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, 2008.


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
            423
      North Main Street, Middlebury, Indiana 46540(Current
      Address of principal executive offices) (Zip Code)
            (Former
      Address of principal executive offices) (Zip Code)(574)
      266-2500
            (574)
      825-5821(Registrant's current telephone
      number, including area code)
            (Registrant's former telephone
      number, including area code)





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




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





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 to this
Form 10-K.  x




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




Large
      accelerated filer   ̈
              
              Accelerated
      filer   ̈
              
              Non-accelerated
      filer  x
              
              Smaller
      reporting company   ̈


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, 2008 (the last business day of the registrant's most recently
completed second fiscal quarter) was $32.6 million (based upon the closing price
on the New York Stock Exchange and that 96.8% of such shares are owned by
non-affiliates).




As of
February 28, 2009, 15,982,386 shares of the registrant's Common Stock were
outstanding.





Documents
Incorporated by Reference


Document
                Parts of Form 10-K into which the Document is
      IncorporatedPortions
      of the Proxy Statement for the Annual Meeting
                  of
      Shareholders to be held on April 30, 2009
                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’s primary business segment is housing. The Housing Segment manufactures
and distributes system-built modules for residential buildings. The Housing
Group comprises one of the nation's largest and most recognized producers of
system-built homes and residential structures through its All American Homes®,
Mod-U-Kraf®, and All American Building SystemsTM brands. Through a joint venture
with ARBOC Mobility, Coachmen Industries also manufactures a line of low floor
ADA (Americans with Disabilities Act)-compliant buses under the Spirit of
Mobility brand name. For 2008, these operations were not significant enough for
separate segment disclosure.





On
December 26, 2008, the Company completed the sale of substantially all of the
assets of the Company’s RV Segment, consisting of its recreational vehicle
manufacturing and sales business; therefore, these affected businesses are
considered discontinued operations and have been reported as such in the
accompanying financial statements.





During
2006, the Company sold all of the operating assets of Prodesign, LLC and its
Miller Building Systems subsidiary; therefore, these entities are also
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.





Housing
Segment Products





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





All
American Homes® and
Mod-U-Kraf Homes® 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
four operations strategically located in Colorado, Indiana, Iowa and North
Carolina. Mod-U-Kraf operates from a plant in Virginia. The Company announced on
March 10, 2009 the temporary curtailment of production at the North Carolina
facility until backlogs warrant resuming production. Together these plants serve
approximately 385 independent builders in 27 states. 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 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, hotels, dormitories, and military housing facilities
manufactured by the Company’s housing 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 than site-assembled structures. Faster construction times also
allow our customers to occupy buildings much sooner when compared to site-built
buildings.





The
Company announced on September 21, 2007 that it would consolidate its All
American Homes production facility located in Zanesville, Ohio with its larger
facility located in Decatur, Indiana to improve capacity utilization at the
Indiana plant. This consolidation was completed during the fourth quarter
of 2007.


- 2
-


On March
31, 2006, the Company sold 100% of its interest in the capital stock of Miller
Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and
a $2.5 million secured note. Notes receivable and investments are reviewed
quarterly to determine whether events or changes in circumstances indicate that
the carrying amounts may not be recoverable. As a result of this review, the
Company determined that it was probable this note balance of $2.5 million and a
small investment would not be fully recoverable, and accordingly recorded a full
impairment charge of $2.6 million in 2008. 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 year ended December 31, 2006 was $7.5 million and the
pre-tax income for the year ended December 31, 2006 was $1.5 million. In
connection with this sale, $1.7 million of industrial revenue bonds were paid
off as of March 31, 2006. During April 2006, the Company terminated the $1.5
million and $235,000 interest rate swaps that had been associated with these
revenue bonds.





Housing
Segment Marketing





The
Housing Group participates in the system-built or modular subset of the overall
housing market. Housing is marketed directly to approximately 385 builders in 27
states who will sell, rent or lease the buildings to the end-user. The Housing
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
traditional homes business has historically been concentrated in the rural,
scattered-lot markets in the geographic regions served. The Company has also
successfully launched initiatives to supply product into additional markets,
including various forms of single and multi-family residential products for more
urban-suburban markets, group living facilities, military housing, motels/hotels
and other residential structures.





All
American Building Systems is responsible for expanding sales into additional
markets for the Company's products through channels other than the traditional
builder/dealer network. Many of these additional markets are “large project”
markets such as dormitories, military barracks and apartments that typically
have a long incubation period, but can result in contracts of a substantial
size. Major projects have become a core competency for the Company. We have also
launched several initiatives to go direct in selected venues, with two “home
stores” offering turn-key houses to consumers at Mod-U-Kraf and at All American
Homes of Indiana. In addition, in 2008 we introduced higher end modular
homes to the subdivision sector, where 80% of housing sales occur. The Company
is committed to green and sustainable building techniques, resulting in the
introduction of our “Green Catalog” and the Solar Village® product
line.





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 manufacturers. 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. 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
Segment Business Factors





As a
result of transportation costs, the effective distribution range of system-built
homes and residential buildings is limited. The normal shipping area from each
manufacturing facility is typically 200 to 300 miles for system-built homes.
Major projects can often be shipped greater distances cost
effectively.





The
overall strength of the economy and the availability and terms of financing used
by builders, general contractors and end-users have a direct impact on the sales
of the Housing 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. The Housing Group continued to face a challenging housing market in
2008. The December figures on housing starts from the U.S. Census Bureau show a
40.5% year-to-year decline in new single-family homes nationwide, and a 40.1%
decline in the Midwest region served by the Group’s plants in Indiana and Iowa.
The softening of the home markets also included the Southeastern and middle
Atlantic markets, which are served by the Group’s plants in Virginia and North
Carolina. Single-family housing starts in the South region showed a year-to-year
decline of 39.8% in December.




Systems-built
homes are financed and mortgaged using the same criteria as “conventional
construction” – sometimes with a construction loan pre-delivery. Builders often
maintain relationships with local banking institutions. As a result of the
tightening credit environment, during 2008 COA entered into a joint venture with
American Home Bank to create All American Choice Mortgage (“AACM”) to provide
consumers with a one-stop financing source to obtain construction loan and
permanent mortgage financing. There is no recourse to the Housing Group from any
homes financed through AACM, and AACM provides a method of offering incentives
to the consumer. Despite the current economic climate, there has been a strong
interest among the builder network in AACM.


- 3
-


Housing
Segment Competition and Regulation





Competition
in the system-built building industry is strong, and the Housing 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 Group competes with numerous
system-built building manufacturers and manufactured home producers that operate
in particular geographical regions.




The
Housing Group competes for orders from its customers primarily on the basis of
quality, design, 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, green and sustainable building
techniques, and reliability in terms of completion time. Manufacturing
efficiencies, quantity purchasing and generally lower labor costs 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 controlled environment, while the builder prepares the site, can
significantly increase the quality of the end product and reduce the time to
completion on a customer's project.




Customers
of the Housing 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 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.





Competition
in the major projects arena is comprised primarily of traditional site builders
and other system-built producers. Major projects are typically awarded through a
proposal or bid process, and in the case of large government contracts, such as
military barracks projects, a larger prime contractor with adequate bonding
capacity will submit bids for all phases of the contract. Once awarded, the
prime contractor will arrange for the construction of buildings for the project
to various subcontractors, including the Housing Group. Typically, system-built
producers have a cost advantage over site builders, particularly relating to the
Federal wage requirements of the Davis-Bacon Act, speed of building completion
and minimization of weather-related construction delays. With non-government
contracts such as apartments and dormitories, the Housing Group may act as a
subcontractor or as the prime contractor for the project. In such cases,
advantages are held in the overall cost of the project through the speed of
completion afforded by the Housing Group’s production methods.




- 4
-


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):





2008
              
              2007
              
              2006Amount
              
              %
              
              Amount
              
              %
              
              Amount
              
              %Housing
              
              $
              117.2
              
              
              98.0
              
              $
              119.2
              
              
              100.0
              
              $
              159.7
              
              
              100.0Other
              
              $
              2.4
              
              
              2.0
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              119.6
              
              
              100.0
              
              $
              119.2
              
              
              100.0
              
              $
              159.7
              
              
              100.0





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





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
adverse impact of weather on general construction for the system-built building
applications.





Employees





At December
31, 2008, Coachmen employed 754 people, 252 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. The Company considers its relations with employees to be
good.





Research
and Development





During
2008, the Company’s continuing operations spent approximately $2.2 million on
research related to the development of new products and improvement of existing
products. The amounts spent in 2007 and 2006 were approximately $2.4 million and
$2.5 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





We face a
number of significant risks and uncertainties in connection with our operations.
Our business, results of operations and financial condition could be materially
adversely affected by the factors described below.




While we
describe each risk separately, some of these risks are interrelated and certain
risks could trigger the applicability of other risks described below. Also, the
risks and uncertainties described below are not the only ones that we may face.
Additional risks and uncertainties not presently known to us, or that we
currently do not consider significant, could also potentially have a material
adverse effect on our business, results of operations and financial
condition.


- 5
-


There
is substantial doubt about our ability to continue as a going
concern.





Our
independent public accounting firm has issued an opinion on our consolidated
financial statements that states that the consolidated financial statements were
prepared assuming we will continue as a going concern and further states that
despite our sale of the assets related to the RV Segment, our recurring net
losses and lack of current liquidity raise substantial doubt about our ability
to continue as a going concern. Our plans concerning these matters, including
our Viability Plan, are discussed in Note 2 to the
accompanying audited consolidated financial statements. Our future is dependent
on our ability to execute our Viability Plan successfully or otherwise address
these matters. If we fail to do so, we may not be able to continue as a going
concern and could potentially be forced to seek relief through a filing under
the U.S. Bankruptcy Code.





Our
business, the success of our Viability Plan and our ability to continue as a
going concern are highly dependent on our ability to obtain financing or
additional capital.





Our
ability to continue as a going concern is highly dependent upon our ability to
obtain financing or other sources of capital. The Company is currently working
with a bridge loan lender to put in place a $6 million bridge loan. The final
terms and timing of the closing of this loan are dependent upon a number of
factors, including the lender completing their due diligence, determination of
covenants, security and other terms and documentation of the loan agreement. We
cannot assure you that the loan will close and if it does, on what terms, or
that such a bridge loan if successfully achieved will be sufficient to address
our immediate liquidity needs.





The
Company is also currently exploring various opportunities to monetize a portion
of the expected recovery on certain litigation claims. As discussed in Note 13, the Company has received a favorable verdict against
Crane Composites, Inc. f/k/a Kemlite for breach of contract and multiple
warranty claims arising from the sale of defective sidewall material to Coachmen
Industries, Inc. subsidiaries. All of the counts alleged in the original
complaint were found in favor of the Company. The remaining phase of the trial
will determine the amount of damages payable on this liability judgment. The
Company has asserted claims for warranty related expense in excess of $19
million and is seeking to recover additional damages for lost profits, lost
market share and the sale of the RV business. It is anticipated that the final
phase of the trial will be conducted in the latter part of 2009. There can be no
assurance about the amount or timing of any recovery that the Company may
realize from this litigation, nor is there any assurance that the Company will
be able to monetize a portion of the potential settlement prior to the final
phase of the trial.





On
February 10, 2009, the Company’s Board of Directors authorized and recommended,
subject to shareholder approval, an amendment to the Company’s Articles of
Incorporation, as amended, to authorize the issuance of 10,000,000 shares of
preferred stock. The Indiana Business Corporation Law requires approval of the
Company’s shareholders in order to adopt the proposed amendment. To be approved
requires that more shares are voted in favor of the amendment than shares are
voted against. If shareholders approve and authorize this amendment, the Company
intends to file Articles of Amendment to authorize the issuance of 10,000,000
shares of preferred stock promptly following the Annual Meeting. The amendment
will become effective upon filing the prescribed Articles of Amendment with the
Indiana Secretary of State.





Under the
proposed amendment, the Company’s Board of Directors would have the authority to
issue shares of preferred stock and to determine the designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the preferred stock prior to
issuance without further action by the Company’s shareholders, except as may be
required by applicable law or pursuant to the requirements of the exchange or
quotation system upon which our securities are then trading or
quoted.





There are
no assurances that the shareholders will approve this amendment, and even if
approved, that the Board will issue such preferred stock.





The
Company is also in discussions with a number of third parties regarding various
other opportunities to obtain financing or raise equity capital. There are no
assurances that the Company’s efforts will be successful or the timing or terms
of any such opportunities.





The
success of our Viability Plan is dependent upon obtaining financing or
additional capital, and without such an infusion we may not be able to continue
as a going concern and could potentially be forced to seek relief through a
filing under the U.S. Bankruptcy Code.


- 6
-


Our
business, the success of our Viability Plan and our ability to continue as a
going concern are also dependent on sales volume. Since 2006, housing sales
within the U.S. market declined significantly and there is no assurance that the
housing market will recover in the near term or that it will not suffer
additional declines. Major projects have long development periods and there are
no assurances that current projects in the pipeline will be obtained in the near
term.





Our
business and financial results are sensitive to sales volume. Housing sales in
the United States as measured by single-family housing starts have fallen 57.5%
since 2006. The deteriorating economic and market conditions that have driven
the drop in housing sales, including declines in real estate values and
household incomes, rising unemployment, tightened credit markets, and weakened
consumer confidence, are not likely to improve significantly during the first
half of 2009 and may continue past that. While it is impossible to predict with
any certainty, based on information currently available we believe that
traditional housing sales will begin to recover in late 2009 or early 2010.
Sales volumes may decline more severely or take longer to recover than we
expect, however, and if they do, our results of operations and financial
condition and the success of the Viability Plan will be adversely
affected.





Our
current major project pipeline is strong even under current market conditions.
However, the ability to convert these potential projects into firm orders is
dependent on many factors, some of which are outside the control of the Company.
Factors impacting the timing and success rate of closing on major projects
include the availability of credit to our customers, our ability to obtain bid
and performance bonds related to the projects, and timing of government funding
of projects.





While we
have experience and success in profitably producing multi-family residential
structures, and experience in managing large-scale construction projects, these
large projects such as dormitories, military barracks and apartments typically
have a long incubation period and there are no assurances that current projects
in the pipeline will be obtained in the near term. Further, the per-project
risks are higher for large-scale projects than with single-family homes. These
large-scale projects risks include, but are not limited to, the potential
inability to meet contract specifications and timetables, the potential
increased liability from possible larger claims resulting from large-scale
projects, construction of new products with significantly different designs from
single-family homes, and the performance of our business partners and (sub)
contractors on large-scale projects. If we fail to mitigate these risks, they
may have a material adverse effect on revenues, profitability and the success of
the Viability Plan.





Our
Viability Plan relies in large part upon assumptions and analyses developed by
us. If these assumptions and analyses prove to be incorrect, our Viability Plan
may be unsuccessful and we may be unable to continue as a going
concern.





Our
Viability Plan relies in large part upon assumptions and analyses that we
developed based on our experience and perception of historical trends, current
conditions and expected future developments, as well as other factors that we
consider appropriate under the circumstances. Whether actual future results and
developments will be consistent with our expectations and predictions as
reflected in our Viability Plan depends on a number of factors, including but
not limited to:




•
            
            The
      restoration of credit markets capable of funding loans with sustainable
      terms,•
            
            Our
      ability to obtain adequate bid and performance bonds,•
            
            Our
      ability to improve plant utilization and to achieve or maintain reductions
      in costs as a result of the actions taken,•
            
            Customer’s
      confidence in our viability as a continuing entity and our ability to
      continue to attract customers, particularly major
  project,•
            
            Our
      ability to manage liabilities retained by the Company related to the RV
      Segment within expectations,•
            
            The
      health of the RV Industry which will have a direct impact on the magnitude
      of repurchase obligations during the repurchase period,•
            
            Our
      ability to minimize contingent liabilities and other draws upon our
      liquidity,•
            
            The
      availability of adequate financing on acceptable terms to our builders,
      contractors, suppliers and end customers to enable them to continue their
      business relationships with us, and•
            
            The
      overall strength and stability of general economic conditions of the
      housing industry and construction
industry.




In
addition, our Viability Plan relies upon financial projections, including with
respect to (1) revenue and improvements in earnings before interest, taxes, and
depreciation margins, (2) growth in earnings and cash flow, and (3) contingent
expenses, particularly those related to the former RV Segment. Financial
projections are necessarily speculative, and it is likely that one or more of
the assumptions and estimates that are the basis of these financial projections
will not be accurate. Accordingly, we expect that our actual financial condition
and results of operations will differ, perhaps materially, from our Viability
Plan. Consequently, there can be no assurance that the results or developments
predicted by our Viability Plan will occur or, even if they do occur, that they
will have the anticipated effects on our operations. The failure of any such
results or developments to materialize as anticipated could materially adversely
affect the successful execution of our Viability Plan and our ability to
continue as a going concern.


- 7
-


Inadequate
liquidity could materially adversely affect our business operations in the
future.





We
require adequate liquidity to fund working capital needs, particularly related
to major projects and run our normal business operations. If we continue to
operate with minimum cash levels necessary to support our normal business
operations, we may be forced to curtail programs that are important to the
future success of our business. Our suppliers might respond to an apparent
weakening of our liquidity position by requesting quicker payment of invoices or
other assurances. If this were to happen, our need for cash would be
intensified, and we might be unable to make payments to our suppliers
timely.





While we
received significant liquidity through the sale of RV Group assets, the majority
of the proceeds are tied up in escrow accounts or were utilized to pay
liabilities, including liabilities retained by the Company related to the RV
Group. In addition, an unexpected move by a lender not to provide a bridge loan
directly impacted our liquidity, and also required us to commit substantial
funds, which otherwise would be available for operations, to collateralize
letters of credit. Our efforts to continue to maintain adequate liquidity is
very challenging given the current business environment and the impending
working capital requirements of the upcoming major projects. Our ability to
maintain adequate liquidity through the first half of 2009 will depend
significantly on the volume and quality of sales, the continuing curtailment of
operating expenses and capital spending, or financing options.





We are
committed to exploring all possible liquidity enhancement options because there
is no assurance that industry or capital market conditions will improve before
the second half of 2009, if then. Even if we implement the Viability Plan and
other planned operating actions that are within our control, our liquidity
during the remainder of 2009 may be inadequate to operate our business unless
economic and industry conditions improve, we receive proceeds from asset sales,
we take more aggressive working capital initiatives, or we obtain financing or
other private sources of funding, or some combination of these actions occurs.
If we fail to obtain sufficient liquidity for any reason, we may not be able to
continue as a going concern and could potentially be forced to seek relief
through a filing under the U.S. Bankruptcy Code.





We
have not been able to obtain and may not be able to obtain a line of credit or
secure alternative financing in the near future, and the terms of any future
financings may limit our ability to manage our business. Difficulties in
obtaining financing on favorable terms could have a negative effect on our
ability to execute our business strategy.





The
Company generally relies on funds from operations and available funds from the
Company owned life insurance policies as its primary sources of working capital
and liquidity. Previously, the Company had maintained a $55.0 million line of
credit to meet its seasonal working capital needs (see Note
6 of Notes to Consolidated Financial Statements). At December 31,
2008 this bank line of credit had been fully paid and was terminated except for
outstanding letters of credit totaling $7.5 million that are now fully backed by
cash collateral which is reflected as restricted cash on the consolidated
balance sheet. If the Company is unsuccessful in securing a replacement
financing arrangement in the near future, or if we cannot obtain financing on
acceptable terms, it will have a material adverse effect on the Company’s
business, results of operations and financial condition including but not
limited to restricting our availability of working capital and ability to make
capital expenditures and limiting our ability to react to changes in market
conditions due to a lack of resources to develop new products.





Effect on liquidity — Industry
conditions and our operating results have limited our sources of capital in the
past. If we are unable to locate suitable sources of capital when needed we may
be unable to maintain or expand our business.




We
currently are dependent upon our cash balances (including cash available from
Company owned life insurance policies) and our cash flows from operations to
finance our operating requirements, capital expenditures and other needs. The
downturn in the housing industry, combined with our operating results and other
changes, has limited our sources of financing in the past. If our cash balances,
cash flows from operations, and other available resources are insufficient to
finance our operations and alternative capital is not available, we may not be
able to expand our business and make acquisitions, or we may need to curtail or
limit our existing operations, or we may be forced to liquidate
assets.





The
credit crisis — The credit crisis has significantly affected the financial
markets and the U.S. economy




The
current global credit crisis has significantly affected the financial markets
and the economies in the U.S. The housing markets in the U.S. have been
significantly impacted by the credit crisis. Conditions in the U.S. are
likely to affect the availability and cost of financing for the builders and
developers who buy our homes and for individual home buyers. The lack of
availability to credit to finance home purchases, major projects or buses has
severe impact on sales which in turn affects cash flow and availability.
Additionally, the selling prices of homes that we market in the U.S. may be
pressured due to competition from excess inventories of new and pre-owned homes
and from foreclosures.


- 8
-


The housing industry is highly
competitive, some of our competitors have significantly greater resources than
us and competitive conditions could adversely affect our business or our
financial results.





The
housing industry is highly competitive. Although we produce system-built
homes and residential structures, management considers competition in the
Housing Segment to come from four sources:


·      traditional
site-built homebuilders,


·      traditional
building contractors,


·      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. Recently, consolidation is an increasing
trend among system-built manufacturers, resulting in competitors that are larger
and potentially better capitalized. Many of the largest nationwide traditional
homebuilders are much larger than we, 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
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 Segment.





Increased
competition from site builders may reduce our net sales.





Our
products compete with site-built homes. The sales of site built homes have been
declining, resulting in declining appraisal values and in greater availability
of lower priced site built homes in the market. The increase in availability,
along with the decreased price of site built homes, could make them more
competitive and lead to decreases in the sales of our homes, which could
negatively impact our results of operations.




Consumer financing
availability — Further tightening of mortgage lending or mortgage financing
requirements or further turmoil in credit and mortgage lending markets could
adversely affect the availability of credit and thereby reduce our
sales.




The
mortgage lending and mortgage finance industries experienced significant
instability during 2007 and 2008 due to, among other things, delinquencies,
defaults and foreclosures on home loans and a resulting decline in their market
value, particularly sub prime and adjustable-rate loans. Many providers,
purchasers and insurers of such loans have gone out of business or exited the
market. As a result of these developments, lenders, investors, and regulators
questioned the adequacy of lending standards and credit requirements for the
loan programs made available to borrowers in recent years. Consequently, there
has been reduced investor demand for mortgage loans and mortgage-backed
securities, tightened credit requirements, reduced liquidity, increased credit
risk premiums and regulatory actions. Deterioration in credit quality among sub
prime, adjustable-rate and other nonconforming loans has caused most lenders to
stop offering such loan products, resulting in fewer loan products and providers
and tighter loan qualifications. The resulting difficulty to finance the
purchase of homes for some categories of borrowers has slowed any general
improvement in the housing market, which could negatively impact our sales and
results of operations.





The
availability, terms and costs of consumer financing depend on the lending
practices of financial institutions, government regulations and economic and
other conditions, all of which are beyond our control.





Our
business is cyclical and is significantly affected by changes in general and
local economic conditions, which can lead to fluctuations in our operating
results.





Our
traditional single-family home business is cyclical, therefore there can be
substantial fluctuations in production, shipments, sales, and operating results,
and the results for any prior period may not be indicative of results for any
future period.




Our
business can be substantially affected by adverse changes in general economic,
demographic or business conditions that are outside of our control, including
changes in:


•
            short
      and long-term interest rates,•
            the
      availability of financing for homebuyers,•
            consumer
      confidence generally and the confidence of potential homebuyers in
      particular,





- 9
-


•
              U.S.
      and global financial system and credit market
stability,•
              private
      and federal mortgage financing programs and federal and state regulation
      of lending practices,•
              federal
      and state income tax provisions, including provisions for the deduction of
      mortgage interest payments,•
              housing
      demand from population growth and demographic changes, among other
      factors,•
              employment
      levels and job and personal income growth,•
              real
      estate taxes, and•
              general
      economic conditions, including inflation and
  recessions.




Adverse
changes in these conditions may affect our business. We cannot assure that the
factors currently adversely affecting our business will not continue, or have an
adverse effect beyond their present scope and adversely affect our future
results.





Tax law changes could make home
ownership more expensive or less attractive.





Significant
expenses of owning a home, including mortgage interest expense and real estate
taxes, generally are deductible expenses for calculating an individual’s
federal, and often state, taxable income, subject to various limitations, under
current tax law and policy. If the federal government or a state government
changes income tax laws by eliminating or substantially reducing these income
tax benefits, the after-tax cost of owning a new home would increase
substantially. This could adversely impact demand for our products and our sales
and results of operations.





Our business
is 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. Demand for housing
generally declines during the winter season, while sales and profits 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 Segment due to weather
and weather-related factors.





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 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.





The
market for our Housing Segment is concentrated in the Midwest, Southeast
and Middle Atlantic regions of the United States, and a continued weakness in
demand in that area could have a material negative effect on revenues and
profitability.





Our Housing Segment is
geographically located in the Midwest, Southeast, and Middle Atlantic regions of
the United States. Softness in the housing market within those regions
negatively impacted revenues and profitability at our production facilities
in Indiana, North Carolina and Virginia in 2008. We can offer no assurance
that the demand for housing will not remain weak in the areas in which
we have a high sales concentration. Any decline in traditional home sales
could have a material adverse effect on our revenues and profitability.


- 10
-


The
performance of our Housing Segment related to major contracts may adversely
affect revenues and profitability.





Beginning
in 2003, our Housing Segment formed All American Building Systems to pursue
opportunities beyond its core single-family housing market. While we have
experience and success in profitably producing multi-family residential
structures, and experience in managing large-scale construction projects, these
markets present a number of risks, including the following:





·      potential
inability to meet contract specifications and timetables for large-scale
projects,


·      performance
of our business partners and (sub) contractors on large-scale
projects,


·      potential
increased liability from possible larger claims resulting from 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 mitigate these risks, they may have
a material adverse effect on revenues and profitability.





