumer purchases of its products, nor does it generally guarantee
      consumer financing.





**RV
      Segment Business Factors**





Many
      recreational vehicles produced by the RV group require gasoline or diesel fuel
      for their operation. Gasoline and diesel fuel have, at various times in the
      past, been difficult to obtain, and there can be no assurance that the supply
      of
      gasoline and diesel fuel will continue uninterrupted, that rationing will not
      be
      imposed or that the price of, or tax on, fuel will not significantly increase
      in
      the future. Shortages of gasoline or diesel fuel and significant increases
      in
      fuel prices have had a substantial adverse effect on the demand for recreational
      vehicles in the past and could have a material adverse effect on demand in
      the
      future.





Recreational
      vehicle businesses are dependent upon the availability and terms of financing
      used by dealers and retail purchasers. Consequently, increases in interest
      rates
      and the tightening of credit through governmental action, economic conditions
      or
      other causes have adversely affected recreational vehicle sales in the past
      and
      could do so in the future.





Recreational
      vehicles are high-cost discretionary consumer durables. In the past,
      recreational vehicle sales have fluctuated in a generally direct relationship
      to
      overall consumer confidence and economic prosperity.


-
          3
          -


**RV
      Segment Competition and Regulation**





The
      RV
      industry is highly competitive, and the RV group has numerous competitors and
      potential competitors in each of its classes of products, some of which have
      greater financial and other resources than the Company. Initial capital
      requirements for entry into the manufacture of recreational vehicles,
      particularly towables, are comparatively small; however, codes, standards,
      and
      safety requirements enacted in recent years may act as deterrents to potential
      competitors.





The
      RV
      group's recreational vehicles generally compete at all price points except
      the
      ultra high-end. The RV group strives to be a quality and value leader in the
      RV
      industry. The RV group emphasizes a quality product and a strong commitment
      to
      competitive pricing in the markets it serves. The RV group estimates that its
      current overall share of the recreational vehicle market is approximately five
      percent, on a unit basis.





The
      recreational vehicle industry is fairly heavily regulated. The National Highway
      Traffic Safety Administration (NHTSA), the Transportation Recall Enhancement,
      Accountability, and Documentation Act (TREAD), state lemon law statutes, laws
      regulating the operation of vehicles on highways, state and federal product
      warranty statutes and state legislation protecting motor vehicle dealerships
      all
      impact the way the RV group conducts its recreational vehicle business.





State
      and
      federal environmental laws also impact both the production and operation of
      the
      Company's products. The Company has an Environmental Department dedicated to
      efforts to comply with applicable environmental regulations. To date, the RV
      group has not experienced any material adverse effect from existing federal,
      state, or local environmental regulations. Elkhart County, which is where most
      of the recreational vehicle manufacturing facilities of the Company are located,
      was recently designated as a non-attainment area, which could impact future
      air
      emissions permitting.





**Housing
      and Building Segment**





**Housing
      and Building Segment Products**





The
      Housing and Building Segment consists of residential and commercial buildings.
      The Company's housing and building subsidiaries (the All American Homes group,
      All American Building Systems, LLC, Mod-U-Kraf Homes, LLC and Miller Building
      Systems, Inc.) produce system-built modules for single-family residences,
      multi-family duplexes, apartments, condominiums, hotels and specialized
      structures for municipal and commercial use.





All
      American Homes and Mod-U-Kraf design, manufacture and market system-built
      housing structures. All American Homes is one of the largest producers of
      system-built homes in the United States and has five operations strategically
      located in Colorado, Indiana, Iowa, North Carolina and Ohio. Mod-U-Kraf operates
      from a plant in Virginia. Together these plants serve approximately  529
      independent builders in 36 states and  one  Company-owned
      builder located in Indiana . System-built
      homes are built to the same local building codes as site-built homes by skilled
      craftsmen in a factory environment unaffected by weather conditions during
      production. Production takes place on an assembly line, with components moving
      from workstation to workstation for framing, electrical, plumbing, drywall,
      roofing, and cabinet setting, among other operations. An average two-module
      home
      can be produced in just a few days. As nearly completed homes when they leave
      the plant, home modules are delivered to their final locations, typically in
      two
      to seven sections, and are crane set onto a waiting basement or crawl space
      foundation.




All
      American Building Systems, LLC (AABS) was established by the Company in 2003
      to
      pursue opportunities beyond the Company’s core single-family residential housing
      business. AABS designs and markets system-built living facilities such as
      single-family home subdivisions, apartments, condominiums, townhouses, senior
      housing facilities and military housing facilities manufactured by the Company’s
      Housing and Building plants. The modules are delivered to the site location
      for final installation. Due to transportation requirements, system-built
      structures are often built with more structural lumber and/or steel than
      site-assembled structures. Faster construction times also allow our customers
      to
      occupy buildings much sooner when compared to site-built buildings.


-
          4
          -


Miller
      Building Systems, Inc. ("Miller Building") designs, manufactures and markets
      system-built buildings for commercial use such as office buildings, permanent
      housing, temporary housing, classrooms, telecommunication shelters and other
      forms of shelter. Miller Building specializes in the education, banking and
      medical fields with its commercial system-built buildings. It is also a major
      supplier of shelters to house sophisticated telecommunications equipment for
      cellular and digital telephones, data transmission systems and two-way wireless
      communications. Miller Building also offers site construction services, which
      range from site management to full turnkey operations. Depending on the specific
      requirements of its customers, Miller Building uses wood, wood and steel,
      concrete and steel, cam-lock panels or all concrete to fabricate its structures.
      Miller Building manufactures its buildings in manufacturing facilities located
      in Indiana and Pennsylvania, and the assembled modules are delivered to the
      site
      location for final installation.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes Kansas division. The
      Company is in the latter stages of negotiating the sale of Miller Building
      Systems, Inc. Management expects to close on the sale of Miller in early 2006. The
      Company is also in the latter stages of closing the All American Homes operation
      in Springfield, Tennessee. The facility has been listed for sale, and management
      anticipates the final closure of the Tennessee facility to occur late in the
      first quarter of 2006 (see Note 11 of Notes to
      Consolidated Financial Statements).





**Housing
      and Building Segment Marketing**





The
      Housing and Building group participates in an expanding market for system-built
      residential and commercial buildings. Housing is marketed directly to
      approximately 529 builders in 36 states who will sell, rent or lease the
      buildings to the end-user. Commercial buildings are marketed to approximately
      95
      companies in 36 states. Customers may be national, regional or local in
      nature.





The
      Housing and Building group regularly conducts builder meetings to review the
      latest in new design options and component upgrades. These meetings provide
      an
      opportunity for valuable builder input and suggestions at the planning stage.
      The system-built homes business is currently concentrated in the rural,
      scattered lot markets in the geographic regions served. The Company has launched
      initiatives to supply product into additional markets, including residential
      subdivisions in lower tier metropolitan areas, group living facilities, military
      housing, motels/hotels, professional office buildings and other commercial
      structures.





To
      further develop its initiatives to expand into additional markets, in 2003
      the
      Company formed a new subsidiary called All American Building Systems, LLC.
      All
      American Building Systems is responsible for identifying new markets for the
      Company's products through channels other than the traditional builder/dealer
      network.





The
      success of system-built buildings in the commercial market is the result of
      innovative designs that are created by listening to customer needs and taking
      advantage of advancements in technology. While price is often a key factor
      in
      the purchase decision, other factors may also apply, including delivery time,
      quality and prior experience with a certain manufacturer. A significant benefit
      to the customer is the speed with which system-built buildings can be made
      available for use compared to on-site construction, and, in the commercial
      area,
      the ability to relocate the building to another location if the end-user's
      utilization requirements change. The sales staff calls on prospective customers
      in addition to maintaining continuing contact with existing customers and
      assists its customers in developing building specifications to facilitate the
      preparation of a quotation. The sales staff, in conjunction with the engineering
      staff, maintains ongoing contact with the customer for the duration of the
      building project.





**Housing
      and Building Segment Business Factors**





As
      a
      result of transportation costs, the effective distribution range of system-built
      homes and commercial buildings is limited. The normal shipping area from each
      manufacturing facility is typically 200 to 300 miles for system-built homes
      and
      600 miles for commercial buildings.





The
      overall strength of the economy and the availability and terms of financing
      used
      by builders, dealers and end-users have a direct impact on the sales of the
      Housing and Building group. Consequently, increases in interest rates and the
      tightening of credit due to government action, economic conditions or other
      causes have adversely affected the group's sales in the past and could do so
      in
      the future.


-
          5
          -


**Housing
      and Building Segment Competition and Regulation**





Competition
      in the system-built building industry is intense, and the Housing and Building
      group competes with a number of entities, some of which have greater financial
      and other resources than the Company. The demand for system-built homes may
      be
      impacted by the ultimate purchaser's acceptance of system-built homes as an
      alternative to site-built homes. To the extent that system-built buildings
      become more widely accepted as an alternative to conventional on-site
      construction, competition from local contractors and manufacturers of other
      pre-engineered building systems may increase. In addition to the competition
      from companies designing and constructing on-site buildings, the Housing and
      Building group competes with numerous system-built building manufacturers and
      manufactured home producers that operate in particular geographical
      regions.




The
      Housing and Building group competes for orders from its customers primarily
      on
      the basis of quality, timely delivery, engineering capability, reliability
      and
      price. The group believes that the principal basis on which it competes with
      on-site construction is the combination of: the timeliness of factory versus
      on-site construction, the cost of its products relative to on-site construction,
      the quality and appearance of its buildings, its ability to design and engineer
      buildings to meet unique customer requirements, and reliability in terms of
      completion time. Manufacturing efficiencies, quantity purchasing and generally
      lower wage rates of factory construction, even with the added transportation
      expense, result in the cost of system-built buildings being equal to or lower
      than the cost of on-site construction of comparable quality. This process of
      manufacturing the building modules in a weather-free, controlled environment,
      while the builder prepares the site, can significantly reduce the time to
      completion on a customer's project.




Customers
      of the Housing and Building group are generally required to obtain building
      installation permits from applicable governmental agencies. Buildings completed
      by the group are manufactured and installed in accordance with applicable
      building codes set forth by the particular state or local regulatory agencies.




State
      building code regulations applicable to system-built buildings vary from state
      to state. Many states have adopted codes that apply to the design and
      manufacture of system-built buildings, even if the buildings are manufactured
      outside the state and delivered to a site within that state's boundaries.
      Generally, obtaining state approvals is the responsibility of the manufacturer.
      Some states require certain customers to be licensed in order to sell or lease
      system-built buildings. Additionally, certain states require a contractor's
      license from customers for the construction of the foundation, building
      installation, and other on-site work. On occasion, the Housing and Building
      group has experienced regulatory delays in obtaining the various required
      building plan approvals. In addition to some of its customers, the group
      actively seeks assistance from various regulatory agencies in order to
      facilitate the approval process and reduce the regulatory delays.





**General**


**(Applicable
      to all of the Company's principal markets)**





**Business
      Segments**





The
      table
      below sets forth the composition of the Company's net sales from continuing
      operations for each of the last three years (dollar amounts in
      millions):





2005
            
            2004
            
            2003Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %Recreational
                Vehicles
            
            $
            522.2
            
            
            74.3
            
            $
            593.8
            
            
            74.0
            
            $
            461.7
            
            
            72.5Housing
                and Buildings
            
            
            180.2
            
            
            25.7
            
            
            208.6
            
            
            26.0
            
            
            175.2
            
            
            27.5Total
            
            $
            702.4
            
            
            100.0
            
            $
            802.4
            
            
            100.0
            
            $
            636.9
            
            
            100.0





Additional
      information concerning business segments is included in Note
      2 of the Notes to Consolidated Financial Statements.


-
          6
          -


**Seasonality**





Historically,
      the Company has experienced greater sales during the second and third quarters
      with lesser sales during the first and fourth quarters. This reflects the
      seasonality of RV sales for products used during the summer camping season
      and
      also the adverse impact of weather on general construction for the system-built
      building applications.





**Employees**





At  December
      31, 2005, Coachmen employed  3,677  people,  842
      of
      whom are salaried and involved in operations, engineering, purchasing,
      manufacturing, service and warranty, sales, distribution, marketing, human
      resources, accounting and administration. The Company provides group life,
      dental, vision services, hospitalization, and major medical plans under which
      the employee pays a portion of the cost. In addition, employees can participate
      in a 401(k) plan and a stock purchase plan. Certain employees can participate
      in
      a stock option plan and in deferred and supplemental deferred compensation
      plans
      (see Notes 8 and 9 of Notes to
      Consolidated Financial Statements). The Company considers its relations with
      employees to be good.





**Research
      and Development**





During
      2005, the Company’s continuing operations spent approximately $7.2 million on
      research related to the development of new products and improvement of existing
      products. The amounts spent in 2004 and 2003 were approximately $7.0 million
      and
      $6.0 million, respectively.




**Item
                1A.**
            **Risk
                Factors**




*(References
      to "we", "us" or "our" in the following discussion refer to the
      Company.)*




**Risks
        Relating to Our Business**
 If
          any of
          the following risks actually occur, they could materially and adversely
          affect our business, financial condition or operating results.
  **The
          recreational vehicle and housing industries are highly competitive, and
          some of
          our competitors have significantly greater resources than us.**
 
 The
          recreational vehicle industry is highly competitive. In the calendar year
          2005,
          sales from the ten largest manufacturers represented approximately 92%
          of the
          retail market for motorhomes, while our sales represented approximately
          9.5% of
          the total retail market. The market for motorized products is highly
          concentrated. This concentration is due in part to the higher barriers
          to entry
          within the motorized market, including the significant capital required
          for
          fixed asset investment, higher level of government regulation and dependence
          on
          a limited number of chassis suppliers.
 
 In
          towable products, the ten largest manufacturers accounted for approximately
          82.5% of retail sales, while our sales represented approximately 3.9% of
          total retail sales in 2005. The towable market is much more fragmented,
          partially due to the lower barriers to entry. New competitors enter this
          market
          each year, causing increased competitive pressures for existing manufacturers.
          Competitive pressures, especially at the entry-level for travel trailers,
          have
          resulted in a reduction of overall profit margins. Increased competition
          could
          have a material adverse effect on our results of operations.
  Consolidation
          within the industry may also increase overall competitive pressure. A number
          of
          our competitors have made acquisitions over the last five years that have
          increased their market share. Existing
          or new competitors could adversely affect our revenues and profit margins.
          For example, these competitors could develop products that are superior
          to our recreational vehicle offerings. Or, existing or new competitors’
products could achieve better consumer acceptance than those we offer.
          Therefore, we cannot assure that we will maintain our current
          market share.
 -
              7
              -
 The
          housing industry is also highly competitive. Although we produce
          system-built homes and residential structures, management considers competition
          in the Housing and Building Segment to come from three sources:
 
 ·
                traditional
                    site-built homebuilders,
 
 ·
                other
                    system-built housing producers, and
 
 ·
                manufactured
                    home producers.
 
 Among
          system-built competitors, management believes that we are one of the largest
          competitors in the industry, which is characterized by numerous small,
          local
          manufacturers throughout the country. Less than 2% of total housing starts
          are
          system-built. Therefore, many of the largest nationwide traditional homebuilders
          are much larger than us, with much greater access to cash and other
          resources. As these large competitors expand into our markets, added
          competitive pressure may adversely affect revenues and margins in the Housing
          and Building Segment.
 
 In
          addition to large national competitors, we also compete with smaller local
          builders. These local builders can often offer prices and other products
          and
          services that are competitive with those we offer because of their lower
          fixed
          asset investment and smaller cost structure. These competitors may also
          have an
          adverse impact on our builder partners in affected markets resulting in
          reduced revenues and profitability of the Housing and Building
          Segment.
 
 **Actions
          taken pursuant to our restructuring plan may have an adverse impact
          on our earnings and financial position.**
 
 In
          2005, we outlined a number of actions to restructure the
          Company under an “Intensive Recovery Plan” which included the sale of
          unprofitable units, the closure or consolidation of production facilities,
          the
          sale of non-operating assets and a reduction in salaried workforce. The
          success
          of the Intensive Recovery Plan depends on the following factors:
 
 ·
                the
                    timing of asset sales,
 
 ·
                prices
                    realized on asset sales and resulting gains or losses,
 
 ·
                the
                    costs of closing or consolidating operations, and
 
 ·
                our ability
                    to realize estimated cost savings resulting from the restructuring.
 
 We might
          not be able to maximize the benefits of the Intensive Recovery Plan, so
          any of
          the above factors, individually or in combination, may materially adversely
          affect our future operating results and financial position.
 
 **The
          ability to attract and retain qualified senior managers may adversely
          affect our operating results.**
 
 Subsequent
          to the end of 2005, our President and Chief Operating Officer (COO) was
          terminated, and as a result, the Chairman and Chief Executive Officer assumed
          the duties performed by the President and COO on an interim basis. The
          absence
          of an individual dedicated to managing the daily operations of our two
          business segments might have an adverse impact on our operating
          results.
 -
              8
              -
 **The
          Recreational Vehicle and Housing businesses are cyclical, which can lead
          to
          fluctuations in our operating results.**
 
 The
          industries in which we operate are highly cyclical and there can be
          substantial fluctuations in production, shipments, wholesale and retail
          sales
          and operating results, and the results for any prior period may not be
          indicative of results for any future period. Both the recreational vehicle
          and
          housing industries are subject to volatility due to external factors such
          as
          economic, demographic and political changes.
  We cannot
          assure that the factors currently adversely affecting our business will not
          continue, or have an adverse effect beyond their present scope.
 
 **Our businesses
          are seasonal, leading to fluctuations in sales, production and operating
          results
          at various times during the calendar year.**
 
 We have
          experienced, and will likely continue to experience, significant variability
          in
          sales, production and net income as a result of seasonality in our two
          business segments. Demand for recreational vehicles and housing generally
          declines during the winter season, while sales and profits in both segments
          are
          generally highest during the spring and summer seasons. In addition, unusually
          severe weather conditions in some markets may cause delays in laying foundations
          or other site preparation work which may result in delayed deliveries
          of our system-built homes. In some markets, so-called “frost laws” may
          limit the size and weight of vehicles permitted on roadways, thus
          limiting our ability to deliver and set our homes.
          Consequently, we may experience lower production, revenues and
          profitability with higher inventory levels in the Housing and Building
          Segment
          due to weather and weather-related factors.
 
 **We may
          be unable to comply in the future with financial covenants in our senior
          credit facility, which could restrict our ability to operate.**
  We have
          a $35 million unsecured line of credit, which will expire and must be
          renegotiated in the second quarter of 2006. At December 31, 2005 we were in
          violation of one covenant regarding minimum net worth, for which we obtained
          a
          waiver. In the past, we have renegotiated the financial covenants of this
          credit line in response to operating conditions or secured waivers of some
          covenants. At present, we have a minimum net worth and a current ratio
          covenant, but in response to 2005 performance, more restrictive covenants
          may be
          expected beginning in mid-2006. While we do not anticipate any further
          events of
          default, in such an event due to tighter covenants, lender actions could
          restrict our investment in working capital and capital expenditures,
          limit our ability to react to changes in market conditions,
          restrict our ability to acquire properties or businesses, or
          restrict our ability to declare and pay dividends.
 
 **A
          rise in the frequency and size of product liability, wrongful death, workers’
compensation and other claims against us may result in a material adverse
          effect on our business, operating results and financial condition.**
 
 We
          are frequently subject, in the ordinary course of business, to litigation
          involving product liability and other claims, related to personal injury
          and/or
          property damage. Our self-insurance retention is $250,000, and we
          maintain insurance coverage through our primary insurance carrier, as well
          as excess carriers, above the self-insurance retention. An increase in
          frequency
          in claims below the self-insurance retention level may adversely affect our
          financial results. In addition, insurance is not available for some kinds
          of
          claims, such as mold or punitive damages and occasionally an insurance
          carrier(s) may deny coverage resulting in potential litigation expenses
          and
          additional exposure to losses. Workers’ compensation insurance costs are
          directly attributable to experience in the workplace. In the past, we have
          experienced wrongful death claims and work practices claims arising from
          alleged
          workplace injuries.
 
 We cannot
          be certain that our insurance coverage will be sufficient to cover all
          future claims against us. Any increase in the frequency and size of such
          claims,
          as compared to our experience in prior years, may cause the premiums
          required for insurance to rise significantly. Further, sizable product
          liability
          claims may damage our reputation among dealers, builders and consumers that
          may adversely affect our future operating and financial
          results.
 -
              9
              -
 **Significant
          warranty and “lemon law” claims against us may result in a material adverse
          effect on our business, operating results and financial condition.**
 
 We provide
          customers of our products with a warranty covering defects in material or
          workmanship for periods generally ranging from one to two years in length,
          and
          up to ten years on certain structural components. We record a liability
          based on our estimate of the amounts necessary to settle future and
          existing claims on products sold. Such costs are accrued at the time products
          are sold and included in the cost of sales. Such claims are generally not
          insurable, and in some cases may give rise to a repurchase of a unit and
          payment
          of other damages under “lemon laws.” Should warranty claims arise which
          exceed our historical experience and associated accrued liabilities, such
          costs may have a material adverse effect on our cost of sales and
          profitability. During 2005, we experienced a $14.0 million increase in
          warranty costs related to continuing operations due to specific warranty
          reserves established and costs incurred for the recall of camping trailer
          lift
          systems and the repair of laminated sidewalls of certain of our
          recreational vehicles. Further, some jurisdictions have laws providing
          for a
          multiple recovery on warranty claims in some circumstances. The possibility
          for
          class actions also exists. In addition to the warranty expenses incurred
          by us, sizable product warranty claims may damage our reputation among
          dealers, builders and consumers that may adversely affect our future
          operating and financial results.
 
 **Increased
          costs, including costs of component parts and labor may adversely
          affect our profitability if such costs cannot be offset because of market
          forces or price-protected contracts with builders.**
  Our financial
          results may be significantly
          adversely affected by the availability and pricing of manufacturing components
          (particularly those with substantial steel, copper, plastic or lumber content)
          and labor. We attempt to mitigate the effect of any cost inflation in raw
          materials, components and labor by negotiating with current or new suppliers,
          contract price escalators, increasing labor productivity or increasing
          the sales
          prices of our products. However, we cannot assure that such actions
          will not have an adverse impact on the competitiveness of our products and
          result in declining revenues. If we are unable to successfully offset
          increases in manufacturing costs, this could have a material adverse impact
          on
          margins, operating income and cash flows. If we increase prices to offset
          higher manufacturing costs, the benefit of such increases may lag behind
          the
          rise in manufacturing costs. Specifically, in the Housing and Building
          Segment,
          it takes time to implement such price increases. Further, we make a
          commitment to builders and consumers to provide a minimum level of price
          protection during the period when consumers are arranging financing for
          their
          home purchases.
 
 During
          the period of rapid material cost inflation in early 2004, our margins were
          adversely affected by the number of price protected sales contracts with
          builders. Although we took steps to mitigate this risk in the future, there
          can be no assurance that rapid material or labor cost inflation will not
          have a
          negative impact on our future operating or financial results.
  **Changes
          to or increases in the regulations governing our businesses could have a
          material impact on operating and financial results.**
 
 Both
          the
          Recreational Vehicle and Housing and Building Segments are subject to extensive
          federal, state and local regulations, including:
 
 ·
                the
                    National Highway Traffic Safety Administration (NHTSA),
 
 ·
                the
                    Transportation Recall Enhancement, Accountability, and Documentation
                    Act
                    (TREAD),
 
 ·
                state
                    lemon law statutes,
 
 ·
                laws
                    regulating the operation of vehicles on highways,
 
 ·
                state
                    and federal product warranty statutes,
 
 ·
                state
                    legislation protecting motor vehicle dealerships, and
 
 ·
                state
                    and local zoning laws and building codes.
  Amendments
          to any of these regulations and the implementation of new regulations could
          significantly increase the costs of manufacturing, purchasing, operating
          or
          selling our products and could have a material adverse impact on our
          operating and financial results. Any failure to comply with present or
          future
          regulations could result in fines, potential civil and criminal liability,
          suspension of sales or production, or cessation of operations.
 -
              10
              -
 **Changes
          in favorable tax laws could adversely affect our results of operations.**
 
 Certain
          U.S. tax laws currently afford favorable tax treatment for the purchase
          and sale
          of recreational vehicles that are used as the equivalent of second homes.
          These
          laws and regulations have historically been amended frequently, and it
          is likely
          that further amendments and additional regulations affecting us or our
          products may be enacted in the future. Amendments to these laws and regulations
          and the implementation of new regulations could have a material adverse
          effect
          on our results of operations.
 
 **Failure
          to comply with environmental regulations could result in significantly
          increased
          costs and capital expenditures.**
 
 State
          and
          federal environmental laws also impact both the production and operation
          of our products. We have an Environmental Department dedicated to
          efforts to comply with applicable environmental regulations. To date, the
          RV
          group has not experienced any material adverse effect from existing federal,
          state, or local environmental regulations. Elkhart County, Indiana, which
          is
          where most of our recreational vehicle manufacturing facilities are
          located, was recently designated as a non-attainment area, which could
          impact
          future air emissions permitting. Failure to comply with present or future
          environmental regulations may result in fines, potential civil and criminal
          liability, suspension of production or operations, alterations to the
          manufacturing process, costly cleanup efforts or increased capital
          expenditures.
 
