COACHMEN
INDUSTRIES, INC.


2831
Dexter Drive • P.O. Box 3300 • Elkhart, Indiana 46514 • 574/266-2500 • Fax
574/266-2559




4thQuarter
2008 CONFERENCE CALL


February
3, 2009




INTRODUCTION/SAFE HARBOR
DISCLAIMER (Tom Gehl)





(Operator)





Good
morning and welcome to Coachmen Industries, Inc. fourth quarter 2008 earnings
conference call.




All
participants will be in a listen-only mode until the question and answer session
of the conference call. This call is being recorded at the request of Coachmen
Industries, Inc.  If anyone has any objections, you may disconnect at
this time.





I would
now like to introduce Mr. Tom Gehl, director of investor relations and
communications for Coachmen Industries, Inc.  Mr. Gehl, you may
proceed.





(Tom
Gehl)





Thank you
and welcome to this Coachmen conference call to review the Company’s results for
the fourth quarter ended December 31, 2008, which were released yesterday
afternoon.





Before we
start, let me offer the cautionary note that comments made during this
conference call that are not historical facts, including those regarding future
growth, corporate performance or products are forward-looking statements within
the context of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995.  Many factors could cause actual results to differ
materially from those expressed in the forward-looking statements.
 Information on the risks that could affect Coachmen’s results may be found
in the Company’s recent filings with the SEC.  Comments made today
represent management's views on February 3, 2009, and these views may change
based on subsequent events and the risk factors detailed in the Company's public
filings. Although these comments may be available for a period of time through
the Company's website, the Company undertakes no obligation to update these
comments during that period.  With that stated, I’ll turn the call over to
Rick Lavers, our President and Chief Executive Officer.





BUSINESS
OVERVIEW (Rick Lavers)





Thank you
Tom, and welcome everyone.  With me today are Colleen Zuhl, our Chief
Financial Officer, and Rick Bedell, President of our Housing Group. Todd
Woelfer, our General Counsel, is on line from a remote location.





Just a
month and a few days ago, we closed on a transaction exiting Coachmen Industries
from the business that was its genesis, and which had been its primary activity
for over 40 years. While in a very real sense, this is the first conference call
for the “new Coachmen,” this call concerns performance during 2008, a year that
was dominated both temporally and financially by the “old
Coachmen.”   The numbers that Colleen will report to you were
pretty much dictated by the sale of the assets of the RV business to
Forest River, and the operational losses incurred by the RV
group.





I will
reserve most of my comments until later during the call. However, as you listen
to Colleen’s and Rick’s reports, please take note that in the midst of what has
proved to be a deep recession, we improved both our overall gross margins and
our cash position, and our Housing Group both significantly “beat” nationwide
housing starts but also posted a modest profit for the full year. And although
we did post a large overall loss, a very substantial portion of that loss was
attributable to non-cash items. Please pay particular attention to the
comparisons of results for continuing operations, giving due regard to the
depressed condition of the housing market. For the full year, net of
impairments, the actual operating loss for continuing operations was only
$600,000.





Colleen,
please provide our listeners with further details.


- 1
-





CORPORATE/FINANCIAL
REVIEW (Colleen Zuhl)





Thank
you, Rick.





Before I
review the results of the quarter and the full year, let me summarize briefly
the results of the sale of substantially all the assets of the RV business to
Forest River:


·
            Forest
      River acquired the real estate, fixed assets and equipment used in our
      traditional RV business located at Coachmen’s main Middlebury, Indiana
      manufacturing complex, the Viking manufacturing facility in Centreville,
      Michigan, and our Michiana Easy Livin’ RV dealership located in Elkhart,
      Indiana,


·
            Forest
      River also acquired the Group’s finished goods, work in process, and raw
      material inventory as of the closing date of December 26, 2008 according
      to agreed upon formulas.


·
            and
      the Group’s accounts receivable, which are subject to a repurchase
      obligation of uncollected amounts after 45
days.


·
            The
      gross price actually realized on the sale of the RV Group assets was
      approximately $41 million very close to the $42 million estimated at the
      time the proposed sale was announced in
  November.