Homebuilding is subject to warranty
and liability claims in the ordinary course of business that could be
significant.




In the
ordinary course of our business, we are subject to home warranty and
construction defect claims. We record warranty and other reserves for the homes
we sell based on historical experience in our served markets and our judgment of
the risks associated with the types of homes we build. We have, and require the
majority of our subcontractors to have, general liability, property, errors and
omissions, workers compensation and other business insurance. These insurance
policies protect us against a portion of our risk of loss from claims, subject
to certain self-insured retentions, deductibles, and other coverage limits. We
reserve for costs to cover our self-insured and deductible amounts under these
policies and for any costs of claims and lawsuits, based on an analysis of our
historical claims, which includes an estimate of claims incurred but not yet
reported. Because of the uncertainties inherent to these matters, we cannot
provide assurance that our insurance coverage, our subcontractor arrangements
and our reserves will be adequate to address all our warranty and construction
defect claims in the future, or that any potential inadequacies will not have an
adverse affect on our results of operations. Additionally, the coverage offered
by and the availability of general liability insurance for construction defects
are currently limited and costly. There can be no assurance that coverage will
not be further restricted, increasing our risks, and become more
costly.





Actions
taken pursuant to our restructuring plan may have an adverse impact
on our earnings and financial position.





A number
of actions to reduce expenses and improve capacity utilization were implemented
in 2007 and 2008. These actions included the sale of unprofitable units, the
closure or consolidation of certain production facilities, the sale of
non-operating assets and a reduction in salaried and hourly workforce. The
success of these initiatives depends on our ability to realize estimated
cost savings resulting from the restructuring. Inability to realize these cost
savings 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.





The
current management team has largely been in place since late 2006. Although we
strive to offer competitive salaries, benefit programs and effective succession
plans, there can be no assurance that we will be able to attract and retain
effective senior managers. Any inability to retain qualified senior managers may
adversely impact our ability to execute current and future operating
plans.





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 currently $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 exposure to mold or formaldehyde, or
punitive damages and occasionally an insurance carrier 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.


- 11
-


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.





We
may not be able to fully utilize our deferred tax assets.





We have
historically carried as assets on our books tax loss carry-forwards from past
results and other deferred tax assets from continuing operations, which can be
used to offset taxes on future income for periods of up to 20 years. However,
because of the losses incurred in 2008, 2007 and 2006, financial accounting
standards required us to write down all of these deferred tax assets as of
December 31, 2008, December 31, 2007 and December 31, 2006 since we were not
certain that we could take full advantage of them over the next few years. The
write down of deferred tax assets was for financial reporting purposes and are
still available. In fact, the majority of the Company’s operating loss
carry-forwards does not begin to expire until 2026, and may continue to be used
to offset taxes on any potential income the Company may generate until at least
that time. As of December 31, 2008, the Company has $61.8 million of deferred
tax assets available for future use (see Note
11 of Notes to Consolidated Financial Statements).





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
Company has not experienced any material adverse effect from existing federal,
state, or local environmental regulations. Failure to comply with present or
future environmental regulations may result in fines, potential civil and
criminal liability, and 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. Company matches to the 401(k) plan were suspended in 2008.
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.





New
York Stock Exchange — We have received notice from the New York Stock
Exchange (NYSE) that we are not in compliance with the exchange’s continued
listing standards because the Company’s 30 trading day average market fell below
$75 million.





The
listing of our common stock on the NYSE is at risk as a result of our average
market capitalization falling below $75 million over a consecutive 30-day
trading period and our shareholders’ equity falling below $75 million. While the
Company will present a plan to the NYSE within the required 45-day period
demonstrating how it plans to regain compliance with these listing standards
within the allotted 18-month compliance period we cannot assure you that we will
be able to cure this deficiency in the time permitted. In addition, there can be
no guarantee that the Company will remain in compliance with other continued
listing requirements related to share price and stockholder’s
equity.





Although
the NYSE suspended its one-dollar share price rule until June 30, 2009, there is
no assurance that we will be in compliance with this listing standard after that
date. In the current environment we cannot assure you that we will not be in
violation of other NYSE listing standards, some of which may not be
curable.





The
expected benefits of our recent joint venture with ARBOC Mobility may not be
realized.





Through a
joint venture with ARBOC Mobility, Coachmen Specialty Vehicles manufactures a
full line of ADA accessible buses under the Spirit of Mobility brand name as the
Company entered into an agreement to produce buses for ARBOC Mobility LLC, a
marketer of specialized transit and shuttle buses designed for users with
mobility challenges. The anticipated advantages of the joint venture, which is a
new revenue stream to add profits, may not be realized. In addition, the Company
does not have the historical experience to use to predict possible future costs
of warranty related to these products. The process of establishing the
operations of the joint venture may result in unforeseen operating difficulties
and may require a significant amount of management’s attention that would
otherwise be focused on the ongoing development of our housing business, and
could have a material adverse effect on our business, results of operations, and
financial condition.


- 12
-


Repurchase
agreements with floorplan lenders from our former recreational vehicle business
could result in increased costs.





In
accordance with customary practice in the RV industry, we entered 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 to 15 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. Current market conditions would likely require a
deeper discount than we have experienced historically to resell repurchased
units. The market conditions for recreational vehicles have continued to
deteriorate, resulting in the bankruptcies of several RV manufacturers. 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 has resulted in more defaults by
dealers. These defaults could trigger repurchase obligations on us that may
be higher than historical levels. The estimated contingent liability
approximates $98 million at December 31, 2008 ($176 million at December 31,
2007 and $187 million at December 31, 2006). At December 31, 2008, 2007 and
2006, $2.5 million, $0.7 million and $0.3 million, respectively, was recorded as
an accrual for estimated losses under repurchase agreements (see Note
13 of Notes to Consolidated Financial Statements).





Various
types of litigation, product liability and warranty claims relating to our
former recreational vehicle business could result in increased
costs.





We are
subject to litigation arising in the ordinary course of our former recreational
vehicle business, typically for product liability and warranty claims that are
common in the recreational vehicle industry. While we do not believe that the
outcome of any pending litigation, net of insurance coverage, will materially
adversely affect our business, or financial condition, we cannot provide
assurances in this regard. We have an insurance policy covering the general and
product liability of our former recreational vehicle business of $50 million for
five years, however, we are self-insured for a portion of product liability
claims. Self-insurance retention liability is $250,000 per occurrence. Further,
successful assertion against us of one or a series of large uninsured claims, or
of a series of claims exceeding our insurance coverage, could have a material
adverse effect on our business, cash flows, and financial condition (see Note
13 of Notes to Consolidated Financial Statements).





We are
also subject to warranty claims in the ordinary course of our former
recreational vehicle business. Although we maintain reserves for such claims,
and an escrow account was established in conjunction with the sale of
recreational vehicle assets for the payment of warranty claims, there can be no
assurance that warranty expense levels will remain at current levels or that
such reserves will continue to be adequate. A significant increase in warranty
claims exceeding our current warranty expense levels could have a material
adverse effect on our financial condition and cash flows (see Note
1 of Notes to Consolidated Financial Statements).





Litigation
and Congressional inquiries regarding the use of materials containing
formaldehyde in the Company’s products may adversely affect the future financial
results.





The
Company was named as a defendant in a number of lawsuits alleging that the
plaintiffs were exposed to levels of formaldehyde contained in components used
in the construction of FEMA-supplied trailers manufactured by the Company's
subsidiaries (and other manufacturers) for temporary shelter in
hurricane-affected areas of the Gulf Coast. Although the litigation proceeded
through the class certification process, and class certification was denied, the
results of such litigation and inquiries cannot be known at this time, however
the outcome may have a direct material adverse impact on the Company’s financial
results and may also have an indirect adverse effect on the Company’s results
arising from negative publicity, damage to the Company’s reputation in the
marketplace and negative perceptions of the Company’s product by the
public.





Item
1B.              Unresolved
Staff Comments





None.




- 13
-


Item
2.                 Properties





The
Company owns or leases 1,566,759 square feet of plant and office space, located
on 401.7 acres, of which 1,269,857 square feet are used for manufacturing,
112,118 square feet are used for warehousing and distribution, 94,488 square
feet are offices and 90,296 square feet are used for customer service. Included
in these numbers are 39,310 square feet leased to others and 216,063 square feet
available for sale or lease. The properties that are shown as available for sale
or lease under the Housing Group are classified as real estate held for sale in
the consolidated financial statements but the Middlebury, Indiana property
listed under Other as available for sale or lease is not classified as real
estate held for sale in the consolidated financial statements as they do not
meet the criteria for such classification outlined in SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.We believe that our 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 our properties by
segment as of December 31, 2008:


Location
                                                                    Acreage
                                                                    
                                                                    No.
      of Buildings
                                                                    
                                                                    Building
      Area (Sq. Ft.)Properties
      Owned and Used by Registrant:Housing
      GroupMilliken,
      Colorado
                                                                    
                                                                    
                                                                    23.0
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    151,675Decatur,
      Indiana
                                                                    
                                                                    
                                                                    40.0
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    215,995Dyersville,
      Iowa
                                                                    
                                                                    
                                                                    20.0
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    168,277Rutherfordton,
      North Carolina *
                                                                    
                                                                    
                                                                    36.8
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    169,177Rocky
      Mount, Virginia
                                                                    
                                                                    
                                                                    44.7
                                                                    
                                                                    
                                                                    6
                                                                    
                                                                    
                                                                    137,693Subtotal
                                                                    
                                                                    
                                                                    164.5
                                                                    
                                                                    
                                                                    11
                                                                    
                                                                    
                                                                    842,817OtherFitzgerald,
      Georgia
                                                                    
                                                                    
                                                                    29.6
                                                                    
                                                                    
                                                                    5
                                                                    
                                                                    
                                                                    170,670Elkhart,
      Indiana
                                                                    
                                                                    
                                                                    16.2
                                                                    
                                                                    
                                                                    3
                                                                    
                                                                    
                                                                    53,841Middlebury,
      Indiana
                                                                    
                                                                    
                                                                    14.8
                                                                    
                                                                    
                                                                    3
                                                                    
                                                                    
                                                                    116,762Subtotal
                                                                    
                                                                    
                                                                    60.6
                                                                    
                                                                    
                                                                    11
                                                                    
                                                                    
                                                                    341,273Total
      owned and used
                                                                    
                                                                    
                                                                    225.1
                                                                    
                                                                    
                                                                    22
                                                                    
                                                                    
                                                                    1,184,090Properties
      Leased and Used by Registrant:OtherChino,
      California
                                                                    
                                                                    
                                                                    4.7
                                                                    
                                                                    
                                                                    3
                                                                    
                                                                    
                                                                    84,296Elkhart,
      Indiana
                                                                    
                                                                    
                                                                    2.8
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    43,000Total
      leased and used
                                                                    
                                                                    
                                                                    7.5
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    127,296Properites
      Owned by Registrant and Leased to Others:OtherCrooksville,
      Ohio
                                                                    
                                                                    
                                                                    10.0
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    39,310Total
      owned and leased
                                                                    
                                                                    
                                                                    10.0
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    39,310Properties Owned by Registrant
      and Available for Sale or Lease:Housing
      GroupDecatur,
      Indiana
                                                                    
                                                                    
                                                                    3.3
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    86,310Zanesville,
      Ohio
                                                                    
                                                                    
                                                                    23.0
                                                                    
                                                                    
                                                                    2
                                                                    
                                                                    
                                                                    129,753Subtotal
                                                                    
                                                                    
                                                                    26.3
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    216,063OtherMiddlebury,
      Indiana
                                                                    
                                                                    
                                                                    132.8
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    0Pigeon
      Forge, Tennessee
                                                                    
                                                                    
                                                                    2.1
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    0Subtotal
                                                                    
                                                                    
                                                                    134.9
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    0Total
      owned and available for sale or lease
                                                                    
                                                                    
                                                                    161.2
                                                                    
                                                                    
                                                                    4
                                                                    
                                                                    
                                                                    216,063Total
      Company
                                                                    
                                                                    
                                                                    403.8
                                                                    
                                                                    
                                                                    32
                                                                    
                                                                    
                                                                    1,566,759





*The Company announced on
March 10, 2009 the temporary curtailment of production at the North Carolina
facility until backlogs warrant resuming production.


- 14
-


Item
3.                 Legal
Proceedings





In
February 2009 the Company received a favorable verdict against Crane
Composites, Inc. f/k/a Kemlite for breach of contract and multiple warranty
claims arising from the sale of defective sidewall material to Coachmen
Industries, Inc. subsidiaries. All of the counts alleged in the original
complaint were found in favor of the Company. The remaining phase of the trial
will determine the amount of damages payable on this liability judgment. The
Company asserted claims for warranty-related expenses in excess of $19 million
and is seeking to recover additional damages for lost profits, lost market share
and the sale of the RV business. It is anticipated that the final phase of the
trial will be conducted in the latter part of 2009. There can be no assurance
about the amount or timing of any recoveries that the Company may realize from
the final phase of the trial.





In the
third quarter of 2008, as a result of the favorable settlement of a lawsuit
involving an insurance recovery, the Company recorded income of approximately
$0.4 million. During the second quarter of 2008, as a result of the favorable
settlement of two lawsuits involving insurance recoveries, the Company recorded
income of approximately $1.0 million. During the first quarter of 2008, the
Company also recorded income of approximately $1.0 million as a result of the
favorable settlement of two lawsuits involving insurance recoveries. These
favorable settlements are classified as a reduction to general and
administrative expenses on the consolidated statement of
operations.





The
Company was named as a defendant in a number of lawsuits alleging that the
plaintiffs were exposed to levels of formaldehyde in FEMA-supplied trailers
manufactured by the Company's subsidiaries (and other manufacturers) and that
such exposure entitles plaintiffs to an award, including injunctive relief, a
court-supervised medical monitoring fund, removal of formaldehyde-existing
materials, repair and testing, compensatory, punitive and other damages,
including attorneys’ fees and costs. The litigation proceeded through the
class certification process. In December 2008, class certification was
denied.





The
Company finalized arbitration with a housing customer over damages resulting
from a construction project during the third quarter of 2006 and the final
settlement did not exceed the amount the Company had previously accrued for this
matter.





During
the first quarter of 2006, the Company entered into a partial settlement of an
insurance matter for $0.75 million, net of a contingency fee. This
amount was recorded as a reduction to the Company's general and administrative
expenses in the first quarter. The settlement was received during the second
quarter of 2006.





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.





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





On
December 19, 2008, the Company held a Special Meeting of Shareholders to vote on
a proposal to approve the Asset Purchase Agreement dated as of November 20,
2008, and to authorize the sale of substantially all of the assets of the
Company’s recreational vehicle manufacturing and sales business to Forest River,
Inc. There were 15,902,185 shares eligible to vote as of the record date. A
quorum was present. The proposal was approved. The following are the voting
results of the proposal:








Proposal
              
              For
              
              Against
              
              AbstainAsset
      Purchase Agreement and Sale of Recreational Vehicle
    Business
              
              10,148,615
              
              11,378
              
              5,318


- 15
-


Executive Officers of the Registrant





The
following table sets forth the executive officers of the Company, as of December
31, 2008:


Name
              PositionRichard
      M. Lavers
              President
      and Chief Executive OfficerColleen
      A. Zuhl
              Chief
      Financial OfficerMichael
      R. Terlep, Jr.
              President,
      CLI dba Coachmen RV Group and President, Coachmen Recreational Vehicle
      Company, LLC(employment
      was terminated in January 2009 in conjunction with the sale of RV
      assets)Rick
      J. Bedell
              President,
      CBI dba Coachmen Housing GroupLeslie
      G. Thimlar
              Vice
      President, Human ResourcesW.
      Todd Woelfer
              General
      Counsel





Richard M. Lavers
(age 61) was named Chief Executive Officer of the Company in August 2006.
He was elected to the Board in April 2007, and made President that same year. In
December 2005, he was named Chief Financial Officer and Chief Administrative
Officer of the Company. Mr. Lavers assumed the position of Executive Vice
President of the Company in May 2000 and served as General Counsel and Secretary
of the Company from March 1999. He joined the Company in October 1997 as General
Counsel. 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.





Colleen A. Zuhl
(age 42) assumed the position of Chief Financial Officer in August 2006 and
had previously served as the Company’s Vice President and Controller since
joining the Company in April 2004. In December 2005, Mrs. Zuhl also assumed the
duties of Chief Accounting Officer for the Company. From 1988 to 2004, Mrs. Zuhl
was employed by Ernst & Young, LLP, most recently as a Senior Audit Manager.
Mrs. Zuhl earned a B.S. degree from Hillsdale College.





Michael R. Terlep,
Jr. (age 47) was appointed President of Coachmen Recreational Vehicle
Company 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.
Mr. Terlep’s employment with Coachmen Recreational Vehicle Company was
terminated in January 2009 in conjunction with the sale of RV assets to Forest
River, Inc.





Rick J. Bedell (age
56) rejoined the Company as the President of Consolidated Building Industries,
LLC, dba The Coachmen Housing Group. Mr. Bedell was formerly the President of
Miller Building Systems and served on its Board of Directors for four years.
Prior to that, he was Executive Vice President/COO, while Miller was a publicly
held company, with overall responsibility for sales, engineering, and plant
operations since 1998. Prior to his promotion to Executive Vice President, Mr.
Bedell served as Vice President of Operations in Miller’s Kansas facility from
1996 to 1998 and also in the California Division from 1989 to 1996. Before
joining Miller Building Systems in 1989, Mr. Bedell’s career in the modular
construction industry began in 1978, with PBS Building Systems followed by
Modulaire Industries in capacities including field project management, sales
management, and general management.





Leslie G. Thimlar
(age 53) was appointed Vice President, Human Resources for Coachmen Industries
in 2001. Prior to that, he was Assistant Vice President, Human Resources from
1996 through 2001 with responsibility for corporate human resource functions.
From 1986 until 1996 Mr. Thimlar served as Vice President, Human Resources for
Ancilla Health Care. He received his B.S. and M.P.A. degrees from Indiana
University.





W. Todd Woelfer (age
41) was appointed General Counsel in May of 2007. Mr. Woelfer practices law as a
partner at the firm of May Oberfell Lorber where he focuses on the
representation of corporate clients, including Coachmen Industries. Mr. Woelfer
earned both his B.S. in Business Administration and his J.D. degrees from
Valparaiso University.




- 16
-


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
      Declared2008
              
              2007
              
              2008
              
              20071st
      Quarter
              
              $
              6.01
      - 2.75
              
              $
              11.74
      - 10.53
              
              $
              -
              
              $
              .032nd
      Quarter
              
              
              3.78
      - 2.11
              
              
              11.20
      - 9.66
              
              
              -
              
              
              .033rd
      Quarter
              
              
              2.64
      - 1.65
              
              
              9.76
      - 6.35
              
              
              -
              
              
              -4th
      Quarter
              
              $
              2.53
      - 0.48
              
              $
              7.02
      - 5.00
              
              $
              -
              
              $
              -





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, 2009 was
1,810.





The
listing of our common stock on the NYSE is at risk as a result of our average
market capitalization falling below $75 million over a consecutive 30-day
trading period and our shareholders’ equity falling below $75 million. While the
Company will present a plan to the NYSE within the required 45-day period
demonstrating how it plans to regain compliance with these listing standards
within the allotted 18-month compliance period we cannot assure you that we will
be able to cure this deficiency in the time permitted. In addition, there can be
no guarantee that the Company will remain in compliance with other continued
listing requirements related to share price and stockholder’s
equity.





Although
the NYSE suspended its one-dollar share price rule until June 30, 2009, there is
no assurance that we will be in compliance with this listing standard after that
date. In the current environment we cannot assure you that we will not be in
violation of other NYSE listing standards, some of which may not be
curable.





See Item
12 for the Equity Compensation Table.





The
Company repurchased 30,815 shares of its stock during the fourth quarter of the
fiscal year ended December 31, 2008.




- 17
-


Item
6.                 Selected
Financial Data





Five-Year
Summary of Selected Financial Data


-Year
Ended December 31-


(in
thousands, except per share amounts)


2008
                              
                              2007
                              
                              2006
                              
                              2005
                              
                              2004Net
      sales
                              
                              $
                              119,596
                              
                              $
                              119,186
                              
                              $
                              159,672
                              
                              $
                              180,231
                              
                              $
                              208,592Gross
      profit
                              
                              
                              17,379
                              
                              
                              12,847
                              
                              
                              19,933
                              
                              
                              24,171
                              
                              
                              34,696Net
      income (loss) from continuing operations
                              
                              
                              (18,679
                              )
                              
                              (10,938
                              )
                              
                              1,041
                              
                              
                              (1,891
                              )
                              
                              2,109Discontinued
      operations:Gain
      (loss) from operations of discontinued entities
                              
                              
                              (40,636
                              )
                              
                              (28,777
                              )
                              
                              (35,744
                              )
                              
                              (23,840
                              )
                              
                              11,490Gain
      (loss) on sale of assets of discontinued entities
                              
                              
                              (9,687
                              )
                              
                              963
                              
                              
                              2,898
                              
                              
                              (620
                              )
                              
                              1,735Income
      (loss) from discontinued operations
                              
                              
                              (50,323
                              )
                              
                              (27,814
                              )
                              
                              (32,846
                              )
                              
                              (24,460
                              )
                              
                              13,225Net
      income (loss)
                              
                              $
                              (69,002
                              )
                              $
                              (38,752
                              )
                              $
                              (31,805
                              )
                              $
                              (26,351
                              )
                              $
                              15,334Earnings
      (loss) per share - BasicContinuing
      operations
                              
                              $
                              (1.18
                              )
                              $
                              (0.69
                              )
                              $
                              0.07
                              
                              $
                              (0.12
                              )
                              $
                              0.14Discontinued
      operations
                              
                              
                              (3.19
                              )
                              
                              (1.77
                              )
                              
                              (2.10
                              )
                              
                              (1.57
                              )
                              
                              0.85Net
      earnings (loss) per share - Basic
                              
                              
                              (4.37
                              )
                              
                              (2.46
                              )
                              
                              (2.03
                              )
                              
                              (1.69
                              )
                              
                              .99Earnings
      (loss) per share - DilutedContinuing
      operations
                              
                              
                              (1.18
                              )
                              
                              (0.69
                              )
                              
                              0.07
                              
                              
                              (0.12
                              )
                              
                              0.14Discontinued
      operations
                              
                              
                              (3.19
                              )
                              
                              (1.77
                              )
                              
                              (2.10
                              )
                              
                              (1.57
                              )
                              
                              0.85Net
      earnings (loss) per share - Diluted
                              
                              $
                              (4.37
                              )
                              $
                              (2.46
                              )
                              $
                              (2.03
                              )
                              $
                              (1.69
                              )
                              $
                              .99Cash
      dividends per share
                              
                              $
                              -
                              
                              $
                              .06
                              
                              $
                              .18
                              
                              $
                              .24
                              
                              $
                              .24At
      year-end:Working
      capital (1)
                              
                              $
                              4,694
                              
                              $
                              25,336
                              
                              $
                              62,784
                              
                              $
                              93,308
                              
                              $
                              121,312Total
      assets
                              
                              
                              107,404
                              
                              
                              207,668
                              
                              
                              243,134
                              
                              
                              322,816
                              
                              
                              357,723Long-term
      debt
                              
                              
                              2,190
                              
                              
                              3,010
                              
                              
                              3,862
                              
                              
                              12,913
                              
                              
                              14,943Shareholders'
      equity
                              
                              
                              52,689
                              
                              
                              121,133
                              
                              
                              160,331
                              
                              
                              193,803
                              
                              
                              224,418Book
      value per share
                              
                              $
                              3.33
                              
                              $
                              7.70
                              
                              $
                              10.20
                              
                              $
                              12.30
                              
                              $
                              14.27Number
      of employees
                              
                              
                              754
                              
                              
                              2,305
                              
                              
                              2,655
                              
                              
                              3,677
                              
                              
                              4,416




(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
12, Restructuring
Charges and Discontinued Operations, of
the Notes to the Consolidated Financial Statements appearing in this report. The
Five-Year Summary of Selected Financial Data above has shipping and handling
costs reclassified for years prior to 2007, and should be read in conjunction
with Note 1, Nature of Operations and Accounting
Policies,of the Notes to the Consolidated Financial Statements appearing
in this report.




- 18
-


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





Basis
of Presentation





This
MD&A should be read in conjunction with the accompanying consolidated
financial statements which have been prepared assuming that we will continue as
a going concern. As discussed in Note
2 of the Notes to the Consolidated Financial Statements, our
recurring losses from operations, minimal working capital, and inability to
generate sufficient cash flow to meet our obligations and sustain our operations
raise substantial doubt about our ability to continue as a going concern.
Management’s plans concerning these matters are also discussed in Note
2 of the Notes to the Consolidated Financial Statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





EXECUTIVE
SUMMARY





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 the housing business through a
combination of internal growth and strategic acquisitions. Through a joint
venture with ARBOC Mobility, Coachmen Industries also manufactures a line of low
floor ADA-compliant buses under the Spirit of Mobility brand name.




The
Company's housing business is subject to certain seasonal demand cycles and
changes in general economic and political conditions. Demand 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, since 2004, rapid
escalations of prices for certain raw materials combined with a number of price
protected sales contracts have at times adversely affected profits. Material
surcharges are added to the price when appropriate and allowed. Changes in
interest rates may impact the Housing Segment with rising interest rates
potentially dampening sales.




In order
to supplement the Company’s single-family residential housing business, the
Housing Segment continues to pursue opportunities for larger projects in
multi-family residential and commercial markets. The results of the Company’s
All American Building Systems (AABS) major projects efforts continue to improve,
and significantly contributed to earnings in 2008, primarily through the
production of military barracks. During 2006, AABS was a member of a consortium
that was awarded a contract for the second phase of barracks construction at
Fort Bliss in Texas, and contributed in excess of $10 million to revenue in
2007. In addition, in 2008, AABS provided military housing at Ft. Carson in
Colorado. This project resulted in revenues of over $40 million during 2008.
Another opportunity for the Housing Group involves the reconstruction of the
Gulf Coast regions damaged by hurricanes in 2005. As the infrastructure,
including basic utilities, vital services and transportation networks are
restored, the Company expects to receive contracts for its modular homes and
multi-family structures which offer better costs, structural integrity and
timeliness of completion than other alternatives.





