**FORM
      10-K**




**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


(Mark
      one)


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


For
      the
      fiscal year ended December 31, 2006.


OR


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


For
      the
      transition period from _____ to _____.


Commission
      file number 1-7160





**COACHMEN
      INDUSTRIES, INC.**


*(Exact
      name of registrant as specified in its charter)*




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


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


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


**(574)
      262-0123**


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


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




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


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


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




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


Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No  ̈


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


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




Large
                accelerated filer ̈
            
            Accelerated
                filerx
            
            Non-accelerated
                filer ̈


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


The
      aggregate market value of Common Stock held by non-affiliates of the registrant
      on June 30, 2006 (the last business day of the registrant's most recently
      completed second fiscal quarter) was $168.6 million (based upon the closing
      price on the New York Stock Exchange and that 90.2% of such shares are owned
      by
      non-affiliates).


As
      of
      February 28, 2007, 15,720,487 shares of the registrant's Common Stock were
      outstanding.


**Documents
      Incorporated by Reference**




Document
            Parts
                of Form 10-K into which the Document is
                IncorporatedPortions
                of the Proxy Statement for the Annual Meeting
              of
                Shareholders to be held on May 3, 2007
            Part
                III


-
          1
          -


**Part
      I**





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





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





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




The
      Company is one of America's leading manufacturers of recreational vehicles
      with
      well-known brand names including Coachmen®, Georgie Boy®, Sportscoach®, and
      Viking®. Through its housing group, Coachmen Industries also comprises one of
      the nation's largest producers of system-built homes and residential structures
      with its All American Homes®, Mod-U-Kraf®, and All American Building SystemsTM.
      During 2006 the Company sold all of the operating assets of Prodesign, LLC
      and
      its Miller Building Systems subsidiary; therefore these entities, along with
      the
      All American Homes of Kansas operation, which was sold in December 2005, are
      considered discontinued operations and have been reported as such in the
      accompanying financial statements.





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





**Recreational
      Vehicle Segment**





**RV
      Segment Products**





The
      RV
      Segment consists of recreational vehicles. At December 31, 2006, this group
      consists of the following operating companies: Coachmen RV Company, LLC;
      Coachmen RV Company of Georgia, LLC; Viking Recreational Vehicles, LLC; a
      Company-owned retail dealership located in Indiana and a service facility
      located in Chino, California.





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





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





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





**RV
      Segment Marketing**





Recreational
      vehicles are generally manufactured against orders received from RV dealers,
      who
      are responsible for the retail sale of the product. These products are marketed
      through approximately 530 independent dealers located in 49
      states and internationally and through the Company-owned dealership. Subject
      to
      applicable laws, agreements with most of its dealers are cancelable on short
      notice, provide for minimum inventory levels and establish sales territories.
      No
      dealer or dealer network accounts for 10% or more of the Company's consolidated
      net sales.





The
      RV
      group considers itself customer driven. Representatives from sales and service
      regularly visit dealers in their regions, and respond to questions and
      suggestions. Plant charters are established for each manufacturing facility,
      aligning defined brand charters for each product line with the manufacturing
      capabilities of each facility. Dedicated sales teams are assigned to each
      manufacturing facility and the products produced in these manufacturing
      facilities. Divisions host dealer advisory groups and conduct informative dealer
      seminars and specialized training classes in areas such as sales and service.
      Open forum meetings with owners are held at campouts, providing ongoing focus
      group feedback for product improvements. Engineers and product development
      team
      members are encouraged to travel and vacation in Company recreational vehicles
      to gain a complete understanding and appreciation for the products.










-
            2
            -





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





Most
      dealers' purchases of RV's from the RV group are financed through "floorplan"
      arrangements. Under these arrangements, a bank or other financial institution
      agrees to lend the dealer all or most of the purchase price of its recreational
      vehicle inventory, collateralized by a lien on such inventory. The RV group
      generally executes repurchase agreements at the request of the financing
      institution. These agreements typically provide that, for up to twelve to
      fifteen months after a unit is financed, the Company will repurchase a unit
      that
      has been repossessed by the financing institution for the amount then due to
      the
      financing institution. Risk of loss resulting from these agreements is spread
      over the Company's numerous dealers and is further reduced by the resale value
      of the products repurchased (see Note
      12 of Notes
      to Consolidated Financial Statements). Resulting mainly from periodic business
      conditions negatively affecting the recreational vehicle industry, the Company
      has previously experienced some losses under repurchase agreements. Accordingly,
      the Company has recorded an accrual for estimated losses under repurchase
      agreements. In addition, at December 31, 2006, the group was contingently liable
      under guarantees to financial institutions of their loans to independent dealers
      for amounts totaling approximately $3.9 million, a decrease of approximately
      $2.3 million from the $6.2 million in guarantees at December 31, 2005. The
      RV group does not finance retail consumer purchases of its products, nor does
      it
      generally guarantee consumer financing.