·
            An
      escrow account in the amount of $10 million was established to satisfy
      contingent liabilities, including RV warranty obligations and potential
      “dealer buy backs” or repurchase
obligations.


·
            Net
      of the escrows and payment of expenses related to the transactions such as
      tail liability insurance, settlement of certain chassis purchase
      obligations and closing costs, we received cash of $23.6 on December 26,
      2008.


·
            The
      loss on the sale of assets to Forest River was $10.2 million which
      includes the loss on the sale of inventory at the agreed upon formulas
      that were based on wholesale market pricing in a extremely depressed
      environment, loss on the sale of fixed assets due to utilizing a 6-month
      depreciation method for book purposes vs a full year of deprecation for
      the sales price plus related fees associated with the
  sale.





In
addition to the transaction with Forest River, in December we also separately
sold a former RV plant for $1.8 million, which resulted in a book loss of
$800,000.





Combined,
the sale of the assets in these two transactions resulted in a cash inflow of
$25.4 million, of which $4.5 million was used to fully pay off the outstanding
line of credit balance and $6.5 million was required to be posted as 100%
collateral for our outstanding letters of credit. Since year end, we have also
paid off the floorplan notes payable of $3.1 million and paid accounts payable,
payroll related costs and other accrued liabilities, net of incoming cash, of
approximately $6 million. This results in a current cash balance of
approximately $5 - 6 million.





Although
we have a large amount of cash on the balance sheet at year end, much of the
cash is restricted – nearly $19 million - and a significant portion of the
unrestricted cash was used to pay off the notes payable or other
obligations.





Prior to
the close of the Forest River transaction, we had been in discussion with our
lenders to renegotiate our line of credit. To date, they have not done so, and
in fact they have required us to fully pay off the outstanding balance under the
line and post 100% cash collateral for the outstanding letters of credit until
such time as a new line is in place. They have also not yet provided us with
interim financing. Naturally this causes us cash flow constraints in the short
term.





We have
been seeking alternative financing from other financial institutions in either
the form of a long-term full line of credit or a shorter term bridge facility.
We are cautiously optimistic about our ability to close on such a facility in
the near term.





After the
sale of RV assets to Forest River, the restructured Coachmen Industries, Inc.
consists of:


·
            The
      entire Housing Group.


·
            The
      ARBOC Mobility bus joint venture,


·
            One
      of our newest and best manufacturing plants, at the “North Complex” in
      Middlebury and the manufacturing and service facilities in Fitzgerald,
      Georgia,


·
            The
      right to use the trademark “Coachmen” outside of the traditional RV
      business.


·
            All
      of our properties currently held for sale, including but not limited to
      the corporate headquarters in Elkhart, the housing manufacturing plant in
      Zanesville, Ohio, open farmland in Indiana and the developmental property
      in Pigeon Forge, Tennessee.


·
            The
      life insurance policies that were used to strategically provide working
      capital in 2007 and 2008, with a total face value exceeding $100
      million.


·
            Contingent
      recoveries from pending litigation, including the Crane Composites matter,
      and


·
            Tax
      loss carry forwards now totaling over $61
  million.





Turning
now to the fourth quarter of 2008, results from continuing operations – which
exclude the majority of the operations of the former RV Group - were as
follows:


- 2
-





·
            As
      a result of market conditions, sales fell $3.6 million or 16.1 % to
      $18.9 million from $22.5 million last
year.


·
            However,
      despite the reduction in sales, consolidated gross margin was slightly
      improved to 1.8 % for the quarter compared to 1.0% for the same period a
      year ago.


·
            Non-recurring,
      non-cash impairment charges were incurred in the fourth quarter of 2008 in
      the amount of $15.2 million, or $0.96 per share. Included in these
      impairment charges was a $13 million impairment charge to write off the
      remaining goodwill, a $1.2 million impairment charge against a note
      receivable, and a $1.0 million impairment charge related to a lower of
      cost or market reserve related to a vacant housing
  plant.





In the
Cautionary release issued last week, we noted the potential for the impairment
of the remaining goodwill and other asset impairments. Despite the Housing Group
being profitable in 2008 and management’s expectation that the Housing market
and the performance of the Housing Group will continue to improve in the future,
the Company determined that it was necessary under financial accounting
standards to recognize an impairment charge for the write-down of all remaining
goodwill.