 **Changes
          in labor practices could adversely affect our labor costs and
          profitability.**
 
 Currently,
          none of our employees are members of any union or covered under any
          collective bargaining agreement. We provide competitive wages and a variety
          of benefits to our employees, including group life, dental, vision
          services, hospitalization, and major medical plans, a 401(k) plan and a
          stock
          purchase plan. Although we consider our relations with employees to be
          good, any material changes in labor costs or practices, including those
          resulting from union activity may have a negative impact on our
          profitability.
 
 **Reduced
          availability of financing for our dealers or retail customers could
          adversely affect revenues and margins.**
 
 Our RV
          dealers, as well as retail buyers of RV products, generally secure financing
          from third party lenders. Any reduction in the availability of such financing
          or
          significant increase in the cost of such financing resulting from higher
          interest rates may have an adverse effect on our business. Availability of
          financing is dependent on the lending practices of financial institutions,
          financial markets, governmental policies and economic conditions, all of
          which
          are largely beyond our control. For example, in the recent past, floorplan
          lenders have tightened credit availability, which has negatively affected
          the
          timing and accomplishment of our sales to our RV dealers, resulting in
          higher levels of finished goods inventory and associated financing costs.
          Increasing interest rates since mid-2004 have negatively impacted demand
          for our RV products. In response to this lower demand, we offered
          retail financing incentives to consumers resulting in increased selling
          expenses
          which negatively affected profitability.
 
 **Repurchase
          agreements with floorplan lenders could result in increased costs.**
 
 In
          accordance with customary practice in the RV industry, we enter into
          repurchase agreements with various financial institutions under which we
          agree to repurchase product at declining prices over the term of the agreements
          (typically 12 months), if an independent retailer defaults in its obligation
          to
          these credit sources. The difference between the gross repurchase price we
          pay and the price at which the repurchased product can then be resold,
          which is
          typically at a discount to the original sale price, represents a financial
          expense to us. As a result, if we were obligated to repurchase a large
          number of recreational vehicles in the future, this would increase costs,
          which
          could have a negative effect on earnings. A tightening of credit standards
          by
          lenders and more aggressive collection efforts by lenders could result
          in more
          defaults by dealers. These defaults could trigger repurchase obligations
          on us that may be higher than historical levels. In 2005, we
          repurchased 119 recreational vehicles at an aggregate gross purchase price
          of
          $2.8 million, incurring an additional discount of approximately $176,000,
          compared to repurchases of 104 recreational vehicles at an aggregate purchase
          price of $3.9 million, incurring an additional discount of about $259,000
          in
          2004.
 -
              11
              -
 **High
          inventories of recreational vehicles among dealers could continue to negatively
          affect our sales volume and profit margins.**
 
 The
          level
          of recreational vehicle inventories among dealers can have a significant
          impact
          on manufacturing, shipments, inventory levels and operating results. As
          wholesale shipments of recreational vehicles within the industry exceed
          retail
          sales of vehicles, inventories at the dealer level expand to a point where
          dealers significantly cut orders from manufacturers. As manufacturers respond
          to
          reduced demand, many offer wholesale and retail discounts and incentives
          in an
          effort to maintain production volumes. As a result, dealer inventories
          may
          expand further resulting in increasing need for discounts and incentives,
          or in
          the alternative, a need for dramatic reduction in overall production levels
          by
          manufacturers. Both increased discounts and incentives, and reduced production
          levels negatively affect our revenues and profitability.
 
 **Fuel
          shortages, or higher prices for fuel, could have a negative effect on sales
          of
          recreational vehicles.**
 
 Many
          of
          the recreational vehicles produced by us require gasoline or diesel fuel
          for their operation, while our towable products often require the use of a
          vehicle requiring gasoline or diesel fuel for their operation. Gasoline
          and
          diesel fuel have, at various times in the past, been difficult to obtain,
          and
          there can be no assurance that the supply of gasoline and diesel fuel will
          continue uninterrupted, that rationing will not be imposed or that the
          price of,
          or tax on fuel will not significantly increase in the future. Shortages
          of
          gasoline and diesel fuel and rapid significant increases in fuel prices
          have had
          a significant adverse effect on the demand for recreational vehicles in
          the past
          and could have a material adverse effect on demand in the future. Such
          a
          reduction in overall demand for recreational vehicles could have a materially
          adverse impact on our revenues and profitability.
  **Changes
          in consumer preferences and our ability to effectively adapt to those
          preferences may adversely affect revenues and profitability.**
 
 Consumer
          preferences for our recreational vehicles are likely to change over time,
          and as a result, we continually introduce new features, designs and models
          to meet changing consumer demand. Delays in the introduction of new models
          or
          product features, or a lack of market acceptance of new features, designs
          or
          models, could have a material adverse effect on our business and operating
          results. As a result, we may incur significant additional costs in
          designing or redesigning models that are not accepted in the marketplace.
          We may
          also experience production difficulties, such as inefficiencies in purchasing
          and increased labor costs, as new models are introduced. In addition, new
          product introductions may reduce revenues from existing models and adversely
          affect operating results. There can be no assurance that any new models
          or
          products will be introduced to the market on time or that they will be
          successful when introduced.
 
 **New
          product introductions may result in unanticipated expenses resulting in
          reduced
          earnings.**
 
 The
          introduction of new products is critical to the success of our Recreational
          Vehicle Segment. We incur additional costs when new products are
          introduced, such as research and development costs, engineering costs,
          and
          initial labor or purchasing inefficiencies. Additionally, we may incur
          unexpected expenses, including those associated with unexpected engineering
          or
          design flaws that will force a recall of a new product. In the past, we
          have experienced recalls that resulted in temporary plant shutdowns and
          disruptions of the supply of finished product to the wholesale market.
          In
          addition, we may be prompted to offer additional incentives to stimulate
          the sales of products not adequately accepted by the market, or to stimulate
          sales of older or obsolete products. These types of costs could be substantial
          and have a significant adverse effect on our financial results.
 
 **We depend
          on a small group of suppliers for some of our components, and any business
          interruption among these suppliers could adversely affect our production
          costs and profitability.**
 
 Most
          commodity components for both of our business segments are readily
          available from a variety of sources. However, a small group of suppliers
          produce
          a few proprietary or specialty components, primarily in the case of motorhome
          chassis. Freightliner is the primary supplier of diesel powered chassis
          for
          Class A diesel motorhomes, while Workhorse Custom Chassis and Ford Motor
          Company
          are the primary suppliers of gasoline powered chassis Class A gas motorhomes.
          Ford Motor Company and General Motors Corporation are the primary suppliers
          of
          Class C chassis. In the past, we have also experienced supply disruptions
          among other suppliers such as appliance manufacturers. Shortages, production
          delays or labor disputes at such suppliers could have a material adverse
          effect
          on our revenues. The inability of us to obtain adequate supplies of
          needed components could negatively impact our revenues and profitability.
 -
              12
              -
 **The
          consolidation of distribution channels within the RV industry could have
          a
          material negative effect on revenues and profitability.**
 
 Over
          the
          last several years, several large scale recreational vehicle dealers have
          grown
          to represent a significant presence in the industry. In addition, one major
          consolidator of RV dealers has grown through acquisition to 57 retail locations
          throughout the United States. This consolidated chain of dealers now represents
          approximately 10% of total industry retail sales. Although the chain of
          dealers
          is a customer of our RV Group, the chain represents less than 10% of the
          group’s total RV sales.
 
 The
          expansion of large scale dealers and the continued consolidation of dealerships
          among large players may result in increased pricing pressures in the industry
          in
          general and on us in particular. Such pressure exerted by the distribution
          channel may have a material adverse effect on the RV group’s revenues and
          profitability.
 
 **The
          market for our Housing and Building Segment is heavily concentrated in the
          Midwestern United States, and a continued weakness in demand in that area
          could
          have a material negative effect on revenues and profitability.**
 
 Our Housing
          and Building Segment is geographically concentrated, with three of its
          largest
          production facilities located in the Midwest. Softness in the housing market
          within the Midwest negatively impacted revenues and profitability at our
          production facilities in Ohio, Indiana, Tennessee and Iowa in 2005. We can
          offer no assurance that the demand for our homes will not remain weak in
          the Midwest or other areas in which we have a high sales concentration
          (such as the Southeast and Middle Atlantic regions). Any decline in sales
          could
          have a material adverse effect on our revenues and profitability.
  **The
          performance of our Housing and Building Segment in new markets may
          adversely affect revenues and profitability.**
 
 Beginning
          in 2003, our Housing and Building Segment formed All American Building
          Systems to pursue opportunities beyond its core single-family housing
          market. We have limited experience in producing multi-family residential
          structures, and limited experience in managing large-scale construction
          projects. The ability of the Housing and Building group to perform in these
          new
          markets presents a number of risks, including the following:
 
 ·
                potential
                    inability to meet contract specifications and timetables for
                    large-scale
                    projects,
 
 ·
                construction
                    of new products with significantly different designs from single-family
                    homes,
 
 ·
                compliance
                    with state and local building codes and zoning laws, and
 
 ·
                production
                    scheduling to meet demand from existing builders and large projects.
 
 Further,
          the per-project risks are higher for large-scale projects than with
          single-family homes. If we fail to identify and mitigate these
          risks, they may have a material adverse effect on revenues and
          profitability.


**Item
                1B.**
            **Unresolved
                Staff Comments**





None.




-
          13
          -


**Item
                2.**
            **Properties**





The
      Registrant owns or leases 3,670,815 square feet of plant and office space,
      located on 1,116.6 acres, of which 3,004,445 square feet are used for
      manufacturing, 262,476 square feet are used for warehousing and distribution,
      46,024 square feet are used for research and development, 153,940 square feet
      are used for customer service and 203,930 square feet are offices. Included
      in
      these numbers are 71,310 square feet leased to others and 1,129,316 square
      feet
      available for sale or lease, including property related to discontinued
      operations. The Registrant believes that its present facilities, consisting
      primarily of steel clad, steel frame or wood frame construction and the
      machinery and equipment contained therein, are well maintained and in good
      condition.





The
      following table indicates the location, number and size of the Registrant's
      properties by segment as of December 31, 2005:





Location
              
              Acreage
              
              No.
                  of
                Buildings
              
              Building
                  Area
                (Sq.
                  Ft.)**Properties
                  Owned and Used by Registrant:****Recreational
                  Vehicle Group**Fitzgerald,
                  Georgia
              
              
              29.6
              
              
              5
              
              
              170,670Elkhart,
                  Indiana
              
              
              6.0
              
              
              1
              
              
              29,886Middlebury,
                  Indiana
              
              
              167.7
              
              
              22
              
              
              1,018,261Centreville,
                  Michigan
              
              
              105.0
              
              
              4
              
              
              84,865Subtotal
              
              
              308.3
              
              
              32
              
              
              1,303,682**Housing
                  and Building Group**Milliken,
                  Colorado
              
              
              23.0
              
              
              1
              
              
              151,675Decatur,
                  Indiana
              
              
              40.0
              
              
              2
              
              
              215,995Dyersville,
                  Iowa
              
              
              20.0
              
              
              1
              
              
              168,277Rutherfordton,
                  North Carolina
              
              
              37.8
              
              
              1
              
              
              169,177Zanesville,
                  Ohio
              
              
              23.0
              
              
              2
              
              
              129,753Rocky
                  Mount, Virginia
              
              
              39.6
              
              
              5
              
              
              137,693Subtotal
              
              
              183.4
              
              
              12
              
              
              972,570**Other**Elkhart,
                  Indiana
              
              
              16.4
              
              
              3
              
              
              53,841Middlebury,
                  Indiana
              
              
              1.3
              
              
              2
              
              
              4,800Subtotal
              
              
              17.7
              
              
              5
              
              
              58,641Total
                  owned and used
              
              
              509.4
              
              
              49
              
              
              2,334,893
  -
            14
            -
 Location
              
              
              Acreage
              
              
              No.
                  of
                Buildings
              
              
              Building
                  Area
                (Sq.
                  Ft.)**Properties
                  Leased and Used by Registrant:****Recreational
                  Vehicle Group**Chino,
                  California
              
              
              4.7
              
              
              3
              
              
              84,296Elkhart,
                  Indiana
              
              
              7.8
              
              
              1
              
              
              43,000Subtotal
              
              
              12.5
              
              
              4
              
              
              127,296**Other**Elkhart,
                  Indiana
              
              
              1.6
              
              
              1
              
              
              8,000Total
                  leased and used
              
              
              14.1
              
              
              5
              
              
              135,296


**Properties
                Owned by Registrant and Leased to Others:****Other**Melbourne,
                  Florida
              
              
              7.5
              
              
              1
              
              
              32,000Crooksville,
                  Ohio
              
              
              10.0
              
              
              2
              
              
              39,310Total
                  owned and leased
              
              
              17.5
              
              
              3
              
              
              71,310**Properties
                  Owned by Registrant and Available for Sale or
                  Lease:****Recreational
                  Vehicle Group**Elkhart,
                  Indiana
              
              
              20.5
              
              
              6
              
              
              233,367Middlebury,
                  Indiana
              
              
              3.1
              
              
              5
              
              
              120,382Edwardsburg,
                  Michigan
              
              
              83.1
              
              
              12
              
              
              303,254Colfax,
                  North Carolina
              
              
              7.8
              
              
              0
              
              
              0Subtotal
              
              
              114.5
              
              
              23
              
              
              657,003**Housing
                  and Building Group**Decatur,
                  Indiana
              
              
              3.3
              
              
              2
              
              
              86,310Elkhart,
                  Indiana
              
              
              20.0
              
              
              4
              
              
              132,300Wichita,
                  Kansas
              
              
              3.0
              
              
              0
              
              
              0Leola,
                  Pennsylvania
              
              
              20.0
              
              
              2
              
              
              113,100Springfield,
                  Tennessee
              
              
              45.0
              
              
              2
              
              
              140,603Rocky
                  Mount, Virginia
              
              
              8.2
              
              
              0
              
              
              0Subtotal
              
              
              99.5
              
              
              10
              
              
              472,313**Other**Middlebury,
                  Indiana
              
              
              353.0
              
              
              0
              
              
              0Grapevine,
                  Texas
              
              
              8.6
              
              
              0
              
              
              0Subtotal
              
              
              361.6
              
              
              0
              
              
              0Total
                  owned and available for sale or lease
              
              
              575.6
              
              
              33
              
              
              1,129,316**Total
                  Company**
              
              
              1,116.6
              
              
              90
              
              
              3,670,815




-
          15
          -


**Item
                3.**
            **Legal
                Proceedings**





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 recorded in 2005 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
      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. The excess carrier denied coverage. The
      Company filed suit against the excess carrier to enforce coverage, however,
      resolution of this matter is pending. The Company has 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.





The
      Company is currently in arbitration with a housing customer over the terms
      of
      the contract. Arbitration is anticipated to be completed in the first half
      of
      2006. As of December 31, 2005, the Company has accrued an amount that management
      believes the arbitration will be settled for, however, there is a potential
      for
      exposure in excess of the amount accrued.





The
      Company is involved in other 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.




**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**





No
      matters were submitted during the quarter ended December 31, 2005 to a vote
      of
      security holders, through the solicitation of proxies or otherwise.




-
          16
          -


**Executive
      Officers of the
      Registrant**





The
      following table sets forth the executive officers of the Company, as of December
      31, 2005:


Name
            PositionClaire
                C. Skinner
            Chairman
                of the Board and Chief Executive OfficerMatthew
                J. Schafer
            President
                and Chief Operating Officer
              (Subsequent
                to year-end, Mr. Schafer was terminated and Ms. Skinner assumed his
                duties
                on an interim basis)Richard
                M. Lavers
            Executive
                Vice President, General Counsel and Secretary, Chief Financial Officer
                and
                Chief Administrative OfficerMichael
                R. Terlep, Jr.
            President,
                CLI dba Coachmen RV Group and President, Coachmen Recreational Vehicle
                Company, LLC





Claire
      C. Skinner (age 51)
      joined Coachmen Industries in 1983 and has served as Chairman of the Board
      and
      Chief Executive Officer since August 1997 while assuming the position of
      President of the Company from September 2000 through November 2003. Before
      that,
      she served as Vice Chairman of the Company since May 1995, and as Executive
      Vice
      President from 1990 to 1995. From 1987 through July 1997, Ms. Skinner served
      as
      the President of Coachmen RV, the Company's largest division. Prior to that,
      she
      held several management positions in operations and marketing since 1983. She
      received her B.F.A. degree in Journalism/Marketing from Southern Methodist
      University and her J.D. degree from the University of Notre Dame Law
      School.





Matthew
      J. Schafer (age 45)
      joined Coachmen Industries in December 2003 as President and Chief Operating
      Officer. Before joining Coachmen, Mr. Schafer served for more than 19 years
      in
      various executive positions with General Electric Company. From 2002 to 2003,
      he
      was Chief Operating Officer, GE Equipment Management, TIP & Modular Space, a
      full-line leasing, sales and service company of trailers, modular space units,
      containers and storage products. From 1999 to 2002, Schafer served as President,
      GE Equipment Management, Modular Space North America, a leading leasing, sales,
      turnkey construction and service business of modular units. From 1995 through
      1998, he served as the General Manager for three businesses of General Electric
      Industrial Systems, a global manufacturer of AC/DC motors, controls, security
      equipment, and software for the HVAC, commercial, appliance, and industrial
      markets. Schafer also held several other management positions with General
      Electric from 1984 through 1994. Schafer holds a Bachelor of Science degree
      in
      mechanical engineering from Union College in Schenectady, New York, and an
      Associates of Science degree in engineering science from Hudson Valley College
      in Troy, New York.





Subsequent
      to year-end, Mr. Schafer was terminated and Ms. Skinner assumed Mr. Schafer’s
      duties on an interim basis.





Richard
      M. Lavers (age
      57)  joined
      Coachmen Industries in October 1997 as General Counsel and assumed the position
      of Executive Vice President of the Company in May 2000 and has served as
      Secretary of the Company since March 1999. In December 2005, Mr. Lavers also
      assumed the positions of Chief Financial Officer and Chief Administrative
      Officer. From 1994 through 1997, Mr. Lavers was Vice President, Secretary and
      General Counsel of RMT, Inc. and Heartland Environmental Holding Company. Mr.
      Lavers earned both his B.A. degree and his J.D. degree from the University
      of
      Michigan.





Michael
      R. Terlep, Jr. (age 44)
      joined Coachmen Industries in 1984. Mr. Terlep was appointed President of CLI,
      dba Coachmen RV Group in March 2003 and appointed President of Coachmen
      Recreational Vehicle Company (Coachmen RV) in June 1997. Prior to that, he
      was
      Executive Vice President of Coachmen RV, with retained responsibility for
      product development, among other duties, since 1993. He was given the additional
      responsibility of General Manager of the Indiana Division in 1995. Prior to
      his
      promotion to Executive Vice President, Mr. Terlep served as Vice President
      of
      Sales and Product Development from 1990 to 1993. He has held several other
      management positions with the Company since joining Coachmen in 1984. He
      received his B.A. degree from Purdue University.


-
          17
          -


**Part
      II**





**Item
                5.**
            **Market
                for Registrant's Common Equity and Related Stockholder
                Matters**





The
      following table discloses the high and low sales prices for Coachmen's common
      stock during the past two years as reported on the New York Stock Exchange,
      along with information on dividends declared per share during the same periods.





High
                & Low Sales Prices
            
            Dividends
                Declared2005
            
            2004
            
            2005
            
            20041st
                Quarter
            
            $
            17.49
                - $13.46
            
            $
            20.19
                - $14.92
            
            $
            .06
            
            $
            .062nd
                Quarter
            
            
            14.11
                - 11.22
            
            
            18.01
                - 13.70
            
            
            .06
            
            
            .063rd
                Quarter
            
            
            14.50
                - 11.23
            
            
            16.54
                - 13.22
            
            
            .06
            
            
            .064th
                Quarter
            
            
            12.63
                - 10.76
            
            
            17.99
                - 13.70
            
            
            .06
            
            
            .06





The
      Company's common stock is traded on the New York Stock Exchange: stock symbol
      COA. The number of shareholders of record as of January 31, 2006 was 1,792.





See
Item
      12 for the Equity Compensation Table.





The
      Company did not repurchase any shares of its stock during the fourth quarter
      of
      the fiscal year ended December 31, 2005.


-
          18
          -


**Item
                6.**
            **Selected
                Financial Data**





Five-Year
      Summary of Selected Financial Data


-Year
      Ended December 31-


(in
      thousands, except per share amounts)


2005
            
            2004
            
            2003
            
            2002
            
            2001Net
                sales
            
            $
            702,425
            
            $
            802,346
            
            $
            636,891
            
            $
            582,921
            
            $
            479,287Gross
                profit
            
            
            55,960
            
            
            112,826
            
            
            92,395
            
            
            88,585
            
            
            62,448Net
                income (loss) from continuing operations
            
            
            (19,360
            )
            
            14,258
            
            
            8,443
            
            
            11,926
            
            
            (7,021
            )Discontinued
                operationsIncome
                (loss) from operations of discontinued entities
            
            
            (6,370
            )
            
            (659
            )
            
            (1,078
            )
            
            (1,997
            )
            
            3,070Gain
                (loss) on sale of assets of discontinued entities
            
            
            (620
            )
            
            1,735
            
            
            -
            
            
            -
            
            
            -Income
                (loss) from discontinued operations
            
            
            (6,990
            )
            
            1,076
            
            
            (1,078
            )
            
            (1,997
            )
            
            3,070Net
                income (loss)
            
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365
            
            $
            9,929
            
            $
            (3,951
            )Earnings
                (loss) per share - BasicContinuing
                operations
            
            
            (1.24
            )
            
            .92
            
            
            .55
            
            
            .74
            
            
            (.44
            )Discontinued
                operations
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )
            
            (.12
            )
            
            .19Net
                earnings (loss) per share - Basic
            
            
            (1.69
            )
            
            .99
            
            
            .48
            
            
            .62
            
            
            (.25
            )Earnings
                (loss) per share - DilutedContinuing
                operations
            
            
            (1.24
            )
            
            .92
            
            
            .55
            
            
            .74
            
            
            (.44
            )Discontinued
                operations
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )
            
            (.12
            )
            
            .19Net
                earnings (loss) per share - Diluted
            
            
            (1.69
            )
            
            .99
            
            
            .48
            
            
            .62
            
            
            (.25
            )Cash
                dividends per share
            
            
            .24
            
            
            .24
            
            
            .24
            
            
            .22
            
            
            .20At
                year-end:Working
                capital (1)
            
            
            93,017
            
            
            121,312
            
            
            95,963
            
            
            93,574
            
            
            102,006Total
                assets
            
            
            322,816
            
            
            357,723
            
            
            310,688
            
            
            293,195
            
            
            288,560Long-term
                debt
            
            
            12,913
            
            
            14,943
            
            
            9,419
            
            
            10,097
            
            
            11,001Shareholders'
                equity
            
            
            193,803
            
            
            224,418
            
            
            211,151
            
            
            209,426
            
            
            208,640Book
                value per share
            
            
            12.30
            
            
            14.27
            
            
            13.58
            
            
            13.37
            
            
            13.09Number
                of employees
            
            
            3,677
            
            
            4,416
            
            
            4,490
            
            
            4,233
            
            
            3,788




(1)
      Working capital is defined as current assets less current
      liabilities.




Note:
      The
      Five-Year Summary of Selected Financial Data above has been restated to reflect
      discontinued operations and should be read in conjunction with Note 11, *Restructuring
      Charges and*  *Discontinued
      Operations* ,
      of the
      Notes to the Consolidated Financial Statements appearing in this report.





-
          19
          -


**Item
                7.**
            **Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations**





The
      analysis of the Company's financial condition and results of operations should
      be read in conjunction with the Selected Financial Data and the Consolidated
      Financial Statements.





**OVERVIEW**





The
      Company was founded in 1964 as a manufacturer of recreational vehicles and
      began
      manufacturing system-built homes in 1982. Since that time, the Company has
      evolved into a leading manufacturer in both the recreational vehicle ("RV")
      and
      housing and building business segments through a combination of internal growth
      and strategic acquisitions.





During
      2003, the Company completed construction of a new Class C motorhome
      manufacturing facility in Indiana and purchased an existing facility in Georgia
      to expand its manufacturing capacity for travel trailers and fifth wheels.
      During 2004, the Company acquired two new RV production facilities five miles
      north of the main complex in Middlebury, Indiana and sold one smaller facility
      located in Goshen, Indiana. These new manufacturing facilities were acquired
      to
      meet increased market demand for the Company's travel trailers and fifth wheels
      and for production of the Company's new camping and travel trailer lines. In
      addition, the Company opened a new regional service center in Chino, California
      to better meet the needs of its recreational vehicle dealers and retail
      customers on the West Coast.




