**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 March 31, 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 on April 30, 2006:  15,627,365














**FORM
                10-Q****INDEX****Part
                I. Financial Information**
            **Page**Financial
                Statements:Consolidated
                Balance Sheets at March 31, 2006 and
                December 31, 2005
            3Consolidated
                Statements of Operations for
                the three months ended March 31, 2006 and 2005
            4Consolidated
                Statements of Cash Flows for the
                three months ended March 31, 2006 and 2005
            5Notes
                to Consolidated Financial
                Statements
            6-15Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            16-21Quantitative
                and Qualitative
                Disclosures About Market Risk
            22Controls
                and Procedures
            22**Part
                II. Other Information**Item
                1. Legal Proceedings
            23Item
                6. Exhibits
            23Signatures
            24Index
                to Exhibits
            25




Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Balance Sheets**


(in
      thousands)


March
                31,
            
            
            December
                31,**Assets**
            
            
            2006
            
            
            2005CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            8,906
            
            $
            2,780Trade
                receivables, less allowance for doubtful receivables 2006 - $1,283and 2005 - $1,240
            
            
            39,669
            
            
            47,174Other
                receivables
            
            
            2,695
            
            
            1,969Refundable
                income taxes
            
            
            9,750
            
            
            10,284Inventories
            
            
            114,980
            
            
            121,304Prepaid
                expenses and other
            
            
            3,281
            
            
            3,992Deferred
                income taxes
            
            
            11,133
            
            
            11,421Total
                current assets
            
            
            190,414
            
            
            198,924Property,
                plant and equipment**,**net
            
            
            60,840
            
            
            67,581Notes
                receivable
            
            
            7,219
            
            
            2,493Goodwill
            
            
            16,865
            
            
            17,383Cash
                value of life insurance, net of loans
            
            
            30,798
            
            
            28,880Deferred
                income taxes
            
            
            2,913
            
            
            4,279Assets
                held for sale
            
            
            2,666
            
            
            291Other
            
            
            2,762
            
            
            2,985TOTAL
                ASSETS
            
            $
            314,477
            
            $
            322,816**Liabilities
                and Shareholders' Equity**CURRENT
                LIABILITIESShort-term
                borrowings
            
            $
            -
            
            $
            12,276Accounts
                payable, trade
            
            
            41,106
            
            
            31,658Accrued
                income taxes
            
            
            801
            
            
            533Accrued
                expenses and other liabilities
            
            
            47,644
            
            
            54,856Floorplan
                notes payable
            
            
            5,068
            
            
            4,361Current
                maturities of long-term debt
            
            
            1,818
            
            
            2,223Total
                current liabilities
            
            
            96,437
            
            
            105,907Long-term
                debt
            
            
            11,561
            
            
            12,913Postretirement
                deferred compensation benefits
            
            
            10,488
            
            
            10,182Other
            
            
            -
            
            
            11Total
                liabilities
            
            
            118,486
            
            
            129,013COMMITMENTS
                AND CONTINGENCIES****(see
                Note 10)SHAREHOLDERS'
                EQUITYCommon
                shares, without par value: authorized 60,000 shares; issued 2006
                -21,140shares and 2005 - 21,134 shares
            
            
            92,224
            
            
            92,164Additional
                paid-in capital
            
            
            7,247
            
            
            6,465Unearned
                compensation
            
            
            -
            
            
            (142
            )Accumulated
                other comprehensive income (loss)
            
            
            12
            
            
            (6
            )Retained
                earnings
            
            
            156,219
            
            
            154,246Treasury
                shares, at cost, 2006 -5,512shares and 2005 - 5,375 shares
            
            
            (59,711
            )
            
            (58,924
            )Total
                shareholders' equity
            
            
            195,991
            
            
            193,803TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            314,477
            
            $
            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 March 31,2006
              
              2005Net
                sales
              
              $
              162,554
              
              $
              192,249Cost
                of sales
              
              
              147,912
              
              
              173,464Gross
                  profit
              
              
              14,642
              
              
              18,785Operating
                expenses:Delivery
              
              
              8,229
              
              
              8,121Selling
              
              
              5,180
              
              
              7,294General
                  and administrative
              
              
              2,850
              
              
              4,782Gain
                  on sale of assets, net
              
              
              (2,677
              )
              
              (3
              )13,582
              
              
              20,194Operating
                  income (loss)
              
              
              1,060
              
              
              (1,409
              )Nonoperating
                (income) expense:Interest
                  expense
              