·
            Net
      loss from continuing operations for the quarter was $19.7 million, or
      $1.24 per share in 2008 compared with a net loss from continuing
      operations of $7.2 million, or $0.46 per share in the year ago quarter.
       Excluding the non-recurring, non-cash impairment charges, the net
      loss from continuing operations on an apples to apples basis for the
      fourth quarter of 2008 would have been $4.5 million or $0.28 per share
      versus $7.2 million, or $.046 per share a year
  ago.





Net loss
from discontinued operations, which represents the traditional RV Group
operations, totaled $32.4 million and includes the loss on the sale of assets to
Forest River discussed earlier.





The $32.4
million loss from discontinued operations, plus the $15.2 million of non-cash
impairment charges and the $4.5 million loss from continuing operations
excluding the non-recurring impairment charges results in the total net loss for
the fourth quarter of 2008 of $52.1 million.





For the
year ending December 31, 2008,





·
            Sales
      for our continuing operations were relatively flat at $119.6 million
      compared to $119.2 million for
2007.


·
            Gross
      Profit improved by 37.6% to $17.7 million from $12.8 million in the prior
      year.


·
            And
      Selling, general and administrative expenses were reduced by $4.6 million
      or 18.6% compared with 2007





For the
year, non-recurring, non-cash impairment charges were incurred during 2008 in
the amount of $18.6 million, or $1.18 per share. Included in these impairment
charges was the $13 million impairment charge to write off the remaining
goodwill previously mentioned, $4.6 million of impairment charges against
various notes receivable, and the $1.0 million impairment charge related to the
vacant housing plant. The impairment charges on the various notes receivable
were the result of debtors closing their doors due to the economic conditions.
These notes were originally generated from the sale of Prodesign and Miller
Building Systems in early 2006.





o
            Net
      loss from continuing operations for the year was $19.2 million, or $1.22
      per share in 2008 compared with a net loss from continuing operations of
      $10.9 million, or $0.69 per share in the year ago quarter, however,
      excluding the non-recurring, non-cash impairment charges, the net loss
      from continuing operations for 2008 would have been ONLY $600,000 or $0.04
      per share.


o
            Net
      cash flow from operations for 2008, was an outflow of $9.8
      million compared with a cash outflow from operations of $6.8 million
      for 2007.


o
            Net
      cash flow from investing activities for 2008, provided $15.9 million of
      cash compared to a cash outflow of $3.2 million in 2007.  The
      cash provided in 2008 was primarily due to the sale of the RV Group’s
      assets.


o
            Net
      cash flow from financing activities provided $8.1 million in cash for 2008
      versus $8.9 million in 2007.


o
            Total
      cash increased during 2008 by $14.2 million to $15.7 million at December
      31, 2008.





For the
fourth quarter capital expenditures were $648,000 vs. $1.4 million for the year
ago period. For the full year, total capital expenditures were reduced to $2.1
million from $3.6 million for 2007.





For the
foreseeable future, cash is king. As a result, we will continue closely
monitoring our cash availability and liquidity and take appropriate steps as
necessary to ensure we have the resources to weather the extended market
conditions.


Now I
will turn the call over to Rick Bedell, President, Housing.


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-





HOUSING
GROUP/OPERATIONAL REVIEW (Rick Bedell)





Thank you
Colleen, and good morning everyone.





There is
little good news to report in regards to the overall housing
market.  For the 4th quarter
2008 U.S.  total housing starts were down 43.1% from the same quarter
the previous year.  For the year, 2008 total housing starts were down
33.3% from 2007.  Home values continue to spiral downward, making it
difficult for buyers who wish to upgrade to capitalize on their existing home’s
equity.  Lending institutions are still reluctant to extend credit,
and the overall health of the economy are all contributing to what is now
recognized as the worst housing market in 50 years.





