**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-Q**





(Mark
      one)


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


For
      the
      quarterly period ended June 30, 2006.


OR





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


For
      the
      transition period from _____ to _____.





Commission
      file number 1-7160









**COACHMEN
                INDUSTRIES, INC.***(Exact
                name of registrant as specified in its charter)*





**Indiana**
            
            **35-1101097***(State
                of incorporation or organization*)
            
            *(IRS
                Employer Identification No.)*




**2831
                Dexter Drive, Elkhart, Indiana**
            
            **46514***(Address
                of principal executive offices)*
            
            *(Zip
                Code)*





Registrant's
                telephone number, including area code
            
            **(574)
                262-0123**




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.    Yes x No o





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





Large
                accelerated filero
            
            Accelerated
                filerx
            
            Non-accelerated
                filero





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    Yes o No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:





Number
      of
      shares of Common Stock, without par value, outstanding as of the close of
      business o n
      July
      31, 2006:  15,660, 819





**FORM
                10-Q****INDEX****Part
                I. Financial Information**
            **Page**Financial
                Statements:Consolidated
                Balance Sheets at June 30, 2006 and
                December 31, 2005
            3Consolidated
                Statements of Operations for
                the three and six months ended June 30, 2006 and 2005
            4Consolidated
                Statements of Cash Flows for the six months
                ended June 30, 2006 and 2005
            5Notes
                to Consolidated Financial
                Statements
            6-16Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            17-23Quantitative
                and Qualitative Disclosures About Market
                Risk
            24Controls
                and Procedures
            24**Part
                II. Other Information**Item
                1. Legal Proceedings
            25Item
                4. Submission of Matters to a Vote of Security
                Holders
            25Item
                6. Exhibits
            25Signatures
            26Index
                to Exhibits
            27




Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Balance Sheets**


(in
      thousands)


June
                30,
            
            December
                31,2006
            
            2005**Assets**
            
            (unaudited)CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            3,791
            
            $
            2,780Trade
                receivables, less allowance for doubtful receivables 2006 - $999
                and 2005
                - $1,240
            
            
            37,345
            
            
            47,174Other
                receivables
            
            
            1,493
            
            
            1,969Refundable
                income taxes
            
            
            9,410
            
            
            10,284Inventories
            
            
            112,281
            
            
            121,304Prepaid
                expenses and other
            
            
            3,370
            
            
            3,992Deferred
                income taxes
            
            
            11,129
            
            
            11,421Total
                current assets
            
            
            178,819
            
            
            198,924Property,
                plant and equipment**,**net
            
            
            59,847
            
            
            67,581Notes
                receivable
            
            
            7,208
            
            
            2,493Goodwill
            
            
            16,865
            
            
            17,383Cash
                value of life insurance, net of loans
            
            
            30,336
            
            
            28,880Deferred
                income taxes
            
            
            2,913
            
            
            4,279Assets
                held for sale
            
            
            2,449
            
            
            291Other
            
            
            1,747
            
            
            2,985TOTAL
                ASSETS
            
            $
            300,184
            
            $
            322,816**Liabilities
                and Shareholders' Equity**CURRENT
                LIABILITIESShort-term
                borrowings
            
            $
            5,000
            
            $
            12,276Accounts
                payable, trade
            
            
            30,882
            
            
            31,658Accrued
                income taxes
            
            
            124
            
            
            533Accrued
                expenses and other liabilities
            
            
            40,978
            
            
            54,856Floorplan
                notes payable
            
            
            4,612
            
            
            4,361Current
                maturities of long-term debt
            
            
            7,129
            
            
            2,223Total
                current liabilities
            
            
            88,725
            
            
            105,907Long-term
                debt
            
            
            5,979
            
            
            12,913Postretirement
                deferred compensation benefits
            
            
            9,898
            
            
            10,182Other
            
            
            -
            
            
            11Total
                liabilities
            
            
            104,602
            
            
            129,013COMMITMENTS
                AND CONTINGENCIES****(see
                Note 10)SHAREHOLDERS'
                EQUITYCommon
                shares, without par value: authorized 60,000 shares; issued 2006
                - 21,145
                shares and
              2005
                - 21,134 shares
            
            
            92,280
            
            
            92,164Additional
                paid-in capital
            
            
            7,254
            
            
            6,465Unearned
                compensation
            
            
            -
            
            
            (142
            )Accumulated
                other comprehensive income (loss)
            
            
            18
            
            
            (6
            )Retained
                earnings
            
            
            155,583
            
            
            154,246Treasury
                shares, at cost, 2006 - 5,484 shares and 2005 - 5,375
                shares
            
            
            (59,553
            )
            
            (58,924
            )Total
                shareholders' equity
            
            
            195,582
            
            
            193,803TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            300,184
            
            $
            322,816




*See
      Notes to Consolidated Financial
      Statements.*


-
          3
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Operations**


(in
      thousands, except per share amounts)


(Unaudited)





Three
                Months Ended June 30,
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Net
              sales
            
            $
            155,321
            
            $
            190,031
            
            $
            317,875
            
            $
            382,280Cost
              of sales
            
            
            139,334
            
            
            169,910
            
            
            287,246
            
            
            343,373Gross
                profit
            
            
            15,987
            
            
            20,121
            
            
            30,629
            
            
            38,907Operating
              expenses:Delivery
            
            
            7,917
            
            
            8,458
            
            
            16,146
            
            
            16,580Selling
            
            
            5,247
            
            
            7,818
            
            
            10,426
            
            
            15,112General
                and administrative
            
            
            5,327
            
            
            7,994
            
            
            8,177
            
            
            12,777Gain
                on sale of assets, net
            
            
            (3,372
            )
            
            (37
            )
            
            (6,048
            )
            
            (41
            )15,119
            
            
            24,233
            
            
            28,701
            
            
            44,428Operating
                income (loss)
            
            
            868
            
            
            (4,112
            )
            
            1,928
            
            
            (5,521
            )Nonoperating
              (income) expense:Interest
                expense
            
            
            732
            
            
            689
            
            
            1,700
            
            
            1,582Investment
                income
            
            
            (464
            )
            
            (441
            )
            
            (826
            )
            
            (1,257
            )Other
                income, net
            
            
            (79
            )
            
            (163
            )
            
            (243
            )
            
            (232
            )189
            
            
            85
            
            
            631
            
            
            93Income
                (loss) from continuing operations before income taxes
            
            
            679
            
            
            (4,197
            )
            
            1,297
            
            
            (5,614
            )Income
              taxes (benefit)
            
            
            199
            
            
            (2,537
            )
            
            413
            
            
            (3,001
            )Net
              income (loss) from continuing operations
            
            
            480
            
            
            (1,660
            )
            
            884
            
            
            (2,613
            )Discontinued
              operationsLoss
                from operations of discontinued entities (net of taxes (benefits)
                of
                $(244), $132, $(419) and $(169), respectively)
            
            
            (176
            )
            
            190
            
            
            (505
            )
            
            (243
            )Gain
                on sale of assets of discontinued entities (net of taxes of $1,510
                in
                2006)
            
            
            -
            
            
            -
            
            
            2,835
            
            
            -Income
              (loss) from discontinued operations
            
            
            (176
            )
            
            190
            
            
            2,330
            
            
            (243
            )Net
                income (loss)
            
            $
            304
            
            $
            (1,470
            )
            $
            3,214
            
            $
            (2,856
            )Earnings
              (loss) per share - BasicContinuing
                operations
            
            $
            .03
            
            $
            (.10
            )
            $
            .06
            
            $
            (.16
            )Discontinued
                operations
            
            
            (.01
            )
            
            .01
            
            
            .15
            
            
            (.02
            )Net
                earnings (loss) per share
            
            
            .02
            
            
            (.09
            )
            
            .21
            
            
            (.18
            )Earnings
              (loss) per share - DilutedContinuing
                operations
            
            
            .03
            
            
            (.10
            )
            
            .06
            
            
            (.16
            )Discontinued
                operations
            
            
            (.01
            )
            
            .01
            
            
            .15
            
            
            (.02
            )Net
                earnings (loss) per share
            
            $
            .02
            
            $
            (.09
            )
            $
            .21
            
            $
            (.18
            )Number
                of common shares used in the computation of earnings (loss) per
                share:Basic
            
            
            15,625
            
            
            15,546
            
            
            15,611
            
            
            15,540Diluted
            
            
            15,643
            
            
            15,546
            
            
            15,634
            
            
            15,540Cash
              dividends declared per common share
            
            $
            .06
            
            $
            .06
            
            $
            .12
            
            $
            .12




*See
      Notes to Consolidated Financial
      Statements.*


-
          4
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Cash Flows**


(in
      thousands)


(Unaudited)


Six
                Months Ended June 30,2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            3,214
            
            $
            (2,856
            )Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
            
            
            3,292
            
            
            4,463Provision
                for doubtful receivables, net of recoveries
            
            
            107
            
            
            418Net
                realized and unrealized (gains) losses on marketable securities and
                derivatives
            
            
            24
            
            
            (369
            )Gain
                on sale of properties and other assets, net
            
            
            (10,393
            )
            
            (49
            )Increase
                in cash surrender value of life insurance policies
            
            
            (122
            )
            
            (385
            )Deferred
                income tax provision (benefit)
            
            
            1,658
            
            
            (96
            )Other
            
            
            (18
            )
            
            (263
            )Changes
                in certain assets and liabilities, net of effects of acquisitions
                and
                dispositions:Trade
                receivables
            
            
            5,447
            
            
            6,477Inventories
            
            
            (3,143
            )
            
            (16,681
            )Prepaid
                expenses and other
            
            
            5
            
            
            897Accounts
                payable, trade
            
            
            734
            
            
            25,401Income
                taxes - accrued and refundable
            
            
            465
            
            
            (6,620
            )Accrued
                expenses and other liabilities
            
            
            (8,393
            )
            