Restructuring
Plan





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.





On
December 26, 2008, the Company completed the sale of substantially all of the
assets of the Company’s RV Segment, consisting of its recreational vehicle
manufacturing and sales business, to Forest River, Inc. The closing
consideration paid was approximately $40.6 million. Of the closing
consideration, approximately $11.5 million was paid into two escrow accounts and
is subject to reduction for indemnification and certain other claims including
warranty. Proceeds were applied in accordance with the terms of the purchase
agreement and were reduced by $1.9 million to settle a contingent liability of
approximately $11.0 million related to the Registrant’s bailment chassis pool
with Ford Motor Company and by $2.0 million to purchase the required 5-year term
of tail insurance. The net proceeds after the escrow, contingent liability
settlement, purchase of insurance and closing costs were approximately $25.2
million. This transaction resulted in a pre-tax loss of $(7.9) million and
$(0.9) million on the sale of inventory and fixed assets,
respectively.





In
accordance with Statement of Financial Accounting Standard No. 144, the
recreational vehicle operations qualified as a separate component of the
Company’s business and as a result, the operating results of the recreational
vehicle business have been accounted for as a discontinued operation. Previously
reported financial results for all periods presented have been adjusted to
reflect this business as a discontinued operation. Net sales of the recreational
vehicle business for the years ended December 31, 2008, 2007 and 2006 were
$212.3 million, $361.7 million and $404.7 million, respectively, and the pre-tax
(loss) for the years ended December 31, 2008, 2007 and 2006 were $(50.3)
million, $(29.5) million and $(20.9) million, respectively.


- 19
-


In
connection with the sale of the assets of the RV business, a liability of $1.6
million was established for existing but unused facilities subject to operating
leases that were part of the activities which were exited and is included in the
Impairments line of the consolidated financial statements.





During
the fourth quarter of 2008, the Company sold a former RV production facility for
$1.8 million, resulting in a pre-tax (loss) of approximately $(0.8)
million.





On
December 5, 2007 the Company sold property and the equipment of a paint facility
located in Elkhart, Indiana for $2.9 million consisting of cash of $0.3 million
and a $2.6 million secured note that was due in full in December 2008. At
December 31, 2008, the note had not been paid in full, and the Company is
working to restructure the note, or if not satisfactorily restructured,
foreclosure. The sale resulted in pre-tax gain of $0.4 million on the equipment
and a deferred gain of $0.8 million on the property which is included in the
accrued expenses and other liabilities on the Consolidated Balance
Sheet.





The
Company announced on September 21, 2007 that it would consolidate its All
American Homes production facility located in Zanesville, Ohio with its larger
facility located in Decatur, Indiana to increase capacity utilization at the
Indiana plant. This consolidation occurred during the fourth quarter of 2007.
The closure of the Ohio facility had minimal impact on revenues, as all existing
builders in that region have continued to be served by the Company’s housing
operations in Indiana and North Carolina.





During
the first three months of 2007, the Company completed the sale of two parcels of
the former Georgie Boy Manufacturing complex for approximately $0.6 million,
resulting in a pre-tax gain of approximately $0.3 million. Also during the
first three months, the Company completed the sale of vacant farmland in
Middlebury, Indiana for cash of approximately $0.1 million, resulting in a
pre-tax gain of approximately $0.1 million.





On
December 28, 2006 the Company contracted for the sale of a property located
in Roanoke, Virginia for approximately $1.3 million, consisting of cash of $0.1
million and a note receivable of $1.2 million that was paid in 2007, which
resulted in pre-tax gain of approximately $1.2 million.





During
the third quarter of 2006, a number of smaller properties were sold for a net
pre-tax gain of approximately $0.3 million. On June 8, 2006, the Company
completed the sale of its corporate aircraft for approximately $2.3 million,
which resulted in a pre-tax gain of approximately $1.7 million. On June 30,
2006, the Company sold property located in Palm Shores, Florida for $2.5
million, which resulted in a pre-tax gain of approximately $1.2 million. During
June 2006, the Company also sold two parcels of the former Georgie Boy
Manufacturing complex for total proceeds of $0.7 million, which resulted in a
pre-tax gain of approximately $0.4 million.





On March
31, 2006, the Company sold 100% of its interest in the capital stock of Miller
Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and
a $2.5 million secured note. Notes receivable and investments are reviewed
quarterly to determine whether events or changes in circumstances indicate that
the carrying amounts may not be recoverable. As a result of this review, the
Company determined that it was probable this note balance of $2.5 million and a
small investment would not be fully recoverable, and accordingly recorded an
impairment charge of $2.6 million in 2008. 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. Net sales of
Miller Building Systems, Inc. for the year ended December 31, 2006 was $7.5
million and the pre-tax income for the year ended December 31, 2006 was $1.5
million. In connection with this sale, $1.7 million of industrial revenue bonds
were paid off as of March 31, 2006. During April 2006, the Company terminated
the $1.5 million and $235,000 interest rate swaps that had been associated with
these revenue bonds.





On March
31, 2006, the Company completed the sale of a property located in Grapevine,
Texas for approximately $2.0 million, consisting of cash of $1.7 million and a
note receivable of $0.3 million and resulting in a pre-tax gain of approximately
$1.8 million. Also during the first quarter, the Company completed the sale of
vacant farmland in Middlebury, Indiana for cash of approximately $1.0 million,
resulting in a pre-tax gain of approximately $0.8 million.


- 20
-


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 funds remaining in the escrow account of $0.4
million reverted to the Company in February 2007 per the sales agreement. Notes
receivable and investments are reviewed quarterly to determine whether events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. As a result of this review, the Company determined that it was
probable this note balance of $2.0 million would not be fully recoverable, and
accordingly recorded an impairment charge of $2.0 million in 2008. 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. In
conjunction with the classification of Prodesign as a discontinued operation,
management allocated goodwill of $0.3 million to the discontinued operations
from the RV Segment goodwill based on the relative fair value of the
discontinued operations to the RV Segment. The $0.3 million of allocated
goodwill has been included in the calculation of the final gain on sale of
assets in the first quarter of 2006. Net sales of Prodesign for the year ended
December 31, 2006 was $0.4 million and the pre-tax income for the year ended
December 31, 2006 was $2.0 million.





Housing
Segment





The
Housing Group faced a challenging housing market in 2008. The December full year
figures on housing starts from the U.S. Census Bureau show a 40.5% year-to-year
decline in new single-family homes nationwide, and a 40.1% decline in the
Midwest region served by the Group’s plants in Indiana and Iowa. The decline
includes the Southeastern and middle Atlantic markets, which are served by the
Group’s plants in Virginia and North Carolina. Single-family housing starts in
the South region showed a year-to-year decline of 39.8% in
December.





In the
backdrop of such a difficult market, the Housing Group has seen weakness in its
core Midwestern markets, as well as in the Southeast and Middle Atlantic
regions, negatively impacting the Group’s operations in Indiana, Iowa, North
Carolina and Virginia. All of the Group’s markets have experienced sharp
discounts, larger incentives, and increased levels of new home inventories. As
the downward pressure on new home sales persists, the Group will likely see the
more aggressive discounts and incentives by home builders continue. To mitigate
these conditions, management is placing more emphasis on providing value to
builders and consumers through the Group’s products. Driven by consumer interest
and high energy costs, the housing industry is beginning to recognize the
increasing need for energy efficiency and the use of sustainable materials in
the construction of new homes. The Company has taken a leadership position in
this market transformation with the introduction of the “Green Catalog” and the
Solar Village® product
line. The Group allows consumers to choose which technologies and earth-friendly
materials they want included in their new homes. The Group is working with
design/build architectural firms that specialize in sustainable, innovative,
high-quality modular architecture. Off-site modular technology is a means to
create beautiful, eco-friendly homes and buildings. The Group’s initiative in
energy efficiency and sustainable construction resulted in the mkSolaire® home
which is prominently displayed in the “Smart Home: Green & Wired” exhibit at
the Museum of Science and Industry in Chicago from May 2008 through December
2009. This endeavor has put modular construction in a new light for the general
public and fits well with our commitment to sustainable construction.
Management’s overriding goal with these actions is to provide the Group’s
builders with the products and tools they need to best meet the challenges of
their markets.





Management
continued to work to mitigate the Group’s dependence on traditional
scattered-lot single-family housing markets by increasing the expansion into
multi-family residential structures through All American Building Systems, or
AABS. Many of these multi-family structures markets are “large project” markets
such as dormitories, military barracks and apartments that typically have a long
incubation period, but generally result in a significant contract. In 2007, AABS
was a leading member of a consortium that completed the second phase of barracks
construction at Fort Bliss in Texas. In 2008, the Company provided modules for
barracks construction at Fort Carson in Colorado. AABS continues to pursue
military opportunities with our partners, and AABS expects to make proposals for
additional military housing contracts. The Company has delivered homes to the
Gulf Coast region and our major projects sales group is pursuing additional
opportunities now that the rebuilding effort is finally gaining momentum. The
Group has also targeted other “large projects” such as dormitories, condominiums
and apartment complexes.





Overall,
2008 was a difficult year for the housing industry, but management has taken
aggressive steps to reduce operating costs and maintain profitability despite
the challenging economic conditions. Management is aggressively seeking new ways
to strengthen the Group’s traditional markets while pursuing growth in new
areas.


- 21
-


Other





Through a
joint venture with ARBOC Mobility, Coachmen Motor Works manufactures a line of
low floor ADA compliant buses under the Spirit of Mobility brand name. This line
of buses incorporates patent pending technologies provided by ARBOC Mobility.
The vehicles are specially designed with a low-floor, “kneeling” air suspension
chassis and ramp system. This product line represents a value breakthrough
in low-floor bus technology, providing premium accessibility features at a cost
that is less than competing low floor products, while fully endorsing the spirit
of the Americans with Disabilities Act. These features allow easy access for all
passengers, including those in wheel chairs, to enter and exit through the same
entrance, without the need for a complex lift system. The easy access features
also make it ideal for passengers pulling luggage or pushing children in
strollers. These accessible transit and shuttle buses are designed for use in
airports, hotels, retirement communities, assisted living centers, resorts and
other venues where short haul transportation and accessibility are
required.


- 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 and the percentage change in the dollar amount of each such
item from that in the indicated previous year (in thousands):


Percentage
      ChangePercentage
            
            
            
            Percentage
            
            
            
            Percentage
            
            2008
            
            2007of
            
            
            
            of
            
            
            
            of
            
            to
            
            to2008
            
            Net
      Sales
            
            2007
            
            Net
      Sales
            
            2006
            
            Net
      Sales
            
            2007
            
            2006Net sales:Housing
            $
            117,191
            
            98.0
            %
            $
            119,186
            
            100.0
            %
            $
            159,672
            
            100.0
            %
            
            (1.7
            )%
            (25.4
            )%Other
            
            2,406
            
            2.0
            
            
            -
            
            -
            
            
            -
            
            -
            
            
            100.0
            
            -Consolidated
      total
            
            119,596
            
            100.0
            
            
            119,186
            
            100.0
            
            
            159,672
            
            100.0
            
            
            0.3
            
            (25.4
            )Gross
      profit:Housing
            
            18,014
            
            15.0
            
            
            12,847
            
            10.8
            
            
            19,933
            
            12.5
            
            
            40.2
            
            (35.5
            )Other
            
            (635
            )
            (0.5
            )
            
            -
            
            -
            
            
            -
            
            -
            
            
            (100.0
            )
            -Consolidated
      total
            
            17,379
            
            14.5
            
            
            12,847
            
            10.8
            
            
            19,933
            
            12.5
            
            
            35.3
            
            (35.5
            )Operating
      expenses:Selling
            
            7,077
            
            5.9
            
            
            8,278
            
            7.0
            
            
            8,325
            
            5.2
            
            
            (14.5
            )
            (0.6
            )General
      and administrative
            
            13,018
            
            10.9
            
            
            16,425
            
            13.8
            
            
            16,461
            
            10.3
            
            
            (20.7
            )
            (0.2
            )Impairments
            
            18,605
            
            15.6
            
            
            -
            
            -
            
            
            -
            
            -
            
            
            100.0
            
            -Gain
      on sale of assets, net
            
            (44
            )
            (0.1
            )
            
            (74
            )
            (0.1
            )
            
            (7,996
            )
            (5.0
            )
            
            40.5
            
            (99.1
            )Consolidated
      total
            
            38,656
            
            32.3
            
            
            24,629
            
            20.7
            
            
            16,790
            
            10.5
            
            
            57.0
            
            46.7Nonoperating
      income
            
            (1,059
            )
            (0.9
            )
            
            (690
            )
            (0.6
            )
            
            (1,031
            )
            (0.6
            )
            
            (53.5
            )
            33.1Income
      (loss) from continuing operations before income
taxes
            
            (20,218
            )
            (16.9
            )
            
            (11,092
            )
            (9.3
            )
            
            4,174
            
            2.6
            
            
            (82.3
            )
            (365.7
            )Tax
      expense (credit)
            
            (1,539
            )
            (1.3
            )
            
            (154
            )
            (0.1
            )
            
            3,133
            
            1.9
            
            
            (899.4
            )
            (104.9
            )Net
      income (loss) from continuing operations
            
            (18,679
            )
            (15.6
            )
            
            (10,938
            )
            (9.2
            )
            
            1,041
            
            0.7
            
            
            (70.8
            )
            (115.1
            )Discontinued
      operations:Loss
      from operations of discontinued entities (net of
    taxes)
            
            (40,884
            )
            (34.2
            )
            
            (28,777
            )
            (24.1
            )
            
            (35,744
            )
            (22.4
            )
            
            (41.2
            )
            15.3Gain
      (loss) on sale of discontinued RV assets (net of
    taxes)
            
            (9,439
            )
            (7.9
            )
            
            963
            
            0.8
            
            
            2,898
            
            1.8
            
            
            n/m
            
            (66.8
            )Loss
      from discontinued operations
            
            (50,323)
            
            (42.1
            )
            
            (27,814
            )
            (23.3
            )
            
            (32,846
            )
            (20.6
            )
            
            (80.9
            )
            15.3Net
      loss
            $
            (69,002
            )
            (57.7
            )%
            $
            (38,752
            )
            (32.5
            )%
            $
            (31,805
            )
            (19.9
            )%
            
            (78.1
            )%
            (21.8
            )%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
12, Restructuring
Charges and Discontinued Operations, of
the Notes to the Consolidated Financial Statements appearing in this report. The
Results of Operations above has shipping and handling costs reclassified for
years prior to 2007, and should be read in conjunction with Note
1, Nature of
Operations and Accounting Policies,of the Notes to the Consolidated
Financial Statements appearing in this report.


- 23
-


The
following table presents key items impacting the results of operations for the
periods presented (in thousands):




2008
                          
                          2007
                          
                          2006(Gain)
      loss on sale of assets:Continuing
      operations:Tennessee
      facility (All American)
                          
                          $
                          -
                          
                          $
                          -
                          
                          $
                          (1,061
                          )Virginia
      property
                          
                          
                          -
                          
                          
                          (71
                          )
                          
                          (1,202
                          )Texas
      property (Grapevine, TX)
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (1,674
                          )Florida
      property (Palm Shores, FL)
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (1,180
                          )Indiana
      property (various)
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (815
                          )Corporate
      aircraft
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (1,792
                          )Other
                          
                          
                          (44
                          )
                          
                          (3
                          )
                          
                          (272
                          )Total
                          
                          
                          (44
                          )
                          
                          (74
                          )
                          
                          (7,996
                          )Discontinued
      operations (see Note
      12):Miller
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (2,522
                          )Prodesign
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (1,899
                          )All
      American Homes - Kansas
                          
                          
                          -
                          
                          
                          -
                          
                          
                          76RV
      Group
                          
                          
                          9,439
                          
                          
                          (963
                          )
                          
                          (693
                          )Total
                          
                          
                          9,439
                          
                          
                          (963
                          )
                          
                          (5,038
                          )Total
      (gain) loss on sale of assets
                          
                          $
                          9,395
                          
                          $
                          (1,037
                          )
                          $
                          (13,034
                          )Impairments:Real
      property
                          
                          $
                          984
                          
                          $
                          -
                          
                          $
                          -Note
      receivable / investments
                          
                          
                          4,628
                          
                          
                          -
                          
                          
                          -Total
      impairments
                          
                          $
                          5,612
                          
                          $
                          -
                          
                          $
                          -Legal
      expense recoveries (see Note 13)
                          
                          $
                          (2,364
                          )
                          $
                          -
                          
                          $
                          (3,620
                          )Goodwill
      impairment charge
                          
                          $
                          12,993
                          
                          $
                          3,872
                          
                          $
                          -




- 24
-


Comparison
of 2008 to 2007





NET
SALES





Consolidated
net sales from continuing operations increased $0.4 million or 0.3% to $119.6
million in 2008 from $119.2 million in 2007. The Housing Segment had a net sales
decrease in 2008 of $2.0 million, or 1.7%. Wholesale unit shipments
declined 13.4% compared with the prior year. The Segment’s results were impacted
by continuing weakness in its core Midwest, Southeast and Middle Atlantic
housing markets. The most recent statistics on new home sales from the U.S.
Census Bureau showed a 40.5% year-to-year decline in new single-family homes
nationwide, a 40.1% decline in year over year comparison in the Midwest region,
and a 39.8% decline in the South. This is consistent with the challenges faced
by the Housing Group operations in Indiana, Iowa, North Carolina, Colorado and
Virginia throughout 2008. The challenges created by the on going housing
recession were offset by successful major projects multi-family living unit
revenue, including apartments and town homes, motels, and military
contracts.





GROSS
PROFIT





Gross
profit from continuing operations was $17.4 million, or 14.5% of net sales,
in 2008, compared to $12.8 million, or 10.8% of net sales, in 2007. Gross
profit improvement in 2008 resulted from increased operating capacity at
certain plants and operating efficiencies due to reductions in fixed overhead
expenses, primarily payroll and facility related.





OPERATING
EXPENSES





Operating
expenses for continuing operations, consisting of selling and general and
administrative expenses, were $20.1million and $24.7 million, or as a percentage
of net sales, 16.8% and 20.8% for 2008 and 2007. Selling expenses for 2008 were
$7.1 million, or 5.9% of net sales, a 14.5 percentage point decrease from
the $8.3 million, or 7.0% of net sales, experienced in 2007. The $1.2 million
decrease in selling expense was primarily the result of reductions in payroll
and travel related expenses of $1.0 million as a result of planned cut backs and
the overall lower revenues. General and administrative expenses were $13.0
million in 2008, or 10.9% of net sales, compared with $16.4 million, or 13.8% of
net sales, in 2007. The decrease of $3.4 million in general and
administrative expenses was a result of legal settlements and insurance
recoveries of $2.4 million, and other various expense reductions including
professional services.





IMPAIRMENT
CHARGES





Long-lived
assets held and used by the Company, including property, plant and equipment,
notes receivable and investments, and intangible assets are reviewed to
determine whether events or changes in circumstances indicate that the carrying
amounts may not be recoverable.





During
2008, the Company determined that certain note receivable and equity investments
amounting to $4.6 million were impaired based on our determination of the
financial condition of the corresponding entity. The related expense is included
in the Impairments line item on the consolidated statement of
operations.





The
Company’s review of its property plant and equipment resulted in an asset
impairment charge of approximately $1.0 million relating to a former Housing
Group manufacturing plant that is currently listed for sale.





At
December 31, 2007, the Company had $13.0 million of goodwill, all attributable
to the Housing reporting unit. The Company conducted its annual goodwill
impairment test as required by FASB Statement No. 142, Goodwill and Other Intangible
Assets, during the fourth quarter of 2008 and the results indicated that
the goodwill was fully impaired. Accordingly, the Company recorded a non-cash
goodwill impairment charge of $13.0 million in the quarter ended December 31,
2008. At December 31, 2006, the Company had $16.9 million of goodwill, $13.0
million attributable to the Housing reporting unit and $3.9 million attributable
to the RV reporting unit. The RV reporting unit goodwill originated from
the Company’s purchase of recreational vehicle assets. As a result of continuing
losses incurred by the RV reporting unit, in accordance with SFAS No. 142 the
Company performed an interim goodwill impairment evaluation during the quarter
ended June 30, 2007. Because the carrying value of the RV reporting unit
exceeded its fair value as calculated using the expected present value of future
cash flows, the Company concluded that the goodwill was fully impaired as of
June 30, 2007. Accordingly, the Company recorded a non-cash goodwill
impairment charge of $3.9 million in the quarter ended June 30,
2007.





GAIN
ON THE SALE OF ASSETS, NET





For both
the years ended December 31, 2008 and 2007, the gain on the sale of assets was
approximately $0.1 million. Assets are continually analyzed and every effort is
made to sell or dispose of properties that are determined to be excess or
unproductive.


- 25
-


OPERATING
LOSS





Operating
loss from continuing operations in 2008 of $21.3 million increased $9.5 million
compared with the operating loss of $11.8 million in 2007. This increase is the
direct result of impairment charges of $18.6 million, offset by the $4.5 million
increase in gross profit combined with a $4.6 million decrease in operating
expenses.





INTEREST
EXPENSE





Interest
expense from continuing operations for 2008 and 2007 was $1.6 million and $1.0
million, respectively. Interest expense increased due to the higher amount of
average outstanding balances of short-term borrowings including the borrowings
on the cash surrender value of company owned life insurance policies incurred by
the Company. During 2008, the Company continued to borrow from its line of
credit until it was paid in December 2008 and continued to borrow against the
cash surrender value of its investment in life insurance contracts ($47.0
million outstanding at December 31, 2008).





INVESTMENT
INCOME





Investment
income from continuing operations for 2008 and 2007 was $1.1 million and $1.5
million, respectively. Investment income is principally attributable to earnings
of the life insurance policies held (see Note
1 of Notes to Consolidated Financial Statements).





PRE-TAX
LOSS





Pre-tax
loss from continuing operations for 2008 was $20.2 million compared with a
pre-tax loss of $11.1 million for 2007. The Housing Segment recorded a
2008 pre-tax profit of $1.3 million or 1.1% of segment net sales
compared with a pre-tax loss of $7.4 million, or 6.2% of segment net sales in
2007 (see Note 3 of Notes to Consolidated Financial
Statements).





INCOME
TAXES





The
provision for income taxes related to continuing operations was a credit of $1.5
million for 2008 and a credit of $0.2 million for 2007. Given the losses
incurred by the Company over the last two years, a non-cash charge from
continuing operations of $5.4 million and $3.9 million was recorded to establish
a valuation allowance for the full value of its deferred tax assets as of
December 31, 2008 and December 31, 2007, respectively (see Note
11 of Notes to Consolidated Financial Statements).





DISCONTINUED
OPERATIONS





On
December 26, 2008, the Company completed the sale of substantially all of the
assets of the Company’s RV Segment, consisting of its recreational vehicle
manufacturing and sales business, to Forest River, Inc. The closing
consideration paid was approximately $40.6 million. Of the closing
consideration, approximately $11.5 million was paid into two escrow accounts and
is subject to reduction for indemnification and certain other claims including
warranty. Of the $11.5 million escrow total, $10.0 million was paid into an
indemnity escrow account and $1.5 million was paid into an accounts receivable
escrow account. The $1.5 million accounts receivable escrow account is included
in cash and cash equivalents on the consolidated balance sheet as it is
scheduled to be payable and was paid to the Company within forty five days of
the sale closing. The $10.0 million indemnity escrow account, which is subject
to reduction for warranty and other claims, is included in long-term restricted
cash at December 31, 2008. The balance remaining in the indemnity escrow account
will be payable to the Company two years after the sale closing, subject to
pending claims, if any. Interim distributions from the indemnity escrow account
to the Company are possible according to a predetermined formula at nine months
and eighteen months after the sale date. Proceeds were applied in accordance
with the terms of the purchase agreement and were reduced by $1.9 million to
settle a contingent liability of approximately $11.0 million related to the
Registrant’s bailment chassis pool with Ford Motor Company and by $2.0 million
to purchase the required 5-year term of tail insurance. The net proceeds after
the escrow, contingent liability settlement, purchase of insurance and closing
costs were approximately $25.2 million. This transaction resulted in a pre-tax
(loss) of $(7.9) million and $(0.9) million on the sale of inventory and fixed
assets, respectively.





In
accordance with Statement of Financial Accounting Standard No. 144, the
recreational vehicle operations qualified as a separate component of the
Company’s business and as a result, the operating results of the recreational
vehicle business have been accounted for as a discontinued operation. Previously
reported financial results for all periods presented have been adjusted to
reflect this business as a discontinued operation. Net sales of the recreational
vehicle business for the years ended December 31, 2008, 2007 and 2006 were
$212.3 million, $361.7 million and $404.7 million, respectively, and the pre-tax
(loss) for the years ended December 31, 2008, 2007 and 2006 were $(50.3)
million, $(29.5) million and $(20.9) million, respectively.





The
increased pre-tax loss of the discontinued recreational vehicle business was due
to the downturn in the economy and the RV market, as the Company’s RV sales
declined 42% in 2008 compared to 2007, resulting in reduced operating leverage
despite numerous cost cutting and manufacturing consolidation efforts. The
pre-tax loss on the sale of the recreational vehicle business assets of ($8.8)
million also contributed to the increased loss.


- 26
-


NET
LOSS





Net loss
from continuing operations for the year ended December 31, 2008 was $18.7
million (a loss of $1.18 per diluted share) compared to net loss from continuing
operations of $10.9 million (a loss of $0.69 per diluted share) for 2007. Net
loss for the year ended December 31, 2008 was $69.0 million (a loss of $4.37 per
diluted share) compared to net loss of $38.8 million (a loss of $2.46 per
diluted share) for 2007.