**RV
      Segment Business Factors**





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





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





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





**RV
      Segment Competition and Regulation**





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





The
      RV
      group's recreational vehicles generally compete at most price points except
      the
      ultra high-end, concentrating on the entry to mid level. The RV group strives
      to
      be a quality and value leader in the RV industry. The RV group emphasizes a
      quality product and a strong commitment to competitive pricing in the markets
      it
      serves. The RV group estimates that its current overall share of the
      recreational vehicle market is approximately 3.8% of wholesale shipments, on
      a
      unit basis.





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





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





**Housing
      Segment**





**Housing
      Segment Products**





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





-
            3
            -





All
      American Homes and Mod-U-Kraf design, manufacture and market system-built
      housing structures. All American Homes is one of the largest producers of
      system-built homes in the United States and has five operations strategically
      located in Colorado, Indiana, Iowa, North Carolina and Ohio. Mod-U-Kraf operates
      from a plant in Virginia. Together these plants serve approximately 482
      independent builders in 32 states. System-built homes are built to the same
      local building codes as site-built homes by skilled craftsmen in a factory
      environment unaffected by weather conditions during production. Production
      takes
      place on an assembly line, with components moving from workstation to
      workstation for framing, electrical, plumbing, drywall, roofing, and cabinet
      setting, among other operations. An average two-module home can be produced
      in
      just a few days. As nearly completed homes when they leave the plant, home
      modules are delivered to their final locations, typically in two to seven
      sections, and are crane set onto a waiting basement or crawl space foundation.




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





On
      March
      31, 2006, the Company sold 100% of its interest in the capital stock of Miller
      Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 and a
      $2.5
      million secured note. The note is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business 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 adjusted to reflect this business as a
      discontinued operation. Net sales of Miller Building Systems, Inc. for the
      years
      ended December 31, 2006, 2005 and 2004 were $7.5 million, $41.6 million and
      $40.1 million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $1.5 million, $(8.2) million and $(1.7)
      million, respectively. In connection with the sale of Miller Building Systems,
      $1.7 million of industrial revenue bonds were paid off as of March 31, 2006.
      During April 2006, the Company terminated the $1.5 million and $235,000 interest
      rate swaps that had been associated with these revenue bonds.





**Housing
      Segment Marketing**





The
      housing group participates in the system-built or modular subset of the overall
      housing market. Housing is marketed directly to approximately 482 builders
      in 32
      states who will sell, rent or lease the buildings to the end-user.





The
      housing group regularly conducts builder meetings to review the latest in new
      design options and component upgrades. These meetings provide an opportunity
      for
      valuable builder input and suggestions at the planning stage. The system-built
      homes business is currently concentrated in the rural, scattered lot markets
      in
      the geographic regions served. The Company has launched initiatives to supply
      product into additional markets, including various forms of single and
      multi-family residential products for more urban-suburban markets, group living
      facilities, military housing, motels/hotels and other residential
      structures.





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





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




**Housing
        Segment Business Factors**
 
 As
        a
        result of transportation costs, the effective distribution range of system-built
        homes and residential buildings is limited. The normal shipping area from
        each
        manufacturing facility is typically 200 to 300 miles for system-built homes
        and
        600 miles for residential buildings.
 
 The
        overall strength of the economy and the availability and terms of financing
        used
        by builders, dealers and end-users have a direct impact on the sales of the
        housing group. Consequently, increases in interest rates and the tightening
        of
        credit due to government action, economic conditions or other causes have
        adversely affected the group's sales in the past and could do so in the future.
        The housing group faced a challenging housing market in 2006. The December
        figures on housing starts from the U.S. Census Bureau show a 24.7%
        year-over-year decline in new single-family homes nationwide, and a 26.4%
        decline in the Midwest region served by the group’s plants in Iowa, Indiana and
        Ohio. The softening of the home markets has now spread to the Southeastern
        and
        middle Atlantic markets, which previously were doing relatively well.
        Single-family housing starts in the South region showed a year-over-year
        decline
        of 26.3% in December.





-
            4
            -







**Housing
      Segment Competition and Regulation**





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




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




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




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








-
            5
            -





**General**


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





**Business
      Segments**





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


2006
            
            2005
            
            2004Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %Recreational
                Vehicles
            
            $
            404.7
            
            
            71.7
            
            $
            522.2
            
            
            74.3
            
            $
            593.8
            
            
            74.0Housing
            
            
            159.7
            
            
            28.3
            
            
            180.2
            
            
            25.7
            
            
            208.6
            
            
            26.0Total
            
            $
            564.4
            
            
            100.0
            
            $
            702.4
            
            
            100.0
            
            $
            802.4
            
            
            100.0





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





**Seasonality**





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





**Employees**





At December
      31, 2006, Coachmen employed 2,655 people, 671 of whom are
      salaried and involved in operations, engineering, purchasing, manufacturing,
      service and warranty, sales, distribution, marketing, human resources,
      accounting and administration. The Company provides group life, dental, vision
      services, hospitalization, and major medical plans under which the employee
      pays
      a portion of the cost. In addition, employees can participate in a 401(k) plan
      and a stock purchase plan. Certain employees can participate in a stock option
      plan and in deferred and supplemental deferred compensation plans (see Notes
      8 and 9 of
      Notes to Consolidated Financial Statements). The Company considers its relations
      with employees to be good.