            3,757Net
                cash provided by (used in) operating activities
            
            
            (7,123
            )
            
            14,094CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sales of marketable securities
            
            
            -
            
            
            1,933Proceeds
                from sale of properties and other assets
            
            
            23,464
            
            
            77Investments
                in marketable securities
            
            
            (1,334
            )
            
            (2,119
            )Purchases
                of property and equipment
            
            
            (3,361
            )
            
            (4,338
            )Other
            
            
            154
            
            
            32Net
                cash provided by (used in) investing activities
            
            
            18,923
            
            
            (4,415
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from short-term borrowings
            
            
            7,070
            
            
            232Payments
                of short-term borrowings
            
            
            (14,095
            )
            
            (17,736
            )Proceeds
                from long-term debt
            
            
            255
            
            
            224Payments
                of long-term debt
            
            
            (2,283
            )
            
            (816
            )Issuance
                of common shares under stock incentive plans
            
            
            141
            
            
            181Cash
                dividends paid
            
            
            (1,877
            )
            
            (1,887
            )Other
            
            
            -
            
            
            36Net
                cash used in financing activities
            
            
            (10,789
            )
            
            (19,766
            )Increase
                (decrease) in cash and cash equivalents
            
            
            1,011
            
            
            (10,087
            )CASH
                AND CASH EQUIVALENTS:Beginning
                of period
            
            
            2,780
            
            
            14,992End
                of period
            
            $
            3,791
            
            $
            4,905Supplemental
                disclosures of cash flow information:Operating
                cash received during the period related to insurance
                settlement
            
            $
            2,875
            
            $
            2,213




*See
      Notes to Consolidated Financial
      Statements.*


-
          5
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


(Unaudited)





**1.   
      BASIS OF PRESENTATION.**





The
      condensed consolidated financial statements have been prepared by Coachmen
      Industries, Inc. (“the Company”), without audit, in accordance with accounting
      principles generally accepted in the United States for interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X. Accordingly, they do not include all of the information and footnotes
      required by accounting principles generally accepted in the United States for
      complete financial statements. Management believes the disclosures made in
      this
      document are adequate so as not to make the information presented
      misleading.





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements, taken as a whole, contain all adjustments which are of
      a
      normal recurring nature necessary to present fairly the financial position
      of
      the Company as of June 30, 2006, and the results of its operations and cash
      flows for the interim periods presented. Operating results for the six-month
      period ended June 30, 2006 are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2006. It is suggested that
      these condensed financial statements be read in conjunction with the financial
      statements and notes thereto included in the Company’s Form 10-K for the year
      ended December 31, 2005.





**Statement
      of Operations Classification**





The
      Company calculates its gross profit as the difference between its net sales
      and
      the associated cost of sales. Cost of sales consists of direct product
      costs including inbound freight. The Company classifies the following operating
      expense categories separately on its statement of operations: delivery; selling;
      general and administrative; asset impairments and gains (losses) of sales of
      assets, net.





The
      Company’s gross profit may not be comparable to other entities whose shipping
      and handling expenses are presented as a component of cost of sales. Delivery
      expense was $7.9 million and $8.5 million for the three months ended June 30,
      2006 and 2005, respectively, and $16.1 million and $16.6 million for the six
      months ended June 30, 2006 and 2005, respectively.





**Reclassifications**





Certain
      reclassifications have been made in the fiscal 2005 consolidated financial
      statements and related footnotes to conform to the presentation used in
      2006.





**2.   
      SEGMENT INFORMATION.**





The
      Company has determined that its reportable segments are those that are based
      on
      the Company's method of internal reporting, which disaggregates its business
      by
      product category. The Company's two reportable segments are Recreational
      Vehicles and Housing and Building. The Company evaluates the performance of
      its
      segments based primarily on net sales and pre-tax income, and allocates
      resources to them based on performance. The Company allocates certain corporate
      expenses to these segments based on three dimensions: revenues, subsidiary
      structure and number of employees. In addition, the data excludes the results
      of
      the discontinued operations (see Note
      9 ).
      Differences between reported segment amounts and corresponding consolidated
      totals represent corporate income or expenses for administrative functions
      and
      income, costs or expenses relating to property and equipment that are not
      allocated to segments.





The
      table
      below presents information about segments, used by the chief operating decision
      maker of the Company for the three and six-month periods ended June 30 (in
      thousands):





Three
                Months Ended June 30,
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Net
              salesRecreational
                vehicles
            
            $
            111,110
            
            $
            141,437
            
            $
            230,964
            
            $
            295,133Housing
                and building
            
            
            44,211
            
            
            48,594
            
            
            86,911
            
            
            87,147Consolidated
                total
            
            $
            155,321
            
            $
            190,031
            
            $
            317,875
            
            $
            382,280




-
          6
          -
 Index




Three
                Months Ended June 30,
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Gross
              profitRecreational
                vehicles
            
            $
            5,083
            
            $
            7,550
            
            $
            10,062
            
            $
            18,704Housing
                and building
            
            
            10,905
            
            
            12,639
            
            
            20,567
            
            
            20,203Other
                reconciling items
            
            
            (1
            )
            
            (68
            )
            
            -
            
            
            -Consolidated
                total
            
            $
            15,987
            
            $
            20,121
            
            $
            30,629
            
            $
            38,907Operating
              expensesRecreational
                vehicles
            
            $
            10,408
            
            $
            13,597
            
            $
            17,736
            
            $
            26,450Housing
                and building
            
            
            8,414
            
            
            10,835
            
            
            17,968
            
            
            21,540Other
                reconciling items
            
            
            (3,703
            )
            
            (199
            )
            
            (7,003
            )
            
            (3,562
            )Consolidated
                total
            
            $
            15,119
            
            $
            24,233
            
            $
            28,701
            
            $
            44,428Operating
              income (loss)Recreational
                vehicles
            
            $
            (5,325
            )
            $
            (6,047
            )
            $
            (7,674
            )
            $
            (7,746
            )Housing
                and building
            
            
            2,491
            
            
            1,804
            
            
            2,599
            
            
            (1,337
            )Other
                reconciling items
            
            
            3,702
            
            
            131
            
            
            7,003
            
            
            3,562Consolidated
                total
            
            $
            868
            
            $
            (4,112
            )
            $
            1,928
            
            $
            (5,521
            )Pre-tax
              income (loss) from continuing operationsRecreational
                vehicles
            
            $
            (5,356
            )
            $
            (6,198
            )
            $
            (8,025
            )
            $
            (8,061
            )Housing
                and building
            
            
            2,445
            
            
            1,793
            
            
            2,588
            
            
            (1,238
            )Other
                reconciling items
            
            
            3,590
            
            
            208
            
            
            6,734
            
            
            3,685Consolidated
                total
            
            $
            679
            
            $
            (4,197
            )
            $
            1,297
            
            $
            (5,614
            )






June
                30,
            
            December
                31,2006
            
            2005Total
              AssetsRecreational
                vehicles
            
            $
            150,786
            
            $
            152,501Housing
                and building
            
            
            67,088
            
            
            83,338Other
                reconciling items
            
            
            82,310
            
            
            86,977Total
            
            $
            300,184
            
            $
            322,816




-
          7
          -
 Index


**3.   
      INVENTORIES.**





Inventories
      consist of the following (in thousands):


June
                30,
            
            December
                31,2006
            
            2005Raw
                materialsRecreational
                vehicles
            
            $
            15,588
            
            $
            19,770Housing
                and building
            
            
            7,816
            
            
            13,643Total
            
            
            23,404
            
            
            33,413Work
                in processRecreational
                vehicles
            
            
            20,815
            
            
            15,515Housing
                and building
            
            
            3,943
            
            
            5,280Total
            
            
            24,758
            
            
            20,795Improved
                lotsHousing
                and building
            
            
            267
            
            
            261Total
            
            
            267
            
            
            261Finished
                goodsRecreational
                vehicles
            
            
            51,195
            
            
            48,935Housing
                and building
            
            
            12,657
            
            
            17,900Total
            
            
            63,852
            
            
            66,835Total
            
            $
            112,281
            
            $
            121,304





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





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





June
                30,
              2006
            
            December
                31,
              2005Land
                and improvements
            
            $
            11,702
            
            $
            13,255Buildings
                and improvements
            
            
            62,094
            
            
            68,007Machinery
                and equipment
            
            
            24,259
            
            
            31,468Transportation
                equipment
            
            
            14,826
            
            
            16,279Office
                furniture and fixtures
            
            
            17,670
            
            
            19,080Total
            
            
            130,551
            
            
            148,089Less,
                accumulated depreciation
            
            
            70,704
            
            
            80,508Property,
                plant and equipment, net
            
            $
            59,847
            
            $
            67,581




-
          8
          -
 Index


**5.   
      ACCRUED EXPENSES AND OTHER LIABILITIES.**





Accrued
      expenses and other liabilities consist of the following (in thousands):





June
                30,
              2006
            
            December
                31,
              2005Wages,
                salaries, bonuses and commissions
            
            $
            2,448
            
            $
            3,156Dealer
                incentives, including volume bonuses, dealer trips, interest
                reimbursement, co-op advertising and other rebates
            
            
            5,886
            
            
            4,284Warranty
            
            
            13,359
            
            
            20,005Insurance-products
                and general liability, workers compensation, group health and
                other
            
            
            7,828
            
            
            6,833Customer
                deposits and unearned revenues
            
            
            5,072
            
            
            10,029Litigation
            
            
            1,245
            
            
            3,740Interest
            
            
            551
            
            
            1,980Sales
                and property taxes
            
            
            1,614
            
            
            1,948Other
                current liabilities
            
            
            2,975
            
            
            2,881Total
            
            $
            40,978
            
            $
            54,856




Changes
      in the Company's warranty liability during the three and six-month periods
      ended
      June 30 were as follows (in thousands):





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Balance
                of accrued warranty at beginning of period
            
            $
            16,605
            
            $
            10,316
            
            $
            20,005
            
            $
            10,140Warranties
                issued during the period and changes in liability for pre-existing
                warranties
            
            
            4,629
            
            
            6,267
            
            
            11,165
            
            
            11,543Cash
                settlements made during the period
            
            
            (7,875
            )
            
            (5,803
            )
            
            (17,811
            )
            
            (10,903
            )Balance
                of accrued warranty at June 30
            
            $
            13,359
            
            $
            10,780
            
            $
            13,359
            
            $
            10,780





The
      increase in the warranty accrual for 2006 is primarily the result of specific
      reserves established in the later half of 2005 related to the recall of
      defective camping trailer lift systems and the repair of defective material
      used
      in laminated sidewalls of certain of the Company’s recreational vehicles.