              
              968
              
              
              893Investment
                  income
              
              
              (362
              )
              
              (817
              )Other
                  (income) expense, net
              
              
              (164
              )
              
              (68
              )442
              
              
              8Income
                  (loss) from continuing operations before income taxes
              
              
              618
              
              
              (1,417
              )Income
                taxes (credit)
              
              
              214
              
              
              (464
              )Net
                income (loss) from continuing operations
              
              
              404
              
              
              (953
              )Discontinued
                operationsLoss
                  from operations of discontinued entities (net of tax credits of
                  $(175) and
                  $(301), respectively)
              
              
              (329
              )
              
              (433
              )Gain
                  on sale of assets of discontinued entities (net of taxes of $1,510
                  in
                  2006)
              
              
              2,835
              
              
              -Income
                  (loss) from discontinued operations
              
              
              2,506
              
              
              (433
              )Net
                  income (loss)
              
              $
              2,910
              
              $
              (1,386
              )Earnings (loss)
                per share - BasicContinuing
                  operations
              
              $
              .03
              
              $
              (.06
              )Discontinued
                  operations
              
              
              .16
              
              
              (.03
              )Net
                  earnings (loss) per share
              
              
              .19
              
              
              (.09
              )Earnings
                (loss) per share - DilutedContinuing
                  operations
              
              
              .03
              
              
              (.06
              )Discontinued
                  operations
              
              
              .16
              
              
              (.03
              )Net
                  earnings (loss) per share
              
              
              .19
              
              
              (.09
              )Number
                of common shares used in the computation of earnings (loss) per
                share:Basic
              
              
              15,593
              
              
              15,526Diluted
              
              
              15,650
              
              
              15,526Cash
                dividends declared per common share
              
              $
              .06
              
              $
              .06


*See
      Notes to Consolidated Financial
      Statements.*


-
          4
          -
 Index


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Cash Flows**


(in
      thousands)


(Unaudited)


Three
                Months Ended March 31,2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            2,910
            
            $
            (1,386
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Depreciation
            
            
            1,669
            
            
            2,232Provision
                for doubtful receivables, net of recoveries
            
            
            148
            
            
            274Net
                realized and unrealized (gains)/losses on marketable securities and
                derivatives
            
            
            18
            
            
            (285
            )(Gain)
                loss on sale of properties and other assets, net
            
            
            (7,022
            )
            
            (4
            )Increase
                in cash surrender value of life insurance policies
            
            
            (584
            )
            
            (425
            )Deferred
                income tax provision (benefit)
            
            
            1,654
            
            
            (45
            )Other
            
            
            407
            
            
            (590
            )Changes
                in certain assets and liabilities, net of effects of acquisitions
                and
                dispositions:Trade
                receivables
            
            
            1,880
            
            
            (4,833
            )Inventories
            
            
            (5,842
            )
            
            (9,888
            )Prepaid
                expenses and other
            
            
            94
            
            
            772Accounts
                payable, trade
            
            
            10,958
            
            
            16,434Income
                taxes - accrued and refundable
            
            
            802
            
            
            (3,360
            )Accrued
                expenses and other liabilities
            
            
            (1,727
            )
            
            5,688Net
                cash provided by operating activities
            
            
            5,365
            
            
            4,584CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sales of marketable securities
            
            
            -
            
            
            1,399Proceeds
                from sale of properties and other assets
            
            
            17,870
            
            
            8Investments
                in marketable securities
            
            
            (1,334
            )
            
            (1,457
            )Purchases
                of property and equipment
            
            
            (1,785
            )
            
            (2,028
            )Other
            
            
            188
            
            
            (270
            )Net
                cash provided by (used in) investing activities
            
            
            14,939
            
            
            (2,348
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from short-term borrowings
            
            
            7,070
            
            
            232Payments
                of short-term borrowings
            
            
            (18,639
            )
            
            (10,206
            )Proceeds
                from long-term debt
            
            
            255
            
            
            -Payments
                of long-term debt
            
            
            (2,012
            )
            
            (274
            )Issuance
                of common shares under stock incentive plans
            
            
            85
            
            
            91Cash
                dividends paid
            
            
            (937
            )
            
            (943
            )Other
            
            
            -
            
            
            35Net
                cash used in financing activities
            
            
            (14,178
            )
            
            (11,065
            )Increase
                (decrease) in cash and cash equivalents
            
            
            6,126
            
            
            (8,829
            )CASH
                AND CASH EQUIVALENTSBeginning
                of period
            
            
            2,780
            
            
            14,992End
                of period
            
            $
            8,906
            
            $
            6,163Supplemental
              disclosures of cash flow information:Operating
                cash received during the quarter 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 March 31, 2006, and the results of its operations and cash
      flows for the interim periods presented. Operating results for the three-month
      period ended March 31, 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.