Comparison
of 2007 to 2006





NET
SALES





Consolidated
net sales from continuing operations (all from the Housing Segment) decreased
$40.5 million or 25.4% to $119.2 million in 2007 from $159.7 million in 2006.
Wholesale unit shipments declined 29.7% compared with the prior year. The
Segment’s results were impacted by continuing weakness in its core Midwest,
Southeast and Middle Atlantic housing markets. The most recent statistics on new
home sales from the U.S. Census Bureau showed a 28.6% year-to-year decline in
new single-family homes nationwide, a 27.2% decline in year over year comparison
in the Midwest region, and a 28.7% decline in the South. This is consistent with
the challenges faced by the Housing Group operations in Indiana, Iowa, North
Carolina, Colorado and Virginia throughout 2007.





GROSS
PROFIT





Gross
profit from continuing operations was $12.9 million, or 10.8% of net sales,
in 2007, compared to $19.9 million, or 12.5% of net sales, in 2006. Gross
profit was negatively impacted in 2007 as a result of decreased sales
and corresponding production volume decrease, resulting in lower utilization of
the Company's manufacturing facilities yielding reduced operating
leverage.





During
2007, the Company took actions to reduce costs and improve capacity utilization
including consolidation of a housing plant in Ohio into a larger Indiana
facility.





OPERATING
EXPENSES





Operating
expenses for continuing operations, consisting of selling and general and
administrative expenses, were $24.7 million and $24.8 million, or as a
percentage of net sales, 20.8% and 15.5% for 2007 and 2006. Selling expenses for
2007 were $8.3 million, or 7.0% of net sales, a 1.8 percentage point
increase from the $8.3 million, or 5.2% of net sales, experienced in 2006.
General and administrative expenses were $16.4 million in 2007, or 13.8% of net
sales, compared with $16.5 million, or 10.3% of net sales, in
2006.





GAIN
ON THE SALE OF ASSETS, NET





In 2007,
the Company had gains on the sale of assets of $0.1 million, compared to gains
on the sale of assets of $8.0 million in 2006. Gains on the sale of assets in
2007 resulted from the Company’s asset sales including properties in Rocky
Mount, Virginia. Gains on the sale of assets in 2006 resulted from the Company’s
restructuring plan and resulting asset sales including the former All American
Homes facility in Tennessee resulting in a $1.1 million gain, the Company’s
aircraft resulting in a $1.7 million gain, and other idle properties in Indiana,
Virginia, Texas and Florida resulting in a $5.2 million gain. Assets are
continually analyzed and every effort is made to sell or dispose of properties
that are determined to be excess or unproductive.





OPERATING
PROFIT (LOSS)





Operating
loss from continuing operations in 2007 of $(11.8) million increased $14.9
million compared with the operating income of $3.1 million in 2006. This
increase is the result of the $7.0 million decrease in gross profit combined
with a decrease in gain on sale of assets of $7.9 million.





INTEREST
EXPENSE





Interest
expense from continuing operations for 2007 and 2006 was $1.0 million and $0.9
million, respectively.





INVESTMENT
INCOME





Investment
income from continuing operations for 2007 and 2006 was $1.5 million and $1.5
million, respectively. Investment income is principally attributable to earnings
of the life insurance policies held (see Note
1 of Notes to Consolidated Financial Statements).


- 27
-


PRE-TAX
PROFIT (LOSS)





Pre-tax
loss from continuing operations for 2007 was $(11.1) million compared with a
pre-tax profit from continuing operations of $4.2 million for 2006. The
Housing Segment recorded 2007 pre-tax loss from continuing operations
of $7.4 million or 6.2% of segment net sales compared with pre-tax income
from continuing operations of $2.7 million, or 1.7% of segment net sales in 2006
(see Note 3 of Notes to Consolidated Financial
Statements).





INCOME
TAXES





The
provision for income taxes related to continuing operations was a credit of $0.2
million for 2007 versus an expense of $3.1 million for 2006. Given the losses
incurred by the Company over the last two years, a non-cash charge from
continuing operations of $3.9 million and $3.5 million was recorded to establish
a valuation allowance for the full value of its deferred tax assets as of
December 31, 2007 and December 31, 2006, respectively (see Note
11 of Notes to Consolidated Financial Statements).





DISCONTINUED
OPERATIONS





On March
31, 2006, the Company sold 100% of its interest in the capital stock of Miller
Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and
a $2.5 million secured note. Notes receivable and investments are reviewed
quarterly to determine whether events or changes in circumstances indicate that
the carrying amounts may not be recoverable. As a result of this review, the
Company determined that it was probable this note balance of $2.5 million and a
small investment would not be fully recoverable, and accordingly recorded an
impairment charge of $2.6 million in 2008. 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 year ended December 31, 2006 was $7.5 million and the
pre-tax income for the year ended December 31, 2006 was $1.5 million. In
connection with this sale, $1.7 million of industrial revenue bonds were paid
off as of March 31, 2006. During April 2006, the Company terminated the $1.5
million and $235,000 interest rate swaps that had been associated with these
revenue bonds.





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. Notes receivable and investments are reviewed
quarterly to determine whether events or changes in circumstances indicate that
the carrying amounts may not be recoverable. As a result of this review, the
Company determined that it was probable this note balance of $2.0 million would
not be fully recoverable, and accordingly recorded an impairment charge of $2.0
million in 2008. The funds remaining in the escrow account of $0.4 million
reverted to the Company in February 2007 per the sales agreement. 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
adjusted 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 RV
Segment goodwill based on the relative fair value of the discontinued operations
to the RV Segment. The $0.3 million of allocated goodwill has been included in
the calculation of the final gain on sale of assets in the first quarter of
2006. Net sales of Prodesign for the year ended December 31, 2006 was $0.4
million and the pre-tax income (loss) for the year ended December 31, 2006 was
$2.0 million.





The
increased pre-tax loss of the discontinued recreational vehicle business, which
was $(29.5) million in 2007 compared to $(20.9) million in 2006, was due to the
downturn in the economy and the RV market, as the Company’s RV sales declined
10.6% in 2007 compared to 2006 resulting in reduced operating leverage despite
numerous cost cutting and manufacturing consolidation efforts. A goodwill
impairment charge of $3.9 million also contributed to the increase.





NET
PROFIT (LOSS)





Net loss
from continuing operations for the year ended December 31, 2007 was $(10.9)
million (a loss of $(0.69) per diluted share) compared to net income from
continuing operations for the year ended December 31, 2006 of $1.0 million (a
profit of $0.07 per diluted shared). Net loss for the year ended December
31, 2007 was $(38.8) million (a loss of $(2.46) per diluted share) compared to
net loss of $(31.8) million (loss of $(2.03) per diluted share) for
2006.


- 28
-


Liquidity
and Capital Resources





The
Company generally relies on funds from operations as its primary source of
working capital and liquidity. Previously, the Company had maintained a $55.0
million line of credit to meet its seasonal working capital needs (see Note
6 of Notes to Consolidated Financial Statements). At December 31,
2008 this bank line of credit had been fully paid and was terminated except for
outstanding letters of credit totaling $7.5 million that were fully backed by
cash collateral which is reflected as restricted cash on the consolidated
balance sheet. At December 31, 2007 and 2006 there were $20.1 million and $9.3
million in outstanding borrowings, respectively. The Company also borrowed
against the cash surrender value of the Company's investment in life insurance
contracts. As of December 31, 2008, 2007 and 2006, $47.0 million, $17.6 million
and $16.4 million, respectively, had been borrowed against the cash surrender
value of Company owned life insurance contracts. The Company has paid the
premiums on these contracts in 2008, 2007 and 2006 with borrowings against the
cash surrender value of the contracts. As of December 31, 2008, the cash
surrender value of life insurance is approximately $51.7 million, with $47.0
million borrowed, resulting in a cash surrender value net of loans of $4.7
million.





During
2008 operations used cash of $9.6 million as reductions in inventories were
offset by the net loss. Accounts receivable and inventories decreased as a
result the asset sale of the recreational vehicle business in 2008. During 2007
operations used cash of $6.8 million as reductions in accounts receivable and
refundable income taxes were offset by the net loss. Accounts receivable
decreased as a result of lower sales in 2007, and several refundable income tax
payments were received in early 2007. During 2006 operations used cash of $5.0
million as significant reductions in inventory and accounts receivable were
offset by the net loss, reduction in accounts payable, and a reduction in
accrued expenses. The 2006 decreases in accounts receivable and inventories
resulted from management’s continued focus on effectively managing these assets.
The 2006 reduction in accounts payable resulted from reduced production and
inventory levels and the reduced accrued expenses was largely due to warranty
repairs made during 2006.





Investing
activities provided cash of $15.7 million in 2008, used cash of $3.2 million in
2007 and provided cash of $20.4 million in 2006. In 2008 proceeds from sales of
properties and assets of the recreational vehicle business provided cash of
$25.6 million, offset by purchases of property and equipment and restricted cash
held as collateral for letters of credit. In 2007, premiums on life insurance
policies of $1.7 million and purchases of property and equipment of $3.6 million
were partially offset by proceeds from sales of assets and properties of $1.8
million. In 2006, proceeds from sales of assets and properties of $28.1 million
offset purchases of property and equipment of $4.6 million and premiums on life
insurance policies of $2.6 million.





In 2008,
financing activities provided cash flows of $8.1 million. Payments to pay off
the line of credit were offset by borrowings against the cash value of life
insurance policies. In 2007, financing activities provided cash flows of $8.9
million. In 2007, proceeds from borrowings on the line of credit offset payments
on long-term debt, providing cash of $9.7 million. Additionally, $0.9 million in
dividends were paid in 2007. In 2006, financing activities used cash flows of
$15.5 million. Payments on borrowings on the line of credit, and the long-term
debt, net of borrowings, used cash of $13.4 million. Additionally, $2.8 million
in dividends were paid in 2006. 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, 2008 were $15.7 million or
an increase of $14.2 million from the $1.5 million in 2007. The Company has
another source of cash through the cash surrender value of life insurance
policies. As of December 31, 2008, the gross cash surrender value of life
insurance is approximately $51.7 million, with $47.0 million borrowed, resulting
in a net cash surrender value net of loans of $4.7 million. The Company can
borrow an estimated additional amount of $2.1 million against the net cash
surrender value at December 31, 2008. The Company anticipates that available
funds, together with anticipated cash flows generated from future operations and
potential loans from financial institutions or additional equity will be
sufficient to fund future planned capital expenditures and other operating cash
requirements through the end of 2009.





The
Company is currently working with a bridge loan lender to put in place a $6
million bridge loan. The final terms and timing of the closing of this loan are
dependent upon a number of factors, including the lender completing their due
diligence, determination of covenants, security and other terms and
documentation of the loan agreement. We cannot assure you that the loan will
close and if it does, on what terms, or that such a bridge loan if successfully
achieved will be sufficient to address our immediate liquidity
needs.





The
Company is also currently exploring various opportunities to monetize a portion
of the expected recovery on certain litigation claims. As discussed in Note
13 of Notes to Consolidated Financial Statements, the Company has
received a favorable verdict against Crane Composites, Inc. f/k/a Kemlite for
breach of contract and multiple warranty claims arising from the sale of
defective sidewall material to Coachmen Industries, Inc. subsidiaries. All of
the counts alleged in the original complaint were found in favor of the Company.
The remaining phase of the trial will determine the amount of damages payable on
this liability judgment. The Company has asserted claims for warranty related
expense in excess of $19 million and is seeking to recover additional damages
for lost profits, lost market share and the sale of the RV business. It is
anticipated that the final phase of the trial will be conducted in the latter
part of 2009. There can be no assurance about the amount or timing of any
recovery that the Company may realize from this litigation, nor is there any
assurance that the Company will be able to monetize a portion of the potential
settlement prior to the final phase of the trial.


- 29
-


On
February 10, 2009, the Company’s Board of Directors authorized and recommended,
subject to shareholder approval, an amendment to the Company’s Articles of
Incorporation, as amended, to authorize the issuance of 10,000,000 shares of
preferred stock. The Indiana Business Corporation Law requires approval of the
Company’s shareholders in order to adopt the proposed amendment. To be approved
requires that more shares are voted in favor of the amendment than shares are
voted against. If shareholders approve and authorize this amendment, the Company
intends to file Articles of Amendment to authorize the issuance of 10,000,000
shares of preferred stock promptly following the Annual Meeting. The amendment
will become effective upon filing the prescribed Articles of Amendment with the
Indiana Secretary of State.





Under the
proposed amendment, the Company’s Board of Directors would have the authority to
issue shares of preferred stock and to determine the designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the preferred stock prior to
issuance without further action by the Company’s shareholders, except as may be
required by applicable law or pursuant to the requirements of the exchange or
quotation system upon which our securities are then trading or
quoted.





There are
no assurances that the shareholders will approve this amendment, and even if
approved, that the Board will issue such preferred stock.





The
Company is also in discussions with a number of third parties regarding various
other opportunities to obtain financing or raise equity capital. There are no
assurances that the Company’s efforts will be successful or the timing or terms
of any such opportunities.





Any
downturn in the U.S. economy, decline in consumer confidence and other factors
may adversely impact the housing industries. This may have a negative impact on
the Company's sales and also increases the Company's risk of loss under
repurchase agreements with lenders to the Company's independent dealers and
builders (see Note 13 of Notes to Consolidated Financial
Statements). Increases in interest rates could also adversely affect the sale of
single-family homes.





In 2008,
working capital decreased $20.6 million, to $4.7 million from $25.3 million. The
$46.6 million decrease in current assets at December 31, 2008 versus December
31, 2007 was primarily due to decreases in trade receivables, and inventories as
a result of the sale of the recreational vehicle business assets. Current
liabilities at December 31, 2008 were $27.3 million lower than at December 31,
2007, primarily due to the decrease in short-term borrowings.





The
Company anticipates capital expenditures in 2009 of less than $2.0 million. The
planned capital expenditures for 2009 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.





Principal
Contractual Obligations and Commercial Commitments





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




Payment
      Period2009
                
                2010
                
                2011
                
                2012
                
                2013
                
                Thereafter
                
                TotalLong-term
      debt
                $
                819.3
                
                $
                819.9
                
                $
                769.9
                
                $
                150.0
                
                $
                150.0
                
                $
                300.0
                
                $
                3,009.1Floorplan
      note payable
                
                3,096.0
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                
                3,096.0Operating
      leases
                
                1,033.5
                
                
                926.4
                
                
                701.6
                
                
                181.6
                
                
                -
                
                
                -
                
                
                2,843.1Deferred
      compensation obligations
                
                4,259.9
                
                
                401.1
                
                
                368.9
                
                
                319.3
                
                
                179.6
                
                
                1,835.7
                
                
                7,364.5Open
      purchase orders and purchase obligations
                
                1,271.7
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                
                1,271.7Interest
      payments on long-term debt
                
                38.8
                
                
                25.9
                
                
                14.4
                
                
                8.1
                
                
                5.8
                
                
                4.7
                
                
                97.7Total
                $
                10,519.2
                
                $
                2,173.3
                
                $
                1,854.8
                
                $
                659.0
                
                $
                335.4
                
                $
                2,140.4
                
                $
                17,682.1




Notes:


-
            Projected
      interest payments for variable-rate debt were calculated based on the
      outstanding principal amounts and prevailing market rates as of December
      31, 2008.


-
            The
      open purchase orders and purchase obligations displayed in the table
      represent amounts the Company anticipates will become payable within the
      next year for goods and services it has negotiated for
      delivery.


- 30
-


The
Company's commercial commitments, along with the expected expiration period of
the commitment, are summarized as follows (in thousands):




Total
      Amounts
                            
                            Amount
      of Commitment
                            
                            Expiration
      Per PeriodCommitted
                            
                            Less
      Than One Year
                            
                            In
      Excess of One YearLetters
      of credit
                            
                            $
                            7,492.0
                            
                            $
                            1,600.0
                            
                            $
                            5,892.0Guarantees
                            
                            
                            6,338.0
                            
                            
                            6,338.0
                            
                            
                            -Standby
      repurchase obligations
                            
                            
                            104,187.7
                            
                            
                            98,073.8
                            
                            
                            6,113.9Total
                            
                            $
                            118,017.7
                            
                            $
                            106,011.8
                            
                            $
                            12,005.9





Critical
Accounting Policies and Estimates





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 -Long-lived 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 12 of Notes to Consolidated Financial Statements
for impairments recorded in 2006, 2007 and 2008, including impairments of
intangible assets).




Goodwill
represents the excess of the purchase price over the fair value of net tangible
and identifiable intangible assets of acquired businesses. Goodwill assets
deemed to have indefinite lives are not amortized, but are subject to impairment
tests at least annually in accordance with FASB Statement No. 142, Goodwill and
Other Intangible
Assets(SFAS No. 142). The Company reviews the carrying amounts of
goodwill assets annually by segment to determine if such assets may be impaired.
If the carrying amounts of these assets are not recoverable based upon a
discounted cash flow analysis, such assets are reduced by the estimated
shortfall of fair value to recorded value. At December 31, 2007, the Company had
$13.0 million of goodwill, all attributable to the Housing reporting unit. The
Company conducted its annual goodwill impairment test as required by SFAS No.
142, during the fourth quarter of 2008 and the results indicated that the
goodwill was impaired. Accordingly, the Company recorded non-cash goodwill
impairment charge of $13.0 million in the quarter ended December 31, 2008. The
goodwill impairment charges in 2008 were recorded at the corporate level because
this goodwill was carried at that level. At December 31, 2006, the Company had
$16.9 million of goodwill, $13.0 million attributable to the Housing reporting
unit and $3.9 million attributable to the RV reporting unit. As a result of
continuing losses incurred by the RV reporting unit, in accordance with SFAS No.
142 the Company performed an interim goodwill impairment evaluation during the
quarter ended June 30, 2007. Because the carrying value of the RV reporting
unit exceeded its fair value as calculated using the expected present value of
future cash flows, the Company concluded that the goodwill was impaired as of
June 30, 2007. Accordingly, the Company recorded non-cash goodwill
impairment charge of $3.9 million in the quarter ended June 30, 2007. As a
result of these impairment charges, the Company has no remaining goodwill
company-wide at December 31, 2008.





Revenue Recognition - For the
Housing Segment, the shipping terms are either FOB shipping point or FOB
destination. For traditional home sales, shipping terms are generally FOB
destination and title and risk of ownership are generally transferred when the
Company completes installation of the product. For traditional homes FOB
destination shipping terms, the Company generally 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. Major projects shipping terms are usually detailed in
the contract, and title and risk of ownership are transferred per the contract.
In the case of these major projects, the Company recognizes the revenue when
title and risk of ownership are transferred according to the terms of the
contract.





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 $3.7 million, $2.9 million and $5.0 million in 2008, 2007 and
2006, respectively. Accrued liabilities for warranty expense at December 31,
2008, 2007 and 2006 were $9.7 million, $8.1 million and $11.1 million,
respectively. The Company has retained the liability for the warranty on the
recreational vehicles it sold prior to the asset sale of the recreational
vehicle business, and the warranty payments are paid from the escrow account
established as a result of the asset sale.


- 31
-


Litigation and Insurance Reserves
- At December 31, 2008 the Company had reserves for certain other loss
exposures, such as product liability, workers compensation and group health
insurance ($6.3 million) and litigation ($0.3 million) (see Note
13 of Notes to Consolidated Financial Statements). The Company's
litigation reserve is determined based on an individual case evaluation process.
The Company is self-insured for a portion of its product liability, workers
compensation and group health insurance 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 historical losses, insurance coverage and the
amount of outstanding claims. Management believes the liability recorded
(see Note 8 of Notes to Consolidated Financial
Statements) is adequate to cover the Company's self-insured risk. The
Company's estimated loss reserves for product liability, workers compensation
and group health insurance 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. Deferred tax assets may
be recognized for temporary differences that will result in deductible amounts
in future periods and for loss carry forwards. A valuation allowance is
recognized if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax asset will not be realized.
Primarily due to the Company’s losses from continuing operations over the last
three years, noncash charges from continuing operations of $5.4 million, $3.9
million and $3.5 million were recorded as a valuation allowance for the full
value of its deferred tax assets as of December 31, 2008, 2007 and 2006,
respectively. Depending on future operating results it is possible the valuation
allowance could be reversed which would increase deferred tax assets and the
Company’s income tax benefit.




- 32
-


New
and Pending Accounting Policies





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


- 33
-


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 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
      ability of the management team to achieve desired
  results;•
            interest
      rates, which affect the affordability of the Company's
      products;•
            consumer
      confidence and the availability of consumer credit;•
            the
      availability of financing to the Company;•
            the
      Company’s ability to utilize manufacturing resources
      efficiently;•
            the
      Company’s ability to introduce new homes and features that achieve
      consumer acceptance;•
            the
      margins associated with the mix of products the Company sells in a
      particular period;•
            the
      impact of sub-prime lending on the availability of credit for the broader
      housing market;•
            adverse
      weather conditions affecting home deliveries;•
            potential
      liabilities under repurchase agreements and guarantees;•
            tax
      law changes could make home ownership more expensive or less
      attractive;•
            legislation
      governing the relationships of the Company with its
    builders;•
            the
      price volatility of materials used in production and the ability to pass
      on rapidly increasing costs of product components and raw materials to end
      buyers;•
            the
      availability and cost of real estate for residential
    housing;•
            the
      increased size and scope of work of major projects, as compared to the
      Company's traditional single-family homes business, with increased
      reliance on third parties for performance which could impact the
      Company;•
            the
      ability to perform in new market segments or geographic areas where it has
      limited experience;•
            the
      supply of existing homes within the Company’s markets;•
            the
      impact of home values on housing demand;•
            uncertainties
      and timing with respect to sales resulting from recovery efforts in the
      Gulf Coast;•
            changing
      government regulations, including those covering accounting
      standards;•
            environmental
      matters or product warranties and recalls, which may affect costs of
      operations, revenues, product acceptance and
  profitability;•
            changes
      in property taxes and energy costs;•
            changes
      in federal income tax laws and federal mortgage financing
      programs;•
            competition
      in the industries in which the Company operates;•
            further
      developments in the war on terrorism and related international
      crises;•
            uncertainties
      of matters in litigation and other risks and
  uncertainties;•
            the
      ability of the Company to generate taxable income in future years to
      utilize deferred tax assets and net operating loss carryforwards that are
      available;•
            the
      collectibility of debt owed to the Company for sold
  assets;•
            the
      Company’s ability to increase gross margins which are critical whether or
      not there are increased sales;•
            the
      Company’s use of incentives at either the wholesale or retail
      level;•
            the
      dependence on key customers within certain product
  types;•
            the
      potential fluctuation in the Company’s operating
  results;•
            the
      addition or loss of builders;•
            the
      introduction and marketing of competitive product by others, including
      significant discounting offered by our competitors;•
            uncertainties
      regarding the impact of the disclosed restructuring
  steps;•
            the
      ability to attract and retain qualified senior
  managers.




- 34
-


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 housing industry 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.





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. Accordingly, changes in interest rates would impact both the
Company's short and long-term debt. During 2008, 2007 and 2006, the Company has
utilized a revolving credit facility to meet short-term working capital
needs. At December 31, 2008 this bank line of credit had been fully paid
and was terminated except for outstanding letters of credit totaling $7.5
million that were fully backed by cash collateral. The Company had $20.1 million
outstanding against the revolving credit facility on December 31, 2007 and $9.3
million outstanding against the revolving credit facility on December 31, 2006.
At December 31, 2008, the Company had $3.0 million of long-term debt, including
current maturities. Long-term debt consists mainly of industrial development
revenue bonds.




Based
upon the amount of variable-rate debt outstanding at the end of the year plus
borrowings against the cash surrender value of life insurance policies, and
holding the variable-rate debt balance constant, each one percentage point
increase in interest rates occurring on the first day of an annual period would
result in an increase in interest expense of approximately $0.5
million.





At
December 31, 2008, the Company had one interest rate swap agreement with a
notional amount of $1.8 million that was used to convert the variable interest
rates on an industrial development revenue bond to a fixed rate. In
accordance with the terms of the swap agreement, the Company pays a 3.71%
interest rate, and receives the Bond Market Association Index (BMA), calculated
on the notional amount, with net receipts or payments being recognized as
adjustments to interest expense. This swap agreement, along with that terminated
in 2006, is designated as a cash flow hedge for accounting purposes and
effectively converts a portion of the Company's variable-rate borrowing 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 agreement represents the estimated receipts or payments that
would be made to terminate the agreements. A cumulative loss of $27,000, 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) for the year ended December 31, 2008. 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).




- 35
-


Item
8.                 Financial
Statements and Supplementary Data




Index to Financial Statements
                            PageFinancial
      Statements:Reports of Independent
      Registered Public Accounting Firm
                            37-38Consolidated Balance
      Sheets at December 31, 2008 and 2007
                            39Consolidated
      Statements of Operations for the years ended December 31, 2008, 2007 and
      2006
                            40Consolidated
      Statements of Shareholders' Equity for the years ended December 31, 2008,
      2007 and 2006
                            41Consolidated Statements of
      Cash Flows for the years ended December 31, 2008, 2007 and
      2006
                            42Notes to Consolidated Financial
      Statements
                            43-70Financial
      Statement Schedule:II - Valuation and Qualifying
      Accounts for the years ended December 31, 2008, 2007 and
      2006
                            74





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




- 36
-
 Index





Report of Independent Registered Public Accounting
Firm







The 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, 2008 and 2007, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2008. 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Coachmen Industries,
Inc. and subsidiaries at December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008, 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 financial statements taken as
a whole, presents
fairly in all material respects the information set forth
therein.




As
discussed in Note 2 to the financial statements, the Company's recurring losses
from operations and lack of liquidity raise substantial doubt about its ability
to continue as a going concern. Management's plans as to these matters also are
described in Note 2. The 2008 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 As discussed in Note 11 to
the consolidated financial statements, effective January 1, 2007 the Company
changed its method of accounting for uncertain tax positions in connection with
the required adoption of Financial Accounting Standards Board
Interpretation Accounting for Uncertainty in Income
Taxes




We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), Coachmen Industries, Inc. and subsidiaries’ internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 23,
2009 expressed an unqualified opinion thereon.