**6.   
      COMPREHENSIVE INCOME (LOSS).**





The
      changes in the components of comprehensive income (loss) for the three and
      six-month periods ended June 30 are as follows (in thousands):





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Net
                income (loss)
            
            $
            304
            
            $
            (1,470
            )
            $
            3,214
            
            $
            (2,856
            )Unrealized
                losses on securities held for sale, net oftaxes
            
            
            -
            
            
            (57
            )
            
            -
            
            
            (188
            )Unrealized
                gains (losses) on cash flow hedges, net oftaxes
            
            
            6
            
            
            (27
            )
            
            24
            
            
            32Comprehensive
                income (loss)
            
            $
            310
            
            $
            (1,554
            )
            $
            3,238
            
            $
            (3,012
            )





-
          9
          -
 Index




As
      of
      June 30, 2006 and 2005, the accumulated other comprehensive income, net of
      tax,
      relating to unrealized gains on securities available for sale was $0 for both
      periods, and relating to deferred gains (losses) on cash flow hedges was $18,000
      and ($64,000), respectively.





**7.   
      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 for the three and
      six-month periods ended June 30 were calculated using the average shares as
      follows (in thousands):





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Numerator:Net
                income (loss) available to common stockholders
            
            $
            304
            
            $
            (1,470
            )
            $
            3,214
            
            $
            (2,856
            )Denominator:Number
                of shares outstanding, end of period:Weighted
                average number of common shares used in basic EPS
            
            
            15,625
            
            
            15,546
            
            
            15,611
            
            
            15,540Effect
                of dilutive securities
            
            
            18
            
            
            -
            
            
            23
            
            
            -Weighted
                average number of common shares used in dilutive EPS
            
            
            15,643
            
            
            15,546
            
            
            15,634
            
            
            15,540




For
      the
      three and six-month periods ended June 30, 2006, 80,375 and 66,200
      shares of outstanding stock options, respectively, were not included in the
      computation of diluted earnings per share because their exercise price was
      greater than the average market prices for the respective periods, and their
      inclusion would have been antidilutive. As the Company reported a net loss
      for
      the three and six-month periods ended June 30, 2005, the dilutive effect of
      stock options and awards did not enter into the computation of diluted earnings
      per share because their inclusion would have been antidilutive.





**8.   INCOME
      TAXES.**





For
      the
      second quarter ended June 30, 2006, the effective tax rate was 29.3% and the
      year-to-date effective tax rate was 31.8% compared with a 2005 second quarter
      effective tax credit of 62.1% and a year-to-date tax credit of 52.6%. The
      Company’s effective tax rate fluctuates based upon estimated annual pre-tax
      income amounts, the states where sales occur, the estimated annual amount of
      export sales, nontaxable increases in cash value of life insurance contracts,
      other permanent tax differences, increases or decreases in tax reserves and
      recognized federal and state tax credits.





The
      effective tax rate for the 2006 second quarter and year-to-date was favorably
      impacted by the release of certain state tax reserves resulting from favorable
      outcomes of the Company’s participation in a number of state voluntary
      disclosure programs.





During
      the first quarter of 2006, the Company recorded a decrease in current deferred
      tax assets of $0.3 million and a decrease in long-term deferred tax assets
      of
      $1.4 million to recognize deferrals that will be utilized as a result of the
      sale of Miller Building Systems, Inc.





During
      the six-month period ended June 30, 2005, the Company completed a project to
      identify eligible research and development (“R&D”) expenditures for the
      purpose of filing amended Federal and Indiana income tax returns to claim tax
      credits for eligible R&D activities. During the quarter ended June 30, 2005,
      the Company recorded $1.5 million of tax refunds receivable, applicable to
      estimated refunds for prior years’ R&D tax credits, with a related credit to
      the 2005 income tax provision. The prior years’ R&D tax credits, recorded in
      2005, increased the Company’s effective tax benefit rate by 38.5% for the
      quarter and 24.7% for the 2005 year-to-date. In addition, the Company expected
      that its effective tax rate for 2005 would be favorably impacted by 3.6% for
      estimated 2005 R&D tax credits and by 0.8% for additional tax deductions
      provided to manufacturers under the 2004 American Jobs Creation
      Act.




**9.****RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS.**





During
      2005, the Company’s Board of Directors approved a comprehensive operational and
      cost structure realignment and restructuring plan (the Intensive Recovery Plan),
      which is intended to improve operating performance and ensure financial
      strength.





-
          10
          -
 Index




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





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 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.





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





**Housing
      and Building Segment**





The
      Company has ceased operations at the All American Homes operation in
      Springfield, Tennessee. The closure of the Tennessee location resulted in an
      asset impairment charge of approximately $1.1 million, which was recorded in
      the
      third quarter of 2005. On March 15, 2006, the Company entered into a definitive
      agreement for the sale of the Tennessee facilities for $5.3 million in cash.
      On
      May 11, 2006, the Company received notice of termination of the March 15, 2006
      agreement for the sale of the Tennessee facility. On June 22, 2006, the Company
      entered into a new contract with a different buyer for the sale of the Tennessee
      facilities for $5.0 million. The sale of the Tennessee property is subject
      to
      certain customary conditions, and closing is anticipated to occur late in 2006.
      The property, plant and equipment of the Tennessee facility has been classified
      as held for sale in the accompanying balance sheet as of June 30, 2006.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes Kansas division. In accordance with Statement of Financial Accounting
      Standard No. 144, the division qualified as a separate component of the
      Company’s business and as a result, the operating results of the division have
      been accounted for as a discontinued operation. Previously reported financial
      results for all periods presented have been restated to reflect this business
      as
      a discontinued operation. Net sales of the Kansas division for the quarter
      ended
      June 30, 2005 were $2.8 million, and the pre-tax income for the quarter ended
      June 30, 2005 was $43,000. Net sales of the Kansas division for the six-month
      period ended June 30, 2005 were $5.1 million and the pre-tax loss for the
      six-month period ended June 30, 2005 was $(0.1) 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 and a
      $2.5
      million secured note. The note is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business in 2005 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
      quarter ended June 30, 2005 were $11.8 million, and the pre-tax income for
      the
      quarter ended June 30, 2005 was $0.1 million. Net sales of Miller Building
      Systems, Inc. for the six-month period ended June 30, 2005 were $18.8 million
      and the pre-tax loss for the six-month period ended June 30, 2005 was $(0.6)
      million.  In
      connection with the sale of Miller Building Systems, $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.





In
      conjunction with the actions noted above, during the fourth quarter of 2005
      management allocated goodwill of $0.7 million to the discontinued operations
      from the Housing and Building Segment goodwill based on the relative fair value
      of the discontinued operations to the entire Housing and Building Segment.
      The
      $0.7 million of allocated goodwill consisted of $0.6 million allocated to Miller
      Building Systems, which was written off as part of the 2005 loss from operations
      of discontinued operations and $0.1 million allocated to All American Homes
      of
      Kansas, which was included in the 2005 loss on sale of assets of discontinued
      operations. During the first quarter of 2006, an additional $0.3 million of
      goodwill was allocated to Miller Building Systems based on the final sales
      price
      relative to the fair value of the entire Housing and Building Segment. The
      additional $0.3 million of allocated goodwill was written off as part of the
      2006 gain on sale of assets of discontinued operations.





-
          11
          -
 Index




Assets
      and liabilities of the All American Homes of Kansas and Miller Building Systems
      disposal groups, which are included in the consolidated balance sheet, were
      as
      follows at December 31, 2005 (in thousands):





2005Cash
            
            
            
            
            $
            242Accounts
                and other receivables
            
            
            
            
            
            4,401Prepaid
                expenses
            
            
            
            
            
            510Inventories
            
            
            
            
            
            10,423Other
                long-term assets
            
            
            
            
            
            124Fixed
                assets
            
            
            
            
            
            34Accounts
                payable
            
            
            
            
            
            (1,777
            )Other
                current liabilities
            
            
            
            
            
            (5,341
            )Net
                assets held for sale
            
            
            
            
            $
            8,616




**Recreational
      Vehicle Segment**





On
      January 13, 2006, the Company sold all operating assets of Prodesign, LLC.
      The
      total sales price was $8.2 million, of which the Company received $5.7 million
      in cash, a $2.0 million promissory note and $0.5 million to be held in escrow
      to
      cover potential warranty claims and uncollectible accounts receivable, as
      defined in the sale agreement. The promissory note is to be repaid over a period
      of 10 years, using an amortization period of 15 years, and bears interest at
      6%
      per annum with interest only payments being required in the first three years.
      Any funds remaining in the escrow account after a period of 13 months will
      revert to the Company. In accordance with Statement of Financial Accounting
      Standard No. 144, Prodesign qualified as a separate component of the Company’s
      business and as a result, the operating results of Prodesign have been accounted
      for as a discontinued operation. Previously reported financial results for
      all
      periods presented have been restated to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the Recreational Vehicle Segment goodwill based on the relative
      fair value of the discontinued operations to the Recreational Vehicle 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 quarter ended June 30, 2005 were $4.3 million and the pre-tax
      income for the quarter ended June 30, 2005 was $0.1 million. Net sales of
      Prodesign for the six-month period ended June 30, 2005 were $7.9 million and
      the
      pre-tax income for the six-month period ended June 30, 2005 was $0.3
      million.