For the
quarter, Housing Group sales were $17.7 MM down 21.4% from $22.5 MM for the same
quarter a year ago. However, as just noted, US housing starts were down
43.1%.  Gross profit margin increased to $574K or 3.2% of sales from
$234K or 1% of sales in the year ago quarter.  The higher gross margin
resulted mostly from improved operating efficiencies due to reductions in fixed
overhead expenses.  Operating expenses for the 4th quarter
were down 27.3% to $3.8 MM from $5.3MM the previous year.  On the
higher gross margin and reduced operating expenses, the Housing Group generated
a 4th quarter
pre-tax loss of $3.3 MM as compared to a loss of $5.2 MM for the 4th quarter
of 2007.





For the
entire year of 2008, the Housing Group generated $117.2 MM in sales down 1.7%
from $119.2 MM in 2007. On these essentially flat sales, in a sever housing
downturn, our gross profit margin for the year increased to $18.3 MM or 15.6% of
sales from $12.8 MM or 10.8% of sales for 2007 representing a 43% increase year
over year.  The gross margin increase, once again, was due mainly to
overhead reductions in our continuing operations and consolidation efforts begun
in mid-2007 as well as due to product mix.   Operating expenses
were down year over year by 18.4% to $16.5 MM from $20.0 MM in
2007.  On the higher gross margin and reduced operating expenses, I am
very pleased to report that the Housing Group realized a pre-tax profit of $1.7
MM in 2008 compared to a pre-tax loss of $7.4 MM in 2007 an improvement of over
$9 million





While we
have some cause to be pleased with our performance relative to the rest of the
industry, we understand that we can’t be satisfied with just
that.  Our sales numbers for the quarter and the year clearly
demonstrate that we are outperforming the rest of the industry and we believe
that is due to the major changes and initiatives that have been in the works for
the past two years.  In the short term, we can offer sales incentives
that translate into discounts to the consumer, and we are doing that on a
selected basis.  More importantly, for the long term, our commitment
to major projects and our drive to be the preeminent builder of green and
sustainable homes remains our springboard to the future.  Study after
study reveals that US consumers are far more in tune with the environment than
ever before.  Last year’s spike in energy costs reinforced this
phenomenon.  Although, at least for the short term, energy prices have
fallen drastically over the past few months, they will continue to trend upward
into the foreseeable future, and it is our intention to continually enhance our
products for energy efficiency and explore alternative energy sources for the
homes that we produce.





Recognizing
these trends and the possibility of an extended housing recession, we began
laying the groundwork for these strategies nearly two years ago:





·
            We
      established a major projects team that has successfully contracted
      projects in multi-family living units, including apartments and town
      homes, military contracts, and motels (one of which was completed just
      last quarter).


o
            Our
      major projects group signed a contract, just this month, with Gulf Coast
      Affordable Homes to provide town homes for hurricane victims in the Gulf
      Coast of Mississippi and Louisiana.


·
            We
      committed ourselves to green and sustainable building techniques resulting
      in the construction of the Chicago Museum of Science and Industry’s “Smart
      Home” exhibit, the introduction of our “Green Catalog” and the Solar
      Village product line.


·
            We
      are cautiously implementing new distribution
  channels.


·
            We
      are pursuing several urban redevelopment projects with municipalities
      utilizing our proven green and energy efficient
    technologies.


·
            We
      have completed market studies that will result in new products and
      enhancements to our existing
offering.


·
            We
      have consolidated operations and reduced overhead and operating
      expenses.





Our
design team bolstered by designers from the old RV group, is working on new, up
to date architectural innovations.


Our
strategy is working.  In the face of a housing market that is down
more than 33% from the previous year, our revenues were down less than
2%.  A recent article in “Builder Magazine” indicated that, “dozens of
high profile companies have closed their doors, liquidated, or filed for Chapter
11 bankruptcy.”  The article lists 45 companies who at one time built
more than 100 homes per year that have taken one of those actions. It is clear
that the number of players in our market is shrinking, which only serves to
enhance our position.


- 4
-





We are
successfully re-engineering our company from solely a wholesale supplier to
independent builders serving the single family scattered lot residential market,
to a  company that will continue to support its core builder base, but
will also serve a diversified market of consumers, businesses and government
agencies with high quality, energy efficient, and sustainable
buildings.  Everything will not be roses from this point
forward.  We have a lot of work to do.  Within the limits of
our financial abilities we will wisely invest in new product offerings, new
distribution channels and continue to update our existing
offerings.