/s/ Ernst
& Young LLP





Grand
Rapids, Michigan


March 23,
2009




- 37
-
 Index





Report of Independent Registered Public Accounting
Firm






Board of
Directors and Shareholders


Coachmen
Industries, Inc.








We have
audited Coachmen Industries, Inc. and subsidiaries’ (the Company) internal
control over financial reporting as of December 31, 2008, 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 included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, 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, Coachmen Industries, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based onthe
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, 2008 and 2007 and the
related consolidated statements of income, shareholders’ equity and cash flows
for each of the three years in the period ended December 31, 2008, and our
report dated March 23, 2009 expressed an unqualified opinion thereon that
included an explanatory paragraph regarding Coachmen Industries, Inc’s ability
to continue as a going concern.







/s/ Ernst
& Young LLP








Grand
Rapids, Michigan


March 23,
2009




- 38
-
 Index


Coachmen Industries, Inc. and Subsidiaries


Consolidated
Balance Sheets


as of
December 31


(in
thousands)


2008
                  
                  2007AssetsCURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  15,745
                  
                  $
                  1,549Restricted
      cash
                  
                  
                  1,600
                  
                  
                  -Trade
      receivables, less allowance for doubtful receivables 2008 - $1,676 and
      2007 - $744
                  
                  
                  1,837
                  
                  
                  9,122Other
      receivables
                  
                  
                  4,666
                  
                  
                  3,819Refundable
      income taxes
                  
                  
                  1,559
                  
                  
                  1,628Inventories
                  
                  
                  19,910
                  
                  
                  79,268Prepaid
      expenses and other
                  
                  
                  4,390
                  
                  
                  3,804Assets
      held for sale
                  
                  
                  2,913
                  
                  
                  -Total
      current assets
                  
                  
                  52,620
                  
                  
                  99,190Property,
      plant and equipment,
    net
                  
                  
                  30,922
                  
                  
                  52,932Goodwill
                  
                  
                  -
                  
                  
                  12,993Cash
      value of life insurance, net of loans
                  
                  
                  4,710
                  
                  
                  33,936Notes
      receivable
                  
                  
                  -
                  
                  
                  4,543Restricted
      cash
                  
                  
                  17,321
                  
                  
                  1,193Other
                  
                  
                  1,831
                  
                  
                  2,881TOTAL
      ASSETS
                  
                  $
                  107,404
                  
                  $
                  207,668Liabilities
      and Shareholders' EquityCURRENT
      LIABILITIESShort-term
      borrowings
                  
                  $
                  -
                  
                  $
                  20,073Accounts
      payable, trade
                  
                  
                  11,414
                  
                  
                  15,042Accrued
      income taxes
                  
                  
                  1,470
                  
                  
                  536Accrued
      expenses and other liabilities
                  
                  
                  31,127
                  
                  
                  33,235Floorplan
      notes payable
                  
                  
                  3,096
                  
                  
                  4,116Current
      maturities of long-term debt
                  
                  
                  819
                  
                  
                  852Total
      current liabilities
                  
                  
                  47,926
                  
                  
                  73,854Long-term
      debt
                  
                  
                  2,190
                  
                  
                  3,010Deferred
      income taxes
                  
                  
                  457
                  
                  
                  1,990Postretirement
      deferred compensation benefits
                  
                  
                  3,104
                  
                  
                  7,632Other
                  
                  
                  1,038
                  
                  
                  49Total
      liabilities
                  
                  
                  54,715
                  
                  
                  86,535COMMITMENTS
      AND CONTINGENCIES(Note
      13)SHAREHOLDERS'
      EQUITYCommon
      shares, without par value: authorized 60,000 shares; issued 2008 -
      21,236 shares and 2007 - 21,180 shares
                  
                  
                  92,688
                  
                  
                  92,552Additional
      paid-in capital
                  
                  
                  7,213
                  
                  
                  7,856Accumulated
      other comprehensive loss
                  
                  
                  (75
                  )
                  
                  (48
                  )Retained
      earnings
                  
                  
                  10,925
                  
                  
                  79,927Treasury
      shares, at cost, 2008 - 5,236 shares and 2007 - 5,402
      shares
                  
                  
                  (58,062
                  )
                  
                  (59,154
                  )Total
      shareholders' equity
                  
                  
                  52,689
                  
                  
                  121,133TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                  
                  $
                  107,404
                  
                  $
                  207,668


See Notes to
Consolidated Financial Statements.




- 39
-
 Index


Coachmen Industries, Inc. and
Subsidiaries


Consolidated
Statements of Operations


for the
years ended December 31


(in
thousands, except per share amounts)


2008
                                                  
                                                  2007
                                                  
                                                  2006Net
      salesProducts
                                                  
                                                  $
                                                  107,609
                                                  
                                                  $
                                                  105,898
                                                  
                                                  $
                                                  144,382Delivery
      and set
                                                  
                                                  
                                                  11,987
                                                  
                                                  
                                                  13,288
                                                  
                                                  
                                                  15,290119,596
                                                  
                                                  
                                                  119,186
                                                  
                                                  
                                                  159,672Cost
      of salesProducts
                                                  
                                                  
                                                  89,593
                                                  
                                                  
                                                  91,508
                                                  
                                                  
                                                  123,871Delivery
      and set
                                                  
                                                  
                                                  12,624
                                                  
                                                  
                                                  14,831
                                                  
                                                  
                                                  15,868102,217
                                                  
                                                  
                                                  106,339
                                                  
                                                  
                                                  139,739Gross
      profit
                                                  
                                                  
                                                  17,379
                                                  
                                                  
                                                  12,847
                                                  
                                                  
                                                  19,933Operating
      expenses:Selling
                                                  
                                                  
                                                  7,077
                                                  
                                                  
                                                  8,278
                                                  
                                                  
                                                  8,325General
      and administrative
                                                  
                                                  
                                                  13,018
                                                  
                                                  
                                                  16,425
                                                  
                                                  
                                                  16,461Impairments
                                                  
                                                  
                                                  18,605
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  -Gain
      on sale of assets, net
                                                  
                                                  
                                                  (44
                                                  )
                                                  
                                                  (74
                                                  )
                                                  
                                                  (7,996
                                                  )38,656
                                                  
                                                  
                                                  24,629
                                                  
                                                  
                                                  16,790Operating
      income (loss)
                                                  
                                                  
                                                  (21,277
                                                  )
                                                  
                                                  (11,782
                                                  )
                                                  
                                                  3,143Nonoperating
      (income) expense:Interest
      expense
                                                  
                                                  
                                                  1,635
                                                  
                                                  
                                                  999
                                                  
                                                  
                                                  917Investment
      income
                                                  
                                                  
                                                  (1,094
                                                  )
                                                  
                                                  (1,487
                                                  )
                                                  
                                                  (1,527
                                                  )Other
      income, net
                                                  
                                                  
                                                  (1,600
                                                  )
                                                  
                                                  (202
                                                  )
                                                  
                                                  (421
                                                  )(1,059
                                                  )
                                                  
                                                  (690
                                                  )
                                                  
                                                  (1,031
                                                  )Income
      (loss) from continuing operations before income
taxes
                                                  
                                                  
                                                  (20,218
                                                  )
                                                  
                                                  (11,092
                                                  )
                                                  
                                                  4,174Income
      taxes (credit)
                                                  
                                                  
                                                  (1,539
                                                  )
                                                  
                                                  (154
                                                  )
                                                  
                                                  3,133Net
      income (loss) from continuing operations
                                                  
                                                  
                                                  (18,679
                                                  )
                                                  
                                                  (10,938
                                                  )
                                                  
                                                  1,041Discontinued
      operationsLoss
      from operations of discontinued entities (net of taxes (credits) of $947,
      $(1,637), and $12,836, respectively)
                                                  
                                                  
                                                  (40,884
                                                  )
                                                  
                                                  (28,777
                                                  )
                                                  
                                                  (35,744
                                                  )Gain
      (loss) on sale of assets of discontinued entities (net of taxes of $0, $0
      and $2,140, respectively)
                                                  
                                                  
                                                  (9,439
                                                  )
                                                  
                                                  963
                                                  
                                                  
                                                  2,898Loss
      from discontinued operations
                                                  
                                                  
                                                  (50,323
                                                  )
                                                  
                                                  (27,814
                                                  )
                                                  
                                                  (32,846
                                                  )Net
      loss
                                                  
                                                  $
                                                  (69,002
                                                  )
                                                  $
                                                  (38,752
                                                  )
                                                  $
                                                  (31,805
                                                  )Earnings
      (loss) per share - BasicContinuing
      operations
                                                  
                                                  $
                                                  (1.18
                                                  )
                                                  $
                                                  (0.69
                                                  )
                                                  $
                                                  0.07Discontinued
      operations
                                                  
                                                  
                                                  (3.19
                                                  )
                                                  
                                                  (1.77
                                                  )
                                                  
                                                  (2.10
                                                  )Net
      loss per share
                                                  
                                                  
                                                  (4.37
                                                  )
                                                  
                                                  (2.46
                                                  )
                                                  
                                                  (2.03
                                                  )Earnings
      (loss) per share - DilutedContinuing
      operations
                                                  
                                                  
                                                  (1.18
                                                  )
                                                  
                                                  (0.69
                                                  )
                                                  
                                                  0.07Discontinued
      operations
                                                  
                                                  
                                                  (3.19
                                                  )
                                                  
                                                  (1.77
                                                  )
                                                  
                                                  (2.10
                                                  )Net
      loss per share
                                                  
                                                  $
                                                  (4.37
                                                  )
                                                  $
                                                  (2.46
                                                  )
                                                  $
                                                  (2.03
                                                  )Number
      of common shares used in the computation of earnings (loss) per
      share:Basic
                                                  
                                                  
                                                  15,799
                                                  
                                                  
                                                  15,727
                                                  
                                                  
                                                  15,633Diluted
                                                  
                                                  
                                                  15,799
                                                  
                                                  
                                                  15,727
                                                  
                                                  
                                                  15,633





See Notes to
Consolidated Financial Statements.


- 40
-
 Index


Coachmen Industries, Inc. and
Subsidiaries


Consolidated
Statements of Shareholders' Equity


for the
years ended December 31, 2008, 2007 and 2006


(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, 2006
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                21,134
                                                                
                                                                $
                                                                92,164
                                                                
                                                                $
                                                                6,465
                                                                
                                                                $
                                                                (142
                                                                )
                                                                $
                                                                (6
                                                                )
                                                                $
                                                                154,246
                                                                
                                                                
                                                                (5,375
                                                                )
                                                                $
                                                                (58,924
                                                                )
                                                                $
                                                                193,803Comprehensive
      Loss - 2006Net
      loss
                                                                
                                                                $
                                                                (31,805
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (31,805
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (31,805
                                                                )Net
      unrealized (loss) on cash flow hedges
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (4
                                                                )Total
      comprehensive loss
                                                                
                                                                $
                                                                (31,809
                                                                )Issuance
      of common shares upon the exercise of stock options net of tax benefit of
      $25
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                284
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                64
                                                                
                                                                
                                                                376
                                                                
                                                                
                                                                660Issuance
      of common shares under employee stock purchase plan
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                22
                                                                
                                                                
                                                                218
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                218Issuance
      (cancellations) of common shares from treasury
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                899
                                                                
                                                                
                                                                142
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (122
                                                                )
                                                                
                                                                (764
                                                                )
                                                                
                                                                277Cash
      dividends of $.18 per common share
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (2,818
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (2,818
                                                                )Balance
      at December 31, 2006
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                21,156
                                                                
                                                                
                                                                92,382
                                                                
                                                                
                                                                7,648
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (10
                                                                )
                                                                
                                                                119,623
                                                                
                                                                
                                                                (5,433
                                                                )
                                                                
                                                                (59,312
                                                                )
                                                                
                                                                160,331Comprehensive
      Loss - 2007Net
      loss
                                                                
                                                                $
                                                                (38,752
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (38,752
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (38,752
                                                                )Net
      unrealized (loss) on cash flow hedges
                                                                
                                                                
                                                                (38
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (38
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (38
                                                                )Total
      comprehensive loss
                                                                
                                                                $
                                                                (38,790
                                                                )Issuance
      of common shares under employee stock purchase plan
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                24
                                                                
                                                                
                                                                170
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                170Issuance
      (cancellations) of common shares from treasury
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                208
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                31
                                                                
                                                                
                                                                158
                                                                
                                                                
                                                                366Cash
      dividends of $.06 per common share
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (944
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (944
                                                                )Balance
      at December 31, 2007
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                21,180
                                                                
                                                                $
                                                                92,552
                                                                
                                                                $
                                                                7,856
                                                                
                                                                $
                                                                -
                                                                
                                                                $
                                                                (48
                                                                )
                                                                $
                                                                79,927
                                                                
                                                                
                                                                (5,402
                                                                )
                                                                $
                                                                (59,154
                                                                )
                                                                $
                                                                121,133Comprehensive
      Loss – 2008Net
      loss
                                                                
                                                                $
                                                                (69,002
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (69,002
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (69,002
                                                                )Net
      unrealized (loss) on cash flow hedges
                                                                
                                                                
                                                                (27
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (27
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (27
                                                                )Total
      comprehensive loss
                                                                
                                                                $
                                                                (69,029
                                                                )Shares
      repurchased for the Treasury
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (31
                                                                )
                                                                
                                                                (55
                                                                )
                                                                
                                                                (55
                                                                )Issuance
      of common shares under employee stock purchase plan
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                56
                                                                
                                                                
                                                                136
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                136Issuance
      (cancellations) of common shares from treasury
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                (643
                                                                )
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                197
                                                                
                                                                
                                                                1,147
                                                                
                                                                
                                                                504Balance
      at December 31, 2008
                                                                
                                                                
                                                                
                                                                
                                                                
                                                                21,236
                                                                
                                                                $
                                                                92,688
                                                                
                                                                $
                                                                7,213
                                                                
                                                                $
                                                                -
                                                                
                                                                $
                                                                (75
                                                                )
                                                                $
                                                                10,925
                                                                
                                                                
                                                                (5,236
                                                                )
                                                                $
                                                                (58,062
                                                                )
                                                                $
                                                                52,689


See Notes to
Consolidated Financial Statements.


- 41
-
 Index


Coachmen Industries, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


for the
years ended December 31


(in
thousands)




CASH
      FLOWS FROM OPERATING ACTIVITIES:
                              
                              2008
                              
                              2007
                              
                              2006Net
      loss
                              
                              $
                              (69,002
                              )
                              $
                              (38,752
                              )
                              $
                              (31,805
                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                              
                              
                              4,225
                              
                              
                              5,790
                              
                              
                              6,533Provision
      for doubtful receivables
                              
                              
                              1,140
                              
                              
                              512
                              
                              
                              1,631Provision
      for write-down of assets to net realizable value
                              
                              
                              1,505
                              
                              
                              -
                              
                              
                              -Net
      unrealized loss on cash flow hedges
                              
                              
                              (27
                              )
                              
                              (38
                              )
                              
                              (4
                              )Goodwill
      impairment charge
                              
                              
                              12,993
                              
                              
                              3,872
                              
                              
                              -Impairment
      charges
                              
                              
                              6,264
                              
                              
                              -
                              
                              
                              -Loss
      on sale of businesses
                              
                              
                              9,439
                              
                              
                              -
                              
                              
                              -Gain
      on sale of properties and other assets, net
                              
                              
                              (44
                              )
                              
                              (1,037
                              )
                              
                              (13,183
                              )Increase
      in cash surrender value of life insurance policies
                              
                              
                              (90
                              )
                              
                              (1,129
                              )
                              
                              (317
                              )Deferred
      income tax provision (benefit)
                              
                              
                              (1,533
                              )
                              
                              (2,534
                              )
                              
                              20,224Tax
      benefit from stock options exercised
                              
                              
                              -
                              
                              
                              -
                              
                              
                              25Other
                              
                              
                              (3,993
                              )
                              
                              1,100
                              
                              
                              127Changes
      in certain assets and liabilities, net of effects of acquisitions and
      dispositions:Trade
      receivables
                              
                              
                              (116
                              )
                              
                              15,977
                              
                              
                              16,642Inventories
                              
                              
                              35,819
                              
                              
                              4,243
                              
                              
                              25,627Prepaid
      expenses and other
                              
                              
                              (777
                              )
                              
                              153
                              
                              
                              (582
                              )Accounts
      payable, trade
                              
                              
                              (3,628
                              )
                              
                              (1,956
                              )
                              
                              (13,150
                              )Income
      taxes - accrued and refundable
                              
                              
                              1,003
                              
                              
                              9,710
                              
                              
                              (1,051
                              )Accrued
      expenses and other liabilities
                              
                              
                              (2,786
                              )
                              
                              (2,687
                              )
                              
                              (15,750
                              )Net
      cash used in operating activities
                              
                              
                              (9,608
                              )
                              
                              (6,776
                              )
                              
                              (5,033
                              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of businesses
                              
                              
                              25,238
                              
                              
                              -
                              
                              
                              -Proceeds
      from sale of properties and other assets
                              
                              
                              357
                              
                              
                              1,787
                              
                              
                              28,104Investments
      in marketable securities and cash surrender value
                              
                              
                              (667
                              )
                              
                              (1,688
                              )
                              
                              (2,574
                              )Purchases
      of property and equipment
                              
                              
                              (2,088
                              )
                              
                              (3,618
                              )
                              
                              (4,622
                              )Other
                              
                              
                              (7,154
                              )
                              
                              310
                              
                              
                              (517
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              15,686
                              
                              
                              (3,209
                              )
                              
                              20,391CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short-term borrowings
                              
                              
                              16,813
                              
                              
                              11,037
                              
                              
                              11,713Payments
      of short-term borrowings
                              
                              
                              (37,906
                              )
                              
                              (288
                              )
                              
                              (14,910
                              )Proceeds
      from long-term debt
                              
                              
                              -
                              
                              
                              -
                              
                              
                              255Payments
      of long-term debt
                              
                              
                              (853
                              )
                              
                              (1,077
                              )
                              
                              (10,452
                              )Proceeds
      from borrowings on cash value of life insurance
    policies
                              
                              
                              48,983
                              
                              
                              -
                              
                              
                              -Repayment
      of borrowings on cash value of life insurance
    policies
                              
                              
                              (19,000
                              )
                              
                              -
                              
                              
                              -Issuance
      of common shares under stock incentive plans
                              
                              
                              136
                              
                              
                              170
                              
                              
                              878Tax
      benefit from stock options exercised
                              
                              
                              -
                              
                              
                              -
                              
                              
                              (25
                              )Cash
      dividends paid
                              
                              
                              -
                              
                              
                              (944
                              )
                              
                              (2,818
                              )Purchases
      of common shares for treasury
                              
                              
                              (55
                              )
                              
                              (15
                              )
                              
                              (129
                              )Other
                              
                              
                              -
                              
                              
                              -
                              
                              
                              1Net
      cash provided by (used in) financing activities
                              
                              
                              8,118
                              
                              
                              8,883
                              
                              
                              (15,487
                              )Increase
      (decrease) in cash and cash equivalents
                              
                              
                              14,196
                              
                              
                              (1,102
                              )
                              
                              (129
                              )CASH
      AND CASH EQUIVALENTSBeginning
      of year
                              
                              
                              1,549
                              
                              
                              2,651
                              
                              
                              2,780End
      of year
                              
                              $
                              15,745
                              
                              $
                              1,549
                              
                              $
                              2,651Supplemental
      disclosures of cash flow information:Cash
      paid during the year for interest
                              
                              $
                              599
                              
                              $
                              663
                              
                              $
                              1,383Cash
      refunded during the year for income taxes
                              
                              
                              (35
                              )
                              
                              (9,032
                              )
                              
                              (127
                              )Operating
      cash received related to insurance settlement
                              
                              
                              988
                              
                              
                              -
                              
                              
                              2,875Gain
      on sale of assets - Continuing operations
                              
                              
                              (44
                              )
                              
                              (1,037
                              )
                              
                              (8,689
                              )(Gain)
      loss on sale of assets - Discontinued operations
                              
                              $
                              9,439
                              
                              $
                              -
                              
                              $
                              (4,345
                              )





See Notes to
Consolidated Financial Statements.


- 42
-
 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 system-built housing. The system-built products (single-family
homes, multi-family dwellings, military housing, motels/hotels, group living
facilities, and residential subdivisions) are sold to builders/dealers or
directly to the end user for certain specialized structures. Through a joint
venture, the Company also manufactures a line of low floor ADA-compliant
buses.





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 United States generally
accepted accounting principles 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
Housing Segment, the shipping terms are either FOB shipping point or FOB
destination. For traditional home sales, shipping terms are generally FOB
destination and title and risk of ownership are generally transferred when the
Company completes installation of the product. For traditional home sales with
FOB destination shipping terms, the Company generally 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. Major projects shipping terms are usually detailed in
the contract, and title and risk of ownership are transferred per the contract.
In the case of these major projects, the Company recognizes the revenue when
title and risk of ownership are transferred according to the terms of the
contract. For bus sales, 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 so sales are recognized as revenue at the time the products are
shipped.





Cash Flows and Non-cash 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.





Non-cash
investing and financing activities are as follows (in thousands):




2008
                  
                  2007
                  
                  2006Issuance
      (cancellations) of common shares, at market value, in lieu of cash
      compensation
                  
                  $
                  234
                  
                  $
                  116
                  
                  $
                  125Notes
      receivable received in connection with the sale of certain assets (see
      Note
      12)
                  
                  $
                  -
                  
                  $
                  2,610
                  
                  $
                  5,920





Restricted cash-Restricted cash as of December 31, 2008 includes $7.5 million in cash
collateral required for letters of credit, $10.0 million indemnity escrow
account related to the agreement for the asset sale of the recreational vehicle
business and $1.4 million cash collateral related to workers compensation trust
accounts. An accounts receivable escrow account related to the agreement for the
asset sale of the recreational vehicle business of $1.5 million is included in
cash and cash equivalents as it is scheduled to be payable to the Company within
forty-five days. The amount as of December 31, 2008 classified as current assets
of $1.6 million represents the current portion of cash collateral for letters of
credit. Long term restricted cash at December 31, 2008 consists of the $10.0
million indemnity escrow account related to the agreement for the asset sale of
the recreational vehicle business, $5.9 million in cash collateral required for
letters of credit and $1.4 million cash collateral related to workers
compensation trust accounts. Restricted cash as of December 31, 2007 consists of
$1.2 million in cash collateral related to workers compensation trust
accounts.





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, 2008, 2007 and 2006, cash and cash equivalents invested in money
market accounts or certificates of deposit were $0.0 million, $0.0 million and
$0.6 million, respectively.




- 43
-
 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued




1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





The
Company has a concentration of credit risk in the housing industry. A single
major products customer accounted for approximately 38% of the Company’s
consolidated net sales in 2008 and 5% of trade accounts receivable at December
31, 2008. No single customer accounted for more than 10% of consolidated net
sales in 2007 or 2006. The Company performs ongoing credit evaluations of its
customers' financial conditions and sales to its traditional home builders are
generally cash on delivery whereby the Company is paid upon delivery or shortly
thereafter. Payments related to major projects are received in accordance with
the terms of the contract. Future credit losses are provided for currently
through the allowance for doubtful receivables, and actual credit losses are
charged to the allowance when incurred.





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





2008
                        
                        2007
                        
                        2006Interest
      income
                        
                        $
                        288
                        
                        $
                        477
                        
                        $
                        384Increase
      in cash value of life insurance policies
                        
                        
                        1,255
                        
                        
                        1,003
                        
                        
                        1,138Dividend
      income on preferred stocks
                        
                        
                        7
                        
                        
                        7
                        
                        
                        5Net
      loss on investment in joint ventures
                        
                        
                        (456
                        )
                        
                        -
                        
                        
                        -Total
                        
                        $
                        1,094
                        
                        $
                        1,487
                        
                        $
                        1,527





Joint Venture -In December
2007, the Company entered into an agreement to produce ADA compliant low floor
accessible buses for ARBOC Mobility LLC, a marketer of specialized transit and
shuttle buses designed for users with mobility challenges. This bus incorporates
patent pending technologies provided by ARBOC Mobility. In connection with the
agreement with ARBOC Mobility LLC, the Company agreed to finance up to $1.0
million of start up cash requirements. As of December 31, 2008, the Company has
a note receivable of $0.9 million due from ARBOC Mobility LLC for start up cash
requirements. The note is on a month-by-month basis and bears interest at the
rate of 1% per month on the principal balance. The note is included in other
receivables on the Consolidated Balance Sheet at a net amount of $0.4 million
after write-down for the Company’s portion of joint venture losses to date.
The Company has a
30% interest in this entity and therefore accounts for this investment on the
equity basis. Related party transactions with ARBOC Mobility LLC include
sales of $2.4 million in 2008 and outstanding accounts receivable of
approximately $1.0 million at December 31, 2008.





Fair Value of Financial Instruments -The carrying amounts of cash and cash equivalents, receivables and
accounts payable approximated fair value as of December 31, 2008 and 2007,
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, 2008 and 2007, based upon terms and conditions
currently available to the Company in comparison to terms and conditions of
the existing long-term debt. The Company also has investments in life insurance
contracts. At December 31, 2008 and 2007, the carrying amount of life insurance
policies, which equaled their fair value, was $4.7 million ($51.7 million, less
$47.0 million of policy loans) and $33.9 million ($51.5 million, less $17.6
million of policy loans), respectively.