**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 months ended March 31 (in thousands):





Three
                Months Ended March 31,2006
            
            2005Net
                sales:Recreational
                vehicles
            
            $
            119,854
            
            $
            153,695Housing
                and building
            
            
            42,700
            
            
            38,554Consolidated
                total
            
            $
            162,554
            
            $
            192,249Gross
                profitRecreational
                vehicles
            
            $
            4,980
            
            $
            11,154Housing
                and building
            
            
            9,662
            
            
            7,564Other
                reconciling items
            
            
            -
            
            
            67Total
            
            $
            14,642
            
            $
            18,785Operating
                expensesRecreational
                vehicles
            
            $
            7,327
            
            $
            12,853Housing
                and building
            
            
            9,555
            
            
            10,705Other
                reconciling items
            
            
            (3,300
            )
            
            (3,364
            )Total
            
            $
            13,582
            
            $
            20,194


-
          6
          -
 Index


Three
                Months Ended March 31,2006
            
            2005Operating
                income/(loss)Recreational
                vehicles
            
            $
            (2,347
            )
            $
            (1,699
            )Housing
                and building
            
            
            107
            
            
            (3,141
            )Other
                reconciling items
            
            
            3,300
            
            
            3,431Total
            
            $
            1,060
            
            $
            (1,409
            )Pre-tax
                income/(loss) from continuing operationsRecreational
                vehicles
            
            $
            (2,668
            )
            $
            (1,863
            )Housing
                and building
            
            
            142
            
            
            (3,031
            )Other
                reconciling items
            
            
            3,144
            
            
            3,477Total
            
            $
            618
            
            $
            (1,417
            )March
                31,
            
            
            December
                31,Total
                assets
            
            
            2006
            
            
            2005Recreational
                vehicles
            
            $
            152,483
            
            $
            152,501Housing
                and building
            
            
            71,090
            
            
            83,338Other
                reconciling items
            
            
            90,904
            
            
            86,977Total
            
            $
            314,477
            
            $
            322,816





**3.   
      INVENTORIES.**





Inventories
      consist of the following (in thousands):


March
                31,
            
            December
                31,2006
            
            2005Raw
                materialsRecreational
                vehicles
            
            $
            20,602
            
            $
            19,770Housing
                and building
            
            
            8,430
            
            
            13,643Total
            
            
            29,032
            
            
            33,413Work
                in processRecreational
                vehicle
            
            
            22,050
            
            
            15,515Housing
                and building
            
            
            4,389
            
            
            5,280Total
            
            
            26,439
            
            
            20,795Improved
                lotsHousing
                and building
            
            
            249
            
            
            261Total
            
            
            249
            
            
            261Finished
                goodsRecreational
                vehicle
            
            
            45,500
            
            
            48,935Housing
                and building
            
            
            13,760
            
            
            17,900Total
            
            
            59,260
            
            
            66,835Total
            
            $
            114,980
            
            $
            121,304




-
          7
          -
 Index


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





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





March
                31,
              2006
            
            December
                31,
              2005Land
                and improvements
            
            $
            12,032
            
            $
            13,255Buildings
                and improvements
            
            
            62,943
            
            
            68,007Machinery
                and equipment
            
            
            23,688
            
            
            31,468Transportation
                equipment
            
            
            15,728
            
            
            16,279Office
                furniture and fixtures
            
            
            17,800
            
            
            19,080Total
            
            
            132,191
            
            
            148,089Less,
                accumulated depreciation
            
            
            71,351
            
            
            80,508Property,
                plant and equipment, net
            
            $
            60,840
            
            $
            67,581








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





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





March
                31,
              2006
            
            December
                31,
              2005Wages,
                salaries, bonuses and commissions
            
            $
            2,626
            
            $
            3,156Dealer
                incentives, including volume bonuses, dealer trips, interest
                reimbursement,
              co-op
                advertising and other rebates
            
            
            6,000
            
            
            4,284Warranty
            
            
            16,605
            
            
            20,005Insurance-products
                and general liability, workers compensation,group
                health and other
            