Assets
      and liabilities of the Prodesign disposal group, which are included in the
      consolidated balance sheet, were as follows at December 31, 2005 (in thousands):





2005Accounts
                and other receivables
            
            
            
            
            $
            781Prepaid
                expenses
            
            
            
            
            
            51Inventories
            
            
            
            
            
            909Other
                long-term assets
            
            
            
            
            
            437Fixed
                assets
            
            
            
            
            
            4,144Accounts
                payable
            
            
            
            
            
            (116
            )Other
                current liabilities
            
            
            
            
            
            (495
            )Net
                assets held for sale
            
            
            
            
            $
            5,711




-
          12
          -
 Index


**10. 
COMMITMENTS
      AND CONTINGENCIES.**





**Obligation
      to Purchase Consigned Inventories**





The
      Company obtains vehicle chassis for its recreational vehicle products directly
      from automobile manufacturers under converter pool agreements. The agreements
      generally provide that the manufacturer will provide a supply of chassis at
      the
      Company's various production facilities under the terms and conditions as set
      forth in the agreement. Chassis are accounted for as consigned inventory until
      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 June
      30,
      2006 and December 31, 2005 chassis inventory, accounted for as consigned
      inventory, approximated $17.6 million and $26.8 million, respectively.





**Repurchase
      Agreements**





The
      Company was contingently liable at June 30, 2006 to banks and other financial
      institutions on repurchase agreements in connection with financing provided
      by
      such institutions to most of the Company's independent dealers in connection
      with their purchase of the Company's recreational vehicle products. These
      agreements provide for the Company to repurchase its products from the financing
      institution in the event that they have repossessed them upon a dealer's
      default. Products repurchased from dealers under these agreements are accounted
      for as a reduction in revenue at the time of repurchase. Although the estimated
      contingent liability approximates $218 million at June 30, 2006 ($262
      million at December 31, 2005), the risk of loss resulting from these agreements
      is spread over the Company's numerous dealers and is further reduced by the
      resale value of the products repurchased. Based on losses previously experienced
      under these obligations, the Company has established a reserve for estimated
      losses under repurchase agreements.  At
      June
      30, 2006 and December 31, 2005, $0.5 million and $0.4 million, respectively,
      were recorded as an accrual for estimated losses under repurchase
      agreements.





The
      Company was also contingently liable at June 30, 2006 to a financial institution
      on repurchase agreements in connection with financing provided by the
      institution to certain of the Company's independent home builders in connection
      with their purchase of the Company's housing products. This agreement provides
      for the Company to repurchase its products from the financing institution in
      the
      event that they have repossessed them upon a builder's default. Products
      repurchased from builders under this agreement are accounted for as a reduction
      in revenue at the time of repurchase. Although the estimated contingent
      liability approximates $19.6 million at June 30, 2006 ($15.9 million at December
      31, 2005), 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 $0.3 million June 30, 2006 and
      December 31, 2005 for estimated losses under the repurchase agreement.





**Corporate
      Guarantees**





The
      Company was contingently liable under guarantees to financial institutions
      of
      their loans to independent dealers for amounts totaling approximately $8.6
      million at June 30, 2006 and $6.2 million at December 31, 2005. The Company
      has
      an agreement with a financial institution to form a private-label financing
      program to provide wholesale inventory financing to the Company's dealers in
      the
      Recreational Vehicle Segment. The agreement provides for a preferred program
      that provides financing that is subject to the standard repurchase agreement
      described above. In addition, the agreement provides for a reserve pool whereby
      the financial institution makes available an aggregate line of credit not to
      exceed $40 million that will provide financing for dealers that may not
      otherwise qualify for credit approval under the preferred program. No dealer
      being provided financing from the reserve pool can receive an aggregate line
      of
      credit exceeding $5 million. In addition to the standard repurchase agreement
      described above, for 2006 the Company will be contingently liable to the
      financial institutions up to a maximum of $2.3 million of aggregate losses,
      as
      defined by the agreement, incurred by the financial institutions on designated
      dealers with higher credit risks that are accepted into the reserve pool
      financing program. After 2006, the Company will be liable up to a maximum of
      $2
      million of aggregate losses. The Company has recorded a loss reserve of $0.1
      million at June 30, 2006 and December 31, 2005 associated with these
      guarantees.




The
      Company is liable under an agreement to guarantee the indebtedness incurred
      by a
      recreational vehicle dealer towards the purchase of a dealership facility.
      The
      guarantee is in the principal amount of $1 million for a period of five years
      or
      until all indebtedness has been fully paid, whichever occurs first. The Company
      has evaluated the potential for losses under this agreement and has determined
      that the resolution of any claims that may arise in the future would not
      materially affect the Company's financial statements.





In
      addition, the Company is liable under a guarantee to a financial institution
      for
      model home financing provided to certain independent builders doing business
      with the Company's Housing and Building Segment. The amount outstanding under
      this agreement at June 30, 2006 is $0.4 million ($0.6 million at December
      31, 2005). Any losses incurred under this guarantee would be offset by the
      proceeds from the resale of the model home and losses are limited to 20% of
      the
      original contract price, and cannot exceed a total of $2.0 million. As of June
      30, 2006, no losses have been incurred by the Company under the model home
      financing program.




-
          13
          -
 Index




**Litigation**





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. The construction loan may
      be
      converted to a term loan for a period of two years, subject to the terms and
      conditions of the agreement. The loans are collateralized by a first priority
      interest in all tangible and intangible property of the borrower. As of June
      30,
      2006, the Company provided $2.3 million in financing to the developer under
      these arrangements. The developer is now unable to obtain a building permit,
      so
      the Company is pursuing its legal remedies through litigation to recoup the
      financing extended to date. No additional funding will be provided.





In
      January 2004, the Company entered into a long-term exclusive licensing agreement
      with The Coleman Company, Inc. to design, produce and market a full line of
      new
      Coleman® brand recreational vehicles. In November 2004, the judge presiding over
      the legal dispute between Fleetwood Enterprises, Inc. and The Coleman Company,
      Inc. entered an order granting Fleetwood’s request for an injunction against
      Coleman, prohibiting their use of the trademark registration “Coleman” in the
      recreational vehicle industry. To protect its rights under its existing license
      agreement with Coleman, Consolidated Leisure Industries, LLC, doing business
      as
      the Coachmen RV Group, filed suit against The Coleman Company, Inc. in federal
      court in Kansas City, Kansas, to enforce its rights under the License
      Agreement.





On
      March
      21, 2005, the Company entered into a settlement agreement with The Coleman
      Company, Inc. to resolve the licensing agreement suit. Pursuant to the
      settlement agreement, the Company has received $4,425,000 from The Coleman
      Company, Inc. in exchange for releasing all claims in the suit. The settlement
      of $4,425,000 was paid in two installments of $2,212,500, one of which was
      received by the Company on March 23, 2005 and the second of which was received
      on April 20, 2005, plus interest. In addition, the agreement provides for the
      potential of an additional payment of $500,000 if certain provisions of the
      agreement are breached. The settlement of $4,425,000 was recorded in the first
      quarter of 2005 as a reduction of $1,721,000 to cost of sales and a reduction
      of
      $461,000 to operating expenses at the RV Segment plus a reduction of $2,243,000
      to the Company’s general and administrative expenses.





During
      2005, the Company settled a personal injury suit for $5,000,000, $1,000,000
      of
      which was paid by the Company’s primary insurance carrier. The Company’s
      self-insured retention is $250,000. During 2005, the Company paid $1,500,000
      in
      addition to the amount paid by its primary carrier and recorded an other current
      liability of $2,500,000 to recognize the remaining amount to be paid on the
      settlement and the $250,000 retention. During June 2006, the remaining liability
      of $2,500,000 was paid. Since the excess carrier initially denied coverage,
      the
      Company filed suit against the excess carrier to enforce coverage. During the
      first quarter of 2006, the matter was settled for $2,875,000, which the Company
      received on March 15, 2006 and was recorded as a reduction to the RV Segment’s
      general and administrative expenses. There remains ongoing litigation against
      other parties to recover the balance over the retention.




During
      the first quarter of 2006, the Company also entered into a partial settlement
      of
      another insurance matter for $745,000, 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 currently in arbitration with a housing customer over damages
      resulting from a construction project. The arbitrator’s decision is anticipated
      to be received late in the third quarter of 2006. As of June 30, 2006, the
      Company has accrued an amount for which management believes the arbitration
      will be settled, however, there is a potential for exposure in excess of the
      amount accrued.





The
      Company is involved in various other legal proceedings, most of which are
      ordinary disputes incidental to the industry and most of which are covered
      in
      whole or in part by insurance. Management believes that the ultimate outcome
      of
      these matters and any liabilities in excess of insurance coverage and
      self-insurance accruals will not have a material adverse impact on the Company's
      consolidated financial position, future business operations or cash flows.





-
          14
          -
 Index




**11. 
      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* .
      No
      stock-based employee compensation cost was recognized in the Statement of
      Operations for the three or six-month periods ended June 30, 2005, as all
      options granted under the stock-based compensation plans had an exercise price
      equal to the market value of the underlying common stock on the date of grant.
      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 has
      not
      restated 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.




Prior
      to
      the adoption of Statement 123(R), the Company presented all tax benefits of
      deductions resulting from the exercise of stock options as operating cash flows
      in the Statement of Cash Flows. Statement 123(R) requires the cash flows
      resulting from the tax benefits resulting from tax deductions in excess of
      the
      compensation cost recognized for those options (excess tax benefits) to be
      classified as financing cash flows. Excess tax benefits for the three and
      six-month periods ended June 30, 2006 were not significant.