The
Company adopted the provisions of SFAS No. 157 Fair Value Measurements (SFAS
No. 157) related to its financial assets and liabilities in the first quarter of
2008. The adoption did not have a material impact on the Company’s consolidated
financial position, results of operations or cash flows. SFAS No. 157
establishes a framework for measuring the fair value of assets and liabilities.
This framework is intended to provide increased consistency in how fair value
determinations are made under various existing accounting standards which
permit, or in some cases require, estimates of fair market value. SFAS No. 157
also expands financial statement disclosure requirements about a company’s use
of fair value measurements, including the effect of such measures on earnings.
SFAS No. 157 was effective for fiscal years beginning after November 15, 2007.
In February 2008, FASB issued FSP No. FAS 157-2 delaying the
applicability of SFAS No. 157’s fair-value measurements of certain
nonfinancial assets and liabilities for one year. In October 2008,the Financial Accounting
Standards Board (FASB) issued FSP FAS 157-3, Determining the
Fair value of a Financial Asset When the Market for That Asset Is Not
Active.


- 44
-
 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued




1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





Assets or
liabilities that have recurring fair value measurements are shown below as of
December 31, 2008 (in thousands):





Fair
      Value Measurements at Reporting Date UsingQuoted
      Prices inActive
      Markets
                            
                            
                            Significant
                            
                            
                            SignificantFor
      Identical
                            
                            
                            Other
      Observable
                            
                            
                            UnobservableAssets
                            
                            
                            Inputs
                            
                            
                            InputsTotal
      as ofDescription
                            
                            December
      31, 2008
                            
                            
                            (Level
      1)
                            
                            
                            (Level
      2)
                            
                            
                            (Level
      3)Cash
      and cash equivalents
                            
                            $
                            15,745
                            
                            
                            $
                            15,745
                            
                            
                            $
                            -
                            
                            
                            $
                            -Restricted
      cash
                            
                            
                            18,921
                            
                            
                            
                            18,921Interest
      Rate Swap (1)
                            
                            
                            (75
                            )
                            
                            
                            -
                            
                            
                            
                            (75
                            )
                            
                            
                            -Net
                            
                            $
                            34,591
                            
                            
                            $
                            34,666
                            
                            
                            $
                            (75
                            )
                            
                            $
                            -





(1)
Included in other long-term liabilities on consolidated balance
sheet.





SFAS No.
133, Accounting for Derivative
Instruments and Hedging Activities, as amended and interpreted, 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. The Company has 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 were 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 2008,
2007 or 2006.





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




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 long-lived assets
deemed 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.




- 45
-
 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





Long-Lived Assets -Long-lived
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
12 for asset impairments recorded in 2008 and 2007, including
impairments of intangible assets).





Goodwill
represents the excess of the purchase price over the fair value of net tangible
and identifiable intangible assets of acquired businesses. Goodwill assets
deemed to have indefinite lives are not amortized, but are subject to impairment
tests at least annually in accordance with FASB Statement No. 142, Goodwill and
Other Intangible
Assets (SFAS No. 142). The Company reviews the carrying amounts of
goodwill assets annually by segment to determine if such assets may be impaired.
If the carrying amounts of these assets are not recoverable based upon a
discounted cash flow analysis, such assets are reduced by the estimated
shortfall of fair value to recorded value. At December 31, 2007, the Company had
$13.0 million of goodwill, all attributable to the Housing reporting unit. The
Company conducted its annual goodwill impairment test as required by SFAS No.
142, during the fourth quarter of 2008 and the results indicated that the
goodwill was fully impaired. Accordingly, the Company recorded a non-cash
goodwill impairment charge of $13.0 million in the quarter ended December 31,
2008. The goodwill impairment charges in 2008 were recorded at the corporate
level because this goodwill was carried at that level. At December 31, 2006, the
Company had $16.9 million of goodwill, $13.0 million attributable to the Housing
reporting unit and $3.9 million attributable to the RV reporting unit. As a
result of continuing losses incurred by the RV reporting unit, in accordance
with SFAS No. 142 the Company performed an interim goodwill impairment
evaluation during the quarter ended June 30, 2007. Because the carrying
value of the RV reporting unit exceeded its fair value as calculated using the
expected present value of future cash flows, the Company concluded that the
goodwill was fully impaired as of June 30, 2007. Accordingly, the Company
recorded a non-cash goodwill impairment charge of $3.9 million in the quarter
ended June 30, 2007. As a result of these impairment charges, the Company
has no remaining goodwill company-wide at December 31, 2008.





The
changes in the carrying amount of goodwill for the years ended December 31,
2008, 2007 and 2006 are as follows (in thousands):


Balance
      at January 1, 2006
              $
              17,383Sale
      of business
              
              (518
              )Balance
      at December 31, 2006
              
              16,865Impairment
      charge in discontinued operations
              
              (3,872
              )Balance
      at December 31, 2007
              $
              12,993Impairment
      charge
              
              (12,993
              )Balance
      at December 31, 2008
              $
              -





During
2008, the Company determined that certain note receivable and equity investments
amounting to $4.6 million were impaired based on our determination of the
financial condition of the corresponding entity. The related expense is included
in the Impairments line item on the consolidated statement of
operations.





The
Company’s review of its property plant and equipment resulted in an asset
impairment charge of approximately $1.0 million in 2008 relating to a former
Housing Group manufacturing plant that is currently listed for sale. This
production facility located in Zanesville, Ohio had been consolidated with a
larger facility located in Decatur, Indiana in order to increase capacity
utilization at the Indiana plant. This consolidation occurred during the
fourth quarter of 2007. This Zanesville, Ohio property and an unused warehouse
located in Decatur, Indiana are listed for sale and are classified as real
estate held for sale in the consolidated financial statements.




- 46
-
 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





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 $3.7 million, $2.9 million and $5.0 million in 2008, 2007 and
2006, respectively. At December 31, 2008 warranty reserves include estimated
amounts related to recreational vehicle warranty obligations retained by the
Company. The $10.0 million indemnity escrow account created as a result of the
recreational vehicle business asset sale, which is included in long-term
restricted cash at December 31, 2008, is subject to reduction to pay for the
recreational vehicle warranty obligations retained by the Company.





Changes
in the Company's warranty liability during the years ended December 31, 2008,
2007 and 2006 were as follows (in thousands):





2008
                    
                    2007
                    
                    2006Balance
      of accrued warranty at January 1
                    
                    $
                    8,123
                    
                    $
                    11,099
                    
                    $
                    20,005Warranties
      issued and changes in liability for pre-existing
      warranties
                    
                    
                    14,873
                    
                    
                    16,787
                    
                    
                    21,598Cash
      settlements made during the period
                    
                    
                    (13,308
                    )
                    
                    (19,763
                    )
                    
                    (30,504
                    )Balance
      of accrued warranty at December 31
                    
                    $
                    9,688
                    
                    $
                    8,123
                    
                    $
                    11,099




Stock-Based Compensation -Prior to January 1, 2006, the Company accounted for its stock-based
compensation plans under the recognition and measurement provision of APB
Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, as permitted by
FASB Statement No. 123, Accounting for Stock-Based
Compensation. Effective January 1, 2006, the Company adopted the fair
value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using
the modified-prospective-transition method and accordingly, the Company did not
restate the consolidated results of income from prior interim periods and fiscal
years. Under SFAS 123R, the Company is required to measure compensation cost for
all stock-based awards at fair value on date of grant and recognize compensation
expense over the period that the awards are expected to vest. Restricted stock
and stock options issued under the Company’s equity plans, as well as, stock
purchases under the employee stock purchase plan are subject to the provisions
of SFAS 123R. Since the adoption of SFAS 123R, there have been no modifications
to outstanding stock-based awards.




Stock
options generally vest over a four-year service period. The Company has not
granted any stock option awards since 2003. The remaining unvested stock
options, net of forfeitures, at December 31, 2008 were not
significant.





Compensation
expense related to the Company's Employee Stock Purchase Plan was not
significant for the years ended December 31, 2008, 2007 or 2006.





New and Pending Accounting
Pronouncements





In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, Fair Value
Measurements (SFAS No. 157). In February 2008, FASB issued FSP
No. FAS 157-2 which delayed the applicability of
SFAS No. 157’s fair-value measurements of certain nonfinancial assets
and liabilities for one year. In October 2008,the Financial Accounting
Standards Board (FASB) issued FSP FAS 157-3, Determining the
Fair value of a Financial Asset When the Market for That Asset Is Not Active(collectively SFAS 157). SFAS No. 157 establishes a framework for
measuring the fair value of assets and liabilities. This framework is intended
to provide increased consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some cases require,
estimates of fair market value. SFAS No. 157 also expands financial statement
disclosure requirements about a company’s use of fair value measurements,
including the effect of such measures on earnings. SFAS No. 157 was adopted as
of January 1, 2008 for the Company’s financial assets and liabilities. The
Company does not anticipate the application of SFAS 157 to nonfinancial
assets and nonfinancial liabilities will have a material impact on its
consolidated financial statements.


- 47
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159
permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The adoption of this statement did not have a material effect on the
Company's financial statements as the Company did not elect to account for any
financial assets or liabilities at fair value.





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141(revised 2007), Business
Combinations, (SFAS No. 141R). SFAS No. 141R provides revised guidance on
how acquirers recognize and measure the consideration transferred, identifiable
assets acquired, liabilities assumed, noncontrolling interests, and goodwill
acquired in a business combination. SFAS No. 141R also expands required
disclosures surrounding the nature and financial effects of business
combinations. SFAS No. 141R is effective, on a prospective basis, for fiscal
years beginning after December 15, 2008. The Company believes that the adoption
of SFAS 141 (revised 2007) could have an impact on the accounting for any future
acquisition, if one were to occur.





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160, Noncontrolling
Interests in Consolidated Financial Statements, (SFAS No. 160). SFAS
No. 160 changes the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity. SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008. The adoption of this statement is not expected to
have a material effect on the Company's financial statements.





In March
2008 the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement
No. 133. SFAS 161 amends and expands the disclosure
requirements of FASB Statement No. 133, requiring enhanced disclosures
about the Company’s derivative and hedging activities. SFAS No. 161 is
effective for fiscal years beginning after December 15, 2008.The Company
does not anticipate that the adoption of this statement will have a material
impact on its consolidated financial statement footnote
disclosures.




In
December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and
FIN 46(R)-8, Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities(FSP FAS 140-4 and
FIN 46(R)-8). FSP FAS 140-4 and FIN 46(R)-8 amends both FASB
Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities-a replacement
of FASB Statement No. 125,and FASB Interpretation No. 46(R), Consolidation of Variable Interest
Entities (revised December 2003) — an interpretation of ARB No. 51,to require public entities to provide additional disclosures about
transfers of financial assets and about their involvement with variable interest
entities. The Company does not anticipate that the adoption of this statement in
2009 will have a material impact on its consolidated financial statement
footnote disclosures.





Research and Development Expenses -Research and development expenses charged to continuing operations were
$2.2 million, $2.4 million, and $2.5 million for the years ended December 31,
2008, 2007 and 2006, respectively.





Shipping and Handling Costs -The Company records freight billed to customers as sales.The Company records
delivery expenses as a component of cost of sales. Prior to January 1, 2007, the
Company classified delivery expenses as an operating expense. This change is
considered a change in accounting principle pursuant to the provisions of FASB
Statement No. 154, Accounting
Changes and Error Corrections, and was reported by retrospective
application to prior periods' financial statements. This change in accounting
principle is considered preferable as it was made to conform the classification
of these expenses on the statement of operations to the classification of such
expenses by other companies in our industry.





The
effect of this change was an increase of cost of sales and a decrease
of operating expenses by approximately $12.6 million in 2008 and $14.8
million in 2007. The Company applied the change retrospectively by reclassifying
approximately $15.9 million of delivery expenses from operating expenses to cost
of sales for the year ending December 31, 2006. This change has no effect on
income from continuing operations, net income or per share amounts for any
period presented.


- 48
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





1.
            NATURE
      OF OPERATIONS AND ACCOUNTING POLICIES,
  Continued.





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.





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
accounts for corporate income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes,” which requires the Company to evaluate the need to establish
a valuation allowance to reduce the carrying value of its deferred tax assets on
the balance sheet. Deferred tax assets arise as a result of tax loss
carryforwards and various differences between the book value of assets and the
values used for income tax purposes. SFAS No 109 states that a valuation
allowance is generally required if a company has cumulative losses in recent
years. Given the losses incurred by the Company over the last three years,
noncash charges from continuing operations of $5.4 million, $3.9 million and
$3.7 million were recorded as a valuation allowance for the full value of its
deferred tax assets as of December 31, 2008, 2007 and 2006,
respectively.




2.
            BASIS
      OF PRESENTATION.





Going Concern -The
accompanying consolidated financial statements have been prepared assuming that
we will continue as a going concern, which is management’s intention. The plan
to do so contemplates the realization of assets and the liquidation of
liabilities in the normal course of business. We have incurred significant
losses from 2005 through 2008, attributable primarily to the RV Group
operations. We have managed our liquidity during this time through a series of
cost reduction initiatives, sales of assets and utilization of Company owned
life insurance policies. However, the credit market crisis has had a dramatic
effect on our industries. In the second half of 2008, the increased turmoil in
the mortgage and overall credit markets (particularly the lack of financing to
recreational vehicles dealers and consumers), the continued reductions in U.S.
housing values, the volatility in the price of oil and the recession in the
United States created a substantially more difficult business environment, which
ultimately led us to sell the RV Group in December 2008. The ability to obtain
traditional bank financing or sell additional assets is extremely limited. Our
liquidity position, as well as our operating performance, were negatively
affected by these economic and industry conditions and by other financial and
business factors, many of which are beyond our control. These conditions have
not improved through January 2009, with single-family housing starts for the
U.S. the lowest in the last 50 years. We do not believe it is likely that these
adverse economic conditions, and their effect on the housing industry, will
improve significantly during the first half of 2009, notwithstanding the
unprecedented intervention by the United States Government in the banking and
financial systems.





Due to
this sudden and rapid decline of the RV and Housing industries during 2008,
particularly in the fourth quarter of 2008, we determined that, despite the far
reaching actions to restructure our business, we needed to develop and execute a
comprehensive plan to improve our liquidity.





The
Company is currently working with a bridge loan lender to put in place a $6
million bridge loan. The final terms and timing of the close on this loan are
dependent upon a number of factors, including the lender completing their due
diligence, determination of covenants, security and other terms and
documentation of the loan agreement. There are no assurances that the loan will
close and if it does, at what terms.





The
Company is also currently exploring various opportunities to monetize a portion
of the expected recovery on certain litigation claims. As discussed in Note 13, the Company
has received a favorable verdict against Crane Composites, Inc. f/k/a Kemlite
for breach of contract and multiple warranty claims arising from the sale of
defective sidewall material to Coachmen Industries, Inc subsidiaries. All of the
counts alleged in the original complaint were found in favor of the Company. The
remaining phase of the trial will determine the amount of damages payable on
this liability judgment. The Company has asserted claims for warranty related
expense in excess of $19 million and is seeking to recover additional damages
for lost profits, lost market share and the sale of the RV business. It is
anticipated that the final phase of the trial will be conducted in the latter
part of 2009. There can be no assurance about the amount or timing of any
recovery that the Company may realize from any final judgment in the litigation.
Nor is there any assurance that the Company will be able to monetize a portion
of the potential settlement prior to the final phase of the
trial.


- 49
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





2.
            BASIS
      OF PRESENTATION, Continued.





On
February 10, 2009, the Company’s Board of Directors authorized and recommended,
subject to shareholder approval, an amendment to the Company’s Articles of
Incorporation, as amended, to authorize the issuance of 10,000,000 shares of
preferred stock. The Indiana Business Corporation Law requires approval of the
Company’s shareholders in order to adopt the proposed amendment to be approved
requires that more shares are voted in favor of the amendment than shares are
voted against. If shareholders approve and authorize this amendment, the Company
intends to file Articles of Amendment to authorize the issuance of 10,000,000
shares of preferred stock promptly following the Annual Meeting. The amendment
will become effective upon filing the prescribed Articles of Amendment with the
Indiana Secretary of State.





As
proposed, the Company could issue preferred stock, without further action by the
Company’s shareholders, except as may be required by applicable law or pursuant
to the requirements of the exchange or quotation system upon which our
securities are then trading or quoted and, thereby, provide the Company with
maximum flexibility in structuring acquisitions, joint ventures, strategic
alliances, capital-raising transactions and for other corporate purposes. There
are no assurances that the shareholders will approve this amendment, and even if
approved, that the Board will issue such Preferred Stock or that such stock
could be sold.





The
Company is also in discussions with a number of third parties regarding various
other opportunities to obtain financing or raise equity capital. There are no
assurances that the Company’s efforts will be successful or the timing or terms
of any such opportunities.





We
believe that between these opportunities we will be able to obtain the necessary
short-term funding. This funding is required to provide the necessary working
capital to operate our businesses until the economy recovers and our sales
levels return to more historical volume levels. If we are unable to obtain the
financing described above, this would potentially require us to seek relief
under the U.S. Bankruptcy Code.





The
following is a summary of certain cost reduction and restructuring actions
contemplated by the Viability Plan:





Manufacturing Operations – We
have temporarily placed our North Carolina facility on an extended shutdown
until a sustainable backlog can be obtained that would support the reopening of
this facility. Until then, production to serve customers of the North Carolina
plant will be shifted to our plant in Virginia.





Labor Cost – We have reduced
salaried employment levels within the Housing Group alone by ten employees
during 2009 and further reductions will be made prior to the end of the first
quarter. During the first quarter of 2009, all salaried employees incurred
temporary salary reductions of 20% - 25%. Additional permanent salary reductions
will be implemented in the second quarter.





Asset Sales – We have been
actively marketing certain assets for sale including a number of idled
facilities or vacant land. However, a continuation of the current economic
conditions and the lack of available credit will make it difficult to complete
these transactions in 2009.





Repurchase Obligations – We
are in early stage discussions with certain floorplan lenders to modify our RV
repurchase obligations.





The
success of our Viability Plan is conditioned upon obtaining a minimum level of
financing for working capital needs. The success of our Viability Plan also
necessarily depends on the economic conditions and the level of housing sales.
Our suppliers might respond to an apparent weakening of our liquidity position
and to address their own liquidity needs by requesting faster payment of
invoices or other assurances. If this were to happen, our need for cash would be
intensified and we might be unable to make payments to our suppliers as they
become due.


- 50
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





2.
            BASIS
      OF PRESENTATION, Continued.





Our
ability to continue as a going concern is dependent on many events outside of
our direct control, including, among other things, obtaining additional
financing; the successful execution of the restructuring actions discussed above
and the ability of our builders and customers to obtain the financing they need
to purchase our products in substantially higher volumes. Our significant recent
operating losses and negative cash flows, minimal level of working capital, the
uncertainty of obtaining financing, and successful execution of our Viability
Plan, among other factors, raise substantial doubt as to our ability to continue
as a going concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





3.
            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 sole reportable segment at December 31, 2008 is
Housing. The Company evaluates the performance of its segment based primarily on
net sales and pre-tax income and allocates resources to it based on performance.
The accounting policies of the segment are the same as those described in Note 1 and there are
no inter-segment revenues. The Company allocates certain corporate expenses to
this segment based on three dimensions: revenues, subsidiary structure and
number of employees. In addition, the data excludes the results of the
discontinued operations (see Note
12). Differences between reported segment amounts and corresponding
consolidated totals represent corporate and other income or expenses for
administrative functions and income, costs or expenses relating to property and
equipment that are not allocated to the segment, and for 2008, sales and
expenses related to the new bus manufacturing operation that is not yet large
enough to require segment presentation.





As
discussed in Note 12, the Company sold substantially all of the
assets of its RV Segment during 2008 and the operations of the RV Segment are
included in discontinued operations in the consolidated statement of operations.
Accordingly, the RV Segment is no longer deemed a reportable segment, and as
such the segment information disclosed in the following tables exclude amounts
pertaining to the Company’s former RV Segment.




The table
below presents information about the segment used by the chief operating
decision maker of the Company for the years ended December 31 (in
thousands):




2008
                        
                        2007
                        
                        2006Net
      salesHousing
                        
                        $
                        117,191
                        
                        $
                        119,186
                        
                        $
                        159,672Other
                        
                        
                        2,405
                        
                        
                        -
                        
                        
                        -Total
                        
                        $
                        119,596
                        
                        $
                        119,186
                        
                        $
                        159,672Gross
      profitHousing
                        
                        $
                        18,014
                        
                        $
                        12,847
                        
                        $
                        19,933Other
                        
                        
                        (635
                        )
                        
                        -
                        
                        
                        -Total
                        
                        $
                        17,379
                        
                        $
                        12,847
                        
                        $
                        19,933




- 51
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





3.
            SEGMENT
      INFORMATION, Continued.




2008
                                    
                                    2007
                                    
                                    2006Operating
      expensesHousing
                                    
                                    $
                                    16,551
                                    
                                    $
                                    20,200
                                    
                                    $
                                    17,284Other
                                    
                                    
                                    22,105
                                    
                                    
                                    4,429
                                    
                                    
                                    (494
                                    )Total
                                    
                                    $
                                    38,656
                                    
                                    $
                                    24,629
                                    
                                    $
                                    16,790Operating
      income (loss)Housing
                                    
                                    $
                                    1,463
                                    
                                    $
                                    (7,353
                                    )
                                    $
                                    2,649Other
                                    
                                    
                                    (22,740
                                    )
                                    
                                    (4,429
                                    )
                                    
                                    494Total
                                    
                                    $
                                    (21,277
                                    )
                                    $
                                    (11,782
                                    )
                                    $
                                    3,143Pre-tax
      income (loss) from continuing operationsHousing
                                    
                                    $
                                    1,324
                                    
                                    $
                                    (7,434
                                    )
                                    $
                                    2,665Other
                                    
                                    
                                    (21,542
                                    )
                                    
                                    (3,658
                                    )
                                    
                                    1,509Total
                                    
                                    $
                                    (20,218
                                    )
                                    $
                                    (11,092
                                    )
                                    $
                                    4,174





Total
      assetsHousing
              
              $
              43,456
              
              $
              54,601
              
              $
              57,968Other
              
              
              63,948
              
              
              153,067
              
              
              185,166Total
              
              $
              107,404
              
              $
              207,668
              
              $
              243,134Total
      goodwillHousing
              
              $
              -
              
              $
              -
              
              $
              -Other
              
              
              -
              
              
              12,993
              
              
              16,865Total
              
              $
              -
              
              $
              12,993
              
              $
              16,865




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):





2008
                
                2007
                
                2006Interest
      expenseHousing
                
                $
                159
                
                $
                341
                
                $
                281Other
                
                
                1,476
                
                
                658
                
                
                636Total
                
                $
                1,635
                
                $
                999
                
                $
                917DepreciationHousing
                
                $
                2,000
                
                $
                2,295
                
                $
                2,522Other
                
                
                321
                
                
                339
                
                
                465Total
                
                $
                2,321
                
                $
                2,634
                
                $
                2,987




- 52
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





4.
            INVENTORIES.





Inventories
consist of the following (in thousands):





December
      31,
                  
                  December
      31,2008
                  
                  2007Raw
      materialsHousing
                  $
                  4,157
                  
                  $
                  5,989Other
                  
                  902
                  
                  
                  11,789Total
                  
                  5,059
                  
                  
                  17,778Work
      in processHousing
                  
                  2,392
                  
                  
                  2,941Other
                  
                  385
                  
                  
                  12,913Total
                  
                  2,777
                  
                  
                  15,854Improved
      lotsHousing
                  
                  434
                  
                  
                  645Total
                  
                  434
                  
                  
                  645Finished
      goodsHousing
                  
                  10,816
                  
                  
                  10,953Other
                  
                  824
                  
                  
                  34,038Total
                  
                  11,640
                  
                  
                  44,991Total
                  $
                  19,910
                  
                  $
                  79,268





Other
amounts listed above in 2008 primarily relate to bus manufacturing operations,
while the 2007 amounts primarily relate to discontinued operations (see Note 12).





5.
            PROPERTY,
      PLANT AND EQUIPMENT.





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




2008
                
                2007Land
      and improvements
                
                $
                7,700
                
                $
                11,452Buildings
      and improvements
                
                
                32,849
                
                
                59,765Machinery
      and equipment
                
                
                10,637
                
                
                24,429Transportation
      equipment
                
                
                11,035
                
                
                14,654Office
      furniture and fixtures
                
                
                13,992
                
                
                17,274Total
                
                
                76,213
                
                
                127,574Less,
      accumulated depreciation
                
                
                45,291
                
                
                74,642Property,
      plant and equipment, net
                
                $
                30,922
                
                $
                52,932




- 53
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





6.
            SHORT-TERM
      BORROWINGS.





On August
2, 2006, the Company executed a $55 million, five-year, secured Revolving Credit
Facility with Bank of America (formerly LaSalle Business Credit, LLC) to meet
its seasonal working capital needs. At December 31, 2008 this bank line of
credit had been fully paid and was terminated except for outstanding letters of
credit totaling $7.5 million that were fully backed by cash collateral. At
December 31, 2007 there were short-term borrowings of
$20.1 million outstanding against this bank line of credit, and
outstanding letters of credit totaling $4.7 million.





At
December 31, 2008, the Company owed $3.1 million on floorplan notes payable
relating to the new and used recreational vehicle inventory of the Company’s
former owned dealership. This note payable was paid in full in January
2009.





7.
            LONG-TERM
      DEBT.





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




2008
                
                2007Obligations
      under industrial development revenue bonds, variable rates (effective
      weighted-average interest rates of 1.3% and 3.6% at December 31, 2008 and
      2007, respectively), with various maturities through
      2015
                
                $
                2,850
                
                $
                3,600Other
                
                
                159
                
                
                262Subtotal
                
                
                3,009
                
                
                3,862Less,
      current maturities of long-term debt
                
                
                819
                
                
                852Long-term
      debt
                
                $
                2,190
                
                $
                3,010





Principal
maturities of long-term debt during the four fiscal years succeeding 2009 are as
follows: 2010 - $820,000; 2011 - $770,000; 2012 - $150,000 and 2013 -
$150,000.





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.