            
            7,769
            
            
            6,833Customer
                deposits and unearned revenues
            
            
            5,039
            
            
            10,029Litigation
            
            
            3,877
            
            
            3,740Interest
            
            
            1,274
            
            
            1,980Sales
                and property taxes
            
            
            1,806
            
            
            1,948Other
                current liabilities
            
            
            2,648
            
            
            2,881Total
            
            $
            47,644
            
            $
            54,856




-
          8
          -
 Index


Changes
      in the Company's warranty liability during the three-month periods ended March
      31, 2006 and 2005 were as follows (in thousands):




Three
                Months Ended March 31,2006
            
            2005Balance
                of accrued warranty at beginning of period
            
            $
            20,005
            
            $
            10,140Warranties
                issued during the period and changes in liability for pre-existing
                warranties
            
            
            6,536
            
            
            5,276Settlements
                made during the period
            
            
            (9,936
            )
            
            (5,100
            )Balance
                of accrued warranty at March 31
            
            $
            16,605
            
            $
            10,316





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 months
      ended March 31 are as follows (in thousands):





Three
                Months Ended March 31,2006
            
            2005Net
                income (loss)
            
            $
            2,910
            
            $
            (1,386
            )Unrealized
                losses on securities held for sale, net of taxes
            
            
            -
            
            
            (131
            )Unrealized
                gains (losses) on cash flow hedges, net of taxes
            
            
            18
            
            
            59Comprehensive
                income (loss)
            
            $
            2,928
            
            $
            (1,458
            )





As
      of
      March 31, 2006 and 2005, the accumulated other comprehensive income, net of
      tax,
      relating to unrealized gains on securities available for sale was $0 and
      $57,000, respectively, and relating to deferred losses on cash flow hedges
      was
      $12,000 and ($37,000), 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-month
      period ended March 31 were calculated using the average shares as follows (in
      thousands):





Three
                Months Ended March 31,2006
            
            2005Numerator:Net
                income (loss) available to common stockholders
            
            $
            2,910
            
            $
            (1,386
            )Denominator:Number
                of shares outstanding, end of period:Weighted
                average number of common shares used in basic EPS
            
            
            15,593
            
            
            15,526Effect
                of dilutive securities
            
            
            57
            
            
            -Weighted
                average number of common shares used in diluted EPS
            
            
            15,650
            
            
            15,526





-
          9
          -
 Index


For
      the
      quarter ended March 31, 2006, 73,075 shares,  of
      outstanding stock options were not included in the computation of diluted
      earnings per share because their exercise price was greater than the average
      market prices for the respective periods and their inclusion would have been
      antidilutive. As the Company reported a net loss for the quarter ended March
      31,
      2005, the dilutive effect of stock options and awards did not enter into the
      computation of diluted earnings per share because their inclusion would have
      been antidilutive.





**8.   INCOME
      TAXES.**





For
      the
      first quarter ended March 31, 2006, the effective tax rate was 34.6% compared
      with a 2005 first quarter effective tax rate from continuing operations of
      35.5%. The Company’s effective tax rate fluctuates based upon income levels, the
      states where sales occur, the amount of export sales, nontaxable dividends
      on
      investments, nontaxable increases in cash value of life insurance contracts
      and
      recognized federal and state tax credits.





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 can be utilized as a result of the
      sale
      of Miller Building Systems, Inc.




**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.





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
        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 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
      will be paid during 2006.





**Housing
      and Building Segment**





The
      Company is in the latter stages of closing the All American Homes operation
      in
      Springfield, Tennessee. The pending closure of the Tennessee location resulted
      in an asset impairment charge of approximately $1.1 million which was recorded
      in the third quarter of 2005.  The
      closure of the Tennessee facility should have minimal impact on revenues, as
      all
      existing builders in that region will continue to be served by the Company’s
      housing operations in Indiana, Ohio and North Carolina, but should improve
      profitability by eliminating the possibility of further losses at this location.
      On March 15, 2006, the Company entered into a definitive agreement for the
      sale
      of the Tennessee facilities for $5.3 million in cash. The sale of the Tennessee
      property is subject to certain customary conditions, and closing is anticipated
      to occur in late June or early July. The property, plant and equipment of the
      Tennessee facility has been classified as held for sale in the accompanying
      balance sheet as of March 31, 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
      March 31, 2005, were $2.3 million, and the pre-tax loss for the quarter ended
      March 31, 2005 was $(0.2) 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
      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 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 March 31, 2005 were $7.0
      million, and the pre-tax loss for the quarter ended March 31, 2005, was $(0.7)
      million. In connection with the sale of Miller Buildings Systems, $1.7 million
      of industrial revenue bonds were paid off as of March 31, 2006. In addition,
      subsequent to March 31, 2006, the Company terminated
      the $1.5
      million and $235,000, interest rate swaps which had been associated with these
      revenue bonds.