The
      Company's business segments are subject to certain seasonal demand cycles and
      changes in general economic and political conditions. Demand in the RV and
      certain portions of the Housing and Building Segments generally declines during
      the winter season, while sales and profits are generally highest during the
      spring and summer months. Inflation and changing prices have had minimal direct
      impact on the Company in the past in that selling prices and material costs
      have
      generally followed the rate of inflation. However, in 2004, rapid escalation
      of
      prices for certain raw materials combined with a number of price protected
      sales
      contracts adversely affected profits in the Housing and Building Segment. The
      RV
      Segment was also affected adversely by raw material inflation but to a lesser
      degree due to material surcharges added to the prices of products sold to
      dealers. Changes in interest rates impact both the RV and Housing and Building
      Segments, with rising interest rates potentially dampening sales.




In
        support of the Housing and Building Segment’s growing demand in the Atlantic and
        Southeastern states, the Company embarked on a 62,000 square-foot plant
        expansion of its Virginia operation, which will be completed in the first
        quarter of 2006. The Virginia facility has encountered production delays
        and
        capacity constraints amid surging order flow and backlogs since 2003. The
        new
        plant expansion is expected to increase annual production capacity by
        approximately 40%, with an anticipated 27% increase in sales for
        2006.
  Late
          in
          2005, the Company’s All American Building Systems (AABS) commercial business
          unit secured contracts for a number of multi-family projects including
          a $16
          million contract for three-story condominiums in Alabama and a $1.1 million
          contract for two-story condominiums in Florida. During 2005, AABS completed
          an
          urban infill project in Detroit worth approximately $1.7 million, and a
          $3.5
          million seniors condominium project in West Virginia was commenced with
          anticipated completion
          in early 2006. Initial deliveries of barracks for the $4.5 million military
          housing project at Fort Bliss, Texas were completed in December, with the
          remainder of the barracks scheduled for completion in the first quarter
          of 2006.
          AABS hopes to secure contracts for additional military housing projects
          during
          2006.
 
 The Housing
          and Building Segment is also pursuing additional business with federal,
          state and local authorities to provide permanent replacement structures
          for
          areas affected by the recent series of hurricanes in the Gulf of Mexico.
          In
          2005, the Housing and Building Segment produced temporary offices, banks
          and temporary medical structures with a value of $3.1 million to aid in
          the
          initial reconstruction in those hurricane affected areas. In 2006, the
          Company
          will begin construction of a $4.1 million multi-family project located
          on the
          outskirts of New Orleans, representing the first permanent reconstruction
          project for All American Homes. The Company is also negotiating for a number
          of
          other permanent reconstruction projects involving both single-family and
          multi-family residential structures.
 -
            20
            -


**Intensive
      Recovery Plan**





During
      2005, 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.





When
      describing the impact of these restructuring plans, all determinations of the
      fair value of long-lived assets were based upon comparable market values for
      similar assets.





During
      the year, approximately 140 salaried positions were eliminated throughout the
      Company which will result in annual savings of approximately $5.6 million in
      2006. The
      Company has also made a number of changes within corporate management to
      consolidate executive positions and reduce overhead.Severance costs
      related to the positions eliminationed were approximately $0.7 million, of
      which
      $0.5 million was paid by December 31, 2005 and $0.2 million will be paid in
      2006.




**Housing
      and Building Segment**





The
      Company is in the latter stages of closing the All American Homes operation
      in
      Springfield, Tennessee. The closure of the Tennessee location resulted in an
      asset impairment charge of approximately $1.1 million in 2005. During the prior
      three fiscal years, this location generated cumulative pre-tax losses of $3.4
      million, with an additional pre-tax loss (excluding non-cash charges) of $3.1
      million in 2005. This action 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, but should improve profitability
      by eliminating the possibility of further losses at this location. The facility
      has been listed for sale, and management anticipates the final closure of the
      Tennessee facility to occur late in the first quarter of 2006.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes of Kansas division. The total sales price was $1.5 million, which the
      Company received in cash. The sale resulted in a loss on the sale of
      discontinued operations of $0.6 million, net of $0.4 million in taxes. Prior
      to
      the sale, during the third quarter, an impairment loss of $1.6 million was
      recorded in anticipation of the sale of the division. In accordance with
      Statement of Financial Accounting Standard No. 144, the division qualified
      as a
      separate component of the Company’s business and as a result, the operating
      results of the division have been accounted for as a discontinued operation.
      Previously reported financial results for all periods presented have been
      restated to reflect this business as a discontinued operation.




The
      Company is also in the latter stages of negotiating the sale of Miller Building
      Systems, Inc. Management expects to close on the sale of Miller in early 2006.
      Since its acquisition, Miller has struggled through a deep downturn in the
      telecommunications market. An asset impairment charge of $4.3 million was
      recorded in the third quarter. In conjunction with the pending sale of Miller,
      and as a result of Miller meeting all the criteria to be considered held for
      sale, the Company incurred an additional impairment charge for the subsidiary
      of
      approximately $3.6 million in the fourth quarter. In accordance with Statement
      of Financial Accounting Standard No. 144, the division qualified as a separate
      component of the Company’s business and as a result, the operating results of
      the division have been accounted for as a discontinued operation. Previously
      reported financial results for all periods presented have been restated to
      reflect this business as a discontinued operation.





In
      conjunction with the actions noted above, management allocated goodwill of
      $0.7
      million to the discontinued operations from the Housing and Building Segment
      goodwill based on the relative fair value of the discontinued operations to
      the
      entire Housing and Building Segment. The $0.7 million of allocated goodwill
      consisted of $0.6 million allocated to Miller Building Systems, which was then
      determined to be impaired and was written off and $0.1 million allocated to
      All
      American Homes of Kansas, which was included in the determination of the final
      loss on sale of assets.


-
          21
          -


**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 was completed late in the fourth
      quarter. This
      internal restructuring should result in improved operating efficiencies and
      capacity utilization within the RV Segment, representing approximately $5
      million in annual operational improvements beginning in 2006, with no
      anticipated decrease in revenues.The old GBM manufacturing complex has
      been listed for sale; however, no loss on disposal is anticipated.





On
      January 13, 2006, the Company sold all operating assets of Prodesign, LLC.
      The
      total sales price was $8.2 million, of which the Company received $5.7 million
      in cash, a $2.0 million promissory note and $0.5 million to be held in escrow
      to
      cover potential warranty claims and uncollectible accounts receivable, as
      defined in the sale agreement. The promissory note is to be repaid over a period
      of 10 years, using an amortization period of 15 years, and bears interest at
      6%
      per annum with interest only payments being required in the first three years.
      Any funds remaining in the escrow account after a period of 13 months will
      revert to the Company. In accordance with Statement of Financial Accounting
      Standard No. 144, Prodesign qualified as a separate component of the Company’s
      business and as a result, the operating results of Prodesign have been accounted
      for as a discontinued operation. Previously reported financial results for
      all
      periods presented have been restated to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the Recreational Vehicle Segment goodwill based on the relative
      fair value of the discontinued operations to the entire Recreational Vehicle
      Segment. The $0.3 million of allocated goodwill will be written off in
      conjunction with the calculation of the final gain on sale of assets in the
      first quarter of 2006.




During
        the later part of 2005, the RV Segment began to see favorable results from
        its
        Intensive Recovery Plan. Total discounts and incentives as a percentage of
        sales
        were reduced by a meaningful 18.6% versus prior periods, and capacity
        utilization was increased through the Georgie Boy Manufacturing transition
        to
        Middlebury and the consolidation of a number of operations. The daily unit
        output of the Segment’s towable plants improved by 75% when compared with the
        first nine months of the year.
 
 Even
        though 2005 presented significant challenges for the RV Segment, the long-term
        future of this business remains bright. The recent RV Consumer Demographic
        Profile published by the Dr. Richard Curtin of the University of Michigan
        indicates that RV ownership is at its highest level ever, with more than
        7.9
        million households currently owning an RV. Based on continuing demographic
        strength, Dr. Curtin has suggested that the RV Industry’s annual wholesale
        shipments could grow significantly over the next decade. With Coachmen’s strong
        portfolio of brands, its full range of product types and prices, and its
        national network of dealers, the Coachmen RV Group is well-positioned to
        capitalize on future growth in the Industry.




-
          22
          -


**RESULTS
      OF OPERATIONS**





The
      following table sets forth, for the periods indicated, the percentage of net
      sales represented by certain items reflected in the Consolidated Statements
      of
      Operations expressed as a percentage of sales and the percentage change in
      the
      dollar amount of each such item from that in the indicated previous
      year:





Percentage
                of Net Sales
            
            Percent
                ChangeYears
                Ended December 31
            
            2005
            
            2004to
            
            to2005
            
            2004
            
            2003
            
            2004
            
            2003Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            (12.5
            )%
            
            26.0
            %Cost
                of sales
            
            
            92.0
            
            
            85.9
            
            
            85.5
            
            
            (6.2
            )
            
            26.6Gross
                profit
            
            
            8.0
            
            
            14.1
            
            
            14.5
            
            
            (50.4
            )
            
            22.1Operating
                expenses:Delivery
            
            
            4.7
            
            
            4.3
            
            
            4.4
            
            
            (3.7
            )
            
            21.8Selling
            
            
            4.0
            
            
            3.6
            
            
            3.6
            
            
            (1.0
            )
            
            25.0General
                and administrative
            
            
            4.4
            
            
            3.9
            
            
            4.7
            
            
            (2.4
            )
            
            6.2Asset
                impairments
            
            
            .1
            
            
            .0
            
            
            .0
            
            
            n/m
            
            
            n/m(Gain)
                loss on sale of assets, net
            
            
            .0
            
            
            (.2
            )
            
            (.1
            )
            
            n/m
            
            
            n/mTotal
                operating expenses
            
            
            13.2
            
            
            11.6
            
            
            12.6
            
            
            .1
            
            
            15.9Operating
                income (loss)
            
            
            (5.2
            )
            
            2.5
            
            
            1.9
            
            
            (283.2
            )
            
            62.2Nonoperating
                (income) expense:Interest
                expense
            
            
            .5
            
            
            .2
            
            
            .2
            
            
            76.6
            
            
            80.7Investment
                income
            
            
            (.3
            )
            
            (.3
            )
            
            (.2
            )
            
            (.5
            )
            
            110.3Other
                (income) expense
            
            
            (.1
            )
            
            (.0
            )
            
            (.1
            )
            
            33.2
            
            
            14.2Total
                nonoperating (income) expense
            
            
            .1
            
            
            (.1
            )
            
            (.1
            )
            
            (170.5
            )
            
            111.0Income
                (loss) from continuing operations before income taxes
            
            
            (5.3
            )
            
            2.6
            
            
            2.0
            
            
            (279.1
            )
            
            63.6Income
                taxes (credit)
            
            
            (2.5
            )
            
            .8
            
            
            .7
            
            
            (372.9
            )
            
            53.3Net
                income (loss) from continuing operations
            
            
            (2.8
            )
            
            1.8
            
            
            1.3
            
            
            (235.8
            )
            
            68.9Discontinued
                operationsIncome
                (loss) from operations of discontinued entities
            
            
            (.9
            )
            
            (.1
            )
            
            (.1
            )
            
            n/m
            
            
            (38.9
            )Gain
                (loss) on sale of assets of discontinued entities
            
            
            (.1
            )
            
            .2
            
            
            .0
            
            
            n/m
            
            
            n/mNet
                income (loss)
            
            
            (3.8
            )
            
            1.9
            
            
            1.2
            
            
            (271.8
            )
            
            108.2





n/m
      - not
      meaningful





Note:
      The
      Results of Operations above have been restated to reflect discontinued
      operations and should be read in  conjunction
      with Note 11, *Restructuring
      Charges and*  *Discontinued
      Operations* ,
      of the
      Notes to the Consolidated Financial Statements appearing in this report.


-
          23
          -


**Comparison
      of 2005 to 2004**





Consolidated
      net sales from continuing operations decreased $99.9 million or 12.5% to $702.4
      million in 2005 from $802.3 million in 2004. The Company's RV Segment
      experienced a net sales decrease from continuing operations of $71.6 million,
      or
      12.1%, from 2004. Throughout 2005, the RV Segment worked through an industry
      slowdown in retail activity and higher dealer inventories, in part related
      to
      falling consumer confidence and significantly higher fuel costs, and due to
      a product recall for camping trailers. Full-year recreational vehicle wholesale
      unit shipments for the Company were down 11.9% compared to 2004, while the
      industry was  up
      4.2% . For the
      full year, the Company’s wholesale market share declined from 5.8% to 4.9%
      across all product types. The Company’s retail market share for the same period
      declined from 5.4% to 4.9% across all product types. Detailed market share
      data
      for 2005 and 2004 for each product type are set forth in the following
      table:





Wholesale
                Share
            
            Retail
                Share2005
            
            2004
            
            2005
            
            2004Class
                A Motorhomes
            
            
            7.6
            %
            
            7.9
            %
            
            7.9
            %
            
            7.1
            %Gasoline
            
            
            n/a
            
            
            n/a
            
            
            10.2
            %
            
            9.5
            %Diesel
            
            
            n/a
            
            
            n/a
            
            
            5.5
            %
            
            4.4
            %Class
                C Motorhomes
            
            
            9.3
            %
            
            12.5
            %
            
            12.5
            %
            
            12.0
            %Travel
                Trailers
            
            
            4.4
            %
            
            4.4
            %
            
            4.0
            %
            
            4.3
            %Fifth
                Wheels
            
            
            1.7
            %
            
            2.1
            %
            
            2.1
            %
            
            2.4
            %Camping
                Trailers
            
            
            10.0
            %
            
            14.6
            %
            
            9.9
            %
            
            11.9
            %Total
            
            
            4.9
            %
            
            5.8
            %
            
            4.9
            %
            
            5.4
            %*Wholesale
                share based on wholesale unit shipment data as reported by the
                Recreational Vehicle Industry Association.**Retail
                share based on data provided by Statistical Surveys,
                Inc.*


The
      decrease in wholesale Class A market share is attributable to an overall
      slowdown in the Class A market, as well as, the transition of the Company's
      Georgie Boy subsidiary to the Coachmen RV complex in Middlebury, Indiana during
      the fourth quarter of 2005. Travel trailer wholesale market share remained
      constant from 2004 even though units shipped increased 19.5% to 8,638 units
      due
      to the market success of its new 2006 models, as well as, increased shipments
      of
      FEMA-related units both by Coachmen and within the industry as a
      whole.  Camping
      trailers again saw an industry-wide decline in wholesale shipments of
      approximately 3.8% during 2005, while the Company experienced a 4.6% decrease
      in
      market share. Coachmen’s share of camping trailers at wholesale declined 4.6
      percentage points to 10.0% due mainly to issues surrounding the recall of the
      Company’s products due to the lift mechanism employed in the product. The 12.1%
      decrease in sales dollars for the Recreational Vehicle Segment was the
      result of an  11.9%
      decrease in unit shipments coupled with a decline in the 2005 average
      sales price per unit for products sold of 4.8% from the 2004 average
      per unit price. This decrease is a result of the change in product mix sold
      during 2005. RV backlogs in dollars at the end of 2005 were $80.3 million,
      down
      from $100.7 million at the end of 2004. Backlog in units however, more than
      doubled to 3,964 from 1,924 in 2004, primarily due to the increase of travel
      trailer orders.  Total
      travel trailer backlog rose from 524 units at the end of 2004 to 2,857 units
      at
      the end of 2005, with approximately 80% of the backlog representing dealer
      retail demand rather than hurricane related orders.





The
      Housing and Building Segment had a net sales decrease from continuing operations
      in 2005 of $28.4 million, or 13.6%. Wholesale unit shipments declined 20.9%
      compared with the prior year but backlogs at December 31, 2005 rose 23.2% to
      $46.2 million, compared with $37.5 million at December 31, 2004. The
      Segment’s results were impacted by continuing weakness in its core Midwest
      housing market. The most recent statistics on housing starts from the U.S.
      Census Bureau showed a 23.8% decline in new single-family homes in the Midwest
      region for December, which is consistent with the challenges faced at the All
      American Homes operations in Ohio, Indiana and Iowa through much of the year.
      In
      contrast to the weakness in the Midwest, the Southern market has been performing
      well, where Census Bureau data showed a 4.3% increase in single-family housing
      starts in December and an 11.6% increase for the full year.For 2005, the
      Housing and Building Segment experienced a 5.8%  increase
      in the average sales price per unit which partially offset the decline in unit
      sales.  Historically,
      the Company's first and fourth quarters are the slowest for sales in both
      segments.


-
          24
          -


Gross
      profit from continuing operations was  $56.0
      million, or 8.0% of net sales, in 2005 compared to $112.8 million, or 14.1%
      of
      net sales, in 2004. For the RV Segment, gross profit  in
      dollars and as a percentage of net sales declined in 2005 as a result
      of  decreased
      production volume, resulting in lower utilization of the Company's manufacturing
      facilities, increased retail and wholesale incentives of $5.9 million, as well
      as, increased warranty costs of $12.6 million compared to 2004. The increase
      in
      warranty costs is due to specific warranty reserves established related to
      the
      recall of camping trailer lift systems and to the repair of laminated sidewalls
      of certain of the Company’s recreational vehicles. For the Housing and Building
      Segment, gross profit in dollars and as a percentage of net sales declined
      due
      to the 13.6% decrease in sales combined with higher insurance, workers
      compensation and warranty costs.





Operating
      expenses for continuing operations, consisting of selling, delivery, general
      and
      administrative expenses, were $91.9 million and $94.2 million, or as a
      percentage of net sales, 13.1% and 11.8% for 2005 and 2004, respectively.
      Delivery expenses were $32.8 million in 2005 or 4.7% of net sales, compared
      with
      $34.0 million in 2004 or 4.3% of net sales. Increases in fuel costs, as well
      as,
      outsourcing costs negatively affected delivery expense, offset by reductions
      in
      payroll related costs and lower setting expenses due to the reduction in unit
      sales in the Housing and Building Segment. Selling expenses for 2005 were $28.3
      million, or 4.0% of net sales,  a
      0.4
      percentage point increase from the $28.6 million, or 3.6% of net sales,
      experienced in 2004. The $0.3 decrease in selling expense was primarily the
      result of reductions in payroll related expenses. General and administrative
      expenses were $30.8 million in 2005, or 4.4% of net sales, compared with $31.5
      million, or 3.9% of net sales, in 2004.  The
      decrease of $0.7 million in general and administrative expenses, while greater
      as a percentage of sales than 2004, was primarily related to the reduction
      in
      payroll related expenses of $5.0 million (which includes the reversal of
      expenses accrued related to a long-term incentive compensation program of $1.4
      million) partially offset by an increase of $3.2 million due to litigation
      settlements and professional services and an increase of $0.8 million in bad
      debt expense.




Operating
      loss from continuing operations in 2005 of $36.8 million decreased $56.9 million
      compared with the operating income of $20.1 million in 2004. This decrease
      is
      the result of the $56.9 million decrease in gross profit with no significant
      decrease in operating expenses.





The
      Company is in the latter stages of closing the All American Homes operation
      in
      Springfield, Tennessee. The pending closure of the Tennessee location resulted
      in an asset impairment charge of $1.1 million during 2005. The facility has
      been
      listed for sale, and management anticipates the final closure of the Tennessee
      facility to occur late in the first quarter of 2006. 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.





In
      2005,
      the Company had gains on the sale of properties of $0.2 million, compared to
      gains on the sale of properties of $1.4 million in 2004. There were no
      significant gains or losses from property transactions related to continuing
      operations during 2005.  The
      gains
      for 2004 resulted primarily from the sale of a 79,000 square foot facility
      in
      Goshen, Indiana and the sale of various properties that had not been used in
      production, which were located in Elkhart and Middlebury, Indiana. Assets are
      continually analyzed and every effort is made to sell or dispose of properties
      that are determined to be excess or unproductive.





Interest
      expense from continuing operations for 2005 and 2004 was $3.2 million and $1.8
      million, respectively. Interest expense increased due to the higher amount
      of
      average outstanding balances of short and long-term borrowings incurred by
      the
      Company and the amount borrowed by the Company against the cash surrender value
      of the Company's investment in life insurance contracts combined with higher
      applicable interest rates.  During
      2004, the Company borrowed from its line of credit ($10 million outstanding
      at
      December 31, 2004), obtained a one-time short-term note ($10 million outstanding
      at December 31, 2004) and borrowed against the cash surrender value of its
      investment in life insurance contracts ($15 million outstanding at December
      31,
      2004) to meet working capital needs. These borrowings were generally associated
      with the increased inventory and accounts receivable levels maintained by the
      Company during 2004, along with the investment in two strategic growth
      initiatives within the RV Segment during 2004 that were funded primarily from
      available cash and borrowings. The first growth initiative was the purchase,
      tooling and staffing of a business unit that was to have been dedicated to
      the
      Coleman â brand of
      recreational vehicles. The second initiative was the opening of the Company's
      new West Coast Service Center in southern California to better serve customers
      in the western states. During 2005, the Company continued to borrow from its
      line of credit ($12.3 million outstanding at December 31, 2005) and continued
      to
      borrow against the cash surrender value of its investment in life insurance
      contracts ($15 million outstanding throughout 2005 and at December 31, 2005).





Investment
      income from continuing operations for 2005 and 2004 was $2.2 million in both
      years (see Note 1 of Notes to Consolidated Financial
      Statements).


-
          25
          -


Pre-tax
      loss from continuing operations for 2005 was $37.4 million compared with pre-tax
      income from continuing operations of $20.9 million for 2004. The Company's
      RV
      Segment generated pre-tax loss from continuing operations  of
      $40.8
      million, or 7.8% of recreational vehicle net sales in 2005, compared with
      pre-tax income from continuing operations of $10.6 million, or 1.8% of the
      RV
      Segment's net sales in 2004.  The
      Housing and Building Segment recorded 2005 pre-tax loss from continuing
      operations of  $2.4
      million or 1.3% of segment net sales compared with pre-tax income from
      continuing operations of $9.8 million, or 4.7% of segment net sales (see Note 2 of Notes to Consolidated Financial Statements).





The
      provision for income taxes related to continuing operations was a benefit of
      $18.0 million for 2005 versus an expense of $6.6 million for 2004, representing
      an effective tax rate of (48.2%) for 2005 and 31.6% for 2004. 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 federal
      and state research and development (“R&D”) tax credits for the current year
      and prior years, all of which were recognized in 2005. During 2005, the Company
      completed a project to identify eligible expenditures for purposes of claiming
      R&D tax credits. As part of this project, the Company filed amended tax
      returns for 1999-2003 to claim federal and state R&D tax credits. In
      addition, the Company’s 2004 federal and state income tax returns, which were
      completed and filed during 2005, reflected $.9 million of federal and state
      tax
      credits not recognized in the 2004 provision. The carryback of the Company’s
      2005 net operating loss results in an alternative minimum tax (“AMT”) credit
      carryforward of $.2 million, which can be carried forward indefinitely. Further,
      at December 31, 2005, the Company has federal and state R&D tax credit
      carryforwards of $.4 million and $.2 million, respectively, which can be
      utilized to offset future tax liabilities. The Company has also recognized
      the
      tax benefit of certain state net operating loss carryforwards in states that
      do
      not permit carrybacks of net operating losses. In management’s opinion, no
      valuation allowance for deferred tax assets is required at December 31, 2005
      (see Note 10 of Notes to Consolidated Financial
      Statements).





Net
      loss
      from continuing operations for the year ended December 31, 2005 was $19.4
      million (a loss of $1.24 per diluted share) compared to net income from
      continuing operations for the year ended December 31, 2004 of $14.3 million
      (earnings of $.92 per diluted shared).  Net
      loss
      for the year ended December 31, 2005 was $26.4 million (a loss of $1.69 per
      diluted share) compared to net income of $15.3 million (earnings of $.99 per
      diluted share) for 2004.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes of Kansas division. The total sales price was $1.5 million, which the
      Company received in cash. The sale resulted in a loss on the sale of
      discontinued operations of $0.6 million, net of $0.4 million in taxes. Prior
      to
      the sale, during the third quarter, an impairment loss of $1.6 million was
      recorded in anticipation of the sale of the division. In accordance with
      Statement of Financial Accounting Standard No. 144, the division qualified
      as a
      separate component of the Company’s business and as a result, the operating
      results of the division have been accounted for as a discontinued operation.
      Previously reported financial results for all periods presented have been
      restated to reflect this business as a discontinued operation.




On
      January 13, 2006, the Company sold all operating assets of Prodesign, LLC.
      The
      total sales price was $8.2 million, of which the Company received $5.7 million
      in cash, a $2.0 million promissory note and $0.5 million to be held in escrow
      to
      cover potential warranty claims and uncollectible accounts receivable, as
      defined in the sale agreement. The promissory note is to be repaid over a period
      of 10 years, using an amortization period of 15 years, and bears interest at
      6%
      per annum with interest only payments being required in the first three years.
      Any funds remaining in the escrow account after a period of 13 months will
      revert to the Company. In accordance with Statement of Financial Accounting
      Standard No. 144, Prodesign qualified as a separate component of the Company’s
      business and as a result, the operating results of Prodesign have been accounted
      for as a discontinued operation. Previously reported financial results for
      all
      periods presented have been restated to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the Recreational Vehicle Segment goodwill based on the relative
      fair value of the discontinued operations to the entire Recreational Vehicle
      Segment. The $0.3 million of allocated goodwill will be written off in
      conjunction with the calculation of the final gain on sale of assets in the
      first quarter of 2006.