- 54
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





7.
            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 2008, 2007 or
2006. 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 flowsassociated 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, 2008, the Company had one remaining interest rate swap agreement
with a notional amount of $1.8 million that was used to convert the variable
interest rates on certain industrial development revenue bonds to fixed
rates. In accordance with the terms of the swap agreement, the Company pays
a 3.71% interest rate, and receives the Bond Market Association Index (BMA),
calculated on the notional amount, with net receipts or payments being
recognized as adjustments to interest expense. The Company recorded a liability
for the potential early settlements of these swap agreements in the amount of
$75,000 at December 31, 2008 and $49,000 at December 31, 2007. 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.





8.
            ACCRUED
      EXPENSES AND OTHER LIABILITIES.





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





2008
                
                2007Wages,
      salaries, bonuses, commissions and other
compensation
                
                $
                5,022
                
                $
                2,432Dealer
      incentives, including volume bonuses, dealer trips, interest
      reimbursement, co-op advertising and other rebates
                
                
                989
                
                
                1,577Warranty
                
                
                9,688
                
                
                8,123Insurance-products
      and general liability, workers compensation, group health and
      other
                
                
                6,320
                
                
                8,519Customer
      deposits and unearned revenues
                
                
                2,545
                
                
                4,208Litigation
                
                
                270
                
                
                930Interest
                
                
                395
                
                
                751Sales
      and property taxes
                
                
                920
                
                
                1,837Deferred
      gain on sale of real estate
                
                
                814
                
                
                1,145Repurchase
      liability
                
                
                2,671
                
                
                926Other
      current liabilities
                
                
                1,493
                
                
                2,787Total
                
                $
                31,127
                
                $
                33,235




- 55
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





9.
            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 1.0 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, 2008 or 2007. 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, 2006
                    
                    
                    284
                    
                    $
                    12.19Granted
                    
                    
                    -
                    
                    
                    -Canceled
                    
                    
                    (71
                    )
                    
                    13.60Exercised
                    
                    
                    (64
                    )
                    
                    9.95Outstanding,
      December 31, 2006
                    
                    
                    149
                    
                    
                    12.48Granted
                    
                    
                    -
                    
                    
                    -Canceled
                    
                    
                    (15
                    )
                    
                    14.80Exercised
                    
                    
                    -
                    
                    
                    -Outstanding,
      December 31, 2007
                    
                    
                    134
                    
                    
                    12.20Granted
                    
                    
                    -
                    
                    
                    -Canceled
                    
                    
                    (1
                    )
                    
                    15.78Exercised
                    
                    
                    -
                    
                    
                    -Outstanding,
      December 31, 2008
                    
                    
                    133
                    
                    $
                    12.18





Options
outstanding at December 31, 2008 are exercisable at prices ranging from $10.00
to $18.68 per share and have a weighted-average remaining contractual life of
2.5 years. The following table summarizes information about stock options
outstanding and exercisable at December 31, 2008 (in thousands):




Options Outstanding and
      ExercisableRange
      of Exercise
                  
                  Number
      Outstanding at
                  
                  Weighted-Average
                    Remaining
                  
                  Weighted-AveragePrice
                  
                  December
      31, 2008
                  
                  Contractual
      Life
                  
                  Exercise
      Price$10.00
      - $12.00
                  
                  89
                  
                  2.1
                  
                  $10.1712.01
      -   17.00
                  
                  39
                  
                  3.3
                  
                  16.01$17.01
      - $18.68
                  
                  5
                  
                  3.3
                  
                  $18.68133




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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





9.
            COMMON STOCK MATTERS AND
      EARNINGS PER SHARE,
Continued.





There
were no options granted during 2008, 2007 or 2006. As of December 31, 2008 and
2007, 1.2 and 1.4 million shares, respectively, were reserved for the
granting of future stock options and awards.




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 26,811,
22,517 and 21,728, restricted non-contingent stock awards granted at a
weighted-average per share grant-date fair value of $3.70, $10.51 and $11.03, in
2008, 2007 and 2006, respectively. Compensation expense of $281,262, $269,306
and $238,000, was recognized in the years ended December 31, 2008, 2007 and
2006, respectively.





On
March 28, 2006, the Company granted Restricted Stock Awards to certain key
employees as a means of retaining and rewarding them for performance and to
increase their ownership in the Company. Participants earn the restricted shares
awarded to them based on attainment of certain performance goals for the
calendar year 2006. A total of 110,000 shares, assuming 100% of the performance
goal was achieved, were granted with a weighted-average grant-date fair value of
$11.05 per share. At December 31, 2006, the Company determined that the
performance goal was not achieved; therefore, no compensation expense was
recorded related to this plan for the year ended December 31, 2006.





On
January 10, 2007, the Company granted Restricted Stock Awards to certain key
employees as a means of retaining and rewarding them for performance and to
increase their ownership in the Company. The awards are governed by the
Company’s 2000 Omnibus Stock Plan. Participants earn the restricted shares
awarded to them based on attainment of certain performance goals for the
calendar year 2007. If the Company meets the minimum threshold and maximum
target levels of pre-tax profits, the participants earn corresponding levels of
awards. To the extent the Company meets the performance goals for the year, and
the participant remains employed by the Company during the vesting period, the
earned restricted shares will vest and be delivered to the participants over a
three-year vesting period: one-third on January 1, 2009, one-third on
January 1, 2010 and one-third on January 1, 2011. Compensation expense
is recognized on a straight-line basis over the requisite service period as the
awards contingently vest over the performance and service periods. A total of
139,500 shares, assuming 100% of the performance goal is achieved, were granted
with a weighted-average grant-date fair value of $10.80 per share. At December
31, 2007, the Company determined that the performance goal was not achieved;
therefore, no compensation expense has been recorded related to this plan for
the year ended December 31, 2007. Due to termination of employment or due to
failure to meet the performance goals condition to receiving the 2007 Restricted
Stock Awards, the participants forfeited all rights to the 139,500
shares.





On
January 4, 2008, the Company granted Restricted Stock Awards to certain key
employees as a means of retaining and rewarding them for performance and to
increase their ownership in the Company. The awards are governed by the
Company’s 2000 Omnibus Stock Plan. Participants will earn the restricted shares
awarded to them based on attainment of certain performance goals for the first
quarter of 2008 and for the full calendar year 2008. If the Company meets the
minimum or maximum target levels of pre-tax profits, the participants earn
corresponding levels of awards. To the extent the Company meets the performance
goals for the first quarter and/or the full year, and the participant remains
employed by the Company during the vesting period, the earned restricted shares
vest and will be delivered to the participants over a three-year vesting period:
one-third on January 1, 2009, one-third on January 1, 2010 and
one-third on January 1, 2011. A total of 237,375 shares, assuming 100% of
the performance goal is achieved, could be granted. At March 31, 2008, the
Company determined that the minimum target of the performance goal for the first
quarter of 2008 would be achieved; therefore, compensation expense in the amount
of $0.1 million was recorded related to this plan for the year ended December
31, 2008. As of December 31, 2008, the Company determined that the performance
conditions associated with the restricted stock grants for the full calendar
year 2008 were not achieved; therefore, no additional compensation expense was
recorded.




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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





9.
            COMMON
      STOCK MATTERS AND EARNINGS PER SHARE,
Continued.





On
November 25, 2008, the compensation committee of Coachmen’s board of directors
granted restricted Coachmen common shares to certain executive officers. A total
of 114,000 shares were granted. The grants were conditioned on the closing of
the Asset Sale of the recreational vehicle business to Forest River, Inc. (see
Note
12) and will vest at the earliest of (i) two years from the date of
issuance, provided the employee remains continuously employed by Coachmen, (ii)
death, (iii) disability, or (iv) a change of control.





The
following table summarizes the activity of the Performance Based Restricted
Stock Awards program (in thousands):





Number
                              of
      SharesOutstanding,
      December 31, 2005
                            
                            
                            142,300Granted
                            
                            
                            110,000Forfeited
                            
                            
                            (252,300
                            )Outstanding,
      December 31, 2006
                            
                            
                            -Granted
                            
                            
                            139,500Forfeited
                            
                            
                            (139,500
                            )Outstanding,
      December 31, 2007
                            
                            
                            -Granted
                            
                            
                            351,375Forfeited
                            
                            
                            (205,187
                            )Outstanding,
      December 31, 2008
                            
                            
                            146,188





The
following table summarizes, by plan year, the number of contingent shares
awarded, forfeited and the remaining contingent shares outstanding as of
December 31, 2008:




Plan
      Year2008
                
                2007
                
                2006Contingent
      shares awarded
                
                
                351,375
                
                
                139,500
                
                
                110,000Shares
      forfeited
                
                
                205,187
                
                
                139,500
                
                
                110,000Contingent
      shares outstanding as of December 31, 2008
                
                
                146,188
                
                
                -
                
                
                -





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 90% of the
market price. The market price was based on the lower of the beginning or the
ending day of the quarter until June 30, 2006, and subsequently is based on the
market price at the end of the quarter. As of December 31, 2008, there were 58
employees actively participating in the plan. Since its inception, a total of
520,000 shares have been purchased by employees under the plan. The Company sold
to employees 58,000, 24,000 and 21,830 shares at weighted average fair values of
$2.34, $7.62 and $10.02 in 2008, 2007 and 2006, 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.




- 58
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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





9.
            COMMON
      STOCK MATTERS AND EARNINGS PER SHARE,
Continued.





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):




2008
                    
                    2007
                    
                    2006Numerator:Net loss
      available to common stockholders
                    
                    $
                    (69,002
                    )
                    $
                    (38,752
                    )
                    $
                    (31,805
                    )Denominator:Number
      of shares outstanding, end of period:Weighted-average
      number of common shares used in Basic EPS
                    
                    
                    15,799
                    
                    
                    15,727
                    
                    
                    15,633Stock
      options and awards
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Weighted-average
      number of common shares used in Diluted EPS
                    
                    
                    15,799
                    
                    
                    15,727
                    
                    
                    15,633





As the
Company reported a net loss for the years ended December 31, 2008, 2007 and
2006, 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.





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 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.





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. During August 2006, the Company
announced that the Board of Directors had authorized a share repurchase of up to
one million shares. During the third quarter of 2006, the Company repurchased
11,700 shares for a total cost, including commissions, of $128,516. During the
second quarter of 2007, the Company repurchased 1,500 shares for a total cost,
including commissions, of $15,050. During the fourth quarter of 2008, the
Company repurchased 30,815 shares for a total cost, including commissions, of
$54,595. At December 31, 2008, there are 955,985 shares remaining authorized for
repurchase by the Board of Directors.




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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





10.
            COMPENSATION
      AND BENEFIT PLANS.





Incentive
Compensation





The
Company has incentive compensation plans for its officers and other key
personnel. The amounts charged to expense for the years ended December 31, 2008,
2007 and 2006 aggregated $0, $753,000, and $363,000, 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 deferred
compensation obligations, which aggregated $3.1 million and $5.3 million at
December 31, 2008 and 2007, respectively, are included in other non-current
liabilities, with the current portion ($2.9 million and $0.9 million at December
31, 2008 and 2007, respectively) included in other current
liabilities.




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 aggregated $34,000 and
$37,000 at December 31, 2008 and 2007, 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 have deferred the maximum
allowable amount under the Company's 401(k) Plan. The participants select
certain mutual fund investments and Company stock whose performance is tracked
by the Company. 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.
Liabilities recorded on the consolidated balance sheets related to these plans
as of December 31, 2008 and 2007 are $1.4 million and $2.3 million,
respectively.




On
November 19, 2008, the Company’s Board of Directors adopted amendments to the
Company’s deferred compensation plans, which were contingent on the sale of the
Company’s recreational vehicle assets to Forest River, Inc. on or before
December 31, 2008 (see Note
12). These amendments collectively froze all future contributions to
the Plans as of December 31, 2008; vested all participants in their account
balances as of December 31, 2008; and provided that the balance of participant
accounts in the Plans were to be paid to the participants in a single lump sum
no later than January 15, 2009, unless the participant’s Payment Event or
Termination of Service occurred on or before December 31,
2008


- 60
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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





10.   COMPENSATION
AND BENEFIT PLANS, Continued.





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,
however the Company ceased matching contributions in 2008. Expenses under the
Plan aggregated $0.4 million, $1.0 million, and $1.0 million for the years ended
December 31, 2008, 2007 and 2006, respectively.





11.   INCOME TAXES.





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




2008
                                
                                2007
                                
                                2006Federal:Current
                                
                                $
                                (36
                                )
                                $
                                -
                                
                                $
                                -Deferred
                                
                                
                                (1,533
                                )
                                
                                (141
                                )
                                
                                2,803(1,569
                                )
                                
                                (141
                                )
                                
                                2,803State:Current
                                
                                
                                30
                                
                                
                                -
                                
                                
                                -Deferred
                                
                                
                                -
                                
                                
                                (13
                                )
                                
                                33030
                                
                                
                                (13
                                )
                                
                                330Total
                                
                                $
                                (1,539
                                )
                                $
                                (154
                                )
                                $
                                3,133




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):




2008
                                
                                2007
                                
                                2006Computed
      federal income tax at federal statutory rate
                                
                                $
                                (7,076
                                )
                                $
                                (3,882
                                )
                                $
                                1,461Changes
      resulting from:Decrease
      (increase) in cash surrender value of life insurance
      contracts
                                
                                
                                985
                                
                                
                                (449
                                )
                                
                                (370
                                )Loss
      on sale of stock of Miller Building Systems, Inc.
                                
                                
                                
                                
                                
                                -
                                
                                
                                (1,690
                                )Current
      year state income taxes, net of federal income tax
      benefit
                                
                                
                                19
                                
                                
                                (9
                                )
                                
                                218Valuation
      allowance for NOL, AMT, deferred tax assets and general business
      credits
                                
                                
                                5,403
                                
                                
                                3,928
                                
                                
                                3,494Recognition
      of deferred tax liability related to goodwill impairment
                                
                                
                                (898
                                )
                                
                                -
                                
                                
                                -Other,
      net
                                
                                
                                28
                                
                                
                                258
                                
                                
                                20Total
                                
                                $
                                (1,539
                                )
                                $
                                (154
                                )
                                $
                                3,133




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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





11.   INCOME
TAXES, Continued.




The
Company accounts for corporate income taxes in accordance with SFAS No. 109,
“Accounting for Income Taxes,” which requires the Company to evaluate the need
to establish a valuation allowance to reduce the carrying value of its deferred
tax assets on the balance sheet. Deferred tax assets arise as a result of tax
loss carryforwards and various differences between the book value of assets and
the values used for income tax purposes. SFAS No 109 states that a valuation
allowance is generally required if a company has cumulative losses in recent
years. Given the losses incurred by the Company over the last three years,
noncash charges from continuing operations of $5.4 million, $3.9 million and
$3.5 million were recorded as a valuation allowance for the full value of its
deferred tax assets as of December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008 the Company had a tax benefit of $37.1 million related to
Federal net operating loss carryforwards which may be utilized to offset future
taxable income, and if not utilized, $7.5 million will expire in 2026, $13.9
million will expire in 2027, and $15.7 million will expire in 2028. Further, at
December 31, 2008 the Company had state tax benefits 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. At December 31, 2008, the cumulative benefit of
certain state net operating loss carryforwards approximated $3.8 million, which
have been included as part of the valuation allowance referred to
above.





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





2008
                            
                            
                            2007Current
      deferred tax asset (liability):Accrued
      warranty expense
                            $
                            3,098
                            
                            
                            $
                            2,623Accrued
      self-insurance
                            
                            1,769
                            
                            
                            
                            2,172Inventories
                            
                            445
                            
                            
                            
                            826Receivables
                            
                            511
                            
                            
                            
                            283Prepaid
      insurance
                            
                            (372
                            )
                            
                            
                            (533
                            )Litigation
      reserve
                            
                            103
                            
                            
                            
                            353Other
                            
                            1,241
                            
                            
                            
                            392Valuation
      allowance
                            
                            (6,795
                            )
                            
                            
                            (6,116
                            )Net
      current deferred tax asset
                            $
                            -
                            
                            
                            $
                            -Noncurrent
      deferred tax asset (liability):Deferred
      compensation
                            $
                            2,786
                            
                            
                            $
                            3,225Property
      and equipment and other real estate
                            
                            (414
                            )
                            
                            
                            (948
                            )Intangible
      assets
                            
                            -
                            
                            
                            
                            (702
                            )Notes
      receivable
                            
                            402
                            
                            
                            
                            348Federal
      net operating loss carryforwards
                            
                            37,087
                            
                            
                            
                            20,883Impairments
                            
                            7,890
                            
                            
                            
                            -Alternative
      minimum tax credit carryover
                            
                            586
                            
                            
                            
                            623Federal
      and state research and development credit carryover
                            
                            1,738
                            
                            
                            
                            1,738State
      net operating loss carryforwards
                            
                            3,780
                            
                            
                            
                            4,152Other
                            
                            662
                            
                            
                            
                            598Valuation
      allowance
                            
                            (54,974
                            )
                            
                            
                            (31,907
                            )Net
      noncurrent deferred tax liability
                            $
                            (457
                            )
                            
                            $
                            (1,990
                            )





The
Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction and various states jurisdictions. With few exceptions, the Company
is no longer subject to U.S. federal or state income tax examinations by tax
authorities for years before 2004. In 2006, the Internal Revenue Service (IRS)
commenced an examination of the Company’s U.S. income tax returns specifically
for the purpose of reviewing claims for Research and Expenditure credits for the
years 1999 through 2004. The audit of these claims is nearing its conclusion and
the Company anticipates that a settlement can be concluded within the next year.
The Company does not anticipate that any adjustments associated with the
settlement of this audit will result in a material change to its financial
position.


- 62
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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





11.   INCOME
TAXES, Continued.





The
Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes, on January 1, 2007.The implementation of FIN
48 did not have a significant impact on the Company’s financial position or
results of operations. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:





(in
      thousands)Balance
      at January 1, 2007
                          $
                          2,416Additions
      based on tax positions related to the current year
                          
                          -Additions
      for tax positions of prior years
                          
                          -Reductions
      for tax positions of prior years
                          
                          -Settlements
                          
                          -Balance
      at December 31, 2007
                          $
                          2,416Additions
      based on tax positions related to the current year
                          
                          -Additions
      for tax positions of prior years
                          
                          1,090Reductions
      for tax positions of prior years
                          
                          -Settlements
                          
                          -Balance
      at December 31, 2008
                          $
                          3,506





Recognition
of unrecognized tax benefits that if recognized would affect the effective tax
rate by approximately $2.0 million at December 31, 2008. The Company recognizes
interest and penalties related to unrecognized tax benefits through interest and
operating expenses, respectively. The amounts accrued for interest and penalties
as of December 31, 2008 were not considered to be significant.





12.   RESTRUCTURING CHARGES AND DISCONTINUED
OPERATIONS.





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.





On
December 26, 2008, the Company completed the sale of substantially all of the
assets of the Company’s RV Segment, consisting of its recreational vehicle
manufacturing and sales business, to Forest River, Inc. The closing
consideration paid was approximately $40.6 million. Of the closing
consideration, approximately $11.5 million was paid into two escrow accounts and
is subject to reduction for indemnification and certain other claims including
warranty. Proceeds were applied in accordance with the terms of the purchase
agreement and were reduced by $1.9 million to settle a contingent liability of
approximately $11.0 million related to the Registrant’s bailment chassis pool
with Ford Motor Company and by $2.0 million to purchase the required 5 year term
of tail insurance. The net proceeds after the escrow, contingent liability
settlement, purchase of insurance and closing costs were approximately $25.2
million. This transaction resulted in the sale of trade accounts receivable,
inventory, and fixed assets with net book values of $5.9 million, $30.8 million,
and 11.7 million, respectively. The net selling price was $5.9 million for
accounts receivable, $22.8 million for inventory, and $10.8 million for fixed
assets resulting in a pre-tax (loss) of $(7.9) million and $(0.9) million on the
sale of inventory and fixed assets, respectively, which are reflected in
discontinued operations in the statement of operations.





In
accordance with Statement of Financial Accounting Standard No. 144, the
recreational vehicle operations qualified as a separate component of the
Company’s business and as a result, the operating results of the recreational
vehicle business have been accounted for as a discontinued operation. Previously
reported financial results for all periods presented have been adjusted to
reflect this business as a discontinued operation. Interest expense was
allocated between continuing operations and to discontinued operations based on
the debt that could be identified as specifically attributable to those
operations. Interest expense allocated to discontinued operations for the
recreational vehicle business for the years ended December 31, 2008, 2007 and
2006 were $2.4 million, $2.0 million and $2.1 million, respectively. Net sales
of the recreational vehicle business for the years ended December 31, 2008, 2007
and 2006 were $212.3 million, $361.7 million and $404.7 million, respectively,
and the pre-tax (loss) for the years ended December 31, 2008, 2007 and 2006 were
$(50.3) million, $(29.5) million and $(20.9) million,
respectively.


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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





12.   RESTRUCTURING CHARGES AND
DISCONTINUED OPERATIONS, Continued.





In
connection with the sale of the assets of the RV business, a liability of $1.6
million was established for existing but unused facilities subject to operating
leases that were part of the activities which were exited and is included in the
Impairments line of the consolidated financial statements.





During
the fourth quarter of 2008, the Company sold a former RV production facility for
$1.8 million, resulting in a pre-tax (loss) of approximately $(0.8)
million, which are reflected in discontinued operations in the statement of
operations.





The
following table shows an analysis of assets and liabilities of discontinued
operations as of December 31 ($ in thousands):




2008
                                        
                                        
                                        2007Current
      assets
                                        $
                                        827
                                        
                                        
                                        $
                                        70,867Properties
      and equipment
                                        
                                        2,102
                                        
                                        
                                        
                                        21,228Long-term
      assets
                                        
                                        -
                                        
                                        
                                        
                                        2,044Total
      assets of discontinued operations
                                        $
                                        2,929
                                        
                                        
                                        $
                                        94,139Current
      liabilities
                                        $
                                        18,791
                                        
                                        
                                        $
                                        23,292Long-term
      liabilities
                                        
                                        986
                                        
                                        
                                        
                                        41Total
      liabilities of discontinued operations
                                        $
                                        19,777
                                        
                                        
                                        $
                                        23,333





On
December 5, 2007 the Company sold property and the equipment of a paint facility
located in Elkhart, Indiana for $2.9 million consisting of cash of $0.3 million
and a $2.6 million secured note that was due in full December 2008. At December
31, 2008, the note had not been paid in full, and the Company is working to
restructure the note, or if not satisfactorily restructured, foreclosure. The
sale resulted in pre-tax gain of $0.4 million on the equipment and a deferred
gain of $0.8 million on the property which is included in the accrued expenses
and other liabilities on the Consolidated Balance Sheet.





The
Company announced on September 21, 2007 that it would consolidate its All
American Homes production facility located in Zanesville, Ohio with its larger
facility located in Decatur, Indiana in order to increase capacity utilization
at the Indiana plant. This consolidation occurred during the fourth quarter
of 2007. The closure of the Ohio facility had minimal impact on revenues, as all
existing builders in that region have continued to be served by the Company’s
housing operations in Indiana and North Carolina.





During
the first three months of 2007, the Company completed the sale of two parcels of
the former Georgie Boy Manufacturing complex for approximately $0.6 million,
resulting in a pre-tax gain of approximately $0.3 million, which are
reflected in discontinued operations in the statement of operations. Also during
the first three months, the Company completed the sale of vacant farmland in
Middlebury, Indiana for cash of approximately $0.1 million, resulting in a
pre-tax gain of approximately $0.1 million.





On
December 28, 2006 the Company contracted for the sale of a property located
in Roanoke, Virginia for approximately $1.3 million, consisting of cash of $0.1
million and a note receivable of $1.2 million that was paid in 2007, which
resulted in pre-tax gain of approximately $1.2 million.





During
the third quarter of 2006, a number of smaller properties were sold for a net
pre-tax gain of approximately $0.3 million. On June 8, 2006, the Company
completed the sale of its corporate aircraft for approximately $2.3 million,
which resulted in a pre-tax gain of approximately $1.7 million. On June 30,
2006, the Company sold property located in Palm Shores, Florida for $2.5
million, which resulted in a pre-tax gain of approximately $1.2 million. During
June 2006, the Company also sold two parcels of the former Georgie Boy
Manufacturing complex for total proceeds of $0.7 million, which resulted in a
pre-tax gain of approximately $0.4 million, which are reflected in discontinued
operations in the statement of operations.




- 64
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





12.   RESTRUCTURING
CHARGES AND DISCONTINUED OPERATIONS, Continued.





On March
31, 2006, the Company sold 100% of its interest in the capital stock of Miller
Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and
a $2.5 million secured note. Notes receivable and investments are reviewed
quarterly to determine whether events or changes in circumstances indicate that
the carrying amounts may not be recoverable. As a result of this review, the
Company determined that it was probable this note balance of $2.5 million and a
small investment would not be fully recoverable, and accordingly recorded an
impairment charge of $2.6 million in 2008 which is classified in the Impairments
line item on the consolidated statement of operations. 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. Net
sales of Miller Building Systems, Inc. for the year ended December 31, 2006 was
$7.5 million and the pre-tax income for the year ended December 31, 2006 was
$1.5 million. In connection with this sale, $1.7 million of industrial revenue
bonds were paid off as of March 31, 2006. During April 2006, the Company
terminated the $1.5 million and $235,000 interest rate swaps that had been
associated with these revenue bonds.





On March
31, 2006, the Company completed the sale of a property located in Grapevine,
Texas for approximately $2.0 million, consisting of cash of $1.7 million and a
note receivable of $0.3 million and resulting in a pre-tax gain of approximately
$1.8 million. Also during the first quarter, the Company completed the sale of
vacant farmland in Middlebury, Indiana for cash of approximately $1.0 million,
resulting in a pre-tax gain of approximately $0.8 million.





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 funds remaining in the escrow account of $0.4
million reverted to the Company in February 2007 per the sales agreement. Notes
receivable and investments are reviewed quarterly to determine whether events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. As a result of this review, the Company determined that it was
probable this note balance of $2.0 million would not be fully recoverable, and
accordingly recorded an impairment charge of $2.0 million in 2008. 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. In
conjunction with the classification of Prodesign as a discontinued operation,
management allocated goodwill of $0.3 million to the discontinued operations
from the RV Segment goodwill based on the relative fair value of the
discontinued operations to the RV Segment. The $0.3 million of allocated
goodwill has been 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, 2006 was $0.4 million, and the pre-tax income (loss) for the year
ended December 31, 2006 was $2.0 million.