-
          10
          -
 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.





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 March 31, 2005, were $3.6 million and the
      pre-tax income for the quarter ended March 31, 2005, was $0.2
      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


-
          11
          -
 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
      either assigned to a unit in the production process or 90 days have passed.
      At
      the earlier of these dates, the Company is obligated to purchase the chassis
      and
      it is recorded as inventory. At March 31, 2006 and December 31, 2005 chassis
      inventory, accounted for as consigned inventory, approximated $11.5 million
      and
      $26.8 million, respectively.





**Repurchase
      Agreements**





The
      Company was contingently liable at March 31, 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 $237 million at March 31, 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 March 31, 2006 and December 31, 2005,
      $0.5 million and $0.4 million, respectively, was recorded as an accrual for
      estimated losses under repurchase agreements.





The
      Company was also contingently liable at March 31, 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 $19.3 million at March 31, 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 $0.2 million March
      31, 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 $9.3
      at
      March 31, 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 $2.4 million of aggregate losses,
      as
      defined by the agreement, incurred by the financial institutions on designated
      dealers with higher credit risks that are accepted into the reserve pool
      financing program. After 2006, the Company will be liable up to a maximum of
      $2
      million of aggregate losses. The Company has recorded a loss reserve of $0.1
      million at March 31, 2006 and December 31, 2005 associated with these
      guarantees.




-
          12
          -
 Index


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
      March
      31, 2006 is $0.5 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 March 31, 2006, no losses have
      been
      incurred by the Company under the model home financing program.





**Financing
      Obligation**





During
      the second quarter of 2004, the Company entered into an agreement to provide
      financing of up to $4.9 million to a developer for the construction of a hotel
      for which the Company was to provide modular units. 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 March
      31, 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 has moved to foreclose on the land acquired for the hotel site,
      to
      recoup the financing extended to date. No additional funding will be provided.





**Litigation**





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





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





During
      2005, the Company settled a personal injury suit for $5,000,000, $1,000,000
      of
      which 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.  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.





The
      Company is currently in arbitration with a housing customer over the terms
      of a construction contract. Arbitration is anticipated to be completed
      in the first half of 2006. As of March 31, 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.


-
          13
          -
 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 month period ended March 31, 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 month
      period ended March 31, 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 first quarter of 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 March 31, 2006, the Company determined that it was not yet
      probable that 50% of the performance goal would be achieved; therefore, no
      compensation expense was recorded related to this plan for the quarter ended
      March 31, 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 period ended March 31, 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 which had been recorded related to this plan. For the
      period ended March 31, 2005, the Company reduced compensation expense, which
      is
      a component of general and administrative expenses, by $758,000 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* (SFAS
      123), 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.


-
          14
          -
 Index


For
      the
      quarter ended March 31, 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 EndedMarch
                31, 2005Net
                loss, as reported
            
            
            
            $
            (1,386
            )Add:
                stock-based compensation expense under variable plan included in
                reporting
                net income, net of taxes
            
            
            
            
            (489
            )Deduct:
                total stock-based compensation expense determined under fair value
                based
                method for all awards,
              net
                of taxes
            
            
            
            
            291Pro
                forma net income (loss)
            
            
            
            $
            (1,584
            )Earnings
                per share:Basic
                - as reported
            
            
            
            $
            (0.09
            )Basic
                - pro forma
            
            
            
            $
            (0.10
            )Diluted
                - as reported
            
            
            
            $
            (0.09
            )Diluted
                - pro forma
            
            
            
            $
            (0.10
            )




-
          15
          -
 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
                of Three MonthsEnded
                March 31, 2006 and 2005Increases
                (Decreases)Amount
            
            
            PercentageNet
                sales
            
            $
            (29,695
            )
            
            (15.4
            )%Cost
                of sales
            
            
            (25,552
            )
            
            (14.7
            )Delivery expenses
            
            
            108
            
            
            1.3Selling
                expenses
            
            
            (2,114
            )
            
            (29.0
            )General
                and administrative expenses
            
            
            (1,932
            )
            
            (40.4
            )Gain
                on sale of assets, net
            
            
            2,674
            
            
            n/mInterest
                expense
            
            
            75
            
            
            8.4Investment
                income
            
            
            (455
            )
            