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 January 1, 2006 were not significant.
      Compensation expense related to the Company's Employee Stock Purchase Plan
      was
      not significant for the three or six-month periods ended June 30,
      2006.





On
      March 31, 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. 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
      calendar year 2006. If the Company meets 50%, 75% or 100% of the performance
      goal established, the participants will earn the corresponding percentage of
      their restricted shares. 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,
      2007, one-third on January 1, 2008 and one-third on January 1, 2009.
      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 110,000 shares, assuming 100% of the performance goal is
      achieved, were granted with a weighted average grant-date fair value of $11.05
      per share. At June 30, 2006, the Company determined that it was not yet probable
      that 50% of the performance goal would be achieved; therefore, no compensation
      expense has been recorded related to this plan for the three or six-month
      periods ended June 30, 2006. Either due to termination of employment or as
      a
      condition to receiving the 2006 Restricted Stock Awards, the participants
      forfeited all rights to the 99,600 shares and 75,600 shares awarded in 2004
      and
      2005, respectively, under the Performance Based Restricted Stock Plan. Shares
      awarded under this plan in 2003 were forfeited as of December 31, 2005 due
      to
      failure to meet the performance goals.





During
      the first quarter of 2005, the Company had determined that it was probable
      that
      the performance requirements of the 2003 Performance Based Restricted Stock
      Plan
      would not be achieved and as a result, reversed the expenses that had been
      recorded related to this plan. For the three months ended June 30, 2005, the
      Company amortized $48,000 to compensation expense related to the 2004 and 2005
      Plans. For the six months ended June 30, 2005, the Company reduced compensation
      expense, which is a component of general and administrative expenses, by
      $710,000 related to these programs.





Prior
      to
      January 1, 2006, the Company accounted for employee stock-based compensation
      using the intrinsic method in accordance with Accounting Principles Board
      Opinion No. 25, *Accounting
      for Stock Issued to Employees* (APB 25)
      as permitted by SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      and
      SFAS 148, *Accounting
      for Stock-Based Compensation — Transition and Disclosure* .
      Under
      the intrinsic method, the difference between the market price on the date of
      grant and the exercise price is charged to the results of operations over the
      vesting period on a straight-line method. Accordingly, the Company was not
      required to recognize compensation cost for stock options issued to employees
      or
      shares issued under the employee stock purchase plan. Prior to the adoption
      of
      SFAS 123R, the Company recognized compensation cost only for restricted stock.


-
          15
          -
 Index


For
      the
      three and six-month periods ended June 30, 2005, had the Company accounted
      for
      all employee stock-based compensation based on the estimated grant date fair
      values, as defined by SFAS 123, the Company’s net income and net income per
      share would have been adjusted to the following pro forma amounts (in thousands,
      except per share data):




Three
                Months
              Ended
            
            Six
                Months
              EndedJune
                30, 2005
            
            June
                30, 2005Net
                Loss, as reported
            
            $
            (1,470
            )
            $
            (2.856
            )Add:
                stock-based compensation expense under variable plan included in
                reporting
                net income, net of taxes
            
            
            (23
            )
            
            (512
            )Deduct:
                total stock-based compensation expense determined under fair value
                based
                method for all awards, net of taxes
            
            
            (1
            )
            
            290Pro
                forma net loss
            
            $
            (1,494
            )
            $
            (3,078
            )Loss
                per share:Basic
                - as reported
            
            $
            (.09
            )
            $
            (.18
            )Basic
                - pro forma
            
            $
            (.10
            )
            $
            (.20
            )Diluted
                - as reported
            
            $
            (.09
            )
            $
            (.18
            )Diluted
                - pro forma
            
            $
            (.10
            )
            $
            (.20
            )




**12. 
      NEW ACCOUNTING PRONOUNCEMENTS.**





In
      July
      2006, the Financial Accounting Standards Boards (FASB) issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* -an
      interpretation of FASB Statement No. 109, which clarifies the accounting for
      uncertainty in tax positions. This interpretation requires that the Company
      recognize in the financial statements, the impact of a tax position, if that
      position is more likely than not of being sustained on audit, based on the
      technical merits of the position. This interpretation is effective for fiscal
      years beginning after December 15, 2006, with the cumulative effect of the
      change in accounting principle recorded as an adjustment to opening retained
      earnings. The Company has not yet determined the impact this interpretation
      will
      have on the financial statements.




**13. 
      SUBSEQUENT EVENTS.**





On
      August
      2, 2006, the Company executed a $55 million, five-year, secured Revolving Credit
      Facility with LaSalle Business Credit, LLC. This new five-year facility replaces
      the previous $35 million facility that was due to expire on August, 31, 2006.
      Under the new facility, available borrowings will be based on 85% of eligible
      accounts receivable plus the lesser of 60% of eligible inventory or 85%
      liquidation value of inventory, 70% of appraised value of mortgaged real estate
      and 80% liquidation value of equipment. The new agreement, which expires July
      31, 2011, also has an accordion feature enabling the credit facility to be
      increased by an additional $25 million, subject to customary conditions.
      Outstanding borrowings under the new agreement will bear interest at rates
      based
      on the prime or LIBOR rates as outlined in the agreement. The new credit
      facility is secured by certain assets of the Company, including cash, trade
      accounts and other receivables, inventory, fixed assets and notes receivable,
      which total approximately $270 million. Financial covenant ratios are required
      to be calculated only in the event a Funds Control Event occurs, as defined
      in
      the agreement.





On
      August
      2, 2006, the Company paid off the remaining $6.1 million of a term loan that
      had
      been a component of the prior credit facility. This term loan was classified
      as
      a component of current maturities of long-term debt as of June 30, 2006. On
      August 2, 2006, the Company utilized the new revolving credit facility to
      provide $9.3 million of cash collateral to support a number of outstanding
      letters of credit issued from the prior credit facility until they can be
      replaced under the new facility.


-
          16
          -
 Index


**Coachmen
      Industries, Inc. and Subsidiaries**


**Management’s
      Discussion and Analysis of**


**Financial
      Condition and Results of Operations**





The
      following is management’s discussion and analysis of certain significant
      factors, which have affected the Company’s financial condition, results of
      operations and cash flows during the periods included in the accompanying
      consolidated financial statements.





A
      summary
      of the changes in the principal items included in the consolidated statements
      of
      operations is shown below (dollar amounts in thousands).





Comparison
                ofThree
                Months
            
            Six
                MonthsEnded
                June 30, 2006 and 2005Increases
                (Decreases)Amount
            
            Percentage
            
            Amount
            
            PercentageNet
                sales
            
            $
            (34,710
            )
            
            (18.3
            )
            %
            
            $
            (64,405
            )
            
            (16.8
            )
            %Cost
                of sales
            
            
            (30,576
            )
            
            (18.0
            )
            
            
            
            (56,127
            )
            
            (16.3
            )Delivery
                expenses
            
            
            (541
            )
            
            (6.4
            )
            
            
            
            (434
            )
            
            (2.6
            )Selling
                expenses
            
            
            (2,571
            )
            
            (32.9
            )
            
            
            
            (4,686
            )
            
            (31.0
            )General
                and administrative expenses
            
            
            (2,667
            )
            
            (33.4
            )
            
            
            
            (4,600
            )
            
            (36.0
            )Gain
                on sale of assets, net
            
            
            3,335
            
            
            n/m
            
            
            
            
            6,007
            
            
            n/mInterest
                expense
            
            
            43
            
            
            6.2
            
            
            
            
            118
            
            
            7.5Investment
                income
            
            
            23
            
            
            5.2
            
            
            
            
            (431
            )
            
            (34.3
            )Other
                income, net
            
            
            (84
            )
            
            (51.5
            )
            
            
            
            11
            
            
            4.7Income
                (loss) from continuing operations before income taxes
            
            
            4,876
            
            
            116.2
            
            
            
            
            6,911
            
            
            123.1Income
                taxes
            
            
            2,736
            
            
            107.8
            
            
            
            
            3,414
            
            
            113.8Net
                income (loss) from continuing operations
            
            
            2,140
            
            
            128.9
            
            
            
            
            3,497
            
            
            133.8Income
                (loss) from operations of discontinued operations, net of
                taxes
            
            
            (366
            )
            
            (192.6
            )
            
            
            
            2,573
            
            
            n/mNet
                income (loss)
            
            
            1,774
            
            
            120.7
            
            
            
            
            6,070
            
            
            212.5





n/m - not meaningful




-
          17
          -
 Index





The
      following table presents certain key items impacting the results of operations
      for the periods presented:




Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Gain
                on sale of assets, net
            
            $
            3,372
            
            $
            37
            
            $
            6,048
            
            $
            41Legal
                settlements
            
            
            -
            
            
            -
            
            
            3,620
            
            
            4,425




**NET
      SALES**





Consolidated
      net sales from continuing operations for the quarter ended June 30, 2006 were
      $155.3 million, a decrease of $34.7 million, or 18.3%, from the $190.0 million
      reported for the corresponding quarter last year.  Net
      sales
      for the six months ended June 30, 2006 were $317.9 million, representing a
      decrease of $64.4 million, or 16.8%, reported for the same period in
      2005 . The
      Company’s Recreational Vehicles Segment experienced a net sales decrease of
      21.4% for the quarter and a decrease of 21.7% for the six-month
      period.  The
      net
      sales decline in the RV Segment was primarily due to the continued industry-wide
      weakness in the Class A motorhome market, together with a more challenging
      model
      change process than the previous year. Sales were also negatively affected
      by
      lingering market effects of the warranty matters stemming from sidewalls of
      most
      product types and camping trailer lift system issues encountered in 2005.