Let me
now turn the call back over to Rick Lavers.





VEHICLE
SEGMENT (Rick
Lavers)





It seems
strange not to have Mike Terlep with us to deliver the Operations report for
Recreational Vehicles. Regardless, I will not dwell on the performance of the
Recreational Vehicle Group. A drop in industry shipments December over December
of over 85% for motorized and of over 70% for towables pretty much says it all.
Especially as Keystone and Jayco announced the layoffs of 600 more workers in
Elkhart County this week, andunemployment here is
approaching 20%,I
am proud that we were able to preserve most of the jobs for our RV Group
employees through the sale to Forest River, although I regret that we were
unable to find a home for everyone. We obtained what I believe is the best value
we could for that business, given the timing and circumstances. However, as
Colleen reported, many of the assets were sold below book value, which
contributed significantly to the reported loss for the fourth quarter, and for
2008. Nonetheless, I hope that Forest River is very successful in adding the
Coachmen RV brand to its businesses. For us, recreational vehicles are basically
behind us, although we will still be dealing with various contingent liabilities
for some time.





With one
important exception: the Kemlite lawsuit. As you know, this case arose out of
defective sidewall material supplied to us by Crane Composites in 2004 and 2005.
We attempted to settle the matter with Crane Composites before the trial, and in
fact would have much preferred to do so, but we did not receive what we felt to
be reasonable offers for the damages suffered by our company. You may recall
that we suffered almost $20 million just in warranty and repair costs, which
does not include lost profits, lost shelf space, lost market share, or the
impact of not having that $20 million over the past two years.  When
we did not receive a settlement proposal we felt we could accept, we had to grit
our teeth and proceed to trial, running the risk that the jury would not agree
with us. Sometimes the good guys do win. As we reported yesterday, after over 2
years of litigation, and over 2 weeks of testimony, our decision to go to trial
was vindicated. An 8-person jury returned a unanimous verdict in Coachmen’s
favor on 35 out of 35 counts. This trial was bifurcated into a liability phase,
and a damages phase. As of yet, having won the liability phase, we still have
not recovered a dime, and as an ex-trial attorney myself, I am very mindful
that, in the famous words of Yogi Berra, “It ain’t over till its over” – and it
ain’t over yet. If we are still unable to resolve the matter, we will move
forward with the damages phase, which should be completed this fall. I would
like to say that our lawyers form May Oberfell and Lorber have done a tremendous
job for us so far.





The
wheels of justice grind very, very slowly. If this matter had been resolved a
year ago, we would likely have not been in the pickle we were last fall. But to
paraphrase another baseball giant, the great Satchel Paige, “Don’t look back,
somebody might be gaining on you.” Coachmen has a banquet of opportunities in
front of us. Our specialty vehicle business is just in the first inning. At the
moment, it consists almost entirely of our ARBOC Mobility bus joint venture.
This business contributed very little in revenue for us in 2008, and in fact was
the cause for our net loss from continuing operations for the year. We were
beset with myriad problems such as the 87 day American Axle strike, which
delayed our production and our ability to get the bus through various testing
procedures predicate to selling it in any quantity. I am very pleased to report
that our patience and perseverance appear to have been justified, 2009 looks
much brighter. Our patience and perseverance appear to have been justified. Over
the past two weeks, we were able to report that the Spirit of Mobility low floor
bus successfully completed the seven-year/200,000 mile U.S. Government
durability test at the Altoona proving grounds, with no class 1 or class 2
issues reported, and no failures to the structure of the bus body. In addition,
last week the bus was cleared by Transport Canada. As a result, we can now start
manufacturing and selling the Spirit of Mobility to public entities in both
countries, in earnest. In fact, we are in the process of confirming orders for
25 units, with another 50-75 expected by the end of February. Combined, these
should result in a jump start to revenues of roughly $8 million from the
manufacturing portion of our joint venture interest. You may also recall that
Coachmen will also be entitled to a percentage of net earnings from the
venture.