            (55.7
            )Other
                income, net
            
            
            96
            
            
            n/mIncome from
                continuing operations before income taxes
            
            
            2,035
            
            
            143.6Income
                taxes
            
            
            678
            
            
            146.1Net
                income from continuing operations
            
            
            1,357
            
            
            142.3Income
                from discontinued operations, net of taxes
            
            
            2,939
            
            
            n/mNet
                income (loss)
            
            
            4,296
            
            
            309.9





n/m - not meaningful




-
          16
          -
 Index




**NET
      SALES**





Consolidated
      net sales from continuing operations for the quarter ended March 31, 2006 were
      $162.6 million, a decrease of $29.7 million, or 15.4%, from the $192.2 million
      reported for the corresponding quarter last year. The Company’s Recreational
      Vehicles segment experienced a net sales decrease of 22.0% for the quarter.
      The
      industry-wide weakness in Class A motorized products continued in the first
      quarter. For the quarter, RV Segment wholesale unit shipments of all product
      types increased by 0.4% to 4,808 units. Shipments of motorized products fell
      32.9% to 1,090 units, while shipments of non-motorized products increased by
      17.5% to 3,718 units. Through February, industry wholesale shipments of Class
      A
      motorhomes declined 20.6%, while Class A retail registrations as reported by
      Statistical Surveys, Inc. declined 24.9% through February. Shipments of the
      Company’s Travel Trailers increased 38.0% due to the market success of its
      redesigned 2006 models, as well as orders for temporary housing units in
      hurricane affected areas in the Gulf region. Coachmen received orders for
      approximately 3,500 “FEMA”-related units with a value of approximately $36
      million, most of which were delivered by the end of 2005. The RV Segment
      delivered the remaining 1,100 units in the first quarter. Backlog for the RV
      segment, in dollars, decreased to $57.7 million from $90.9 million a year ago.
      Backlogs in units rose 36.5%, primarily due to the increase of travel trailer
      orders from dealers.





The
      Company’s housing and building segment experienced a net sales increase for the
      quarter ended March 31, 2006 of 10.8%, from $38.6 million during the first
      quarter of 2005 to $42.7 million for the first quarter of 2006. Wholesale unit
      shipments were down 3.4% for the quarter. Despite the decline in unit shipments,
      the Segment’s revenues were driven by a 26.4% increase in average revenues per
      unit due to a shift in product mix and incremental revenues from large scale
      projects. Backlog for the housing and building segment as of March 31, 2006
      have
      increased 1.5% to $38.0 million, compared with $37.4 million at March 31, 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 multifamily residential and commercial markets. In the first
      quarter, the Company’s All American Building Systems (AABS) commercial business
      unit 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. AABS also began construction on a $1.9 million project
      to
      provide single-family luxury lake homes in South Carolina during the first
      quarter. The Group is pursuing a number of exciting opportunities, including
      additional military housing projects. The initial project at Fort Bliss was
      successfully completed, and represents the Group’s first entry into the
      expanding military housing market. AABS is now pursuing follow-on projects
      for
      additional barracks as well as single-family and multi-family housing projects
      at a number of military installations. AABS is also pursuing incremental
      projects for student housing at a number of institutions in the eastern United
      States.





**COST
      OF SALES**





Cost
      of
      sales decreased 14.7%, or $25.6 million, for the three months ended March 31,
      2006. As a percentage of net sales, cost of sales was 91.0% for the three-month
      period ended March 31, 2006 compared to 90.2% for the three months ended March
      31, 2005. The change in the dollar amount of cost of sales in the current
      quarter is attributable to the decrease in sales dollars offset by higher
      insurance, utility and warranty costs. In addition, reductions in the production
      levels caused lower overhead absorption and labor inefficiencies in 2006 while
      2005 cost of sales were reduced by $1.7 million due to the settlement of a
      litigation matter.





**OPERATING
      EXPENSES**





As
      a
      percentage of net sales, operating expenses, which include delivery, selling,
      general and administrative expenses, were 10.0% and 10.5% for the
      three-month periods ended March 31, 2006 and 2005, respectively. As a percentage
      of sales, delivery expenses increased by 0.9 percentage points for the
      three-month period of 2006 as compared to the prior year three-month period.
      The
      increase in delivery expense as a percent of sales during the quarter was
      primarily related to higher fuel costs, contract labor and crane rental
      costs related to delivery and setting of housing and building units.