The
      Company is also in the latter stages of negotiating the sale of Miller Building
      Systems, Inc. Management expects to close on the sale of Miller in early 2006.
      Since its acquisition, Miller has struggled through a deep downturn in the
      telecommunications market. An asset impairment charge of $4.3 million was
      recorded in the third quarter. In conjunction with the pending sale of Miller,
      and as a result of Miller meeting all the criteria to be considered held for
      sale, the Company incurred an additional impairment charge for the subsidiary
      of
      approximately $3.6 million in the fourth quarter. In accordance with Statement
      of Financial Accounting Standard No. 144, the division qualified as a separate
      component of the Company’s business and as a result, the operating results of
      the division have been accounted for as a discontinued operation. Previously
      reported financial results for all periods presented have been restated to
      reflect this business as a discontinued operation.


-
          26
          -


**Comparison
      of 2004 to 2003**





Consolidated
      net sales from continuing operations increased $165.5 million, or 26.0% to
      $802.3 million in 2004 from $636.9 million in 2003 . The
      Company's RV Segment experienced a net sales increase of $132.1 million,
      or  28.6%,
      over 2003. During 2004, the Company continued to see a shift in demand towards
      higher end products in the RV Segment. Full-year recreational vehicle wholesale
      unit shipments for the Company were up 10.1% compared to 2003, while the
      industry was up 15.5% in the same categories. In the various product categories,
      the Company's Class A market share increased to 7.9% in 2004 as compared to
      7.1%
      in 2003. Class C market share increased to 12.5% compared to 11.6% in 2003.
      Travel trailer market share declined 0.6 percentage points to 4.4% from 5.0%
      in
      2003. Fifth wheel market share decreased to 2.1% in 2004 from 3.1% in 2003
      and
      camping trailer market share increased to 14.6% from 12.0% the previous year.
      The increase in Class A market share is attributable to the improved performance
      of the Company's Georgie Boy subsidiary during 2004 coupled with the increased
      emphasis on rear diesel products at Coachmen Recreational Vehicle Company.
      Travel trailer market share decreased mainly due to an increase of 11.3% in
      unit
      shipments within the industry while the Company's unit shipments remained flat
      for 2004. Likewise, the fifth wheel market share decline is a result of an
      increase of 35.0% in unit shipments within the industry, while the Company's
      unit shipments declined 11.2%. Camping trailers saw an industry-wide decline
      in
      wholesale shipments of over 4% during 2004 while the Company experienced a
      16.9%
      increase in unit shipments. As a result of the overall lower increase in unit
      shipments when compared to the industry, Coachmen's share of recreational
      vehicle wholesale shipments for the year declined to 5.8%, a 0.2 percentage
      point decline from its 2003 full-year share of 6.0%. The 28.6% increase in
      sales
      dollars for the Recreational Vehicle Segment coupled with a 10.1% increase
      in
      unit shipments resulted in an increase of 15.9% in the average sales price
      per
      unit for products sold by the Company in 2004. RV backlogs at the end of 2004
      were $101 million. Although the backlog is down approximately 35% from a year
      ago, the Company considers the current backlog to be at a healthy level. The
      backlog at the end of 2003 was exceedingly high as a result of improving market
      fundamentals at that time.  The
      Housing and Building Segment had a net sales increase in 2004 of $33.4 million,
      or 19.1%. Residential wholesale unit shipments increased 8.6% compared with
      the
      prior year and backlogs at December 31, 2004 rose 23.7% to $47 million, compared
      with $38 million at December 31, 2003. For 2004, the Housing and Building
      Segment experienced a 5.0% increase in the average sales price per unit, as
      well
      as, an overall 10.5% increase in unit sales. The increase was the result of
      product mix, sales price increases and surcharges related to increased cost
      of
      raw materials, particularly lumber. Historically, the Company's first and fourth
      quarters are the slowest for sales in both segments.





Gross
      profit from continuing operations was $112.8 million, or 14.1% of net sales,
      in
      2004 compared to $92.4 million, or 14.5% of net sales, in 2003. For the RV
      Segment, gross profit in dollars and as a percentage of net sales improved
      in
      2004 as a result of increased production volume, resulting in improved
      utilization of the Company's manufacturing facilities. For the Housing and
      Building Segment, gross profit in dollars improved while the gross profit
      percentage declined slightly due to the Company's continued investment in new
      business initiatives. The overall increase in gross profit dollars was primarily
      attributable to the continued recovery of the RV Segment while the decrease
      in
      gross profit as a percentage of sales was primarily the result of material
      price
      increases in the Housing and Building Segment and new business initiatives
      in
      both the RV and Housing and Building Segments.





Operating
      expenses, consisting of selling, delivery, general and administrative expenses,
      were  $94.2
      million and $80.5 million, or as a percentage of net sales, 11.8% and 12.7%
      for
      2004 and 2003, respectively. Delivery expenses  were  $34.0
      million in 2004 or  4.3%
      of
      net sales, compared with $27.9 million in 2003, or 4.4% of net sales.
      Product  mix,
      delivery distance, as well as, operating expenses and outsourcing costs affect
      delivery expense. Selling expenses  for
      2004
      were $28.6 million or 3.6% of net sales  and
      for
      2003 were $22.9 million, or 3.6% of net sales. The $5.7 million increase in
      selling expense was the result of an increase of $3.7 million from the RV
      Segment which was related to increased staffing, sales commissions and bonuses,
      along with increased expenses associated with new product shows plus $2.0
      million from the Housing and Building Segment which was related to increased
      staffing, commissions, new product shows and literature expenses. General and
      administrative expenses were $31.5 million in 2004, or 3.9% of net sales,
      compared with $29.7 million, or 4.7% of net sales, in 2003. While less as a
      percentage of sales than 2003, the increase was related to increases in
      management bonuses and regulatory compliance costs including professional
      services related to the audit.





Operating
      income from continuing operations in 2004 of $20.1 million increased $7.7
      million compared with the operating income of $12.4 million in 2003. This
      increase is consistent with the $20.4 million increase in gross profit plus
      the
      $0.9 million increase in gain on the sale of assets, partially offset by the
      $12.7 million overall increase in total operating expenses.





The
      gain
      on sale of assets increased to $1.4 million in 2004 from $.5 million in 2003.
      The gains for 2004 resulted primarily from the sale of a 79,000 square-foot
      facility in Goshen, Indiana and the sale of various properties that had not
      been
      used in production, which were located in Elkhart and Middlebury, Indiana.
      The
      gains for 2003 resulted primarily from the sale of vacant lots located in
      California. Assets are continually analyzed and every effort is made to sell
      or
      dispose of properties that are determined to be excess or unproductive.


-
          27
          -


Interest
      expense from continuing operations for 2004 and 2003 was $1.8 million and $1.0
      million, respectively. Interest expense varies with the amount of short and
      long-term borrowings incurred by the Company and the amount borrowed by the
      Company against the cash surrender value of the Company's investment in life
      insurance contracts. During 2004, the Company borrowed from its line of credit
      ($10 million outstanding at December 31, 2004), obtained a one-time short-term
      note ($10 million outstanding at December 31, 2004) and borrowed against the
      cash surrender value of its investment in life insurance contracts ($15 million
      outstanding at December 31, 2004) to meet working capital needs. These
      borrowings were generally associated with the increased inventory and accounts
      receivable levels maintained by the Company during 2004, along with the
      investment in two strategic growth initiatives within the RV Segment during
      2004
      that were funded primarily from available cash and borrowings. The first growth
      initiative was the purchase, tooling and staffing of a business unit that was
      to
      have been dedicated to the Coleman â brand of
      recreational vehicles. The second initiative was the opening of the Company's
      new West Coast Service Center in southern California to better serve customers
      in the western states.





Investment
      income for 2004 of $2.2 million was $1.2 million higher than 2003 (see Note 1 of Notes to Consolidated Financial Statements).





Pre-tax
      income from continuing operations for 2004 was $20.9 million compared with
      pre-tax income from continuing operations of $12.7 million for 2003. The
      Company's RV Segment generated pre-tax income from continuing operations of
      $10.6 million, or 1.8% of recreational vehicle net sales in 2004, compared
      with
      pre-tax income from continuing operations of $1.2 million, or .3% of the RV
      Segment's net sales in 2003. The Housing and Building Segment recorded 2004
      pre-tax income from continuing operations of $9.8 million and in 2003, $12.5
      million, or  4.7%
      and
      7.1%, respectively, of segment net sales (see Note 2 of
      Notes to Consolidated Financial Statements).





The
      provision for income taxes related to continuing operations was an expense
      of
      $6.6 million for 2004 versus an expense of $4.3 million for 2003, representing
      an effective tax rate of 31.6% for 2004 and 33.8% for 2003. The lower effective
      tax rate in 2004 resulted primarily from the reversal of certain reserves for
      federal income taxes, which were no longer required since the statute of
      limitations expired or the risk of additional tax assessments was no longer
      probable. The Company's effective tax rate fluctuates based upon the states
      where sales occur, the level of export sales, the mix of nontaxable investment
      income and changes in recorded tax reserves (see Note 10
      of Notes to Consolidated Financial Statements).





Net
      income from continuing operations for the year ended December 31, 2004 was
      $14.3
      million ($.92 per diluted share) compared to net income from continuing
      operations for the year ended December 31, 2003 of $8.4 million ($.55 per
      diluted shared).  Net
      income for the year ended December 31, 2004 was $15.3 million ($.99 per diluted
      share) compared to net income of $7.4 million ($.48 per diluted share) for
      2003.





On
      December 31, 2004, the Company sold all operating assets of the Company-owned
      dealership located in North Carolina. The total sale price was $11.8 million,
      of
      which the Company received cash of $10.8 million and a promissory note of $1
      million. The promissory note is due in two annual payments, including interest.
      The sale resulted in a gain on sale of discontinued operations of $1.7 million,
      net of $.8 million in taxes. In accordance with Statement of Financial
      Accounting Standard No. 144, the dealership qualified as a separate component
      of
      the Company's business and as a result, the operating results and the gain
      on
      the sale of assets have been accounted for as a discontinued operation.
      Previously reported financial results for all periods presented have been
      restated to reflect this business as a discontinued operation.





**Liquidity
      and Capital Resources**





The
      Company generally relies on funds from operations as its primary source of
      working capital and liquidity. In addition, the Company maintains a $35.0
      million unsecured line of credit to meet its seasonal working capital needs
      (see
Note 5 of Notes to Consolidated Financial Statements). This
      credit line was utilized in 2005, 2004 and 2003 and there were $12.3 million,
      $10.0 million and $5.0 million in outstanding borrowings at December 31, 2005,
      2004 and 2003, respectively. In addition to the line of credit borrowings,
      on
      December 30, 2004, the Company entered into an Amendment to the Credit
      Agreement. The amendment provided for a one-time short-term loan to the Company
      of $10.0 million. This short-term loan bore interest at the prime rate and
      was
      due and paid on February 28, 2005. At December 31, 2004, there was $10.0 million
      outstanding on this loan. During 2004, the Company also borrowed against the
      cash surrender value of the Company's investment in life insurance contracts.
      As
      of December 31, 2005 and 2004, $15.0 million had been borrowed against the
      cash
      surrender value of Company-owned life insurance contracts.


-
          28
          -


During
      2005, the Company generated cash flow from operations of $5.0 million. During
      2003 and 2004, mainly as a result of increased inventories and receivables,
      offset somewhat by an increase in trade payables, the Company generated a
      negative cash flow from operations. Cash used in operations in 2004 was $22.3
      million and $3.6 million in 2003. For 2005, the net loss and increases in
      deferred tax assets and refundable taxes were offset by decreases in accounts
      receivable and inventories and non-cash charges related to depreciation,
      impairments and losses on sales of assets. The decreases in accounts receivable
      and inventories were a result of management’s focus on the reduction of these
      assets as part of the Intensive Recovery Plan. For 2004, net income adjusted
      for
      depreciation and a slight increase in trade payables were the significant
      factors in generating cash flows, which were offset by increases in accounts
      receivables and inventories. The increase in accounts receivable was primarily
      related to the 8.6% increase in fourth quarter sales as compared to the previous
      year. For the year 2003, net income, adjusted for depreciation, and an increase
      in trade payables, were the significant factors in generating operating cash
      flows, which were offset by increases in trade receivables and inventories.
      The
      increase in receivables was related to the 15.8% increase in fourth quarter
      sales as compared to the previous year and particularly by the RV Segment's
      strong sales effort during the final two weeks of December.




Investing
      activities used cash of $4.4 million in 2005, $9.8 million in 2004 and $3.4
      million in 2003. In 2005, cash of $5.7 million was used to acquire machinery
      and
      equipment for both operating segments. Purchases of investments, net of sales,
      used cash flows of $0.6 million. In 2004, the investment in the West Coast
      Service Center and in the business unit that was to have been dedicated to
      the
      Coleman â brand of
      recreational vehicles represented major uses of cash, which were offset in
      part
      by the sale of the property and equipment of a company-owned dealership and
      certain other property and equipment. In 2003, the investment in two additional
      manufacturing facilities for the RV Segment represented a major use of cash.
      The
      sale of marketable securities, net of purchases, provided cash flows of $1.0
      million and $4.9 million for 2004 and 2003, respectively. These proceeds were
      used in part to fund the investment in the additional manufacturing facilities
      in 2004 and 2003. Capital expenditures in 2004 of $16.5 million consisted of
      the
      investment in the West Coast Service Center and the business unit that was
      to
      have been dedicated to the Coleman â brand of
      recreational vehicles, and investments in machinery and equipment and
      transportation equipment for both the Recreational Vehicle Segment and the
      Housing and Building Segment. Other than the two additional manufacturing
      facilities, capital expenditures of $12.1 million during 2003 included a new
      service facility constructed at the Company-owned dealership in North Carolina
      that was sold in December 2004 and investments in machinery and equipment and
      transportation equipment for both the Recreational Vehicle Segment and the
      Housing and Building Segment.





In
      2005,
      financing activities used cash flows of $12.8 million. Payments on borrowings
      on
      the line of credit, including the short-term loan from 2004, and the long-term
      debt, net of borrowings, used cash of $9.7 million. In addition, dividends
      of
      $3.8 million were paid in 2005. In 2004, financing activities provided cash
      flows of $40.7 million. Proceeds from borrowings on the line of credit,
      including the short-term loan, borrowings on the cash surrender value of life
      insurance polices and proceeds from long-term debt, net of repayments, provided
      cash of $43.7 million. Offsetting the cash provided by borrowings in 2004 was
      the payment of cash dividends. In 2003, cash flows from financing activities
      reflected the Company's short-term borrowing activity. The principal use of
      cash
      flows from financing activities was $4.4 million used to purchase common shares
      under the Company's share repurchase program during the first quarter. Other
      financing activities for 2003 were payments of long-term debt and cash
      dividends. The negative cash flows for 2003 was partially offset by the issuance
      of common shares under stock option and stock purchase plans. For a more
      detailed analysis of the Company's cash flows for each of the last three years,
      see the Consolidated Statements of Cash
      Flows.





The
      Company's cash and cash equivalents at December 31, 2005 were $2.8 million
      or a
      decrease of $12.2 million from 2004. At December 31, 2005, the Company has
      $19.7
      million available for borrowing under the unsecured line of credit. The Company
      anticipates that available funds, together with anticipated cash flows generated
      from future operations, planned Intensive Recovery Plan actions and amounts
      available under its existing credit facilities, will be sufficient to fund
      future planned capital expenditures and other operating cash requirements
      through the end of 2006.





Any
      downturn in the U.S. economy, decline in consumer confidence and other factors
      may adversely impact the RV industry. This may have a negative impact on the
      Company's sales of recreational vehicles and also increases the Company's risk
      of loss under repurchase agreements with lenders to the Company's independent
      dealers (see Note 12  of
      Notes
      to Consolidated Financial Statements and Critical Accounting Policies below).
      Increases in interest rates could also adversely affect the sale of RV's and
      of
      single-family homes.





In
      2005,
      working capital decreased $28.3 million, to $93.0 million from $121.3 million.
      The $27.3 million decrease in current assets at December 31, 2005 versus
      December 31, 2004 was primarily due to decreases in cash, trade receivables
      and
      inventories offset partially by increases in deferred income taxes and
      refundable income taxes. Current liabilities at December 31, 2005 were $1.0
      million higher than at December 31, 2004.





The
      Company anticipates capital expenditures in 2006 of approximately $8 million.
      The major planned expenditures include a plant expansion at one of the housing
      manufacturing facilities to provide increased capacity. The balance of the
      planned capital expenditures for 2006 will be for purchase or replacement of
      machinery and equipment and transportation equipment to be used in the ordinary
      course of business. The Company plans to finance these expenditures with funds
      generated from operating cash flows.


-
          29
          -


**Principal
      Contractual Obligations and Commercial Commitments**





The
      Company's future contractual obligations are summarized as follows (in
      thousands):





Payment
                Period2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            ThereafterCredit
                facility borrowings
            
            $
            12.3
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Long-term
                debt
            
            
            2,222.6
            
            
            2,590.6
            
            
            2,245.5
            
            
            5,650.1
            
            
            1,063.2
            
            
            1,363.5Operating
                leases
            
            
            1,112.7
            
            
            1,031.1
            
            
            841.3
            
            
            810.0
            
            
            691.0
            
            
            514.1Deferred
                compensation obligations
            
            
            925.6
            
            
            559.7
            
            
            408.0
            
            
            411.3
            
            
            400.6
            
            
            8,000.3Open
              purchase orders and purchase obligations
            
            
            22,714.5
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Interest
              payments on long-term debt
            
            
            738.3
            
            
            619.8
            
            
            502.0
            
            
            268.6
            
            
            70.5
            
            
            39.2




Notes:
              -
                  Projected interest payments for variable-rate debt were calculated
                  based
                  on the outstanding principal amounts and prevailing market rates
                  as of
                December 31, 2005.
                -
                  The open purchase orders and purchase obligations displayed in
                  the table
                  represent amounts the Company anticipates will become payable
                within thenext
                  year for goods and services it has negotiated for
                  delivery.
 The
        Company's commercial commitments, along with the expected expiration period
        of
        the commitment, is summarized as follows (in thousands):




Total
                Amounts
            
            
            Amount
                of Commitment
            
            
            Expiration
                Per PeriodCommitted
            
            
            Less
                Than One Year
            
            
            In
                Excess of One YearLetters
                of credit
            
            $
            2,950.0
            
            $
            2,950.0
            
            $
            -Guarantees
            
            
            7,845.7
            
            
            6,197.1
            
            
            1,648.6Standby
                repurchase obligations
            
            
            278,362.8
            
            
            262,428.5
            
            
            15,934.3Chassis
                pool obligations
            
            
            26,791.1
            
            
            26,791.1
            
            
            -Financing
                obligation
            
            
            2,581.4
            
            
            2,581.4
            
            
            -





**Critical
      Accounting
      Policies**





The
      following discussion of accounting policies is intended to supplement the
      summary of significant accounting policies presented in Note
      1 of Notes to Consolidated Financial Statements. These policies were
      selected because they are broadly applicable within our operating units and
      they
      involve additional management judgment due to the sensitivity of the methods,
      assumptions and estimates necessary in determining the related income statement,
      asset and/or liability amounts.




**Long-Lived
      Assets -** Assets
      held and used by the Company, including property, plant and equipment and
      intangible assets, are reviewed for impairment whenever events or circumstances
      indicate that the carrying amount of an asset may not be recoverable. For
      purposes of evaluating the recoverability of long-lived assets to be held and
      used, a recoverability test is performed based on assumptions concerning the
      amount and timing of estimated future cash flows and assumed discount rates,
      reflecting varying degrees of perceived risk. Impairments to long-lived assets
      to be disposed of are recorded based upon the fair value less costs to dispose
      of the applicable assets. Since judgment is involved in determining the fair
      value and useful lives of long-lived assets, there is a risk that the carrying
      value of our long-lived assets may be overstated.


-
          30
          -


**Revenue
      Recognition -** For the
      Recreational Vehicle Segment, the shipping terms are free on board ("FOB")
      shipping point and title and risk of ownership are transferred to the
      independent dealers at that time. Accordingly, sales are recognized as revenue
      at the time the products are shipped. For the Housing and Building Segment,
      the
      shipping terms are generally FOB destination. Title and risk of ownership are
      transferred when the Company completes installation of the product. The Company
      recognizes the revenue at the time delivery and installation are completed.
      Revenue from final set-up procedures, which are perfunctory, is deferred and
      recognized when such set-up procedures are completed.




**Warranty
      Reserves -** The
      Company provides customers of its products with a warranty covering defects
      in
      material or workmanship for periods generally ranging from one to two years
      in
      length and up to ten years on certain structural components. The Company records
      a liability based on its estimate of the amounts necessary to settle future
      and
      existing claims on products sold as of the balance sheet date. Estimated costs
      related to product warranty are accrued at the time of sale and included in
      cost
      of sales. General warranty reserves are estimated based upon past warranty
      claims and unit sales history and adjusted as required to reflect actual costs
      incurred, as information becomes available. Specific warranty reserves are
      based
      on specific identified issues with the amounts accrued based on the estimated
      cost to correct the problem. While the Company believes this method to be
      consistent and appropriate, changes in estimates could materially affect the
      Company’s recorded liability for loss. Warranty expense from continuing
      operations totaled $34.8 million, $20.8 million and $14.9 million in 2005,
      2004
      and 2003, respectively. Accrued liabilities for warranty expense at December
      31,
      2005 and 2004 were $20.0 million and $10.1 million, respectively.





The
      increase in warranty expense from continuing operations for 2005 of $14.0
      million to $34.8 million is primarily the result of costs associated with the
      recall of camping trailer lift systems and the repair of laminated sidewalls
      of
      certain of the Company’s recreational vehicles.




**Litigation
      and Product Liability Reserves -** At
      December 31, 2005 the Company had reserves for certain other loss exposures,
      such as product liability ($2.8 million) and litigation ($3.7 million) (see
Note 12 of Notes to Consolidated Financial Statements). The
      Company's litigation reserve is determined based on an individual case
      evaluation process. The Company's estimated loss reserves for product liability
      are determined using loss triangles established by the Company's management
      reflecting historical claims incurred by the Company. While the Company believes
      this method to be consistent and appropriate, changes in estimates based on
      historical trends could materially affect the Company's recorded liabilities
      for
      loss.





**Income
      Taxes -** The
      Company recognizes income tax expense in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      Deferred tax assets and liabilities are established for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns using enacted tax rates in effect for the years in which the
      differences are expected to reverse and are subject to ongoing assessment of
      realizability. Deferred income tax expense (benefit) represents the change
      in
      net deferred tax assets and liabilities during the year.





**New
      and Pending Accounting Policies**





(See *New
      Accounting
      Pronouncements* in  Note
      1  of
      Notes
      to Consolidated Financial Statements.)





-
          31
          -


**Forward-Looking
      Statements**





This
      Form
      10-K 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 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 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 other suppliers; 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, 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.





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.


-
          32
          -


**Item
                  7A.**
              **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. Throughout 2005 and 2004, the Company utilized its revolving
      credit facility to meet short-term working capital needs. The Company had $12.3
      million outstanding against the revolving credit facility on December 31, 2005.
      The Company had $10 million outstanding against the revolving credit facility
      on
      December 31, 2004. In addition, on December 30, 2004, the Company entered into
      an Amendment to the Credit Agreement. The December amendment provided for a
      one-time short-term loan to the Company of $10 million. At December 31, 2004,
      there was $10 million outstanding on this loan. In 2003, the Company
      periodically utilized its credit facility to meet short-term working capital
      needs and these borrowings were typically repaid in the near-term. The Company
      had borrowings of $5.0 million outstanding against its credit facility at
      December 31, 2003. Accordingly, changes in interest rates would impact both
      the
      Company's short and long-term debt. At December 31, 2005, the Company had $15.1
      million of long-term debt, including current maturities. Long-term debt consists
      mainly of industrial development revenue bonds of approximately $8.0 million
      and
      $6.4 million outstanding related to a term loan. 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 cumulative loss of $6,000 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) as of December 31,
      2005. 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). At December 31,
      2005,
      the Company had four interest rate swap agreements with notional amounts of
      $1.5
      million, $235,000, $3.2 million, and $1.6 million, respectively, that were
      used
      to convert the variable interest rates on certain industrial development revenue
      bonds to fixed rates. In accordance with the terms of the swap agreements,
      the
      Company pays 3.39%, 3.12%, 3.71%, and 3.36% interest rates, respectively, and
      receives the Bond Market Association Index (BMA), calculated on the notional
      amounts, with net receipts or payments being recognized as adjustments to
      interest expense.