RV
      Segment wholesale unit shipments of all product types decreased by 23.2% to
      3,894 units for the quarter and decreased by 11.7% to 8,702 units for the
      six-month period. For the quarter, shipments of motorized products fell 21.9%
      to
      1,122 units, while shipments of non-motorized products decreased by 23.7% to
      2,772 units. For the six-month period, shipments of motorized products fell
      27.8% to 2,212 units, while shipments of non-motorized products decreased by
      4.5% to 6,490 units.  Backlogs
      in units fell 65.2% to 726 from 2,089 at the end of the second quarter of 2005,
      which largely reflected orders received during the dealer meetings in June
      2005.
      The decline in backlogs was primarily due to model change and the timing of
      the
      Georgie Boy and Coachmen RV annual dealer meetings, which occurred in June
      last
      year but were rescheduled to July this year. This shift pushed orders for 2007
      product into the third quarter.





The
      Company’s Housing and Building Segment experienced a net sales decrease for the
      quarter ended June 30, 2006 of 9.0%, from $48.6 million during the second
      quarter of 2005 to $44.2 million for the second quarter of 2006.  Net
      sales
      for the six months ended June 30, 2006 were $86.9 million, representing a
      decrease of $0.2 million from the $87.1 reported for the same period in
      2005.  Wholesale
      unit shipments of residential units were down 14.7% for the quarter and 9.5%
      for
      the six-month period ended June 30, 2006. Despite the decline in unit shipments
      for the three-month period, the decline in the Segment’s revenues for the period
      was mitigated by a 9.9% increase in average revenues per unit due to a shift
      in
      product mix.  Backlog
      for the Housing and Building Segment as of June 30, 2006 decreased  10.8%
      to
      $40.5 million, compared with $45.4 million at June 30, 2005.





In
      order
      to supplement the Company’s single-family residential housing business, the
      Housing and Building Segment continues to pursue opportunities for larger
      projects in multi-family residential and commercial markets. In the first
      quarter, the Company’s All American Building Systems (AABS) commercial business
      branch completed a number of projects, including a $1.2 million condominium
      project in the Florida Keys and the $4.5 million military housing project at
      Fort Bliss in Texas.





The
      prospects of the Company’s All American Building Systems (AABS) special projects
      branch continued to brighten, but it did not contribute to earnings in the
      second quarter due to unexpectedly long incubation periods for new projects.
      However, a number of bids involving large military construction projects are
      in
      the final stages of review and management anticipates being awarded several
      of
      these new projects which may have a significant positive impact on operating
      results beginning in the fourth quarter and into 2007. At the same time, based
      on the success of its previously completed projects, All American Homes has
      received significant interest from developers of larger multi-family residential
      and dormitory projects. Another sizable opportunity for the Housing and Building
      Group involves the reconstruction of the Gulf Coast regions damaged by the
      hurricanes last fall. 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.





**COST
      OF SALES**





Cost
      of
      sales decreased 18.0%, or $30.6 million, for the three months ended June 30,
      2006. For the six-month period, cost of sales decreased $56.1 million or 16.3%.
      As a percentage of net sales, cost of sales was 89.7% and 89.4% for the
      three-month periods ended June 30, 2006 and 2005, respectively, and 90.4% and
      89.8% for the six-month periods ended June 30, 2006 and 2005, respectively.
      The
      change in the dollar amount of cost of sales in the current quarter and
      six-month periods is attributable to the decrease in sales dollars offset
      by higher insurance, utility, contract labor and higher quality control
      costs. In addition, reductions in the production levels caused lower overhead
      absorption and labor inefficiencies in 2006.





-
          18
          -
 Index




**OPERATING
      EXPENSES**





As
      a
      percentage of net sales, operating expenses, which include delivery, selling,
      general and administrative expenses, were 11.9% and 12.8% for the three
      months ended June 30, 2006 and 2005, respectively. For the six-month period,
      operating expenses were 10.9% and 11.6% for 2006 and 2005,
      respectively.  As
      a
      percentage of sales, delivery expenses increased by 0.6 and 0.8 percentage
      points for the three and six-month periods ended June 30, 2006 as compared
      to
      the prior year three and six-month periods. In dollars, delivery expense
      declined $0.5 million and $0.4 million for the three and six-month periods
      ended
      June 30, 2006 as compared to the prior year periods. The increase in delivery
      expense as a percent of net sales during the quarter and six-month periods
      was a
      result of the significant decline in net sales as compared to the minor decline
      in delivery expense dollars.  Decreases
      in crane rental and freight costs, as a result of the lower sales volume, were
      partially offset by higher fuel costs.





Selling
      expenses were 3.4% of net sales for the 2006 quarter compared to 4.1% of net
      sales for the three-month period ended June 30, 2005. For the six-month
      periods, selling expenses were 3.3% of net sales for 2006 compared to 4.0%
      of
      net sales for 2005.  The
      decrease in selling expense as a percentage of net sales during the quarter
      and
      six-month periods is related to decreased payroll expenses, due to the reduction
      in force which occurred in 2005, as well as, due to decreased expenses related
      to product shows, literature, dealer earned volume bonuses and other promotional
      expenses. In addition, during 2005, the RV seminar was held in the second
      quarter whereas the 2006 seminar was held in the third quarter: therefore,
      the
      2006 expenses related to the seminar will be recorded in the third quarter.





General
      and administrative expenses were 3.4% of net sales for the quarter compared
      to
      4.2% for the 2005 corresponding quarter. General and administrative expenses
      were 2.6% of net sales for the six-month period ended June 30, 2006 compared
      to
      3.3% for the 2005 corresponding period.   The
      decrease in expenses for the six-month period was primarily the result of two
      legal settlements received during the first quarter which totaled $3.6 million,
      but that were partially offset by other legal fees. In addition, payroll costs
      decreased during the three and six-month periods of 2006 as compared to the
      comparable periods of 2005 due to the reduction of force that occurred in 2005.
      Employee relocation and bad debt expense also decreased during the three and
      six-month periods of 2006 as compared to the comparable periods of
      2005.





**GAIN
      ON THE SALE OF ASSETS, NET**





For
      the
      three months ended June 30, 2006, the gain on the sale of assets was $3.4
      million. For the six months ended June 30, 2006, the gain on the sale of assets
      was $6.0 million. On June 8, 2006, the Company completed the sale of its Cessna
      Jet 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 completed the sale of a property located in Grapevine,
      Texas for $2.0 million, which resulted in a gain of $1.8 million. Also during
      the first quarter, the Company completed the sale of vacant farmland in
      Middlebury, Indiana for $1.0 million, which resulted in a gain of $0.8
      million. There were no significant gains or losses from property transactions
      for the three or six-month periods ended June 30, 2005.





**INTEREST
      EXPENSE**





Interest
      expense was $0.7 million for both the three-month periods ended June 30, 2006
      and 2005. Interest expense was $1.7 million and $1.6 million for the six-month
      periods ended June 30, 2006 and 2005, respectively. Although borrowings have
      been lower during 2006 than 2005, higher applicable interest rates negated
      the
      impact on interest expense of the lower borrowing levels.





**INVESTMENT
      INCOME**





There
      was
      a net investment income of $0.5 million for the quarter ended June 30, 2006
      compared to $0.4 in the same quarter of 2005. Net investment income for the
      six-month period ended June 30, 2006 was $0.8 million compared to $1.3 million
      in the same period of 2005. Investment income is principally attributable to
      earnings of the life insurance policies held and in 2005 also included realized
      gains on the sale of preferred stock.





**OTHER
      INCOME, NET**





Other
      income, net, represents income of $0.1 million for the second quarter of 2006
      and income of $0.2 million for the same quarter of the previous year. For the
      six-month period, other income, net, for both 2006 and 2005 was $0.2 million.
      No
      items of significance caused the variances between the comparable three and
      six-month periods.





-
          19
          -
 Index




**INCOME
      TAXES**





For
      the
      second quarter ended June 30, 2006, the effective tax rate was 29.3% and the
      year-to-date effective tax rate was 31.8% compared with a 2005 second quarter
      effective tax credit of 62.1% and a year-to-date tax credit of 52.6%. The
      Company’s effective tax rate fluctuates based upon estimated annual pre-tax
      income amounts, the states where sales occur, the estimated annual amount of
      export sales, nontaxable increases in cash value of life insurance contracts,
      other permanent tax differences, increases or decreases in tax reserves and
      recognized federal and state tax credits.





The
      effective tax rate for the 2006 second quarter and year-to-date was favorably
      impacted by the release of certain state tax reserves resulting from favorable
      outcomes of the Company’s participation in a number of state voluntary
      disclosure programs.





During
      the first quarter of 2006, the Company recorded a decrease in current deferred
      tax assets of $0.3 million and a decrease in long-term deferred tax assets
      of
      $1.4 million to recognize deferrals that will be utilized as a result of the
      sale of Miller Building Systems, Inc.





During
      the six-month period ended June 30, 2005, the Company completed a project to
      identify eligible research and development (“R&D”) expenditures for the
      purpose of filing amended Federal and Indiana income tax returns to claim tax
      credits for eligible R&D activities. During the quarter ended June 30, 2005,
      the Company recorded $1.5 million of tax refunds receivable, applicable to
      estimated refunds for prior years’ R&D tax credits, with a related credit to
      the 2005 income tax provision. The prior years’ R&D tax credits, recorded in
      2005, increased the Company’s effective tax benefit rate by 38.5% for the
      quarter and 24.7% for the 2005 year-to-date. In addition, the Company expected
      that its effective tax rate for 2005 would be favorably impacted by 3.6% for
      estimated 2005 R&D tax credits and by 0.8% for additional tax deductions
      provided to manufacturers under the 2004 American Jobs Creation
      Act.