Selling
      expenses were 3.2% of net sales for the 2006 quarter compared to 3.8% of net
      sales for the three-month period ended March 31, 2005. The decrease in
      selling expense as a percentage of net sales during the quarter 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
      and other promotional expenses.





General
      and administrative expenses were 1.8% of net sales for the quarter compared
      to
      2.5% for the 2005 corresponding quarter. The decrease in expenses for the
      three-month period was primarily the result of two legal settlements received
      during the quarter which totaled $3.6 million, but that were partially offset
      by
      other legal fees. In addition, payroll costs decreased during the first quarter
      of 2006 as compared to the first quarter of 2005 due to the reduction of force
      that occurred in 2005.


-
          17
          -
 Index


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





For
      the
      three months ended March 31, 2006, the gain on the sale of assets was $2.7
      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 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
      months ended March 31, 2005.





**INTEREST
      EXPENSE**





Interest
      expense was $1.0 million and $0.9 million for the three-month periods ended
      March 31, 2006 and 2005, respectively. Interest expense increased slightly
      based
      on the higher applicable interest rates.





**INVESTMENT
      INCOME**





There
      was
      a net investment income of $0.4 for the quarter ended March 31, 2006 compared
      to
      $0.8 in the same quarter 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 $0.2 million for the first quarter of 2006
      and
      income of $0.1 million for the same quarter of the previous year. No items
      of
      significance caused the variances between the comparable quarters.





**INCOME
      TAXES**





For
      the
      first quarter ended March 31, 2006, the effective tax rate was 34.6% compared
      with a 2005 first quarter effective tax rate from continuing operations of
      35.5%. The Company’s effective tax rate fluctuates based upon income levels, the
      states where sales occur, the amount of export sales, nontaxable dividends
      on
      investments, nontaxable increases in cash value of life insurance contracts
      and
      recognized federal and state tax credits.





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 can be utilized as a result of the
      sale
      of Miller Building Systems, Inc.





**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 March 31, 2005, were $3.6 million and the
      pre-tax income for the quarter ended March 31, 2005, was $0.2
      million.





-
          18
          -
 Index


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 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 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 March 31, 2005 were $7.0 million, and the pre-tax loss for the
      quarter ended March 31, 2005, was $(0.7) million. In connection with the sale
      of
      Miller Buildings Systems, $1.7 million of industrial revenue bonds were paid
      off
      as of March 31, 2005. In addition, subsequent to March 31, 2005, the Company terminated
      the $1.5
      million and $235,000, interest rate swaps which 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.





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
      March 31, 2005, were $2.3 million, and the pre-tax loss for the quarter ended
      March 31, 2005 was $(0.2) million.





**NET
      INCOME (LOSS)**





Net
      income from continuing operations for the quarter ended March 31, 2006 was
      $0.4
      million (earnings of $0.03 per diluted share) compared to a net loss from
      continuing operations for the quarter ended March 31, 2005 of $1.0 million
      (a
      loss of $0.06 per diluted shared). Net income for the quarter ended March
      31, 2006 was $2.9 million (earnings of $0.19 per diluted share) compared to
      a
      net loss of $1.4 million (a loss of $0.09 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 expires on June 30, 2006, to meet its seasonal
      working capital needs. The
      Company is currently in the process of renegotiating its credit facility and
      anticipates securing a credit facility with comparable terms. At March
      31, 2006, there were no outstanding borrowings 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 March 31,
      2006. At December 31, 2005, there were short-term borrowings of $12.3 million
      outstanding. During 2004, the Company also borrowed against the cash surrender
      value of the Company’s investments in life insurance contracts. As of March 31,
      2006 and December 31, 2005, $15 million had been borrowed against the cash
      surrender value of Company-owned life insurance contracts.





At
      March
      31, 2006, working capital increased to $94.0 million from $93.0 million at
      December 31, 2005. The $8.5 million decrease in current assets at March 31,
      2006
      versus December 31, 2005 was primarily due to the sale of Miller Building
      Systems, Inc. and Prodesign, LLC, offset by increases in inventories at the
      remaining subsidiaries. Likewise, the $9.5 million decrease in current
      liabilities at March 31, 2006 versus December 31, 2005 was also due to the
      sale
      of Miller Building Systems, offset by an increase in trade
      payables.





Management
      believes that the Company’s existing cash and cash equivalents as of March 31,
      2006, together with its available revolving credit facility and cash expected
      to
      be generated from future operations, will be sufficient to fund future planned
      capital expenditures and other operating cash requirements for the foreseeable
      future.