At
      December 31, 2004, the Company had $1.7 million invested in marketable
      securities. During 2005, all marketable securities were sold. The Company's
      marketable securities consisted of public utility preferred stocks which
      typically paid quarterly fixed rate dividends.




-
          33
          -
  **Item
                    8.**
                **Financial
                    Statements and Supplementary Data**


**Index
                to Financial Statements**
            **Page**Financial
                Statements:Report
                of Independent Registered Public
                Accounting Firm
            35Report
                of Independent Registered Public
                Accounting Firm on Internal Control over Financial
                Reporting
            36Consolidated
                Balance Sheets at December 31, 2005 and
                2004
            37Consolidated
                Statements of Operations for
                the years ended December 31, 2005, 2004 and 2003
            38Consolidated
                Statements of
                Shareholders' Equity for the years ended December 31, 2005, 2004
                and
                2003
            39Consolidated
                Statements of Cash Flows for
                the years ended December 31, 2005, 2004 and 2003
            40Notes
                to Consolidated Financial
                Statements
            41-67Financial
                Statement Schedule:II
                - Valuation and Qualifying Accounts for the
                years ended December 31, 2005, 2004 and 2003
            71





All
      other
      schedules are omitted because they are not applicable or the required
      information is shown in the financial statements or notes thereto.




-
          34
          -
 Index




**Report
      of Independent Registered Public Accounting
      Firm**











Board
      of
      Directors and Shareholders


Coachmen
      Industries, Inc.








We
      have
      audited the accompanying consolidated balance sheets of Coachmen Industries,
      Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the
      related consolidated statements of operations, shareholders' equity, and cash
      flows for each of the three years in the period ended December 31, 2005. Our
      audits also included the financial statement schedule listed in the Index at
      Item 15(a)(2). These financial statements and schedule are the responsibility
      of
      the Company's management. Our responsibility is to express an opinion on these
      financial statements and schedule based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Coachmen
      Industries, Inc. and subsidiaries at December 31, 2005 and 2004, and the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2005, in conformity with U.S.
      generally accepted accounting principles. Also, in our opinion, the related
      financial statement schedule, when considered in relation to the basic
      consolidated financial statements taken as a whole, presents fairly, in all
      material respects, the information set forth therein.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company's internal
      control over financial reporting as of December 31, 2005, based on criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission and our report dated
      February 23, 2006 expressed an unqualified opinion thereon.








/s/
                Ernst & Young LLP







Grand
      Rapids, MI


February
      23, 2006




-
          35
          -
 Index


**Report
      of Independent Registered Public Accounting
      Firm**


**On
      Internal Control Over Financial Reporting**





Board
      of
      Directors and Shareholders


Coachmen
      Industries, Inc.





We
      have
      audited management's assessment, included in the accompanying Management's
      Report on Internal Control Over Financial Reporting, that Coachmen Industries,
      Inc. and subsidiaries (the Company) maintained effective internal control over
      financial reporting as of December 31, 2005, based on criteria established
      in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (the COSO criteria). The Company's
      management is responsible for maintaining effective internal control over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting. Our responsibility is to express an opinion
      on
      management's assessment and an opinion on the effectiveness of the Company's
      internal control over financial reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company's internal control
      over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company's
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management's assessment that Coachmen Industries, Inc. and subsidiaries
      maintained effective internal control over financial reporting as of December
      31, 2005, is fairly stated, in all material respects, based on the COSO
      criteria. Also, in our opinion, Coachmen Industries, Inc. and subsidiaries
      maintained, in all material respects, effective internal control over financial
      reporting as of December 31, 2005, based on **** the
      COSO
      criteria.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Coachmen
      Industries, Inc. and subsidiaries as of December 31, 2005 and 2004, and the
      related consolidated statements of operations, shareholders' equity, and cash
      flows for each of the three years in the period ended December 31, 2005 of
      Coachmen Industries, Inc. and subsidiaries and our report dated February 23,
      2006 expressed an unqualified opinion thereon.








/s/
                Ernst & Young LLP








Grand
      Rapids, MI


February
      23, 2006




-
          36
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Balance Sheets**


as
      of
      December 31


(in
      thousands)


**Assets**2005
            
            
            2004CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            2,780
            
            $
            14,992Marketable
                securities
            
            
            -
            
            
            1,747Trade
                receivables, less allowance for doubtful receivables2005
                - $1,240 and 2004 - $919
            
            
            47,174
            
            
            58,805Other
                receivables
            
            
            1,969
            
            
            4,209Refundable
                income taxes
            
            
            10,284
            
            
            244Inventories
            
            
            121,304
            
            
            136,088Prepaid
                expenses and other
            
            
            3,992
            
            
            4,144Deferred
                income taxes
            
            
            11,421
            
            
            6,014Total
                current assets
            
            
            198,924
            
            
            226,243Property,
                plant and equipment**,**net
            
            
            67,581
            
            
            82,351Goodwill
            
            
            17,383
            
            
            18,132Cash
                value of life insurance, net of loans
            
            
            28,880
            
            
            25,162Deferred
                income taxes
            
            
            4,279
            
            
            -Assets
                held for sale
            
            
            291
            
            
            60Other
            
            
            5,478
            
            
            5,775TOTAL
                ASSETS
            
            $
            322,816
            
            $
            357,723**Liabilities
                and Shareholders' Equity**CURRENT
                LIABILITIESShort-term
                borrowings
            
            $
            12,276
            
            $
            20,000Accounts
                payable, trade
            
            
            31,658
            
            
            33,805Accrued
                income taxes
            
            
            533
            
            
            2,479Accrued
                expenses and other liabilities
            
            
            54,856
            
            
            39,466Floorplan
                notes payable
            
            
            4,361
            
            
            6,986Current
                maturities of long-term debt
            
            
            2,223
            
            
            2,195Total
                current liabilities
            
            
            105,907
            
            
            104,931Long-term
                debt
            
            
            12,913
            
            
            14,943Deferred
                income taxes
            
            
            -
            
            
            3,512Postretirement
                deferred compensation benefits
            
            
            10,182
            
            
            9,724Other
            
            
            11
            
            
            195Total
                liabilities
            
            
            129,013
            
            
            133,305COMMITMENTS
                AND CONTINGENCIES****(Note
                12)SHAREHOLDERS'
                EQUITYCommon
                shares, without par value:authorized
                60,000 shares; issued 2005 - 21,134shares
                and 2004 - 21,108 shares
            
            
            92,164
            
            
            91,850Additional
                paid-in capital
            
            
            6,465
            
            
            8,894Unearned
                compensation
            
            
            (142
            )
            
            (1,700
            )Accumulated
                other comprehensive income (loss)
            
            
            (6
            )
            
            92Retained
                earnings
            
            
            154,246
            
            
            184,284Treasury
                shares, at cost, 2005 - 5,375 sharesand
                2004 - 5,384 shares
            
            
            (58,924
            )
            
            (59,002
            )Total
                shareholders' equity
            
            
            193,803
            
            
            224,418TOTAL
                LIABILITIES ANDSHAREHOLDERS'
                EQUITY
            
            $
            322,816
            
            $
            357,723





See
Notes
      to Consolidated Financial Statements.


-
          37
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Operations**


for
      the
      years ended December 31


(in
      thousands, except per share amounts)


2005
            
            2004
            
            2003Net
                sales
            
            $
            702,425
            
            $
            802,346
            
            $
            636,891Cost
                of sales
            
            
            646,465
            
            
            689,520
            
            
            544,496Gross
                profit
            
            
            55,960
            
            
            112,826
            
            
            92,395Operating
                expenses:Delivery
            
            
            32,762
            
            
            34,005
            
            
            27,909Selling
            
            
            28,320
            
            
            28,620
            
            
            22,903General
                and administrative
            
            
            30,794
            
            
            31,543
            
            
            29,715Asset
                impairments
            
            
            1,076(Gain)
                loss on sale of assets, net
            
            
            (163
            )
            
            (1,448
            )
            
            (524
            )92,789
            
            
            92,720
            
            
            80,003Operating
                income (loss)
            
            
            (36,829
            )
            
            20,106
            
            
            12,392Nonoperating
                (income) expense:Interest
                expense
            
            
            3,168
            
            
            1,794
            
            
            993Investment
                income
            
            
            (2,182
            )
            
            (2,193
            )
            
            (1,043
            )Other
                (income) expense, net
            
            
            (461
            )
            
            (346
            )
            
            (303
            )525
            
            
            (745
            )
            
            (353
            )Income
                (loss) from continuing operationsbefore
                income taxes
            
            
            (37,354
            )
            
            20,851
            
            
            12,745Income
                taxes (credit)
            
            
            (17,994
            )
            
            6,593
            
            
            4,302Net
                income (loss) from continuing operations
            
            
            (19,360
            )
            
            14,258
            
            
            8,443Discontinued
                operationsIncome
                (loss) from operations ofdiscontinued
                entities
              (net
                of tax credits of$(4,426),
                $(303), and $(546), respectively)
            
            
            (6,370
            )
            
            (659
            )
            
            (1,078
            )Gain
                (loss) on sale of assets of discontinuedentities
              (net
                of taxes (credits) of $(431) and $816,respectively)
            
            
            (620
            )
            
            1,735
            
            
            -Income
                (loss) from discontinued operations
            
            
            (6,990
            )
            
            1,076
            
            
            (1,078
            )Net
                income (loss)
            
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365Earnings
                (loss) per share - BasicContinuing
                operations
            
            $
            (1.24
            )
            $
            .92
            
            $
            .55Discontinued
                operations
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )Net
                earnings (loss) per share
            
            
            (1.69
            )
            
            .99
            
            
            .48Earnings
                (loss) per share - DilutedContinuing
                operations
            
            
            (1.24
            )
            
            .92
            
            
            .55Discontinued
                operations
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )Net
                earnings (loss) per share
            
            
            (1.69
            )
            
            .99
            
            
            .48Number
                of common shares used in thecomputation
                of earnings (loss) per share:Basic
            
            
            15,551
            
            
            15,483
            
            
            15,437Diluted
            
            
            15,551
            
            
            15,551
            
            
            15,487




See
Notes
      to Consolidated Financial Statements.


-
          38
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Shareholders' Equity**


for
      the
      years ended December 31, 2005, 2004 and 2003


(in
      thousands, except per share amounts)


AccumulatedAdditional
              
              
              
              Other
              
              
              
              
              
              
              
              TotalComprehensive
              
              Common
              
              Shares
              
              Paid-In
              
              Unearned
              
              Comprehensive
              
              Retained
              
              Treasury
              
              Shares
              
              Shareholders'Income
                  (Loss)
              
              Number
              Amount
              
              Capital
              
              Compensation
              
              Income(Loss)
              
              Earnings
              
              Number
              
              Amount
              
              EquityBalance
                at January 1, 2003
              
              
              
              
              
              21,062
              
              $
              91,283
              
              $
              6,133
              
              $
              -
              
              $
              (661
              )
              $
              169,054
              
              
              (5,395
              )
              $
              (56,383
              )
              $
              209,426Net
                  income
              
              $
              7,365
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,365
              
              
              -
              
              
              -
              
              
              7,365Net
                  unrealized gain on securities
                net
                  of taxes of $681
              
              
              1,111
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,111
              
              
              -
              
              
              -
              
              
              -
              
              
              1,111Net
                  unrealized loss on cash flow
                hedges
                  net of taxes of $98
              
              
              (160
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (160
              )
              
              -
              
              
              -
              
              
              -
              
              
              (160
              )Total
                  comprehensive income
              
              $
              8,316Issuance
                  of common sharesupon
                the
                  exercise of stockoptions
                net
                  of tax benefitof
                  $37
              
              
              
              
              
              -
              
              
              -
              
              
              112
              
              
              -
              
              
              -
              
              
              -
              
              
              25
              
              
              143
              
              
              255Issuance
                  of common sharesunder
                employee
                  stockpurchase
                  plan
              
              
              
              
              
              24
              
              
              256
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              256Issuance
                  of common shares
                from
                  treasury
              
              
              
              
              
              -
              
              
              -
              
              
              1,371
              
              
              (1,136
              )
              
              -
              
              
              -
              
              
              130
              
              
              736
              
              
              971Acquisition
                  of common shares
                for
                  treasury
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (293
              )
              
              (4,354
              )
              
              (4,354
              )Cash
                  dividends of $.24 per
                common
                  share
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,719
              )
              
              -
              
              
              -
              
              
              (3,719
              )Balance
                at December 31, 2003
              
              
              
              
              
              21,086
              
              
              91,539
              
              
              7,616
              
              
              (1,136
              )
              
              290
              
              
              172,700
              
              
              (5,533
              )
              
              (59,858
              )
              
              211,151Comprehensive
                Income - 2004Net
                  income
              
              $
              15,334
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              15,334
              
              
              -
              
              
              -
              
              
              15,334Net
                  unrealized loss on securities
                net
                  of taxes of $160
              
              
              (262
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (262
              )
              
              -
              
              
              -
              
              
              -
              
              
              (262
              )Net
                  unrealized gain on cash flow
                hedges
                  net of taxes of $39
              
              
              64
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              64
              
              
              -
              
              
              -
              
              
              -
              
              
              64Total
                  comprehensive income
              
              $
              15,136Issuance
                  of common sharesupon
                the
                  exercise of stockoptions
                net
                  of tax benefitof
                  $46
              
              
              
              
              
              -
              
              
              -
              
              
              250
              
              
              -
              
              
              -
              
              
              -
              
              
              34
              
              
              199
              
              
              449Issuance
                  of common sharesunder
                employee
                  stockpurchase
                  plan
              
              
              
              
              
              22
              
              
              311
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              311Issuance
                  of common shares
                from
                  treasury
              
              
              
              
              
              -
              
              
              -
              
              
              1,028
              
              
              (564
              )
              
              -
              
              
              -
              
              
              115
              
              
              657
              
              
              1,121Cash
                  dividends of $.24 per
                common
                  share
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,750
              )
              
              -
              
              
              -
              
              
              (3,750
              )Balance
                at December 31, 2004
              
              
              
              
              
              21,108
              
              
              91,850
              
              
              8,894
              
              
              (1,700
              )
              
              92
              
              
              184,284
              
              
              (5,384
              )
              
              (59,002
              )
              
              224,418Comprehensive
                Income - 2005Net
                  income (loss)
              
              $
              (26,350
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (26,350
              )
              
              -
              
              
              -
              
              
              (26,350
              )Reversal
                  of unrealized gain on
                securities
                  net of taxes of $116
              
              
              (188
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (188
              )
              
              -
              
              
              -
              
              
              -
              
              
              (188
              )Net
                  unrealized gain on cash flow
                hedges
                  net of taxes of $57
              
              
              90
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              90
              
              
              -
              
              
              -
              
              
              -
              
              
              90Total
                  comprehensive income(loss)
              
              $
              (26,448
              )Issuance
                  of common sharesupon
                the
                  exercise of stockoptions
                net
                  of tax benefitof
                  $7
              
              
              
              
              
              -
              
              
              -
              
              
              164
              
              
              -
              
              
              -
              
              
              -
              
              
              28
              
              
              165
              
              
              329Issuance
                  of common sharesunder
                employee
                  stockpurchase
                  plan
              
              
              
              
              
              26
              
              
              314
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              314Issuance
                  (cancellations) of
                common
                  shares from treasury
              
              
              
              
              
              -
              
              
              -
              
              
              (2,593
              )
              
              1,558
              
              
              -
              
              
              -
              
              
              (19
              )
              
              (87
              )
              
              (1,122
              )Other
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              68
              
              
              -
              
              
              -
              
              
              68Cash
                  dividends of $.24 per
                common
                  share
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,756
              )
              
              -
              
              
              -
              
              
              (3,756
              )Balance
                at December 31, 2005
              
              
              
              
              
              21,134
              
              $
              92,164
              
              $
              6,465
              
              $
              (142
              )
              $
              (6
              )
              $
              154,246
              
              
              (5,375
              )
              $
              (58,924
              )
              $
              193,803
  See
Notes
        to Consolidated Financial Statements.


-
          39
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Cash Flows**


for
      the
      years ended December 31


(in
      thousands)


2005
            
            2004
            
            2003CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
            
            
            8,554
            
            
            9,402
            
            
            9,678Provision
                for doubtful receivables
            
            
            988
            
            
            200
            
            
            574Provision
                for write-down of assets to net realizable value
            
            
            9,241
            
            
            -
            
            
            -Net
                realized and unrealized (gains)/losses onmarketable
                securities and derivatives
            
            
            (311
            )
            
            93
            
            
            (74
            )(Gain)
                loss on sale of properties and other assets, net
            
            
            1,592
            
            
            (4,305
            )
            
            (471
            )Increase
                in cash surrender value of life insurancepolicies
            
            
            (1,142
            )
            
            (1,074
            )
            
            (2,055
            )Deferred
                income tax provision (benefit)
            
            
            (13,198
            )
            
            (892
            )
            
            309Tax
                benefit from stock options exercised
            
            
            7
            
            
            46
            
            
            37Other
            
            
            (848
            )
            
            2,696
            
            
            2,170Changes
                in certain assets and liabilities, net of effectsof
                acquisitions and dispositions:Trade
                receivables
            
            
            12,883
            
            
            (15,076
            )
            
            (17,732
            )Inventories
            
            
            14,784
            
            
            (34,789
            )
            
            (16,090
            )Prepaid
                expenses and other
            
            
            152
            
            
            478
            
            
            (210
            )Accounts
                payable, trade
            
            
            (2,147
            )
            
            3,319
            
            
            11,685Income
                taxes - accrued and refundable
            
            
            (11,986
            )
            
            366
            
            
            3,525Accrued
                expenses and other liabilities
            
            
            12,765
            
            
            1,880
            
            
            (2,270
            )Net
                cash provided by (used in)operatingactivities
            
            
            4,984
            
            
            (22,322
            )
            
            (3,559
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sales of marketable securities
            
            
            1,933
            
            
            3,629
            
            
            30,975Proceeds
                from sale of properties and other assets
            
            
            1,846
            
            
            7,034
            
            
            2,869Investments
                in marketable securities
            
            
            (2,549
            )
            
            (2,582
            )
            
            (26,072
            )Purchases
                of property and equipment
            
            
            (5,696
            )
            
            (16,477
            )
            
            (12,067
            )Other
            
            
            48
            
            
            (1,377
            )
            
            902Net
                cash used in investing activities
            
            
            (4,418
            )
            
            (9,773
            )
            
            (3,393
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from short-term borrowings
            
            
            232
            
            
            39,938
            
            
            32,000Payments
                of short-term borrowings
            
            
            (7,956
            )
            
            (17,952
            )
            
            (27,000
            )Proceeds
                from long-term debt
            
            
            241
            
            
            8,036
            
            
            571Payments
                of long-term debt
            
            
            (2,243
            )
            
            (1,307
            )
            
            (1,161
            )Proceeds
                from borrowings on cash value of lifeinsurance
                policies
            
            
            -
            
            
            20,000Repay
                borrowings against cash value of lifeinsurance
                policies
            
            
            -
            
            
            (5,000
            )
            
            -Issuance
                of common shares under stockincentive
                plans
            
            
            636
            
            
            714
            
            
            474Cash
                dividends paid
            
            
            (3,756
            )
            
            (3,750
            )
            
            (3,719
            )Purchases
                of common shares for treasury
            
            
            -
            
            
            -
            
            
            (4,354
            )Other
            
            
            68
            
            
            -
            
            
            -


Net
                cash provided by (used in) financing activities
            
            
            (12,778
            )
            
            40,679
            
            
            (3,189
            )Increase
                (decrease) in cash and cash equivalents
            
            
            (12,212
            )
            
            8,584
            
            
            (10,141
            )CASH
                AND CASH EQUIVALENTSBeginning
                of year
            
            
            14,992
            
            
            6,408
            
            
            16,549End
                of year
            
            $
            2,780
            
            $
            14,992
            
            $
            6,408Supplemental
                disclosures of cash flow information:Cash
                paid during the year for:Interest
            
            $
            2,314
            
            $
            1,460
            
            $
            1,109Income
                taxes
            
            
            2,240
            
            
            7,114
            
            
            2,130





See
Notes
      to Consolidated Financial Statements.


-
          40
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**







**1.   
NATURE
      OF OPERATIONS AND ACCOUNTING
      POLICIES.**





**Nature
      of Operations -** Coachmen
      Industries, Inc. and its subsidiaries (the "Company") manufacture a full array
      of recreational vehicles and system-built housing and buildings. Recreational
      vehicles are sold through a nationwide dealer network. The system-built products
      (single-family homes, multi-family dwellings, schools, offices, commercial
      facilities and specialized structures) are sold to builders/dealers or directly
      to the end user for certain specialized structures.





**Principles
      of Consolidation -** The
      accompanying consolidated financial statements include the accounts of Coachmen
      Industries, Inc. and its subsidiaries, all of which are wholly
      or
      majority-owned. All intercompany transactions have been eliminated in
      consolidation.





**Use
      of Estimates -** The
      preparation of financial statements in conformity 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. Actual results could differ from those estimates.





**Revenue
      Recognition -** For
      the
      Recreational Vehicle Segment, the shipping terms are free on board ("FOB")
      shipping point and title and risk of ownership are transferred to the
      independent dealers at that time. Accordingly, sales are recognized as revenue
      at the time the products are shipped. For the Housing and Building Segment,
      the
      shipping terms are generally FOB destination. Title and risk of ownership are
      transferred when the Company completes installation of the product. The Company
      recognizes the revenue at the time delivery and installation are completed.
      Revenue from final set-up procedures, which are perfunctory, is deferred and
      recognized when such set-up procedures are completed.





**Cash
      Flows and Noncash Activities -** For
      purposes of the consolidated statements of cash flows, cash and cash equivalents
      include cash, cash investments and any highly liquid investments purchased
      with
      original maturities of three months or less.





Noncash
      investing and financing activities are as follows (in thousands):





2005
            
            2004
            
            2003Issuance
                (cancellations) of common shares, at market value, in lieu of cash
                compensation
            
            $
            (1,122
            )
            $
            1,121
            
            $
            991Note
                receivable received in connection with the sale of certain assets
                (see Note 11)
            
            
            -
            
            
            1,000
            
            
            -





**Concentrations
      of Credit Risk -** Financial instruments that potentially subject the Company to credit risk
      consist primarily of cash and cash equivalents and trade receivables.





At
      December 31, 2005 and 2004, cash and cash equivalents invested in money market
      accounts was less than $0.1 million.





The
      Company has a concentration of credit risk in the recreational vehicle industry,
      although there is no geographic concentration of credit risk. The Company
      performs ongoing credit evaluations of its customers' financial condition and
      sales to its recreational vehicle dealers are generally subject to pre-approved
      dealer floor plan financing whereby the Company is paid upon delivery or shortly
      thereafter. The Company generally requires no collateral from its customers.
      Future credit losses are provided for currently through the allowance for
      doubtful receivables and actual credit losses are charged to the allowance
      when
      incurred.




-
          41
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**







**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





**Marketable
      Securities -** The
      Company did not hold any marketable securities at **** December
      31, 2005. **** At
      December 31, 2004, marketable securities consisted of public utility preferred
      stocks which paid quarterly cash dividends. The preferred stocks are part of
      a
      dividend capture program whereby preferred stocks are bought and held for the
      purpose of capturing the preferred dividend. The securities are available to
      be
      sold after exceeding the minimum 45 or 90-day holding period required for
      favorable tax treatment and the proceeds are reinvested again in preferred
      stocks. The Company's dividend capture program is designed to maximize dividend
      income which is 70% excludable from taxable income under the Internal Revenue
      Code and related state tax provisions. The Company accounts for its marketable
      securities under Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
      for Certain Investments in Debt and Equity Securities ,
      which
      requires certain securities to be categorized as either trading,
      available-for-sale or held-to-maturity. Based on the Company's intent to invest
      in the securities at least through the minimum holding period, the Company's
      marketable securities were classified as available-for-sale and, accordingly,
      were carried at fair value with net unrealized appreciation (depreciation)
      recorded as a separate component of shareholders' equity. The Company has
      previously concluded that certain marketable securities which had been in a
      loss
      position for nine or more months were other-than-temporarily impaired and the
      loss position on those securities were charged against earnings. The cost of
      securities sold is determined by the specific identification method and are
      classified as short-term marketable securities based on the intended holding
      period.





The
      cost,
      unrealized gains and losses, and market value of securities available for sale
      as of December 31, 2004 are
      as
      follows (in thousands):





2004Cost
            
            $
            1,807Recognized
                losses for other-than-temporary impairment
            
            
            (
                356
            )Unrealized
                gains
            
            
            296Market
                value
            
            $
            1,747





The
      Company utilized U.S. Treasury bond futures options to mitigate the impact
      of
      increases in interest rates on the fair value of the Company's investments
      in
      marketable securities (fixed rate preferred stocks). The options were marked
      to
      market with market value changes recognized in the consolidated statements
      of
      operations in the period of change. At December 31, 2004, the carrying amounts
      of U.S. Treasury bond futures options, which are derivative instruments,
      aggregated $2,000.