**DISCONTINUED
      OPERATIONS**





On
      January 13, 2006, the Company sold all operating assets of Prodesign, LLC.
      The
      total sales price was $8.2 million, of which the Company received $5.7 million
      in cash, a $2.0 million promissory note and $0.5 million to be held in escrow
      to
      cover potential warranty claims and uncollectible accounts receivable, as
      defined in the sale agreement. The promissory note is to be repaid over a period
      of 10 years, using an amortization period of 15 years, and bears interest at
      6%
      per annum with interest only payments being required in the first three years.
      Any funds remaining in the escrow account after a period of 13 months will
      revert to the Company. In accordance with Statement of Financial Accounting
      Standard No. 144, Prodesign qualified as a separate component of the Company’s
      business and as a result, the operating results of Prodesign have been accounted
      for as a discontinued operation. Previously reported financial results for
      all
      periods presented have been restated to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the Recreational Vehicle Segment goodwill based on the relative
      fair value of the discontinued operations to the Recreational Vehicle 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 quarter ended June 30, 2005, were $4.3 million and the pre-tax
      income for the quarter ended June 30, 2005, was $0.1 million. Net sales of
      Prodesign for the six-month period ended June 30, 2005, were $7.9 million and
      the pre-tax income for the six-month period ended June 30, 2005, was $0.3
      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 and a
      $2.5
      million secured note. The note is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business in 2005 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
      quarter ended June 30, 2005 were $11.8 million, and the pre-tax income for
      the
      quarter ended June 30, 2005, was $0.1 million. Net sales of Miller Building
      Systems, Inc. for the six-month period ended June 30, 2005, were $18.8 million
      and the pre-tax loss for the six-month period ended June 30, 2005, was $(0.6)
      million. In connection with the sale of Miller Building Systems, $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.





-
          20
          -
 Index




In
      conjunction with the actions noted above, during the fourth quarter of 2005
      management allocated goodwill of $0.7 million to the discontinued operations
      from the Housing and Building Segment goodwill based on the relative fair value
      of the discontinued operations to the entire Housing and Building Segment.
      The
      $0.7 million of allocated goodwill consisted of $0.6 million allocated to Miller
      Building Systems, which was written off as part of the 2005 loss from operations
      of discontinued operations and $0.1 million allocated to All American Homes
      of
      Kansas, which was included in the 2005 loss on sale of assets of discontinued
      operations. During the first quarter of 2006, an additional $0.3 million of
      goodwill was allocated to Miller Building Systems based on the final sales
      price
      relative to the fair value of the entire Housing and Building Segment. The
      additional $0.3 million of allocated goodwill was written off as part of the
      2006 gain on sale of assets of discontinued operations.





On
      December 31, 2005, the Company sold all operating assets of the All American
      Homes Kansas division. In accordance with Statement of Financial Accounting
      Standard No. 144, the division qualified as a separate component of the
      Company’s business and as a result, the operating results of the division have
      been accounted for as a discontinued operation. Previously reported financial
      results for all periods presented have been restated to reflect this business
      as
      a discontinued operation. Net sales of the Kansas division for the quarter
      ended
      June 30, 2005, were $2.8 million, and the pre-tax income for the quarter ended
      June 30, 2005 was $43,000. Net sales of the Kansas division for the six-month
      period ended June 30, 2005, were $5.1 million and the pre-tax loss for the
      six-month period ended June 30, 2005, was $(0.1) million.





**NET
      INCOME (LOSS)**





Net
      income from continuing operations for the quarter ended June 30, 2006 was $0.5
      million (earnings of $0.03 per diluted share) compared to a net loss from
      continuing operations for the quarter ended June 30, 2005 of $1.7 million (a
      loss of $0.10 per diluted shared). Net income from continuing operations for
      the
      six-month period ended June 30, 2006 was $0.9 million (earnings of $0.06 per
      diluted share) compared to a net loss from continuing operations for the
      six-month period ended June 30, 2005 of $2.6 million (a loss of $0.16 per
      diluted share).





Net
      income for the quarter ended June 30, 2006 was $0.3 million (earnings of $0.02
      per diluted share) compared to a net loss of $1.5 million (a loss of $0.09
      per
      diluted share) for 2005. Net income for the six-month period ended June 30,
      2006
      was $3.2 million (earnings of $0.21 per diluted share) compared to a net loss
      of
      $2.9 million (a loss of $0.18 per diluted share) for 2005.





**LIQUIDITY,
      CAPITAL RESOURCES AND FINANCIAL CONDITION**





The
      Company generally relies on funds from operations as its primary source of
      liquidity.





In
      addition, the Company maintains a $35 million, unsecured revolving credit
      facility, which is due to expire on August 31, 2006, to meet its seasonal
      working capital needs. At June 30, 2006, there were short-term borrowings of
      $5.0 million outstanding against the existing bank line of credit. The
      Company was in compliance with all debt covenant requirements under the
      revolving credit agreement, as amended, at June 30, 2006. At December 31, 2005,
      there were short-term borrowings of $12.3 million outstanding. As of June 30,
      2006 and December 31, 2005, $15 million had been borrowed against the cash
      surrender value of Company-owned life insurance contracts.





On
      August
      2, 2006, the Company executed a $55 million, five-year, secured Revolving Credit
      Facility with LaSalle Business Credit, LLC. This new five-year facility replaces
      the previous $35 million facility that was due to expire on August, 31, 2006.
      Under the new facility, available borrowings will be based on 85% of eligible
      accounts receivable plus the lesser of 60% of eligible inventory or 85%
      liquidation value of inventory, 70% of appraised value of mortgaged real estate
      and 80% liquidation value of equipment. The new agreement, which expires July
      31, 2011, also has an accordion feature enabling the credit facility to be
      increased by an additional $25 million, subject to customary conditions.
      Outstanding borrowings under the new agreement will bear interest at rates
      based
      on the prime or LIBOR rates as outlined in the agreement. The new credit
      facility is secured by certain assets of the Company, including cash, trade
      accounts and other receivables, inventory, fixed assets and notes receivable,
      which total approximately $270 million. Financial covenant ratios are required
      to be calculated only in the event a Funds Control Event occurs, as defined
      in
      the agreement.





On
      August
      2, 2006, the Company paid off the remaining $6.1 million of a term loan that
      had
      been a component of the prior credit facility. This term loan was classified
      as
      a component of current maturities of long-term debt as of June 30, 2006. On
      August 2, 2006, the Company utilized the new revolving credit facility to
      provide $9.3 million of cash collateral to support a number of outstanding
      letters of credit issued from the prior credit facility until they can be
      replaced under the new facility.


-
          21
          -
 Index





At
      June
      30, 2006, working capital, defined as current assets less current liabilities,
      decreased to $90.1 million from $93.0 million at December 31, 2005. The $20.1
      million decrease in current assets at June 30, 2006 versus December 31, 2005
      was
      primarily due to the sale of Miller Building Systems, Inc. and Prodesign, LLC,
      as well as a decrease in accounts receivable and a partially offsetting increase
      in inventories, at the remaining subsidiaries . Likewise,
      the $17.2 million decrease in current liabilities at June 30, 2006 versus
      December 31, 2005 was also due to the sale of Miller Building Systems and a
      decrease in the warranty accrual, offset by an increase in current maturities
      in
      long-term debt.





Management
      believes that the Company’s existing cash and cash equivalents as of June 30,
      2006, together with its available revolving credit facility under
      the  August
      2006  facility
      and cash expected to be generated from future operations, will be sufficient
      to
      fund future planned capital expenditures and other operating cash requirements
      for the foreseeable future.




**CRITICAL
      ACCOUNTING POLICIES**




The
      preparation of the Company's consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States, requires management to make estimates and assumptions that affect
      the amounts reported in the financial statements and accompanying notes. On
      an
      ongoing basis, management evaluates these estimates. Estimates are based on
      historical experience and on various other assumptions that are believed to
      be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Historically, actual results have
      not
      been materially different from the Company's estimates. However, actual results
      may differ from these estimates under different assumptions or conditions.
      A
      summary of the Company’s more significant accounting policies that require the
      use of estimates and judgments in preparing the financial statements is provided
      in the Company’s 10-K report for the year ended December 31, 2005. During the
      first six months of fiscal 2006, there was no material change in the accounting
      policies and assumptions previously disclosed.





**Statement
      of Operations Classification**





The
      Company calculates its gross profit as the difference between its net sales
      and
      the associated cost of sales. Cost of sales consists of direct product
      costs including inbound freight. The Company classifies the following operating
      expense categories separately on its statement of operations: delivery; selling;
      general and administrative; asset impairments and gains (losses) of sales of
      assets, net.





The
      Company’s gross profit may not be comparable to other entities whose shipping
      and handling expenses are presented as a component of cost of sales. Delivery
      expense was $7.9 million and $8.5 million for the three months ended June 30,
      2006 and 2005, respectively, and $16.1 million and $16.6 million for the six
      months ended June 30, 2006 and 2005, respectively.