-
          19
          -
 Index


**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 three months of fiscal 2006, there was no material change in the
      accounting policies and assumptions previously disclosed.





**FORWARD-LOOKING
      STATEMENTS**





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





·
            the
                potential fluctuations in the Company’s operating results;


·
            the
                availability for floorplan financing for the Company's recreational
                vehicle dealers and corresponding availability of cash to the
                Company;


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


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


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


·
            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;


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


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


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


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


·
            the
                availability and cost of real estate for residential housing; ·
            the
              increased size and scope of work of commercial and military housing
              projects as compared to the Company's traditional single family homes
              business;


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


·
            adverse
                weather conditions affecting home
                deliveries;


·
            potential
                liabilities under repurchase agreements and guarantees;


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


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


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


·
            consolidation
                of distribution channels in the recreational vehicle industry;


·
            the
              impact of consumer confidence and economic uncertainty on high-cost
              discretionary product purchases, which can hinder the sales of
              recreational vehicles; ·
            and
                also on the state of the recreational vehicle and housing industries
                in
                the United States.





Other
      factors affecting forward-looking statements include:





·
            changes
                in property taxes and energy costs,


·
            changes
                in federal income tax laws and federal mortgage financing
                programs,


·
            competition
                in the industries in which the Company operates,


·
            consolidation
                of distribution channels in the recreational vehicle industry,


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


·
            the
                Company’s use of incentives at either the wholesale or retail level,


·
            further
                developments in the war on terrorism and related international
                crises,


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





-
          20
          -
 Index


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.


-
          21
          -
 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 three months of 2006, the Company has
      utilized its revolving credit facility to meet short-term working capital needs.
      The Company had no outstanding borrowings against the revolving credit facility
      on March 31, 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 $18,000, net of taxes,
      attributable to changes in the fair value of interest rate swap agreements
      was
      recorded as a component of accumulated other comprehensive income (loss) as
      of
      March 31, 2006. 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 March 31, 2006, the Company had four interest rate swap agreements with
      notional amounts of
      $1.5
      million, $235,000, $3.2 million, and $1.6 million, respectively, that were
      used
      to convert the variable interest rates on c ertain
      industrial development revenue bonds to fixed rates. In accordance with the
      terms of the swap agreements, the Company pays 3.39%, 3.12%, 3.71%, and 3.36%
      interest rates, respectively, and receives the Bond Market Association Index
      (BMA), calculated on the notional amounts, with net receipts or payments being
      recognized as adjustments to interest expense. Subsequent to March 31, 2006,
      the
      Company terminated the $1.5
      million and $235,000, swaps due to the payoff of the underlying variable-rate
      borrowings .





**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 March 31, 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 March 31, 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 quarter ended March 31, 2006 that have
      materially affected, or are reasonably likely to materially affect, the
      Company's internal control over financial reporting.




-
          22
          -
 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.  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
      6. Exhibits





See
      Index
      to Exhibits incorporated by reference herein.




-
          23
          -
 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:
                May 5, 2006
            By:
            /s/
                Claire C. SkinnerClaire
                C. Skinner, Chairman of the Board andChief
                Executive OfficerDate:
                May 5, 2006
            By:
            /s/
                Richard M. LaversRichard
                M. Lavers, Executive Vice President,General
                Counsel and Secretary, Chief FinancialOfficer
                and Chief Administrative OfficerDate:
                May 5, 2006
            By:
            /s/
                Colleen A. ZuhlColleen
                A. Zuhl, Chief Accounting Officer








-
          24
          -
 Index


**INDEX
      TO EXHIBITS**




Number
                Assigned
              In
                Regulation
              S-K,
                Item 601
            Description
                of Exhibit(3)(a)(i)
            Articles
                of Incorporation of the Company as amended on May 30, 1995 (incorporated
                by reference to Exhibit 3(i) to the Company's Annual Report on Form
                10-K
                for the fiscal year ended December 31, 1995).(3)(a)(ii)
            Articles
                of Amendment to Articles of Incorporation (incorporated by reference
                to
                Exhibit 4.2 to the Company's Form S-3 Registration Statement, File
                No.
                333-14579).(3)(b)
            By-Laws
                as modified through September 9, 2005 (incorporated by reference
                to the
                Company's Form 8-K filed September 15, 2005).(10)(a)
            Form
              of the 2006 Restricted Stock Award Agreement and listing of the maximum
              number of shares each Executive Officer may earn under the
              Agreements.(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.






-
      25
      -