-
          42
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





Investment
      income from continuing operations consists of the following for the years ended
      December 31 (in thousands):





2005
            
            2004
            
            2003Interest
                income
            
            $
            510
            
            $
            143
            
            $
            105Increase
                in cash value of life insurance policies
            
            
            1,116
            
            
            1,148
            
            
            1,241Dividend
                income on preferred stocks
            
            
            54
            
            
            770
            
            
            415Net
                realized gains (losses) on sale of preferred stocks and bond
                funds
            
            
            505
            
            
            586
            
            
            (342
            )Net
                realized gains (losses) on closed U.S. Treasury bond futures
                options
            
            
            (12
            )
            
            (55
            )
            
            82Other
                than temporary unrealized losses on preferred stocks
            
            
            -
            
            
            (390
            )
            
            (458
            )Unrealized
                gains (losses) on open U.S. Treasury bond futures options
            
            
            9
            
            
            (9
            )
            
            -Total
            
            $
            2,182
            
            $
            2,193
            
            $
            1,043





**Fair
      Value of Financial Instruments -** The
      carrying amounts of cash and cash equivalents, receivables and accounts payable
      approximated fair value as of December 31, 2005 and 2004, because of the
      relatively short maturities of these instruments. The carrying amount of
      long-term debt, including current maturities, approximated fair value as of
      December 31, 2005 and 2004, based upon terms and conditions
      currently  available
      to the Company in comparison to terms and conditions of the existing long-term
      debt. The Company has investments in life insurance contracts principally to
      fund obligations under deferred compensation agreements (see Note 9). At December 31, 2005 and 2004, the carrying amount
      of
      life insurance policies, which equaled their fair value, was $28.9 million
      ($43.9 million, net of $15 million of policy loans) and $25.2 million ($40.2
      million, net of $15 million of policy loans), respectively.





SFAS
      No.
      133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      requires that all derivative instruments be recorded on the balance sheet at
      their fair value. Changes in the fair value of derivatives are recorded each
      period in current earnings or other comprehensive income, depending on whether
      a
      derivative is designated as part of a hedge transaction and, if it is, the
      type
      of hedge transaction. In 2004 and 2003, the Company utilized U.S. Treasury
      bond
      futures options, which are derivative instruments, and changes in market value
      were recognized in current earnings. The Company has also entered into various
      interest rate swap agreements to manage the economic risks associated with
      fluctuations in interest rates by converting a portion of the Company's variable
      rate debt to a fixed rate basis, thus reducing the impact of changes in interest
      rates on future interest expense. These financial instruments have been
      designated as cash flow hedges, with changes in fair value being included as
      a
      component of other comprehensive income (loss) within shareholders' equity.
      Hedge effectiveness is evaluated by the hypothetical derivative method and
      any
      hedge ineffectiveness is reported as interest expense. Hedge ineffectiveness
      was
      not material in 2005 or 2004.





**Inventories
      -** Inventories
      are valued at the lower of cost (first-in, first-out method) or market.




-
          43
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





**Property,
      Plant and Equipment -** Property, plant and equipment are carried at cost less accumulated depreciation.
      Amortization of assets held under capital leases is included in depreciation
      and
      amortized over the estimated useful life of the asset. Depreciation is computed
      using the straight-line method on the costs of the assets, at rates based on
      their estimated useful lives as follows:





Land
                improvements
            
            
            3-15
                yearsBuildings
                and improvements
            
            
            10-30
                yearsMachinery
                and equipment
            
            
            3-10
                yearsTransportation
                equipment
            
            
            2-7
                yearsOffice
                furniture and fixtures, including capitalized computer
                software
            
            
            2-10
                years





Upon
      sale
      or retirement of property, plant and equipment, including real estate held
      for
      sale and rental properties, the asset cost and related accumulated depreciation
      is removed from the accounts and any resulting gain or loss is included in
      earnings.




**Long-Lived
      Assets -** Assets
      held and used by the Company, including property, plant and equipment and
      intangible assets, are reviewed for impairment whenever events or circumstances
      indicate that the carrying amount of an asset may not be recoverable (see Note 11 for asset impairments recorded in 2005, including
      impairments of intangible assets). For purposes of evaluating the recoverability
      of long-lived assets to be held and used, a recoverability test is performed
      based on assumptions concerning the amount and timing of estimated future cash
      flows and assumed discount rates, reflecting varying degrees of perceived risk.
      Impairments to long-lived assets to be disposed of are recorded based upon
      the
      fair value of the applicable assets. Since judgment is involved in determining
      the fair value and useful lives of long-lived assets, there is a risk that
      the
      carrying value of our long-lived assets may be overstated.




**Warranty
      Expense -** The
      Company provides to its customers a variety of warranties on its products
      ranging from 1 to 2 years in length and up to ten years on certain structural
      components. Estimated costs related to product warranty are accrued at the
      time
      of sale and included in cost of sales. General warranty reserves are based
      upon
      past warranty claims and sales history and adjusted as required to reflect
      actual costs incurred, as information becomes available. Specific warranty
      reserves are based on specific identified issues with the amounts accrued based
      on the estimated cost to correct the problem. Warranty expense from continuing
      operations totaled $34.8 million, $20.8 million and $14.9 million in 2005,
      2004
      and 2003, respectively. The increase in warranty expense for 2005 is primarily
      the result of specific reserves established related to the recall of camping
      trailer lift systems and the repair of laminated sidewalls of certain of the
      Company’s recreational vehicles.




-
          44
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





Changes
      in the Company's warranty liability during the years ended December 31, 2005
      and
      2004 were as follows (in thousands):




2005
            
            2004Balance
                of accrued warranty at January 1
            
            $
            10,140
            
            $
            8,658Warranties
                issued during the period and changes in liability for pre-existing
                warranties
            
            
            34,771
            
            
            22,189Cash
                settlements made during the period
            
            
            (24,906
            )
            
            (20,707
            )Balance
                of accrued warranty at December 31
            
            $
            20,005
            
            $
            10,140





The
      increase in warranty accrual for 2005 of $9.9 million to $20.0 million is
      primarily the result of specific reserves established related to the recall
      of
      defective camping trailer lift systems and the repair of defective material
      used
      in laminated sidewalls of certain of the Company’s recreational vehicles.





**Stock-Based
      Compensation -** On
      March
      1, 2003, the Company adopted the Performance Based Restricted Stock Plan
      initiated to motivate and reward participants for superior achievement of the
      Company's pre-established long-term financial performance goals. This new plan,
      effective as of January 1, 2003, utilizes variable plan accounting, meaning
      that
      the cost of the awards are expensed over the vesting period based upon the
      fair
      value of the estimated shares to be earned at the end of the vesting period.





The
      following table summarizes, by plan year, the number of contingent shares
      awarded, forfeited and the remaining contingent shares outstanding as of
      December 31, 2005:





Plan Year2005
            
            2004
            
            2003Contingent
                shares awarded
            
            
            75,600
            
            
            99,600
            
            
            88,500Shares
                forfeited
            
            
            13,400
            
            
            19,500
            
            
            88,500Contingent
                shares outstanding as of December 31, 2005
            
            
            62,200
            
            
            80,100
            
            
            -





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. During 2005,
      the Company determined that it was probable that the requirements for the 2003,
      2004 and 2005 plans would not be achieved and as a result, reversed the expenses
      that had been previously recorded related to these three plans. For the year,
      the Company reduced compensation expense, which is a component of general and
      administrative expenses, by $1.4 million related to these three plans. The
      amount expensed during the years ended December 31, 2004 and 2003 was $871,000
      and $523,000, respectively.





The
      Company also has stock option plans and an employee stock purchase plan, which
      are described more fully in Note 8. 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
      following table illustrates the effect on net income and earnings per share
      if
      the Company had applied the fair value recognition provisions of SFAS No.
      123, Accounting for Stock-Based Compensation, to stock-based
      compensation.


-
          45
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





Had
      the
      Company adopted the provisions of SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      the
      Company's pro forma net income and net income per share would have
      been **:**





2005
            
            2004
            
            2003Net
                income (loss), as reported
            
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365Add:
                Stock-based compensation expense (credit) under variable plan included
                in
                earnings,net
                of taxes
            
            
            (865
            )
            
            584
            
            
            347Deduct:
                Total stock-based employee compensation (expense) credit determined
                under
                fair value method
              for
                all awards, net of taxes
            
            
            761
            
            
            (739
            )
            
            (943
            )Pro
                forma net income (loss)
            
            $
            (26,454
            )
            $
            15,179
            
            $
            6,769Earnings
                (loss) per share:Basic
                - as reported
            
            
            (1.69
            )
            
            .99
            
            
            .48Basic
                - pro forma
            
            
            (1.70
            )
            
            .98
            
            
            .44Diluted
                - as reported
            
            
            (1.69
            )
            
            .99
            
            
            .48Diluted
                - pro forma
            
            
            (1.70
            )
            
            .98
            
            
            .44





The
      Company did not grant any stock options in 2005 or 2004. The pro forma amounts
      and the weighted-average grant-date fair-value of options granted in 2003 were
      estimated using the Black-Scholes option-pricing model with the following
      assumptions:





2003Risk
                free interest rate
            
            
            3.05
            %Expected
                life
            
            
            4.00
                yearsExpected
                volatility
            
            
            49.4
            %Expected
                dividends
            
            
            1.8
            %





**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.




-
          46
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





Statement
      123(R) will be adopted by the Company on January 1, 2006.





The
      Company intends to adopt the modified-prospective method, where 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.





As
      permitted by Statement 123, the Company currently accounts for share-based
      payments to employees using Opinion 25's intrinsic value method 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 the Company 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.





**Research
      and Development Expenses -** Research
      and development expenses charged to continuing operations were $7,162,000;
      $6,965,000; and $5,962,000 for the years ended December 31, 2005, 2004 and
      2003,
      respectively.





**Shipping
      and Handling Costs -** The
      Company records freight billed to customers as sales. Costs incurred related
      to
      shipping and handling of products are reported as delivery expense in operating
      expenses. ****





**Comprehensive
      Income (Loss) -** Comprehensive income (loss) represents net earnings and any revenues, expenses,
      gains and losses that, under accounting principles generally accepted in the
      United States, are excluded from net earnings and recognized directly as a
      component of shareholders' equity. The components of accumulated other
      comprehensive income (loss) are as follows (in thousands):





Unrealized
              Gains(Losses)
              on
                Securities
            
            Unrealized
              Gains(Losses)
              on
                Cash Flow
              Hedges
            
            Accumulated
              Other
              Comprehensive
              Income(Loss)Balances
                at January 1, 2003
            
            $
            (661
            )
            $
            -
            
            $
            (661
            )Other
                comprehensive income (loss)
            
            
            1,111
            
            
            (160
            )
            
            951Balances
                at December 31, 2003
            
            
            450
            
            
            (160
            )
            
            290Other
                comprehensive income (loss)
            
            
            (262
            )
            
            64
            
            
            (198
            )Balances
                at December 31, 2004
            
            
            188
            
            
            (96
            )
            
            92Other
                comprehensive income (loss)
            
            
            (188
            )
            
            90
            
            
            (98
            )Balances
                at December 31, 2005
            
            $
            0
            
            $
            (6
            )
            $
            (6
            )


-
          47
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**1.   
      NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.**





**Volume-Based
      Sales and Dealer Incentives -** The
      Company nets certain dealer incentives, including volume-based bonuses, interest
      reimbursements and other rebates, against revenue in accordance with EITF 00-22
      and EITF 01-09.





**Income
      Taxes -** The
      Company recognizes income tax expense in accordance with SFAS No. 109, Accounting
      for Income Taxes .
      Deferred tax assets and liabilities are established for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns using enacted tax rates in effect for the years in which the
      differences are expected to reverse and are subject to ongoing assessment of
      realizability. Deferred income tax expense (benefit) represents the change
      in
      net deferred tax assets and liabilities during the year.




**Reclassifications
      -**Certain reclassifications have been
      made in the fiscal 2004 and 2003 consolidated financial statements and related
      footnotes to conform to the presentation used in 2005.





**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 and Housing and Building. The Company evaluates the performance of
      its
      segments based primarily on net sales and pre-tax income and allocates resources
      to them based on performance. The accounting policies of the segments are the
      same as those described in Note 1 and there are no
      inter-segment revenues. The Company allocates certain corporate expenses to
      these segments based on three dimensions: revenues, subsidiary structure and
      number of employees. In addition, the data excludes the results of the
      discontinued operations (see Note 11). Differences between
      reported segment amounts and corresponding consolidated totals represent
      corporate income or expenses for administrative functions and income, costs
      or
      expenses relating to property and equipment that are not allocated to segments.





The
      table
      below presents information about segments, including product class information
      within the Recreational Vehicle Segment, used by the chief operating decision
      maker of the Company for the years ended December 31 (in thousands):





2005
            
            2004
            
            2003Net
                sales:Recreational
                vehiclesMotorhomes
            
            $
            350,876
            
            $
            421,325
            
            $
            303,631Travel
                trailers and fifth wheels
            
            
            149,263
            
            
            143,253
            
            
            135,075Camping
                trailers
            
            
            15,152
            
            
            22,776
            
            
            17,483Truck
                campers
            
            
            -
            
            
            4
            
            
            14Parts
                and supplies
            
            
            6,903
            
            
            6,396
            
            
            5,499Total
                recreational vehicles
            
            
            522,194
            
            
            593,754
            
            
            461,702Housing
                and buildings
            
            
            180,231
            
            
            208,592
            
            
            175,189Consolidated
                total
            
            $
            702,425
            
            $
            802,346
            
            $
            636,891Gross
                profitRecreational
                vehicles
            
            $
            15,307
            
            $
            57,723
            
            $
            42,498Housing
                and buildings
            
            
            40,653
            
            
            54,923
            
            
            49,948Other
                reconciling items
            
            
            -
            
            
            180
            
            
            (51
            )Total
            
            $
            55,960
            
            $
            112,826
            
            $
            92,395


-
          48
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**2.   
      SEGMENT INFORMATION, Continued.**


2005
            
            2004
            
            2003Operating
                expensesRecreational
                vehicles
            
            $
            55,049
            
            $
            47,051
            
            $
            41,102Housing
                and buildings
            
            
            43,335
            
            
            45,530
            
            
            37,636Other
                reconciling items
            
            
            (5,595
            )
            
            139
            
            
            1,265Total
            
            $
            92,789
            
            $
            92,720
            
            $
            80,003Operating
                income/(loss)Recreational
                vehicles
            
            $
            (39,742
            )
            $
            10,672
            
            $
            1,396Housing
                and buildings
            
            
            (2,682
            )
            
            9,393
            
            
            12,312Other
                reconciling items
            
            
            5,595
            
            
            41
            
            
            (1,316
            )Total
            
            $
            (36,829
            )
            $
            20,106
            
            $
            12,392Pre-tax
                income/(loss) from continuing operationsRecreational
                vehicles
            
            $
            (40,760
            )
            $
            10,628
            
            $
            1,226Housing
                and buildings
            
            
            (2,403
            )
            
            9,834
            
            
            12,522Other
                reconciling items
            
            
            5,809
            
            
            389
            
            
            (1,003
            )Total
            
            $
            (37,354
            )
            $
            20,851
            
            $
            12,745Total
                assetsRecreational
                vehicles
            
            $
            152,501
            
            $
            174,101
            
            $
            126,157Housing
                and buildings
            
            
            83,338
            
            
            111,099
            
            
            105,056Other
                reconciling items
            
            
            86,977
            
            
            72,523
            
            
            79,475Total
            
            $
            322,816
            
            $
            357,723
            
            $
            310,688


Total
                goodwillRecreational
                vehicles
            
            $
            4,132
            
            $
            4,132
            
            $
            4,132Housing
                and buildings
            
            
            13,251
            
            
            14,000
            
            
            14,822Total
            
            $
            17,383
            
            $
            18,132
            
            $
            18,954





The
      following specified amounts from continuing operations are included in the
      measure of segment pre-tax income or loss reviewed by the chief operating
      decision maker (in thousands):





2005
            
            2004
            
            2003Interest
                expense:Recreational
                vehicles
            
            $
            1,171
            
            $
            135
            
            $
            278Housing
                and buildings
            
            
            339
            
            
            212
            
            
            96Other
                reconciling items
            
            
            1,658
            
            
            1,447
            
            
            619Consolidated
                total
            
            $
            3,168
            
            $
            1,794
            
            $
            993Depreciation:Recreational
                vehicles
            
            $
            3,515
            
            $
            2,852
            
            $
            2,140Housing
                and buildings
            
            
            2,879
            
            
            3,058
            
            
            3,109Other
                reconciling items
            
            
            709
            
            
            1,687
            
            
            2,541Consolidated
                total
            
            $
            7,103
            
            $
            7,957
            
            $
            7,790




-
          49
          -
 Index





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**3.   
INVENTORIES.**





Inventories
      consist of the following (in thousands):





2005
            
            2004Raw
                materials
            
            $
            33,413
            
            $
            39,524Work
                in process
            
            
            20,795
            
            
            21,173Improved
                lots
            
            
            261
            
            
            2,236Finished
                goods
            
            
            66,835
            
            
            73,155Total
            
            $
            121,304
            
            $
            136,088





**4.   
PROPERTY,
      PLANT AND
      EQUIPMENT.**





Property,
      plant and equipment consists of the following (in thousands):





2005
            
            2004Land
                and improvements
            
            $
            13,255
            
            $
            15,671Buildings
                and improvements
            
            
            68,007
            
            
            78,359Machinery
                and equipment
            
            
            31,468
            
            
            33,241Transportation
                equipment
            
            
            16,279
            
            
            16,127Office
                furniture and fixtures
            
            
            19,080
            
            
            20,311Total
            
            
            148,089
            
            
            163,709Less,
                accumulated depreciation
            
            
            80,508
            
            
            81,358Property,
                plant and equipment, net
            
            $
            67,581
            
            $
            82,351





**5.   
SHORT-TERM
      BORROWINGS.**





The
      Company maintains a Revolving Credit Facility that provides an unsecured line
      of
      credit aggregating $35 million through June 30, 2006. As of December 31, 2005,
      the Company had borrowings outstanding on  this
      facility of $12.3 million and outstanding letters of credit of $3.0 million.
      Borrowings under the Credit Facility bear interest equal to: (i) a eurodollar
      rate plus an applicable margin of 2.75%, or (ii) a floating rate, for any day,
      equal to the greater of the prime rate or the federal funds effective rate
      plus
      .75%. The effective interest rate at December 31, 2005 was 8.0%.  The
      Company is also required to pay a facility fee of .50% of the daily unborrowed
      portion of the aggregate commitment.





The
      Credit Facility also contains customary affirmative and negative covenants
      including financial covenants requiring the maintenance of a specified
      consolidated current ratio, ratio of liabilities to net worth and a required
      minimum net worth. At December 31, 2005, the Company was in compliance with
      all
      related covenants except for maintaining a net worth greater than $195
      million.  The bank has waived this violation as of December 31,
      2005.





At
      December 31, 2005, the new and used recreational vehicle inventory of the
      Company-owned dealership was pledged as collateral on floorplan notes
      aggregating $4.4 million. The interest rate on these floorplan notes is tiered
      based on the outstanding note balance. The effective rate at December 31, 2005
      was 6.5%.


-
          50
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**6.   
LONG-TERM
      DEBT.**





Long-term
      debt consists of the following (in thousands):





2005
            
            2004Term
                Loan, variable rate (7.2% and 4.5% at December 31, 2005 and 2004,
                respectively), maturities through 2009
            
            $
            6,438
            
            $
            7,188Obligations
                under industrial development revenue bonds, variable rates (effective
                weighted average interest rates
              of
                3.7% and 2.1% at December 31, 2005 and 2004, respectively), with
                various
                maturities through 2015
            
            
            8,035
            
            
            9,200Obligations
                under Community Development Block Grants
            
            
            -
            
            
            2Obligations
                under capital leases, interest imputed at rates ranging from 2.9%
                to 6.8%,
                with maturities through
              2011
            
            
            663
            
            
            748Subtotal
            
            
            15,136
            
            
            17,138Less,
                current maturities of long-term debt
            
            
            2,223
            
            
            2,195Long-term
                debt
            
            $
            12,913
            
            $
            14,943





Principal
      maturities of long-term debt during the four fiscal years succeeding 2006 are
      as
      follows: 2007 - $2,591,000; 2008 - $2,246,000; 2009 - $5,650,000; 2010 -
      $1,063,000 and thereafter - $1,363,000.





In
      July
      2004, the Company entered into an Amendment to the Credit Agreement, which
      provided for a term loan of $7.5 million, payable in monthly installments
      through July 2009. In connection with the industrial development revenue bond
      obligations, the Company obtained, as a credit enhancement for the bondholders,
      irrevocable letters of credit in favor of the bond trustees. Under the
      industrial revenue bond for the Mod-U-Kraf Homes manufacturing facility in
      Virginia, the issuer of the letter of credit holds a first lien and security
      interest on that facility. The agreements relating to these letters of credit
      contain, among other provisions, certain covenants relating to required amounts
      of working capital and net worth and the maintenance of certain required
      financial ratios.  At
      December 31, 2005, the Company was in compliance with all related covenants
      except for maintaining a net worth greater than $195 million.  The bank has
      waived this violation as of December 31, 2005.


-
          51
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**6.   
      LONG-TERM DEBT, Continued.**





In
      January of 2003, the Company entered into various interest rate swap agreements
      that became effective beginning in October of 2003. These swap agreements are
      designated as cash flow hedges under the provisions of Statement of Financial
      Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
      Activities," and are used to manage the economic risks associated with
      fluctuations in interest rates by converting a portion of the Company's
      variable-rate debt to a fixed-rate basis through November of 2011, thus reducing
      the impact of changes in interest rates on future interest expense. Hedge
      effectiveness is evaluated by the hypothetical derivative method. Any hedge
      ineffectiveness is reported within the interest expense caption of the
      statements of income. Hedge ineffectiveness was not material in 2005 or 2004.
      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.
      If, in the future, the interest rate swap agreements are determined to be
      ineffective hedges or are 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 amounts on cash
      flow
      hedges included in accumulated other comprehensive income (loss) within
      shareholders' equity.





At
      December 31, 2004, the Company had four interest rate swap agreements with
      notional amounts of $1.5 million, $235,000, $3.2 million, and $1.6 million,
      respectively, that were used to convert the variable interest rates on certain
      industrial development revenue bonds to fixed rates. In accordance with the
      terms of the swap agreements, the Company pays 3.39%, 3.12%, 3.71%, and 3.36%
      interest rates, respectively, and receives the Bond Market Association Index
      (BMA), calculated on the notional amounts, with net receipts or payments being
      recognized as adjustments to interest expense. The Company recorded a liability
      for the potential early settlement of these swap agreements in the amount of
      $11,000 at December 31, 2005 and $167,000 at December 31, 2004. This exposure
      represents the fair value of the swap instruments and has been recorded in
      the
      balance sheets in accordance with SFAS No. 133 as a noncurrent liability. The
      effective portion of the cash flow hedge has been recorded, net of taxes, as
      a
      reduction of shareholders' equity as a component of accumulated other
      comprehensive loss.





**7.   
ACCRUED
      EXPENSES AND OTHER
      LIABILITIES.**





Accrued
      expenses and other liabilities at year-end consist of the following (in
      thousands):





2005
            
            2004Wages,
                salaries, bonuses and commissions
            
            $
            3,156
            
            $
            5,366Dealer
                incentives, including volume bonuses, dealer trips, interest
                reimbursement, co-op advertising
              and
                other rebates
            
            
            4,284
            
            
            5,119Warranty
            
            
            20,005
            
            
            10,140Insurance-products
                and general liability, workers compensation, group health and
                other
            
            
            6,833
            
            
            5,589Customer
                deposits and unearned revenues
            
            
            10,029
            
            
            7,340Litigation
            
            
            3,740
            
            
            520Interest
            
            
            1,980
            
            
            551Sales
                and property taxes
            
            
            1,948
            
            
            1,979Other
                current liabilities
            
            
            2,881
            
            
            2,862Total
            
            $
            54,856
            
            $
            39,466




-
          52
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**8.   
COMMON
      STOCK MATTERS AND EARNINGS PER SHARE.**





**Stock
      Option Plan**





The
      Company has stock option plans, including the 2000 Omnibus Stock Incentive
      Program (the "2000 Plan"), which was approved by the shareholders on May 4,
      2000. The 2000 Plan provides for one million common shares to be reserved for
      grants under the Company's stock option and award plans. The Company's stock
      option plan provides for the granting of options to directors, officers and
      eligible key employees to purchase common shares. The 2000 Plan permits the
      issuance of either incentive stock options or nonqualified stock options. Stock
      Appreciation Rights ("SAR's") may be granted in tandem with stock options or
      independently of and without relation to options. There were no SAR's
      outstanding at December 31, 2005 or 2004. The option price for incentive stock
      options shall be an amount of not less than 100% of the fair market value per
      share on the date of grant and the option price for nonqualified stock options
      shall be an amount of not less than 90% of the fair market value per share
      on
      the date the option is granted. No such options may be exercised during the
      first year after grant, and are exercisable cumulatively in four installments
      of
      25% each year thereafter. Outstanding options have terms of ten
      years .