Goodwill
Impairment





Goodwill
represents the excess of the purchase price over the fair value of net tangible
and identifiable intangible assets of acquired businesses. Goodwill assets
deemed to have indefinite lives are not amortized, but are subject to impairment
tests at least annually in accordance with FASB Statement No. 142, Goodwill and
Other Intangible
Assets (SFAS No. 142). The Company reviews the carrying amounts of
goodwill assets annually by segment to determine if such assets may be impaired.
If the carrying amounts of these assets are not recoverable based upon a
discounted cash flow analysis, such assets are reduced by the estimated
shortfall of fair value to recorded value. At December 31, 2007, the Company had
$13.0 million of goodwill, all attributable to the Housing reporting unit. The
Company conducted its annual goodwill impairment test as required by SFAS No.
142, during the fourth quarter of 2008 and the results indicated that the
goodwill was fully impaired. Accordingly, the Company recorded a non-cash
goodwill impairment charge of $13.0 million in the quarter ended December 31,
2008. The goodwill impairment charges in 2008 were recorded at the corporate
level because this goodwill was carried at that level. At December 31, 2006, the
Company had $16.9 million of goodwill, $13.0 million attributable to the Housing
reporting unit and $3.9 million attributable to the RV reporting unit. As a
result of continuing losses incurred by the RV reporting unit, in accordance
with SFAS No. 142 the Company performed an interim goodwill impairment
evaluation during the quarter ended June 30, 2007. Because the carrying
value of the RV reporting unit exceeded its fair value as calculated using the
expected present value of future cash flows, the Company concluded that the
goodwill was fully impaired as of June 30, 2007. Accordingly, the Company
recorded a non-cash goodwill impairment charge of $3.9 million in the quarter
ended June 30, 2007. As a result of these impairment charges, the Company
has no remaining goodwill company-wide at December 31, 2008.




- 65
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





13.   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 October 2012. The above-described leases
are accounted for as operating leases.





Future
minimum annual operating lease commitments at December 31, 2008 aggregated $2.8
million and are payable during the next 4 years as follows: 2009 - $1.0 million,
2010 - $0.9 million, 2011 - $0.7 million and 2012 - $0.2 million. Total rental
expense for the years ended December 31, 2008, 2007 and 2006 aggregated $2.1
million, $1.5 million and $1.6 million, respectively. In connection with the
sale of the assets of the RV business, a liability of $1.6 million was
established for existing but unused facilities subject to operating leases that
were part of the activities which were exited.





Obligation
to Purchase Consigned Inventories





The
Company obtains vehicle chassis for its bus products and formerly for its
recreational vehicle products directly from automobile manufacturers under
converter pool agreements. The agreements generally provide that the
manufacturer will provide a supply of chassis at the Company's various
production facilities under the terms and conditions as set forth in the
agreement. Chassis are accounted for as consigned inventory until assigned to a
unit in the production process. At that point, the Company is obligated to
purchase the chassis and it is recorded as inventory. At December 31, 2008 and
2007, chassis inventory, accounted for as consigned inventory, approximated $1.9
million and $14.5 million, respectively.





Repurchase
Agreements





The
Company was contingently liable at December 31, 2008 to banks and other
financial institutions on repurchase agreements in connection with financing
provided by such institutions to most of the Company's former 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. Although the estimated maximum contingent liability without
offsets for resale would be approximately $98 million at December 31, 2008
($176 million at December 31, 2007), the risk of loss resulting from these
agreements is spread over the Company's numerous former dealers and is further
reduced by the resale value of the products repurchased. Further, as time goes
on and the Company does not sell additional recreational vehicles, this
contingent liability continually reduces because the period during which the
Company is subject to buy-back claims is limited to a specific time period,
starting from the date of original wholesale sale. Based on losses previously
experienced under these obligations and current market conditions, the Company
has established a reserve for estimated losses under repurchase agreements. At
December 31, 2008 and 2007, $2.5 million and $0.7 million, respectively, were
recorded as an accrual for estimated losses under repurchase
agreements.





The
Company was also contingently liable at December 31, 2008 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 and cost of sales at the time of repurchase.
Although the estimated maximum contingent liability without offsets for resale
would be approximately $6.1 million at December 31, 2008 ($14.6 million at
December 31, 2007), 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 $0.1 million at December 31,
2008, and $0.2 million at December 31, 2007 for estimated losses under the
repurchase agreements.




- 66
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





13.   COMMITMENTS
AND CONTINGENCIES, Continued.





Corporate
Guarantees





The
Company was contingently liable under guarantees to financial institutions of
their loans to independent recreational vehicle dealers for amounts totaling
approximately $6.3 million at December 31, 2008 and $2.6 million at December 31,
2007. The Company had an agreement with a financial institution to form a
private-label financing program to provide wholesale inventory financing to the
Company's former recreational vehicle dealers. The agreement provided for a
preferred program that provided financing subject to the standard repurchase
agreement described above. In addition, the agreement provided for a reserve
pool whereby the financial institution made available an aggregate line of
credit not to exceed $40 million that provided financing for dealers that may
not otherwise qualify for credit approval under the preferred program. No dealer
being provided financing from the reserve pool could receive an aggregate line
of credit exceeding $5 million. In addition to the standard repurchase agreement
described above, as of December 31, 2008 the Company was contingently liable to
the financial institutions up to a maximum of $2.0 million of aggregate losses,
as defined by the agreement, incurred by the financial institutions on
designated dealers with higher credit risks that were accepted into the reserve
pool financing program. The Company has recorded a loss reserve of $0.1 million
at December 31, 2008 and December 31, 2007 associated with these
guarantees.





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
for which the Company was to provide modular units. As of December 31, 2008, the
Company provided $2.3 million in financing to the developer under this
arrangement. No funding has been provided since December 2005. The loans are
collateralized by a first priority interest in all tangible and intangible
property of the borrower. The developer was unable to obtain a building permit,
so the Company is pursuing its legal remedies through litigation to recoup the
financing extended to date. During the fourth quarter of 2006, the Company
obtained title to the real estate that was partial collateral for this note. In
the event the sale of the property does not generate proceeds sufficient to
cover the financing previously provided, the Company will continue pursuing its
legal remedies to recover any shortfall. As of December 31, 2008, the Company
has reserved an amount that Management believes the Company may not recover;
however, there is a potential for exposure in excess of the amount
reserved.





Change
of Control Agreements





On
February 3, 2000, the Company entered into Change of Control Agreements with key
executives. The Agreements have subsequently been amended, and the number of
participants reduced. 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 had
aggregated obligations of approximately $4.6 million and $6.2 million based on
salaries and benefits at December 31, 2008 and 2007, 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.





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.





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
8) is adequate to cover the Company's self-insured risk.




- 67
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





13.   COMMITMENTS
AND CONTINGENCIES, Continued.





Litigation





In
February 2009 the Company received a favorable verdict against Crane
Composites, Inc. f/k/a Kemlite for breach of contract and multiple warranty
claims arising from the sale of defective sidewall material to Coachmen
Industries, Inc. subsidiaries. All of the counts alleged in the original
complaint were found in favor of the Company. The remaining phase of the trial
will determine the amount of damages payable on this liability judgment. The
Company asserted claims for warranty-related expenses in excess of $19 million
and is seeking to recover additional damages for lost profits, lost market share
and the sale of the RV business. It is anticipated that the final phase of the
trial will be conducted in the latter part of 2009. There can be no assurance
about the amount or timing of any recoveries that the Company may realize from
the final phase of the trial.





In the
third quarter of 2008, as a result of the favorable settlement of a lawsuit
involving an insurance recovery, the Company recorded income of approximately
$0.4 million. During the second quarter of 2008, as a result of the favorable
settlement of two lawsuits involving insurance recoveries, the Company recorded
income of approximately $1.0 million. During the first quarter of 2008, the
Company also recorded income of approximately $1.0 million as a result of the
favorable settlement of two lawsuits involving insurance recoveries. These
favorable settlements are classified as a reduction to general and
administrative expenses on the consolidated statement of
operations.





The
Company was named as a defendant in a number of lawsuits alleging that the
plaintiffs were exposed to levels of formaldehyde in FEMA-supplied trailers
manufactured by the Company's subsidiaries (and other manufacturers) and that
such exposure entitles plaintiffs to an award, including injunctive relief, a
court-supervised medical monitoring fund, removal of formaldehyde-existing
materials, repair and testing, compensatory, punitive and other damages,
including attorneys’ fees and costs. The litigation proceeded through the
class certification process. In December 2008, class certification was
denied.





The
Company finalized arbitration with a housing customer over damages resulting
from a construction project during the third quarter of 2006 and the final
settlement did not exceed the amount the Company had previously accrued for this
matter.





During
the first quarter of 2006, the Company entered into a partial settlement of an
insurance matter for $0.75 million, net of a contingency fee. This
amount was recorded as a reduction to the Company's general and administrative
expenses in the first quarter. The settlement was received during the second
quarter of 2006.





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.


- 68
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 Index


Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





14.   UNAUDITED
INTERIM FINANCIAL INFORMATION.





Certain
selected unaudited quarterly financial information for the years ended December
31, 2008 and 2007 is as follows (in thousands):




2008Quarter
      EndedMarch
      31
                                                        
                                                        June
      30
                                                        
                                                        September
      30
                                                        
                                                        December
      31Net
      sales from continuing operations
                                                        
                                                        $
                                                        30,839
                                                        
                                                        $
                                                        38,332
                                                        
                                                        $
                                                        31,566
                                                        
                                                        $
                                                        18,859Gross
      profit from continuing operations
                                                        
                                                        
                                                        5,524
                                                        
                                                        
                                                        6,967
                                                        
                                                        
                                                        4,852
                                                        
                                                        
                                                        36Net income
      (loss) from continuing operations
                                                        
                                                        
                                                        1,252
                                                        
                                                        
                                                        2,945
                                                        
                                                        
                                                        (3,796
                                                        )
                                                        
                                                        (19,080
                                                        )Net income
      (loss)
                                                        
                                                        
                                                        1,326
                                                        
                                                        
                                                        (2,962
                                                        )
                                                        
                                                        (14,463
                                                        )
                                                        
                                                        (52,903
                                                        )Net earnings
      (loss) per common share - BasicContinuing
      operations
                                                        
                                                        
                                                        0.08
                                                        
                                                        
                                                        0.19
                                                        
                                                        
                                                        (0.24
                                                        )
                                                        
                                                        (1.21
                                                        )Discontinuing
      operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        (0.37
                                                        )
                                                        
                                                        (0.68
                                                        )
                                                        
                                                        (2.14
                                                        )0.08
                                                        
                                                        
                                                        (0.18
                                                        )
                                                        
                                                        (0.92
                                                        )
                                                        
                                                        (3.35
                                                        )Net
      earnings (loss) per common share - DilutedContinuing
      operations
                                                        
                                                        
                                                        0.08
                                                        
                                                        
                                                        0.19
                                                        
                                                        
                                                        (0.24
                                                        )
                                                        
                                                        (1.21
                                                        )Discontinuing
      operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        (0.37
                                                        )
                                                        
                                                        (0.68
                                                        )
                                                        
                                                        (2.14
                                                        )$
                                                        0.08
                                                        
                                                        $
                                                        (0.18
                                                        )
                                                        $
                                                        (0.92
                                                        )
                                                        $
                                                        (3.35
                                                        )2007Quarter
      EndedMarch
      31
                                                        
                                                        June
      30
                                                        
                                                        September
      30
                                                        
                                                        December
      31Net
      sales from continuing operations
                                                        
                                                        $
                                                        26,092
                                                        
                                                        $
                                                        38,535
                                                        
                                                        $
                                                        32,076
                                                        
                                                        $
                                                        22,483Gross
      profit from continuing operations
                                                        
                                                        
                                                        2,293
                                                        
                                                        
                                                        6,063
                                                        
                                                        
                                                        4,257
                                                        
                                                        
                                                        234Net income
      (loss) from continuing operations
                                                        
                                                        
                                                        (3,540
                                                        )
                                                        
                                                        1,106
                                                        
                                                        
                                                        (1,329
                                                        )
                                                        
                                                        (7,175
                                                        )Net income
      (loss)
                                                        
                                                        
                                                        (10,447
                                                        )
                                                        
                                                        (10,123
                                                        )
                                                        
                                                        (4,344
                                                        )
                                                        
                                                        (13,838
                                                        )Net earnings
      (loss) per common share - BasicContinuing
      operations
                                                        
                                                        
                                                        (0.23
                                                        )
                                                        
                                                        0.07
                                                        
                                                        
                                                        (0.08
                                                        )
                                                        
                                                        (0.46
                                                        )Discontinuing
      operations
                                                        
                                                        
                                                        (0.44
                                                        )
                                                        
                                                        (0.71
                                                        )
                                                        
                                                        (0.19
                                                        )
                                                        
                                                        (0.42
                                                        )(0.67
                                                        )
                                                        
                                                        (0.64
                                                        )
                                                        
                                                        (0.27
                                                        )
                                                        
                                                        (0.88
                                                        )Net earnings
      (loss) per common share - DilutedContinuing
      operations
                                                        
                                                        
                                                        (0.23
                                                        )
                                                        
                                                        0.07
                                                        
                                                        
                                                        (0.08
                                                        )
                                                        
                                                        (0.46
                                                        )Discontinuing
      operations
                                                        
                                                        
                                                        (0.44
                                                        )
                                                        
                                                        (0.71
                                                        )
                                                        
                                                        (0.19
                                                        )
                                                        
                                                        (0.42
                                                        )$
                                                        (0.67
                                                        )
                                                        $
                                                        (0.64
                                                        )
                                                        $
                                                        (0.27
                                                        )
                                                        $
                                                        (0.88
                                                        )




During
the fourth quarter of 2008, the Company completed the sale of substantially all
of the assets of the Company’s RV Segment, consisting of its recreational
vehicle manufacturing and sales business, to Forest River, Inc. (see Note
12) This transaction resulted in a pre-tax (loss) of $(7.9) million
and $(0.9) million on the sale of inventory and fixed assets,
respectively.





The
Company conducted its annual goodwill impairment test as required by SFAS No.
142, during the fourth quarter of 2008 and the results indicated that the
goodwill was fully impaired. Accordingly, the Company recorded non-cash goodwill
impairment charge of $13.0 million in the quarter ended December 31, 2008 (see
Note
1 and Note 12).


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Coachmen
Industries, Inc. and Subsidiaries





Notes
to Consolidated Financial Statements, Continued





15.   SUBSEQUENT
EVENTS.





Subsequent
Indebtedness





On
February 26, 2009, Coachmen Industries, Inc. entered into an agreement with
Forest River, Inc. with respect to certain financial obligations under the Asset
Purchase Agreement of November 20, 2008 between the Company and Forest River.
Forest River agreed to accept a fully collateralized short-term note from the
Company. As of March 2, 2009, the outstanding balance on the note was $2.3
million. The note was paid in full on March 23, 2009.





On March
23, 2009, Coachmen Industries, Inc. and Robert J. Deputy, one of the Company’s
directors, entered into an agreement for a $2.3 million short-term note from the
Company in exchange for cash loaned to the Company by Mr. Deputy. The note is
collateralized by two properties, bears interest at a rate of 10% per
annum, and is on terms more favorable to the Company than those offered by
alternative sources of financing in commercial markets. The note may be
called by the note holder at any time on or after April 20, 2009. The Company
intends to pay this note when it obtains alternative financing
arrangements.





Subsequent
Litigation Verdict





In
February 2009 the Company received a favorable verdict against Crane
Composites, Inc. f/k/a Kemlite for breach of contract and multiple warranty
claims arising from the sale of defective sidewall material to Coachmen
Industries, Inc. subsidiaries. All of the counts alleged in the original
complaint were found in favor of the Company. The remaining phase of the trial
will determine the amount of damages payable on this liability judgment. The
Company asserted claims for warranty-related expenses in excess of $19 million
and total potential claims of over $85 million. It is anticipated that the final
phase of the trial will be conducted in the latter part of 2009. There can be no
assurance about the amount or timing of any damages that the Company may realize
from the final phase of the trial.




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





Not
Applicable in 2008.





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, 2008, 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
Annual 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
      fairly reflect 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, 2008. 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, 2008.





The
effectiveness of the Company’s internal control over financial reporting has
been audited by Ernst & Young LLP, an independent registered public
accounting firm as stated in their report, which appears on page 38.





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, 2008 that materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.




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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, 2009 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, 2009 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, 2009 and is incorporated herein
by reference.





(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, 2009 and is incorporated herein by reference.





Item
11.               Executive
Compensation





Information
for Item 11 is contained under the headings "Management Development/Compensation
Committee," “Compensation Discussion and Analysis,” and "Outside Director
Compensation" in the Company's Proxy Statement dated March 30, 2009 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, 2009 and is incorporated herein by reference.




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The
following table summarizes share and exercise price information about the
Company's equity compensation plans as of December 31, 2008:





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 equity
      compensation plansEquity
      compensation plans approved by shareholders
              
              
              132,750
              
              $
              12.18
              
              
              1,161,339Equity
      compensation plans not approved by shareholders
              
              
              -
              
              
              -
              
              
              -Total
              
              
              132,750
              
              $
              12.18
              
              
              1,161,339





Item 13.Certain Relationships
and Related Transactions





Information
for Item 13 is contained under the heading “Determination of Independence of
Directors” in the Company’s Proxy Statement dated March 30, 2009 and is
incorporated herein by reference.





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, 2009 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, 2008 and
2007


Consolidated Statements of Operations for the
years ended December 31, 2008, 2007 and 2006


Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2008, 2007 and 2006


Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006


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.




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 Index


SCHEDULE II




VALUATION
AND QUALIFYING ACCOUNTS


(in
thousands)





Description
                    
                    Balance
      at
                      Beginning
                      of
      Period
                    
                    Additions
      Charged
                      to
      Costs
                      and
      Expenses
                    
                    Payment
      or
                      Utilization
                    
                    Balance
      at End
                      of
      PeriodFiscal
      year ended December 31, 2008:Allowance
      for doubtful accounts:
                    
                    $
                    744
                    
                    $
                    1,305
                    
                    $
                    373
                    (A)
                    $
                    1,676Product
      warranty reserves:
                    
                    
                    8,123
                    
                    
                    14,873
                    
                    
                    13,308
                    (B)
                    
                    9,688Repurchase
      agreement and Corporate guarantee loss reserves:
                    
                    
                    926
                    
                    
                    2,637
                    
                    
                    892
                    
                    
                    2,671Valuation
      allowance against deferred tax assets:
                    
                    
                    38,023
                    
                    
                    23,746
                    
                    
                    -
                    
                    
                    61,769Fiscal
      year ended December 31, 2007:Allowance
      for doubtful accounts:
                    
                    
                    1,134
                    
                    
                    512
                    
                    
                    902
                    (A)
                    
                    744Product
      warranty reserves:
                    
                    
                    11,099
                    
                    
                    16,787
                    
                    
                    19,763
                    (B)
                    
                    8,123Repurchase
      agreement and Corporate guarantee loss reserves:
                    
                    
                    635
                    
                    
                    618
                    
                    
                    327
                    
                    
                    926Valuation
      allowance against deferred tax assets:
                    
                    
                    24,731
                    
                    
                    13,292
                    
                    
                    -
                    
                    
                    38,023Fiscal
      year ended December 31, 2006:Allowance
      for doubtful accounts:
                    
                    
                    1,240
                    
                    
                    1,631
                    
                    
                    (1,737
                    )
      (A)
                    
                    1,134Product
      warranty reserves:
                    
                    
                    20,005
                    
                    
                    21,598
                    
                    
                    (30,504
                    (B)
                      )
      (C)
                    
                    11,099Repurchase
      agreement and Corporate guarantee loss reserves:
                    
                    
                    775
                    
                    
                    356
                    
                    
                    (496
                    )
                    
                    635Valuation
      allowance against deferred tax assets:
                    
                    $
                    -
                    
                    $
                    24,731
                    
                    $
                    -
                    
                    $
                    24,731







(A)
              Write-off
      of bad debts, less recoveries.(B)
              Claims
      paid, less recoveries.(C)
              Reflects
      increase due to specific warranty issues which occurred in 2005, primarily
      camping trailer lift systems and sidewall lamination issues within
      the RV Segment.




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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:
      March 24, 2009/s/
      R. M. LaversR.
      M. Lavers(Chief
      Executive Officer)/s/
      C. A. ZuhlC.
      A. Zuhl(Chief
      Financial Officer)/s/
      S. L. PattersonS.
      L. Patterson(Corporate
      Controller)










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 March 24, 2009.











/s/
      G. B. Bloom
            
            /s/
      D. W. HudlerG.
      B. Bloom
            
            D.
      W. Hudler(Director)
            
            (Director)/s/
      R. J. Deputy
            
            /s/
      W. P. JohnsonR.
      J. Deputy
            
            W.
      P. Johnson(Director)
            
            (Director,
      Chairman of the Board)/s/
      J. A. Goebel
            
            /s/
      E. W. MillerJ.
      A. Goebel
            
            E.
      W. Miller(Director)
            
            (Director)




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 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 May 1, 2008 (incorporated by reference to Exhibit 3(b)
      to the Company's Quarterly Report on Form 10-Q for the quarter
      ended June 30, 2008).(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)
                  Loan
      and Security Agreement dated as of August 2, 2006 among Coachmen
      Industries, Inc., the Lenders named therein and LaSalle Business Credit,
      LLC (incorporated by reference to Exhibit 4 to the Company’s Form 8-K
      filed August 3, 2006).(4)(d)
                  Amendment
      No. 1 to Loan and Security Agreement dated as of August 2, 2006 among
      Coachmen Industries, Inc., the Lenders named therein and LaSalle Business
      Credit, LLC (incorporated by reference to Exhibit 4(d) to the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31,
      2006).(4)(e)
                  Amendment
      No. 2 to Loan and Security Agreement dated as of August 2, 2006 among
      Coachmen Industries, Inc., the Lenders named therein and LaSalle Business
      Credit, LLC (incorporated by reference to Exhibit 4(e) to the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31,
      2006).





*(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).




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 Index


*(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)
            Loan
      and Security Agreement dated as of August 2, 2006 among Coachmen
      Industries, Inc., the Lenders named therein and LaSalle Business Credit,
      LLC (included in Exhibit 4(c)).(10)(j)
            Amendment
      No. 1 to Loan and Security Agreement dated as of August 2, 2006 among
      Coachmen Industries, Inc., the Lenders named therein and LaSalle Business
      Credit, LLC (included in Exhibit 4(d)).(10)(k)
            Amendment
      No. 2 to Loan and Security Agreement dated as of August 2, 2006 among
      Coachmen Industries, Inc., the Lenders named therein and LaSalle Business
      Credit, LLC (included in Exhibit 4(e)).





(10)(l)
              Form
      of the 2006 Restricted Stock Award Agreement and listing of the maximum
      number of shares each Executive Officer may earn under the Agreements
      (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2006).(10)(m)
              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)(n)
              Summary
      of Life Insurance and Long Term Disability Benefits for Executives
      (incorporated by reference to Exhibit 10(q) to the Company's Annual Report
      on Form 10-K for the fiscal year ended December 31, 2004).*(10)(o)
              Description
      of Non-management Director Compensation (incorporated by reference to
      Exhibit 10(r) to the Company's Annual Report on Form 10-K for the fiscal
      year ended December 31, 2004).(10)(p)
              Mentor
      Protégé 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)(q)
              Severance
      and Early Retirement Agreement and General Release of All Claims dated
      October 23, 2006 among Coachmen Industries, Inc. and Claire C. Skinner
      (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
      Report on Form 10-Q for the quarter ended September 30,
    2006).(10)(r)
              Form
      of the 2006 Restricted Stock Award Agreement and listing of the maximum
      number of shares each Executive Officer may earn under the Agreements
      (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
      Report on Form 10-Q for the quarter ended September 30,
    2006).(10)(s)
              2007
      Restricted Stock Award Agreement under the 2007 Long-Term Incentive Plan
      (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2007).(10)(t)
              Standard
      Purchase Agreement dated October 26, 2006, between All American Building
      Systems and the Warrior Group, Inc. (incorporated by reference to Exhibit
      10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2007).(10)(u)
              Standard
      Purchase Agreement dated December 20, 2007 between All American Building
      Systems and the Warrior Group, Inc. (incorporated by reference to Exhibit
      10.1 to the Company’s Current Report on Form 8-K filed January 25,
      2008).(10)(v)
              Standard
      Purchase Agreement dated December 20, 2007 between All American Building
      Systems and the Warrior Group, Inc. (incorporated by reference to Exhibit
      10.2 to the Company’s Current Report on Form 8-K filed January 25,
      2008).





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77 -
 
 Index





(10)(w)
                            Asset
      Purchase Agreement dated November 20, 2008 between Coachmen Industries,
      Inc. and several of its subsidiaries and Forest River, Inc. (incorporated
      by reference to Exhibit 2 to the Company’s Current Report of Form 8-K
      filed November 24, 2008).(10)(x)
                            Promissory
      Note dated February 26, 2009 in the original principal amount of
      $2,719,454.29 by Coachmen Industries, Inc. and its subsidiaries payable to
      Forest River, Inc. (incorporate by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed March 3, 2009).(10)(y)
                            Agreement
      with ARBOC Mobility, LLC (incorporated by reference to Exhibit 10(c) to
      the Company’s Quarterly Report on Form 10-Q for the quarter ended March
      31, 2008).(11)
                            No
      Exhibit - See Consolidated Statements of
      Operations and Note 9 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,
      2003).(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.(32.1)
                            Section 1350
      Certification of Chief Executive Officer.(32.2)
                            Section 1350
      Certification of Chief Financial Officer.







*
Management Contract or Compensatory Plan.






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