**FORWARD-LOOKING
      STATEMENTS**





This
      Form
      10-Q Report contains certain statements that are "forward-looking" statements
      within the meaning of Section 27A of the Securities Act of 1933 and Section
      21E
      of the Securities Exchange Act of 1934, as amended. These forward-looking
      statements are based on management’s expectations and beliefs concerning future
      events. Forward-looking statements are necessarily subject to risks and
      uncertainties, and are dependent on various factors, many of which are outside
      the control of the Company. These uncertainties and other factors include,
      but
      are not limited to:




Ÿ
            the
              potential fluctuations in the Company's operating
              results; Ÿ
            the
                availability for floorplan financing for the Company's recreational
                vehicle dealers and corresponding availability of cash to the
                Company;


Ÿ
            uncertainties
                regarding the impact on sales of the disclosed restructuring steps
                in both
                the Recreational Vehicle and Housing and Building
                Segments;


Ÿ
            the
                ability to sell and close the operations for sale as
                described;


Ÿ
            the
                accuracy of the estimates of the costs to remedy the disclosed
                recreational vehicle warranty
                issues;


Ÿ
            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;


Ÿ
            uncertainties
                and timing with respect to sales resulting from recovery efforts
                in the
                Gulf Coast;


Ÿ
            the
                availability and price of gasoline and diesel fuel, which can impact
                the
                sale of recreational vehicles;


Ÿ
            the
                Company's dependence on chassis and other suppliers;


Ÿ
            interest
                rates, which affect the affordability of the Company's
                products;


Ÿ
            the
                availability and cost of real estate for residential housing;






-
          22
          -
 Index




Ÿ
            the
                increased size and scope of work of commercial and military housing
                projects as compared to the Company's traditional single-family homes
                business;


Ÿ
            the
                ability of the Housing and Building Segment to perform in new market
                segments where it has limited experience;


Ÿ
            adverse
                weather conditions affecting home
                deliveries;


Ÿ
            potential
                liabilities under repurchase agreements and guarantees;


Ÿ
            changing
                government regulations, such as those covering accounting standards;


Ÿ
            environmental
                matters or product warranties and recalls, which may affect costs
                of
                operations, revenues, product acceptance and profitability;


Ÿ
            legislation
                governing the relationships of the Company with its recreational
                vehicle
                dealers, which may affect the Company’s options and liabilities in the
                event of a general economic downturn;


Ÿ
            consolidation
                of distribution channels in the recreational vehicle industry;


Ÿ
            the
                impact of consumer confidence and economic uncertainty on high-cost
                discretionary product purchases, which can hinder the sales of
                recreational vehicles;


Ÿ
            and
                also on the state of the recreational vehicle and housing industries
                in
                the United States.





Other
      factors affecting forward-looking statements include:





Ÿ
            changes
                in property taxes and energy costs;


Ÿ
            changes
                in federal income tax laws and federal mortgage financing
                programs;


Ÿ
            competition
                in the industries in which the Company
                operates;


Ÿ
            consumer
                confidence;


Ÿ
            oil
                supplies;


Ÿ
            the
                Company’s ability to increase gross margins which are critical to
                profitability whether there are or are not increased sales;


Ÿ
            the
                Company’s use of incentives at either the wholesale or retail level;


Ÿ
            further
                developments in the war on terrorism and related international
                crises;


Ÿ
            uncertainties
                of matters in litigation and other risks and uncertainties.




In
      addition, investors should be aware that generally accepted accounting
      principles prescribe when a company must disclose or reserve for particular
      risks, including litigation exposures. Accordingly, results for a given
      reporting period could be significantly affected if and when a reserve is
      established for a major contingency. Reported results may therefore appear
      to be
      volatile in certain accounting periods. The foregoing lists are not exhaustive,
      and the Company disclaims any obligation to subsequently revise any
      forward-looking statements to reflect events or circumstances after the date
      of
      such statements.





At
      times,
      the Company's actual performance differs materially from its projections and
      estimates regarding the economy, the recreational vehicle and building
      industries and other key performance indicators. Readers of this Report are
      cautioned that reliance on any forward-looking statements involves risks and
      uncertainties. Although the Company believes that the assumptions on which
      the
      forward-looking statements contained herein are reasonable, any of those
      assumptions could prove to be inaccurate given the inherent uncertainties as
      to
      the occurrence or nonoccurrence of future events. There can be no assurance
      that
      the forward-looking statements contained in this Report will prove to be
      accurate. The inclusion of a forward-looking statement herein should not be
      regarded as a representation by the Company that the Company's objectives will
      be achieved.




-
          23
          -
 Index


**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




In
      the
      normal course of business, operations of the Company are exposed to fluctuations
      in interest rates. These fluctuations can vary the costs of financing and
      investing yields. During the first six months of 2006, the Company has utilized
      its revolving credit facility to meet short-term working capital needs. The
      Company had $5.0 million outstanding against the revolving credit facility
      on
      June 30, 2006.





In
      January of 2003, the Company entered into various interest rate swap agreements
      that became effective beginning in October of 2003. These swap agreements,
      which
      are designated as cash flow hedges for accounting purposes, effectively convert
      a portion of the Company's variable-rate borrowings to a fixed-rate basis
      through November of 2011, thus reducing the impact of changes in interest rates
      on future interest expense. The fair value of the Company's interest rate swap
      agreements represents the estimated receipts or payments that would be made
      to
      terminate the agreements. A cumulative gain of $6,000, net of taxes,
      attributable to changes in the fair value of interest rate swap agreements
      was
      recorded as a component of accumulated other comprehensive income (loss) during
      the second quarter of 2006. Total accumulated gain on the swap agreements for
      the six-month period ended June 30, 2006 was $24,000. If in the future the
      interest rate swap agreements were determined to be ineffective or were
      terminated before the contractual termination dates, or if it became probable
      that the hedged variable cash flows associated with the variable-rate borrowings
      would stop, the Company would be required to reclassify into earnings all or
      a
      portion of the unrealized losses on cash flow hedges included in accumulated
      other comprehensive income (loss).  At
      June
      30, 2006, the Company had two remaining interest rate swap agreements with
      notional amounts of $3.2 million, and $1.6 million, respectively that were
      used
      to convert the variable interest rates on certain industrial development revenue
      bonds to fixed rates.  In
      accordance with the terms of the swap agreements, the Company pays 3.71%, and
      3.36% interest rates, respectively, and receives the Bond Market Association
      Index (BMA), calculated on the notional amounts, with net receipts or payments
      being recognized as adjustments to interest expense.





**ITEM
      4. CONTROLS AND PROCEDURES**





The
      Company’s management, with the participation of the Company’s Chief Executive
      Officer and Chief Financial Officer, has evaluated the effectiveness of the
      Company’s disclosure controls and procedures as of June 30, 2006. Based on that
      evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were effective
      as of June 30, 2006.





During
      the first quarter of 2006, the Company outsourced the processing of payroll
      to a
      third-party provider. Other than this outsourcing of payroll processing, there
      have been no changes during the three or six-month periods ended June 30, 2006
      that have materially affected, or are reasonably likely to materially affect,
      the Company's internal control over financial reporting.




-
          24
          -
 Index





**PART
      II. OTHER INFORMATION**








Item
      1. Legal Proceedings




During
      2005, the Company settled a personal injury suit for $5,000,000, $1,000,000
      of
      which was paid by the Company’s primary insurance carrier. The Company’s
      self-insured retention is $250,000. During 2005, the Company paid $1,500,000
      in
      addition to the amount paid by its primary carrier and recorded an other current
      liability of $2,500,000 to recognize the remaining amount to be paid on the
      settlement and the $250,000 retention. During June 2006, the remaining liability
      of $2,500,000 was paid. Since the excess carrier initially denied coverage,
      the
      Company filed suit against the excess carrier to enforce coverage. During the
      first quarter, the matter was settled for $2,875,000, which the Company received
      on March 15, 2006 and which was recorded as a reduction to the RV Segment’s
      general and administrative expenses. There remains ongoing litigation against
      other parties to recover the balance over the retention.




During
      the first quarter, the Company also entered into a partial settlement of another
      insurance matter for $745,000, net of a contingency fee.  This amount
      was recorded as a reduction to the Company's general and administrative
      expenses.




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





a)  The
      annual meeting of the shareholders of Coachmen Industries, Inc. was held on
      May
      4, 2006.





b)  The
      following nominees were elected Directors for three-year terms expiring in
      2009:





Claire
      C.
      Skinner





Donald
      W.
      Hudler





c)  The
      following nominee was elected Director for a special one-year term expiring
      in
      2007:





Philip
      G.
      Lux





d)  The
      tabulation of votes for each Director nominee was as follows:




For
            WithheldClaire
              C. Skinner
            12,816,779
            1,849,934Donald
              W. Hudler
            14,557,538
            109,175Philip
                G. Lux
            14,357,253
            309,460




e)      
      The terms of office of the following directors continued after the
      meeting:





Robert
      J.
      Deputy, Edwin W. Miller, Geoffrey B. Bloom, William P. Johnson





Item
      6. Exhibits





See
      Index
      to Exhibits incorporated by reference herein.




-
          25
          -
 Index




**SIGNATURES**





Pursuant
      to the requirements of the Securities and Exchange Act of 1934, the registrant
      has duly caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.














**COACHMEN
      INDUSTRIES, INC.**


(Registrant)














Date:August
                8, 2006
            By:
            /s/
                Claire C. SkinnerClaire
                C. Skinner, Chairman of the Board andChief
                Executive OfficerDate:August
                8, 2006
            By:
            /s/
                Richard M. LaversRichard
                M. Lavers, Executive Vice President,General
                Counsel and Secretary, Chief FinancialOfficer
                and Chief Administrative OfficerDate:August
                8, 2006
            By:
            /s/
                Colleen A. ZuhlColleen
                A. Zuhl, Chief Accounting Officer














-
          26
          -
 Index





**INDEX
      TO EXHIBITS**




Number
                Assigned
              In
                Regulation
              S-K,
                Item 601
            Description
                of Exhibit(3)(a)(i)
            Articles
                of Incorporation of the Company as amended on May 30, 1995 (incorporated
                by reference to Exhibit 3(i) to the Company's Annual Report on Form
                10-K
                for the fiscal year ended December 31, 1995).(3)(a)(ii)
            Articles
                of Amendment to Articles of Incorporation (incorporated by reference
                to
                Exhibit 4.2 to the Company's Form S-3 Registration Statement, File
                No.
                333-14579).(3)(b)
            By-Laws
                as modified through September 9, 2005 (incorporated by reference
                to the
                Company's Form 8-K filed September 15, 2005).(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.






-
      27
      -