The
      following table summarizes stock option activity (number of shares in
      thousands):





Number
              of
                Shares
            
            Weighted-
              Average
              Exercise
              PriceOutstanding,
                January 1, 2003
            
            
            716
            
            $
            15.74Granted
            
            
            36
            
            
            12.41Canceled
            
            
            (180
            )
            
            18.17Exercised
            
            
            (26
            )
            
            8.66Outstanding,
                December 31, 2003
            
            
            546
            
            
            15.05Granted
            
            
            -
            
            
            -Canceled
            
            
            (184
            )
            
            20.52Exercised
            
            
            (35
            )
            
            12.21Outstanding,
                December 31, 2004
            
            
            327
            
            
            12.26Granted
            
            
            -
            
            
            -Canceled
            
            
            (15
            )
            
            14.69Exercised
            
            
            (28
            )
            
            11.66Outstanding,
                December 31, 2005
            
            
            284
            
            $
            12.19





-
          53
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**8.   
      COMMON STOCK MATTERS AND EARNINGS PER SHARE, Continued.**





Options
      outstanding at December 31, 2005 are exercisable at prices ranging from $7.88
      to
      $18.68 per share and have a weighted average remaining contractual life of
      5.5
      years. The following table summarizes information about stock options
      outstanding and exercisable at December 31, 2005 (in thousands):




Options
                Outstanding
            Options
                ExercisableNumber
                Outstanding at
            Weighted-Average
              Remaining
            Weighted-Average
            Number
                Exercisable at
            Weighted-AverageRange
                of Exercise Price
            December
                31, 2005
            Contractual
                Life
            Exercise
                Price
            December
                31, 2005
            Exercise
                Price$7.88
                - $12.00
            201
            5.1
            $10.46
            193
            $10.4312.01
                - 17.00
            71
            6.3
            16.12
            51
            16.2417.01
                - 18.68
            12
            7.0
            18.15
            8
            18.27284
            
            
            252




At
      December 31, 2004 and 2003 there were exercisable options to purchase 245,000
      and 373,000 shares, respectively, at weighted-average exercise prices of $11.54
      and $15.88, respectively. There were no options granted during 2005 or 2004.
      The
      weighted-average grant-date fair value of options granted during the year ended
      December 31, 2003 was $4.55. As of December 31, 2005, 1,218,000  shares
      were reserved for the granting of future stock options and awards, compared
      with
      1,194,000 shares at December 31, 2004.




**Stock
      Award Programs**





The
      2000
      Plan also permits the granting of restricted and unrestricted stock awards
      to
      the Company's key employees and non-employee directors. In accordance with
      the
      provisions of the 2000 Plan, the Board of Directors may grant shares of stock
      to
      eligible participants for services to the Company. Restricted shares vest over
      a
      period of time as determined by the Board of Directors and are granted at no
      cost to the recipient. For restricted shares that are not subject to
      pre-established Company performance objectives, compensation expense is
      recognized over the vesting period at an amount equal to the fair market value
      of the shares on the grant date. Compensation expense for discretionary
      unrestricted stock awards is recognized at date of grant. There were 22,490,
      17,900 and 14,200 restricted non-contingent stock awards granted at a
      weighted-average per share grant-date fair value of $11.80, $15.95 and $14.98,
      in 2005, 2004 and 2003 respectively. Compensation expense of $259,000, $148,700
      and $124,600, was recognized in the years ended December 31, 2005, 2004 and
      2003, respectively.





On
      March
      1, 2003, the Company adopted the Performance Based Restricted Stock Plan
      covering 115,000 shares of common stock per performance period for officers
      and
      other key employees. The purpose of the plan is 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. Shares awarded under the plan entitle the shareholder to all rights
      of common stock ownership except that the shares may not be sold, transferred,
      pledged, exchanged or otherwise disposed of during the restriction period.
      There
      is also a requirement to forfeit the award upon certain terminations of
      employment, in cases other than death, disability or retirement. The plan,
      effective as of January 1, 2003, 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, $16.65 and $11.18 in 2005, 2004 and 2003, respectively, for the
      shares awarded under the plan. 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.
      During 2005, the Company determined that it was probable that the requirements
      for the 2003, 2004 and 2005 plans would not be achieved and as a result,
      reversed the expenses that had been previously recorded related to these three
      plans. For the year, the Company reduced compensation expense, which is a
      component of general and administrative expenses, by $1.4 million related to
      these three plans. The amount expensed during the years ended December 31,
      2004
      and 2003 was $871,000 and $523,000, respectively.




-
          54
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**8.   
      COMMON STOCK MATTERS AND EARNINGS PER SHARE, Continued.**





The
      following table summarizes the activity of this program (in thousands):


Number
              of
                SharesOutstanding,
                January 1, 2003
            
            
            -Granted
            
            
            88,500Forfeited
            
            
            (1,800
            )Outstanding,
                December 31, 2003
            
            
            86,700Granted
            
            
            99,600Forfeited
            
            
            (17,190
            )Outstanding,
                December 31, 2004
            
            
            169,110Granted
            
            
            75,600Forfeited
            
            
            (102,410
            )Outstanding,
                December 31, 2005
            
            
            142,300





**Stock
      Purchase Plan**





The
      Company has an employee stock purchase plan under which a total of 800,000
      shares of the Company's common stock are reserved for purchase by full-time
      employees through weekly payroll deductions. Shares of the Company's common
      stock are purchased quarterly by the employees at a price equal to the lesser
      of
      90% of the market price at the beginning or end of the quarter. As of December
      31, 2005, there were 241 employees actively participating in the plan. Since
      its
      inception, a total of 442,000 shares have been purchased by employees under
      the
      plan. The Company sold to employees 25,700, 21,600 and 24,300 shares at weighted
      fair values of $11.07, $14.48 and $10.53 in 2005, 2004 and 2003, respectively.
      Certain restrictions in the plan limit the amount of payroll deductions an
      employee may make in any one quarter. There are also limitations as to the
      amount of ownership in the Company an employee may acquire under the plan.





**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 and shares held in deferred
      compensation plans. Basic and diluted earnings per share were calculated using
      the average shares as follows (in thousands):




2005
            
            2004
            
            2003Numerator:Net
                income (loss) available to common stockholders
            
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365Denominator:Number
                of shares outstanding, end of period:Common
                stock
            
            
            15,759
            
            
            15,724
            
            
            15,553Effect
                of weighted average contingently liable shares outstanding during
                period
            
            
            (245
            )
            
            (172
            )
            
            (77
            )Effect
                of weighted average shares outstanding during period
            
            
            37
            
            
            (69
            )
            
            (39
            )Weighted
                average number of common shares used in basic EPS
            
            
            15,551
            
            
            15,483
            
            
            15,437Effect
                of dilutive securitiesStock
                options and awards
            
            
            -
            
            
            68
            
            
            50Weighted
                average number of common shares used in diluted EPS
            
            
            15,551
            
            
            15,551
            
            
            15,487




-
          55
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**8.   
      COMMON STOCK MATTERS AND EARNINGS PER SHARE, Continued.**





As
      the
      Company reported a net loss for the year ended December 31, 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
      the
      years ended December 31, 2004 and 2003, 85,400 and 285,275 shares, respectively,
      of outstanding stock options were not included in the computation of diluted
      earnings per share because their exercise price was greater than the average
      market prices for the respective periods and their inclusion would have been
      antidilutive.





The
      sum
      of quarterly earnings per share may not equal year-to-date earnings per share
      due to rounding and changes in diluted potential common shares.





**Shareholder
      Rights Plan**





On
      October 21, 1999, the Company's Board of Directors adopted a new shareholder
      rights plan to replace an existing rights plan that was due to expire on
      February 15, 2000. The new rights plan, which became effective January 12,
      2000
      (the "Record Date"), provides for a dividend distribution of one common share
      purchase right (the "Rights") for each outstanding common share to each
      shareholder of record on the Record Date. The Rights will be represented by
      common share certificates and will not be exercisable or transferable apart
      from
      the common shares until the earlier to occur of (i) ten (10) business days
      following a public announcement that a person or group of persons (an "Acquiring
      Person") has acquired, or obtained the right to acquire, beneficial ownership
      of
      20% or more of the outstanding common shares or (ii) ten (10) business days
      following the commencement of (or announcement of an intention to make) a tender
      offer or exchange offer if, upon consummation thereof, such an Acquiring Person
      would be the beneficial owner of 20% or more of the outstanding common shares.
      Upon the occurrence of the certain events and after the Rights become
      exercisable, each right would entitle the rightholder (other than the Acquiring
      Person) to purchase one fully paid and nonassessable common share of the Company
      at a purchase price of $75 per share, subject to anti-dilutive adjustments.
      The
      Rights are nonvoting and expire February 1, 2010. At any time prior to a person
      or a group of persons becoming an Acquiring Person, the Company's Board of
      Directors may redeem the Rights in whole, but not in part, at a purchase price
      $.01 per Right.





**9.   
COMPENSATION
      AND BENEFIT
      PLANS.**





**Incentive
      Compensation**





The
      Company has incentive compensation plans for its officers and other key
      management personnel. The amounts charged to expense for the years ended
      December 31, 2005, 2004 and 2003 aggregated $920,000, $3,516,000, and
      $1,598,000, respectively.





**Deferred
      Compensation**





The
      Company has established a deferred compensation plan for executives and other
      key employees. The plan provides for benefit payments upon termination of
      employment, retirement, disability, or death. The Company recognizes the cost
      of
      this plan over the projected service lives of the participating employees based
      on the present value of the estimated future payment to be made. The plan is
      funded by insurance contracts on the lives of the participants. At December
      31,
      2005 and 2004, the carrying amount of these policies, which equaled their fair
      value, was $24,852,000 ($39,852,000, net of $15,000,000 of policy loans) and
      $22,496,000 ($37,496,000, net of $15,000,000 of policy loans), respectively.
      The
      deferred compensation obligations, which aggregated $7,649,000 and $7,632,000
      at
      December 31, 2005 and 2004, respectively, are included in other non-current
      liabilities, with the current portion ($391,000 and $372,000 at December 31,
      2005 and 2004, respectively) included in other current liabilities.




-
          56
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**9.   
      COMPENSATION AND BENEFIT PLANS, Continued.**





In
      connection with the acquisition of Mod-U-Kraf Homes in 2000, the Company assumed
      obligations under existing deferred compensation agreements. The remaining
      liability recognized in the consolidated balance sheet related to the Mod-U-Kraf
      agreements aggregated $287,000 and $417,000 at December 31, 2005 and 2004,
      respectively. As part of the Mod-U-Kraf acquisition, the Company assumed
      ownership of life insurance contracts and trust accounts established for the
      benefit of participating executives. Such assets, which are valued at fair
      value, aggregated $61,000 and $60,000 at December 31, 2005 and 2004,
      respectively.





**Supplemental
      Deferred Compensation**





The
      Company has established a supplemental deferred compensation plan (Mirror Plan)
      for key employees as determined by the Board of Directors. The plan allows
      participants to defer compensation only after they had deferred the maximum
      allowable amount under the Company's 401(k) Plan. The participants select
      certain mutual funds investments and Company stock whose performance is tracked
      by the Company. In addition, the Company matches a certain level of participant
      contributions that vests over a five-year period. Under the plan, the
      investments are not funded directly, including the matching contributions and
      investments in Company stock. Instead, the plan administrator tracks the
      performance of investments in mutual funds and Company stock as directed by
      the
      participant and a liability to the participants is recorded by the Corporation
      based on the performance of the phantom investments. Participant benefits are
      limited to the value of the vested benefits recorded on their behalf.





The
      Company has also established a supplemental deferred compensation plan
      (Executive Savings Plan) for certain key executive management as determined
      by
      the Board of Directors. This plan allows participants to defer compensation
      without regard to participation in the Company's 401(k) plan. The participants
      select certain mutual funds investments and Company stock whose performance
      is
      tracked by the Company. In addition, the Company matches a certain level of
      participant contributions that vests after a five-year period. Under the plan,
      the investments are not funded directly, including the matching contributions
      and investments in Company stock. Instead, the plan administrator tracks the
      performance of investments in mutual funds and Company stock as directed by
      the
      participant and a liability to the participants is recorded by the Corporation
      based on the performance of the phantom investments. Participant benefits are
      limited to the value of the vested benefits recorded on their behalf. The plan
      is funded by insurance contracts on the lives of the participants. At December
      31, 2005 and 2004, the carrying amount of these policies, which equaled their
      fair value, was $3,831,000 and $2,479,000 respectively. Liabilities recorded
      on
      the consolidated balance sheets related to these plans as of December 31, 2005
      and 2004 are $2,770,000 and $2,190,000, respectively.





**Employee
      Benefit Plans**





The
      Company sponsors a retirement plan (the "Plan"), under Section 401(k) of the
      Internal Revenue Code (IRS) that covers all eligible employees. The Plan is
      a
      defined contribution plan and allows employees to make voluntary contributions
      up to 20% of annual compensation. Effective January 1, 2005, the Plan was
      amended to allow for voluntary contributions of up to 50% of annual
      compensation, not to exceed IRS limits. Under the Plan, the Company may make
      discretionary matching contributions on up to 6% of participants' compensation.
      Expenses under the Plan aggregated $1,261,000, $1,291,000, and $1,291,000 for
      the years ended December 31, 2005, 2004 and 2003, respectively.




-
          57
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**10.   INCOME
      TAXES.**





Income
      taxes (benefit) attributable to continuing operations are summarized as follows
      for the years ended December 31 (in thousands):




2005
            
            2004
            
            2003Federal:Current
            
            $
            (8,673
            )
            $
            7,090
            
            $
            3,515Deferred
            
            
            (5,888
            )
            
            (1,587
            )
            
            273(14,561
            )
            
            5,503
            
            
            3,788State:Current
            
            
            (2,964
            )
            
            1,192
            
            
            491Deferred
            
            
            (469
            )
            
            (102
            )
            
            23(3,433
            )
            
            1,090
            
            
            514Total
            
            $
            (17,994
            )
            $
            6,593
            
            $
            4,302




The
      following is a reconciliation of the provision for income taxes attributable
      to
      continuing operations computed at the federal statutory rate (35% for all years
      presented) to the reported provision for income taxes (in thousands):




2005
            
            2004
            
            2003Computed
              federal income tax at federal statutory rate
            
            $
            (13,074
            )
            $
            7,298
            
            $
            4,460Changes
              resulting from:Increase
                in cash surrender value of life insurance contracts
            
            
            (397
            )
            
            (395
            )
            
            (434
            )Current
                year state income taxes, net of federal income tax benefit
            
            
            (1,942
            )
            
            436
            
            
            347Preferred
                stock dividend exclusion
            
            
            (9
            )
            
            (189
            )
            
            (100
            )Extraterritorial
                income exclusion
            
            
            (71
            )
            
            (57
            )
            
            (50
            )Tax
                benefit on prior years' federal and state research and development
                (R&D) credits
            
            
            (2,378
            )
            
            0
            
            
            0Tax
                benefit of current years' federal R&D tax credit carryforward, AMT
                credit
              carryforward
                and other credits
            
            
            (454
            )
            
            0
            
            
            0Decrease
                in federal tax reserves, net of additional state tax
                reserves
            
            
            53
            
            
            (487
            )
            
            0Other,
                net
            
            
            278
            
            
            (13
            )
            
            79Total
            
            $
            (17,994
            )
            $
            6,593
            
            $
            4,302





-
          58
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**10.  
      INCOME TAXES, Continued.**





For
      the
      year ended December 31, 2005, the effective tax rate was favorably impacted
      by
      federal and state R&D tax credits for the current year and prior years, all
      of which were recognized in 2005. During 2005, the Company completed a project
      to identify eligible expenditures for purposes of claiming R&D tax credits.
      As part of this project, the Company filed amended tax returns for 1999 - 2003
      to claim federal and state R&D tax credits. In addition, the Company’s 2004
      federal and state income tax returns, which were completed and filed during
      2005, reflected $.9 million of federal and state tax credits not recognized
      on
      the 2004 provision. The carryback of the Company’s 2005 net operating loss
      results in an alternative minimum tax (“AMT”) credit carryforward of $171,000,
      which can be carried forward indefinitely. Further, at December 31, 2005, the
      Company has federal and state R&D tax credit carryforwards of $420,000 and
      $245,000, respectively, which can be utilized to offset future tax liabilities.
      The Company has also recognized the tax benefit of certain state net operating
      loss carryforwards in states that do not permit carrybacks of net operating
      losses. These state net operating loss carryforwards begin to expire in certain
      states after 5 years. In management’s opinion, no valuation allowance for
      deferred tax assets is required at December 31, 2005.





The
      components of the net deferred tax assets (liabilities) are as follows (in
      thousands):





2005
            
            2004Current
                deferred tax asset (liability):Accrued
                warranty expense
            
            $
            6,815
            
            $
            2,979Accrued
                self-insurance
            
            
            1,900
            
            
            1,991Inventories
            
            
            956
            
            
            572Receivables
            
            
            471
            
            
            365Prepaid
                insurance
            
            
            (602
            )
            
            (394
            )Litigation
                reserve
            
            
            1,421
            
            
            198Other
            
            
            460
            
            
            303Net
                current deferred tax asset
            
            $
            11,421
            
            $
            6,014Noncurrent
                deferred tax asset (liability):Deferred
                compensation
            
            $
            3,950
            
            $
            3,721Property
                and equipment and other real estate
            
            
            (636
            )
            
            (5,216
            )Intangible
                assets
            
            
            (2,459
            )
            
            (2,361
            )Alternative
                minimum tax credit carryover
            
            
            171
            
            
            -Federal
                research and development credit carryover
            
            
            420
            
            
            -State
                net operating loss carryforward credits
            
            
            2,777
            
            
            -Other
            
            
            56
            
            
            344Net
                noncurrent deferred tax asset (liability)
            
            $
            4,279
            
            $
            (3,512
            )




-
          59
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**11.**
            **RESTRUCTURING
                CHARGES AND DISCONTINUED
                OPERATIONS.**





During
      2005, 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.





When
      describing the impact of these restructuring plans, determinations of the fair
      value of long-lived assets were based upon comparable market values for similar
      assets.





During
      the year, approximately 140 salaried positions were eliminated throughout the
      Company. Severance costs related to the eliminations were approximately $0.7
      million, of which $0.5 million was paid by December 31, 2005 and $0.2 million
      will be paid in 2006.





**Housing
      and Building Segment**





The
      Company is in the latter stages of closing the All American Homes operation
      in
      Springfield, Tennessee. The pending closure of the Tennessee location resulted
      in an asset impairment charge of approximately $1.1 million. In addition, a
      reserve to reduce finished goods and model home inventory to the lower of cost
      or market of $0.8 million was recorded. The closure of the Tennessee facility
      should have minimal 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, but should improve profitability by eliminating the
      possibility of further losses at this location. The facility has been listed
      for
      sale, and management anticipates the final closure of the Tennessee facility
      to
      occur late in the first quarter of 2006.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes Kansas division. The total sales price was $1.5 million, which the Company
      received in cash. The sale resulted in a loss on the sale of discontinued
      operations of $0.6 million, net of $0.4 million in taxes. Prior to this division
      meeting the requirements to be considered held for sale, an asset impairment
      charge of $1.6 million was recognized and is included in the loss from
      operations of discontinued entities. In accordance with Statement of Financial
      Accounting Standard No. 144, the division qualified as a separate component
      of
      the Company’s business and as a result, the operating results of the division
      have been accounted for as a discontinued operation. Previously reported
      financial results for all periods presented have been restated to reflect this
      business as a discontinued operation. Net sales of the Kansas division for
      the
      years ended December 31, 2005, 2004 and 2003 were $9.7 million, $10.2 million
      and $10.4 million, respectively, and the pre-tax income (loss) for the years
      ended December 31, 2005, 2004 and 2003 were $(2.9) million, $0.2 million and
      $0.1 million, respectively.





The
      Company is in the latter stages of negotiating the sale of Miller Building
      Systems, Inc. Management expects to close on the sale of Miller in early 2006.
      Since its acquisition, Miller has struggled through a deep downturn in the
      telecommunications market. An asset impairment charge of $4.3 million was
      recorded in the third quarter related to management’s decision to evaluate the
      strategic alternatives regarding the Miller operations. In conjunction with
      the
      pending sale of Miller, and as a result of Miller meeting all the criteria
      to be
      considered held for sale, the Company incurred an additional impairment charge
      for the subsidiary of approximately $3.6 million in the fourth quarter. In
      accordance with Statement of Financial Accounting Standard No. 144, the division
      qualified as a separate component of the Company’s business and as a result, the
      operating results of the division have been accounted for as a discontinued
      operation. Previously reported financial results for all periods presented
      have
      been restated to reflect this business as a discontinued operation. Net sales
      of
      Miller Building Systems, Inc. for the years ended December 31, 2005, 2004 and
      2003 were $41.6 million, $40.1million and $37.3 million, respectively, and
      the
      pre-tax losses for the years ended December 31, 2005, 2004 and 2003 were $8.2
      million, $1.7 million and $2.6 million, respectively.




-
          60
          -
 Index





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**11.**
            **RESTRUCTURING
                CHARGES AND DISCONTINUED OPERATIONS,
                Continued.**





In
      conjunction with the actions noted above, management allocated goodwill of
      $0.7
      million to the discontinued operations from the Housing and Building Segment
      goodwill based on the relative fair value of the discontinued operations to
      the
      entire Housing and Building Segment. The $0.7 million of allocated goodwill
      consisted of $0.6 million allocated to Miller Building Systems, which was
      written off as part of the loss from operations of discontinued operations
      and
      $0.1 million allocated to All American Homes of Kansas, which was included
      in
      the loss on sale of assets of discontinued operations.





Assets
      and liabilities of the All American Homes of Kansas and Miller Building Systems
      disposal groups, which are included in the consolidated balance sheet, were
      as
      follows at December 31 (in thousands):





2005
            
            2004Cash
            
            $
            242
            
            $
            (72
            )Accounts
                and other receivables
            
            
            4,401
            
            
            6,483Prepaid
                Expenses
            
            
            510
            
            
            410Inventories
            
            
            10,423
            
            
            11,855Other
                long-term assets
            
            
            124
            
            
            305Fixed
                assets
            
            
            34
            
            
            11,207Accounts
                payable
            
            
            (1,777
            )
            
            (2,595
            )Other
                current liabilities
            
            
            (5,341
            )
            
            (3,282
            )Net
                assets held for sale
            
            $
            8,616
            
            $
            24,311




**Recreational
      Vehicle Segment**





On
      January 13, 2006, the Company sold all operating assets of Prodesign. The total
      sales price was $8.2 million, of which the Company received $5.7 million in
      cash, a $2.0 million promissory note and $0.5 million to be held in escrow
      to
      cover potential warranty claims and uncollectible accounts receivable, as
      defined in the sale agreement. The promissory note is to be repaid over a period
      of 10 years, using an amortization period of 15 years, and bears interest at
      6%
      per annum with interest only payments being required in the first three years.
      Any funds remaining in the escrow account after a period of 13 months will
      revert to the Company. In accordance with Statement of Financial Accounting
      Standard No. 144, Prodesign qualified as a separate component of the Company’s
      business and as a result, the operating results of Prodesign have been accounted
      for as a discontinued operation. Previously reported financial results for
      all
      periods presented have been restated to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the Recreational Vehicle Segment goodwill based on the relative
      fair value of the discontinued operations to the Recreational Vehicle Segment.
      The $0.3 million of allocated goodwill will be included in the calculation
      of
      the final gain on sale of assets in the first quarter of 2006. Net sales of
      Prodesign for the years ended December 31, 2005, 2004 and 2003 were $14.2
      million, $12.5 million and $13.7 million, respectively, and the pre-tax income
      (loss) for the years ended December 31, 2005, 2004 and 2003 were $(0.7) million,
      $0.3 million and $0.2 million, respectively.




-
          61
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**11.**
            **RESTRUCTURING
                CHARGES AND DISCONTINUED OPERATIONS,
                Continued.**





Assets
      and liabilities of the Prodesign disposal group, which are included in the
      consolidated balance sheet, were as follows at December 31 (in thousands):





2005
            
            2004Accounts
                and other receivables
            
            $
            781
            
            $
            1,001Prepaid
                expenses
            
            
            51
            
            
            37Inventories
            
            
            909
            
            
            2,057Other
                long-term assets
            
            
            437
            
            
            220Fixed
                assets
            
            
            4,144
            
            
            4,401Accounts
                payable
            
            
            (116
            )
            
            (486
            )Other
                current liabilities
            
            
            (495
            )
            
            (798
            )Net
                assets held for sale
            
            $
            5,711
            
            $
            6,432




On
      December 31, 2004, the Company sold all operating assets of the Company-owned
      dealership located in North Carolina. The total sale price was $11.8 million,
      of
      which the Company received cash of $10.8 and a promissory note of $1 million.
      The promissory note is due in two annual payments, including interest at 4%.
      The
      sale resulted in a gain on sale of discontinued operations of $1.7 million,
      net
      of $.8 million in taxes. In accordance with SFAS No. 144, the dealership
      qualified as a separate component of the Company's business and as a result,
      the
      operating results and the gain on the sale of assets have been accounted for
      as
      a discontinued operation. Previously reported financial results for all periods
      presented have been restated to reflect this business as a discontinued
      operation. Net sales of the North Carolina dealership for the years ended
      December 31, 2004 and 2003 were $20.0 million and $12.8 million, respectively,
      and the pre-tax income for the years ended December 31, 2004 and 2003 were
      $2.8
      million and $0.7 million, respectively.