The bus
production is housed in a very fine plant in Middlebury, Indiana with ample room
for increased production. We intend to fill up that plant as quickly as we can.
Accordingly, we will also dispatch Mr. Gehl to China next week, to see what we
can salvage of the opportunities we nurtured over there for two years. And, we
are actively pursuing other high-margin  niche vehicle opportunities
in non-consumer markets to leverage our plant and our wealth of experience in
vehicle design and assembly.





Overall,
Coachmen Industries is positioned to prosper despite current market conditions.
Our management team has been severely tested in the past two years, and has
proved its mettle. The company’s vision for the Housing Group – a combination of
mid-range residential housing and major projects, exploiting the advantages of
systems built construction in speed and quality, and certainty of cost and
schedule, newly positioned as the leader in affordable “green and wired” designs
– has also proved its worth. This is demonstrated by a few simple observations.
Two years ago, our modular business was 95% single family residences. In the
last two years that market has declined by nearly 60%, and as Rick Bedell noted,
45 homebuilders which built more than 100 homes per year are now closed or
bankrupt. In contrast, our housing group revenues from 2007 to 2008 remained
essentially flat, our gross margins increased, and we were profitable in 2008.
In this we are unusual.


- 5
-





Still we
have some very difficult months yet ahead of us. The key to our immediate future
is credit availability for our customers: home buyers, real estate developers,
and public entities that purchase buses. Lack of credit crushed the RV business.
We all know that credit availability is the top priority for the new President
and for Congress. The announced priority of many Congressmen in both parties is
“fix housing first”. Further, the renewed dedication at all levels of government
to the environment and sustainable construction is also well known. Accordingly,
it is fairly certain that the economic stimulus policies of the new
administration will include some sort of guarantees for home purchase mortgages,
tax credits for energy saving and sustainable construction, and Keynesian-style
spending on large public works projects.  With our ability to bring
large subdivision scale economics to smaller developments, especially in urban
infill, over 1 million square feet of Leed silver level buildings already
erected, a demonstrably superb track record in major projects, including
military barracks, hotels and dormitories, as well as our solid independent
builder base for traditional single family homes, and solid partnerships with
disadvantaged 8 contractors, we believe we are very well positioned to
capitalize on whatever opportunities those policies may provide. We intend to
continue to balance our business with non-consumer based products, but we are in
no way forgetting the girl who brought us to the dance. The builder networks of
Mod-U-Kraf and All American Homes are first in class, and we intend to deepen
and widen our market penetration in our existing single family home markets
geographies by continuing to strengthen that network, expanding our own Home
Stores where they do not conflict with our builders, and providing innovative
new product offerings, such as but not limited to Solar Village.





Certainly,
we are constantly monitoring our cash flows and seeking ways to overcome the
immediate challenges of this recession. There is no denying that right now the
housing markets are bleak. Our team is determined to weather this storm – and
you should know that virtually all of our salaried employees have accepted a
20-25% compensation reduction to help get us through the first quarter of 2009.
I thank them personally and on behalf of the shareholders for their willingness
to do whatever is necessary to help bring out company through this
recession.





But we
are not myopic. We are also planning for where we will be in 2010, and beyond.
Every year, I review our strategic direction with our Board of Directors, this
year perhaps more so than ever. We will be doing so again next week. All
American has yet to become a truly national brand, and in these troubled markets
there are unique, seldom seen opportunities that can help get us there, if we
have sufficient capital to take advantage of them. This is one of the reasons I
will be asking the Board to consider amending the articles of incorporation at
the next shareholders meeting to allow us to issue preferred stock, and we will
be considering whether we should investigate other alternatives for raising
additional capital, debt, equity or a combination of the two.





Tom, we
will now open the lines for questions.





QUESTIONS (TomGehl)





Closing
Call (Operator)





Thank
you.  At this time, we have no further questions.  I would
now like to turn the call over to Mr. Rick Lavers.  Mr. Rick Lavers,
you may proceed.





CLOSING
(Rick Lavers)





We
appreciate that you took the time to join us this morning.  We welcomed
your questions; hope that we’ve provided thorough answers, and look forward to
our next regularly scheduled call.  Thank you.


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