**12. 
COMMITMENTS
      AND CONTINGENCIES.**





**Lease
      Commitments**





The
      Company leases various manufacturing and office facilities under non-cancelable
      agreements that expire at various dates through November 2011. Several of the
      leases contain renewal options and options to purchase and require the payment
      of property taxes, normal maintenance and insurance on the properties. Certain
      office and delivery equipment is also leased under non-cancelable agreements
      that expire at various dates through June 2010. The above-described leases
      are
      accounted for as operating leases.





Future
      minimum annual operating lease commitments at December 31, 2005 aggregated
      $5.0
      million and are payable during the next 5 years as follows: 2006 - $1.1 million,
      2007 - $1.1 million, 2008 - $0.8 million, 2009 - $0.8 million, 2010 - $0.7
      million and $0.5 million for years thereafter. Total rental expense for the
      years ended December 31, 2005, 2004 and 2003 aggregated $1.6 million, $1.1
      million and $1.1 million, respectively.





**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


-
          62
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**12. 
      COMMITMENTS AND CONTINGENCIES, Continued.**





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 December 31, 2005 and 2004, chassis inventory,
      accounted for as consigned inventory, approximated $26.8 million and $29.7
      million, respectively.





**Repurchase
      Agreements**





The
      Company was contingently liable at December 31, 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 $262 million  at
      December 31, 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
      December 31, 2005 and 2004, $0.4 million and $0.3 million, respectively, was
      recorded as an accrual for estimated losses under repurchase agreements.





The
      Company was also contingently liable at December 31, 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 $15.9 million at December 31, 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 December 31, 2005 ($0.1 million at December 31, 2004) for estimated
      losses under the repurchase agreement.





**Corporate
      Guarantees**





The
      Company was contingently liable under guarantees to financial institutions
      of
      their loans to independent dealers for amounts totaling approximately $6.2
      million at December 31, 2005 and $19.2 million at December 31, 2004. The Company
      has 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 Vehicle 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 2006 the Company will be contingently liable to the
      financial institutions up to a maximum of $2.4 million of aggregate losses,
      as
      defined by the agreement, incurred by the financial institutions on designated
      dealers with higher credit risks that are accepted into the reserve pool
      financing program. After 2006, the Company will be liable up to a maximum of
      $2
      million of aggregate losses. The Company has recorded a loss reserve of $0.1
      million at December 31, 2005 and $0.3 million at December 31, 2004 associated
      with these guarantees.


-
          63
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**12. 
      COMMITMENTS AND CONTINGENCIES, Continued.**





The
      Company is liable under 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 December 31, 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 a total of $2.0 million. As of
      December 31, 2005, no losses have been incurred by the Company under the model
      home financing program.





**Share
      Repurchase Programs**





Periodically,
      the Company has repurchased its common stock as authorized by the Board of
      Directors. Under the repurchase program, common shares are purchased from time
      to time, depending on market conditions and other factors, on the open market
      or
      through privately negotiated transactions. There were no shares repurchased
      in
      2005 or 2004. The Company repurchased 293,000 shares during 2003. At December
      31, 2005, there are 73,000 remaining shares authorized for repurchase by the
      Board of Directors.





**Financing
      Obligation**





During
      the second quarter of 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 December 31, 2005, the Company has provided
      $2.3
      million in financing to the developer.





**Self-Insurance**





The
      Company is self-insured for a portion of its product liability and certain
      other
      liability exposures. Depending on the nature of the claim and the date of
      occurrence, the Company's maximum exposure ranges from $250,000 to $500,000
      per
      claim. The Company accrues an estimated liability based on various factors,
      including sales levels, insurance coverage and the amount of outstanding claims.
      Management believes the liability recorded (see  Note
      7) is adequate to cover the Company's self-insured
      risk.





**Change
      of Control Agreements**





On
      February 3, 2000, the Company entered into Change of Control Agreements with
      key
      executives. Under the terms of these agreements, in the event of a change in
      control of the Company, as defined, the Company would be obligated to pay these
      key executives for severance and other benefits. These agreements, as adjusted
      for subsequent changes in key personnel, aggregated obligations of approximately
      $10.4 million and $14.6 million based on salaries and benefits at December
      31,
      2005 and 2004, respectively. In addition, in the event of a change of control
      of
      the Company, all outstanding stock options and SAR's shall become immediately
      exercisable, restrictions are removed from restricted stock, and all stock
      awards shall immediately be deemed fully achieved.




-
          64
          -
 Index




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**12. 
      COMMITMENTS AND CONTINGENCIES, Continued.**





Also
      on
      February 3, 2000, the Company established a rabbi trust, which in the event
      of a
      change of control, as defined, will be funded to cover the Company's obligations
      under its Change
      of
      Control Agreements  and
      its
      deferred compensation plan (see Note 9).





**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 recorded in 2005 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
      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. The excess carrier denied coverage. The
      Company filed suit against the excess carrier to enforce coverage, however,
      resolution of this matter is pending. The Company has 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.





The
      Company is currently in arbitration with a housing customer over the terms
      of
      the contract. Arbitration is anticipated to be completed in the first half
      of
      2006. As of December 31, 2005, the Company has accrued an amount that management
      believes the arbitration will be settled for, however, there is a potential
      for
      exposure in excess of the amount accrued.





The
      Company is involved in various other 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.




-
          65
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**13. 
UNAUDITED
      INTERIM FINANCIAL
      INFORMATION.**





Certain
      selected unaudited quarterly financial information for the years ended December
      31, 2005 and 2004 is
      as
      follows (in thousands):




2005Quarter
                EndedMarch
                31
            
            June
                30
            
            September
                30
            
            December
                31Net
              Sales
            
            $
            192,249
            
            $
            190,031
            
            $
            180,168
            
            $
            139,977Gross
              profit
            
            
            18,786
            
            
            20,121
            
            
            13,715
            
            
            3,338Net loss
              from continuing operations
            
            
            (953
            )
            
            (1,660
            )
            
            (6,175
            )
            
            (10,572
            )Net
              loss
            
            
            (1,386
            )
            
            (1,470
            )
            
            (9,346
            )
            
            (14,148
            )Net
              loss per common share - BasicContinuing
                operations
            
            
            (.06
            )
            
            (.10
            )
            
            (.40
            )
            
            (.68
            )Discontinuing
                operations
            
            
            (.03
            )
            
            .01
            
            
            (.20
            )
            
            (.23
            )(.09
            )
            
            (.09
            )
            
            (.60
            )
            
            (.91
            )Net
              loss per common share - DilutedContinuing
                operations
            
            
            (.06
            )
            
            (.10
            )
            
            (.40
            )
            
            (.68
            )Discontinuing
                operations
            
            
            (.03
            )
            
            .01
            
            
            (.20
            )
            
            (.23
            )(.09
            )
            
            (.09
            )
            
            (.60
            )
            
            (.91
            )2004Quarter
                EndedMarch
                31
            
            
            June
                30
            
            
            September
                30
            
            
            December
                31Net
              sales
            
            $
            184,501
            
            $
            215,783
            
            $
            214,865
            
            $
            187,197Gross
              profit
            
            
            22,300
            
            
            33,232
            
            
            33,489
            
            
            23,805Net
              income from continuing operations
            
            
            1,139
            
            
            5,580
            
            
            5,843
            
            
            1,696Net
              income
            
            
            641
            
            
            5,191
            
            
            5,941
            
            
            3,561Net
              income (loss) per common share - BasicContinuing
                operations
            
            
            .07
            
            
            .36
            
            
            .37
            
            
            .11Discontinuing
                operations
            
            
            (.03
            )
            
            (.02
            )
            
            .01
            
            
            .12.04
            
            
            .34
            
            
            .38
            
            
            .23Net
              income (loss) per common share - DilutedContinuing
                operations
            
            
            .07
            
            
            .36
            
            
            .37
            
            
            .11Discontinuing
                operations
            
            
            (.03
            )
            
            (.02
            )
            
            .01
            
            
            .12.04
            
            
            .34
            
            
            .38
            
            
            .23




-
          66
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**13. 
      UNAUDITED INTERIM FINANCIAL INFORMATION, Continued.**





During
      the fourth quarter of 2005, the Company sold all operating assets of its All
      American Homes of Kansas division and incurred additional impairment charges
      related to the pending sale of its Miller Buildings Systems, Inc. division
      (see
Note 11 for details on these actions and additional
      restructuring activities). During the fourth quarter of 2004, the Company sold
      all operating assets of the Company-owned dealership located in North Carolina
      (see Note 11).





During
      the fourth quarter of 2005, the Company incurred $11,114,000 of warranty
      expenses compared to $3,934,000 of warranty expenses in the fourth quarter
      of
      2004. The increase in warranty expense during the fourth quarter of 2005 is
      primarily the result of specific reserves established related to the recall
      of
      camping trailer lift systems and the repair of laminated sidewalls of certain
      of
      the Company’s recreational vehicles.





During
      the fourth quarter of 2004, income taxes were favorably impacted by the reversal
      of certain reserves that were no longer required since the statute of
      limitations had expired or the risk of additional tax assessments was no longer
      probable. In addition, there was an adverse impact on state income taxes related
      to the accrual of additional income taxes resulting from state audits and the
      Company's decision to participate in voluntary compliance programs of certain
      states. The adverse impact on state income taxes was partially offset by a
      favorable impact resulting from the determination that the Company qualified
      for
      new jobs creation tax incentives. The net impact of these items on total income
      tax expense from continuing operations was a reduction of $557,000.




-
          67
          -
 Index


**Item
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**





Not
      Applicable in 2005.





**Item
                9A.**
            **Controls
                and Procedures**





**Conclusion
      Regarding the Effectiveness of Disclosure Controls and Procedures**





The
      Company's management, with the participation of the Company's Chief Executive
      Officer and Chief Financial Officer, has conducted an evaluation, as of December
      31, 2005, of the Company's disclosure controls and procedures; as such term
      is
      defined under Exchange Act Rule 13a-15(e). Based on this evaluation, the
      Company's Chief Executive Officer and Chief Financial Officer concluded that
      the
      Company's disclosure controls and procedures were effective as of the end of
      the
      period covered by this annual report.





**Management's
      Report on Internal Control Over Financial Reporting**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting. The Company's internal control over financial reporting
      is
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles.





Our
      internal control over financial reporting includes those policies and procedures
      that:





•
            Pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairlyreflect the transactions and dispositions of the assets of
                the
                Company;





•
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of management and directors;
                and





•
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree or compliance
      with the policies or procedures may deteriorate.





Management
      assessed the effectiveness of the Company's internal control over financial
      reporting as of December 31, 2005. In making this assessment, management used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO) in Internal Control-Integrated Framework. Based
      on
      our assessment and those criteria, management believes that the Company
      maintained effective internal control over financial reporting as of December
      31, 2005.





The
      Company's independent registered public accounting firm has audited and issued
      their report on management's assessment of the Company's internal control over
      financial reporting, which appears on  page
      36 .





**Changes
      in Internal Control Over Financial Reporting**





No
      change
      in the Company's internal control over financial reporting (as such term is
      defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter
      ended
      December 31, 2005 that materially affected, or is reasonably likely to
      materially affect, the Company's internal control over financial reporting.




-
          68
          -
 Index





**Part
      III.**





**Item
                10.**
            **Directors
                and Executive Officers of the Registrant**





**(a)
                Identification of Directors**





Information
      regarding the Registrant's directors is contained under the caption "Election
      of
      Directors" in the Company's Proxy Statement dated March 30, 2006 and is
      incorporated herein by reference.





**(b)
                Executive Officers of the Company**





See
      "Executive Officers of the Registrant" contained
      herein.





**(c)
                Beneficial Ownership Reporting Compliance**





Information
      for "Section 16(a) Beneficial Ownership Reporting Compliance" is contained
      under
      that caption in the Company's Proxy Statement dated March 30, 2006 and is
      incorporated herein by reference.





**(d)
                Code of Ethics**





The
      Company has adopted a code of ethics that applies to all of its directors,
      officers (including its chief executive officer, chief operating officer, chief
      financial officer, chief accounting officer and any person performing similar
      functions) and employees. The Company has made the Code of Ethics available
      on
      its website at http://www.coachmen.com .





**(e)
                Audit Committee and Financial Expert of the Audit
                Committee**





Information
      regarding the Registrant's Audit Committee, including the committee members
      designated as Financial Experts is contained under the caption "Audit Committee"
      in the Company's Proxy Statement dated March 30, 2006.





**(f)
                Nominations for Director**





Information
      regarding the Registrant's procedures for nominations for director is contained
      under the caption "Nomination for Director" in the Company's Proxy Statement
      dated March 30, 2006.





**Item
                11.**
            **Executive
                Compensation**





Information
      for Item 11 is contained under the headings "Compensation of Executive
      Officers," "Management Development/Compensation Committee Report," "Outside
      Director Compensation" and "Performance Graph" in the Company's Proxy Statement
      dated March 30, 2006 and is incorporated herein by reference.





**Item
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management**





Information
      for Item 12 is contained under the captions "Directors' and Officers' Stock
      Ownership" and "Stock Ownership Information" in the Company's Proxy Statement
      dated March 30, 2006 and is incorporated herein by reference.




-
          69
          -
 Index


The
      following table summarizes share and exercise price information about the
      Company's equity compensation plans as of December 31, 2005:





Equity
      Compensation Plan Information





Plan
                Category
            
            #
                of securities
              to
                be issued
              upon
                exercise of
              outstanding
                options,
              warrants
                and rights
            
            Weighted
                average
              exercise
                price of
              outstanding
                options,
              warrants
                and rights
            
            #
                of securities remaining available for future issuance under equitycompensation
                plansEquity
                compensation plans approved by shareholders
            
            
            284,425
            
            $
            12.19
            
            
            1,218,099Equity
                compensation plans not approved by shareholders
            
            
            -
            
            
            -
            
            
            -Total
            
            
            284,425
            
            $
            12.19
            
            
            1,218,099





**Item
                13.**
            **Certain
                Relationships and Related Transactions**





Not
      Applicable.





**Item
                14.**
            **Principal
                Accountant Fees and Services**





Information
      regarding the Principal Accountant Fees and Services is contained under the
      caption "Independent Registered Public Accounting Firm" in the Company's Proxy
      Statement dated March 30, 2006 and is incorporated herein by reference.




**Part
      IV.**





**Item
                15.**
            **Exhibits
                  and Financial Statement
                  Schedule**





(a)
            The
                following Financial Statements and Financial Statement Schedule are
                included in Item 8 herein.





1. Financial
      Statements





Reports
                of Independent Registered Public Accounting
                Firm


Consolidated
                Balance Sheets at December 31, 2005 and 2004


Consolidated
                Statements of Operations for the years ended December 31, 2005, 2004
                and
                2003


Consolidated
                Statements of Shareholders' Equity for the years ended December 31,
                2005,
                2004 and 2003


Consolidated
                Statements of Cash Flows for the years ended December 31, 2005, 2004
                and
                2003


Notes
                to Consolidated Financial
                Statements





2. **** Financial
      Statement Schedule





Schedule
                II - Valuation and Qualifying
                Accounts





All
      other
      schedules required by Form 10-K Annual Report have been omitted because they
      were inapplicable, included in the Notes to the Consolidated Financial
      Statements, or otherwise not required under instructions contained in Regulation
      SX.





3. Exhibits




See
                Index to Exhibits.


-
          70
          -
 Index





**SCHEDULE
      II**


**VALUATION
      AND QUALIFYING ACCOUNTS**





Description
            
            Balance
                At
              Beginning
              Of
                Period
            
            Additions
                Charged
              To
                Costs
              And
                Expenses
            
            Payment
                or
              Utilization
            
            Balance
                At End
              Of
                Period**Fiscal
                year ended December 31, 2005:**Allowance
                for doubtful accounts:
            
            $
            919,000
            
            $
            988,000
            
            $
            (667,000
            )
                (A)
            $
            1,240,000Product
                warranty reserves:
            
            $
            10,140,000
            
            $
            34,771,000
            (D)
            $
            (24,906,000
            )
                (B)
            $
            20,005,000Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            726,000
            
            $
            225,000
            
            $
            (176,000
            )
            $
            775,000**Fiscal
                year ended December 31, 2004:**Allowance
                for doubtful accounts:
            
            $
            1,208,000
            
            $
            158,000
            
            $
            (447,000
            )
                (A)
            $
            919,000Product
                warranty reserves:
            
            $
            8,658,000
            
            $
            22,189,000
            
            $
            (20,707,000
            )
                (B)
            $
            10,140,000Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            350,000
            
            $
            564,000
            
            $
            (188,000
            )
            $
            726,000**Fiscal
                year ended December 31, 2003:**Allowance
                for doubtful accounts:
            
            $
            861,000
            
            $
            574,000
            
            $
            (227,000
            )
                (A)
            $
            1,208,000Product
                warranty reserves:
            
            $
            8,796,000
            
            $
            16,467,000
            
            $
            (16,605,000
            )
                (B)
            $
            8,658,000Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            403,000
            
            $
            (11,000
            )
                (C)
            $
            (42,000
            )
            $
            350,000








(A)
            Write-off
                of bad debts, less recoveries.


(B)
            Claims
                paid, less recoveries.


(C)
            Reflects
                favorable change in estimate due to improved market conditions within
                the
                RV industry during 2003.


(D)
            Reflects
                increase due to specific warranty issues which occurred in 2005,
                primarily
                camping trailer lift systems and sidewall lamination issues within
                the RV
                Segment.




-
          71
          -
 Index





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities 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.Date:
                February 27, 2006/s/
                R. M. LaversR.
                M. Lavers(Executive
                Vice President, General Counsel and Secretary, Chief Financial Officer
                and
                Chief Administrative Officer)/s/
                C. A. ZuhlC.
                A. Zuhl(Chief
                Accounting Officer)




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities as of  February
      27, 2006.





/s/
                C. C. Skinner
            
            /s/
                W. P. JohnsonC.
                C. Skinner
            
            W.
                P. Johnson(Director)
            
            (Director)(Chief
                Executive Officer)/s/
                E. W. Miller
            
            /s/
                P. G. LuxE.
                W. Miller
            
            P.
                G. Lux(Director)
            
            (Director)/s/
                R. J. Deputy
            
            /s/
                G. B. BloomR.
                J. Deputy
            
            G.
                B. Bloom(Director)
            
            (Director)/s/
                D. W. HudlerD.
                W. Hudler(Director)




-
          72
          -
 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).(4)(a)
            Credit
                Agreement dated as of June 30, 2003 among Coachmen Industries, Inc.,
                the
                Lenders named therein, and Bank One, Indiana, N.A. (incorporated
                by
                reference to Exhibit 4(a) to the Company's Quarterly Report on Form
                10-Q
                for the quarter ended June 30, 2003).(4)(b)
            Stockholder
                Rights Agreement (incorporated by reference to Exhibit 1 to Form
                8-A dated
                January 5, 2000).(4)(c)
            Amendment
                No. 1 to Credit Agreement dated as of October 28, 2003 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 4(c) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2004).(4)(d)
            Amendment
                No. 2 to Credit Agreement dated as of March 11, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 4(d) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2004).(4)(e)
            Amendment
                No. 3 to Credit Agreement dated as of June 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 4(e) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2004).(4)(f)
            Amendment
                No. 4 to Credit Agreement dated as of July 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                2004).(4)(g)
            Amendment
                No. 5 to Credit Agreement dated as of December 1, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                December 8, 2004).




-
          73
          -
 Index





(4)(h)
            Amendment
                No. 6 to Credit Agreement dated as of December 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                January 4, 2005).*(10)(a)
            Executive
                Benefit and Estate Accumulation Plan, as amended and restated effective
                as
                of September 30, 2000 (incorporated by reference to Exhibit 10(a)
                to the
                Company's Annual Report on Form 10-K for the fiscal year ended December
                31, 2001).*(10)(b)
            2000
                Omnibus Stock Incentive Program (incorporated by reference to Exhibit
                A to
                the Company's Proxy Statement dated March 27, 2000 for its Annual
                Meeting
                in 2000).*(10)(b)(i)
            Resolution
                regarding Amendment of 2000 Omnibus Stock Incentive Program adopted
                by the
                Company's Board of Directors on July 27, 2000 (incorporated by reference
                to Exhibit 10(b)(i) to the Company's Annual Report on Form 10-K for
                the
                fiscal year ended December 31, 2001).*(10)(c)
            Form
                of Change in Control Agreements for certain executive officers (Tier
                1)
                (incorporated by reference to Exhibit 10(c) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2000).*(10)(d)
            Form
                of Change in Control Agreements for certain executive officers (Tier
                2)
                (incorporated by reference to Exhibit 10(d) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2000).*(10)(e)
            Coachmen
                Industries, Inc. Supplemental Deferred Compensation Plan (Amended
                and
                Restated as of January 1, 2003) (incorporated by reference to Exhibit
                10(e) to the Company's Annual Report on Form 10-K for the fiscal
                year
                ended December 31, 2004).*(10)(f)
            Executive
                Annual Performance Incentive Plan effective January 1, 2002 (incorporated
                by reference to Exhibit 10(f) to the Company's Annual Report on Form
                10-K
                for the fiscal year ended December 31, 2002).*(10)(g)
            Long
                Term Incentives Performance Based Restricted Stock Plan effective
                January
                1, 2003 (incorporated by reference to Exhibit 10(g) to the Company's
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2002).*(10)(h)
            Form
                of Restricted Stock Agreement under the Coachmen Industries, Inc.
                Long
                Term Incentives Performance Based Restricted Stock Plan (incorporated
                by
                reference to Exhibit 10(h) to the Company's Annual Report on Form
                10-K for
                the fiscal year ended December 31, 2004).(10)(i)
            Credit
                Agreement dated as of June 30, 2003 among Coachmen Industries, Inc.,
                the
                Lenders named therein, and Bank One, Indiana, N.A. (included in Exhibit
                4(a)).(10)(j)
            Amendment
                No. 1 to Credit Agreement dated as of October 28, 2003 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (included in Exhibit 4(b)).(10)(k)
            Amendment
                No. 2 to Credit Agreement dated as of March 11, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (included in Exhibit 4(c)).




-
          74
          -
 Index





(10)(l)
            Amendment
                No. 3 to Credit Agreement dated as of June 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (included in Exhibit 4(d)).(10)(m)
            Amendment
                No. 4 to Credit Agreement dated as of July 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                2004).(10)(n)
            Amendment
                No. 5 to Credit Agreement dated as of December 1, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                December 8, 2004).(10)(o)
            Amendment
                No. 6 to Credit Agreement dated as of December 30, 2004 among Coachmen
                Industries, Inc., the Lenders named therein and Bank One, Indiana,
                N.A.
                (incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                January 4, 2005).(10)(p)
            Program
                Agreement and related Repurchase Agreement dated as of May 10, 2004
                between Textron Financial Corporation and certain subsidiaries of
                Coachmen
                Industries, Inc. (incorporated by reference to Exhibit 10.2 to the
                Company's Quarterly Report on Form 10-Q for the quarter ended September
                30, 2004).*(10)(q)
            Summary
                of Life Insurance and Long Term Disability Benefits for
                Executives.*(10)(r)
            Description
                of Non-management Director Compensation.*(10)(s)
            Summary
                of 2005 Performance Metrics under the Company's Executive Annual
                Performance Incentive Plan.(10)(t)
            Mentor
                Protege Agreement between Coachmen Industries, Inc. and The Warrior
                Group,
                Inc. (incorporated by reference to Exhibit 10.1 to the Company's
                Current
                Report on Form 8-K filed August 19, 2005).(10)(u)
            Amendment
                No. 7 to Credit Agreement dated as of September 30, 2005 among Coachmen
                Industries, Inc., the Lendors named therein and JP Morgan Chase Bank
                as successor to Bank One Indiana N.A. (incorporated by reference
                to
                Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
                the
                quarter ended September 30, 2005).(11)
            No
                Exhibit - See Consolidated Statements of
                Operations and Note 8 of Notes to Consolidated
                Financial Statements, contained herein.(14)
            Code
                of Ethics (incorporated by reference to Exhibit 14 to the Company's
                Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2004).(21)
            Registrant
                and Subsidiaries of the Registrant.(23)
            Consent
                of Ernst & Young LLP.(31.1)
            Rule
                13a-14(a) Certification of Chief Executive Officer.(31.2)
            Rule
                13a-14(a) Certification of Chief Financial Officer.(32)
            Section
                1350 Certification of Chief Executive Officer and Chief Financial
                Officer.




*
      Management Contract or Compensatory Plan.




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