**Research
      and Development**





During
      2006, the Company’s continuing operations spent approximately $6.7 million on
      research related to the development of new products and improvement of existing
      products. The amounts spent in 2005 and 2004 were approximately $7.2 million
      and
      $7.0 million, respectively.




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




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




**Risks
      Relating to Our Business**





If
      any of
      the following risks actually occur, they could materially and adversely
      affect our business, financial condition or operating results.




**The
      recreational vehicle and housing industries are highly competitive, and some
      of
      our competitors have significantly greater resources than us.**





The
      recreational vehicle industry is highly competitive. In the calendar year 2006,
      sales from the ten largest manufacturers represented approximately 92.7% of
      the
      retail market for motorhomes, while our sales represented approximately 8.0%
      of
      the total retail market. The market for motorized products is highly
      concentrated. This concentration is due in part to the higher barriers to entry
      within the motorized market, including the significant capital required for
      fixed asset investment, higher level of government regulation and dependence
      on
      a limited number of chassis suppliers.





In
      towable products, the ten largest manufacturers accounted for approximately
      81.5% of retail sales, while our sales represented approximately 2.8% of
      total retail sales in 2006. The towable market is much more fragmented,
      partially due to the lower barriers to entry. New competitors enter this market
      each year, causing increased competitive pressures for existing manufacturers.
      Towables made in China are now being offered for sale in the U.S for the first
      time. Competitive pressures, especially at the entry-level for travel trailers,
      have resulted in a reduction of overall profit margins. Increased competition
      could have a material adverse effect on our future results of operations.





-
            6
            -





Consolidation
      within the industry may also increase overall competitive pressure. A number
      of
      our competitors have made acquisitions over the last five years that have
      increased their market share. Existing or new competitors could adversely
      affect our revenues and profit margins. For example, these competitors
      could develop products that are superior to our recreational vehicle
      offerings. Or, existing or new competitors’ products could achieve better
      consumer acceptance than those we offer. Therefore, we cannot
      assure that we will maintain our current market share.





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





·
            traditional
                site-built homebuilders,





·
            other
                system-built housing producers, and





·
            manufactured
                home producers.





Among
      system-built competitors, management believes that we are one of the largest
      competitors in the industry, which is characterized by numerous small, local
      manufacturers throughout the country. Recently, consolidation is an increasing
      trend among system-built manufacturers, resulting in competitors that are larger
      and potentially better capitalized. Less than 2% of total housing starts are
      system-built. Therefore, many of the largest nationwide traditional homebuilders
      are much larger than us, with much greater access to cash and other
      resources. As these large competitors expand into our markets, added
      competitive pressure may adversely affect revenues and margins in the Housing
      Segment.





In
      addition to large national competitors, we also compete with smaller local
      builders. These local builders can often offer prices and other products and
      services that are competitive with those we offer because of their lower fixed
      asset investment and smaller cost structure. These competitors may also have
      an
      adverse impact on our builder partners in affected markets resulting in
      reduced revenues and profitability of the Housing Segment.





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





In
      2005, we outlined a number of actions to restructure the
      Company under an “Intensive Recovery Plan” which was largely implemented by
      the close of 2006 and which included the sale of unprofitable units, the closure
      or consolidation of production facilities, the sale of non-operating assets
      and
      a reduction in salaried workforce. The success of the Intensive Recovery Plan
      depends on our ability to realize estimated cost savings resulting from the
      restructuring. Inability to realize these cost savings may materially adversely
      affect our future operating results and financial position.





**The
      ability to attract and retain qualified senior managers may adversely
      affect our operating results.**





Early
      in
      2006, our President and Chief Operating Officer (COO), Matthew Schafer was
      terminated, and as a result, the Chairman and Chief Executive Officer, Claire
      Skinner assumed the duties performed by the President and COO on an interim
      basis.





In
      August
      2006, our Chairman and Chief Executive Officer (CEO) elected to take early
      retirement. Our Lead Director, William Johnson, was named Chairman of the Board,
      our Chief Financial Officer (CFO), Richard Lavers was named CEO and our
      Controller, Colleen Zuhl was named CFO.





Beginning
      in late 2006, we named a new senior management team for our housing group.
      Rick
      Bedell was named President of the housing group, effective January 1, 2007.
      Del
      Herr was named Executive Vice President of Operations for the housing group,
      effective December 12, 2006. We also promoted Dave Kurth to Vice President
      -
      Field Operations and Special Projects for the housing group. Subsequent to
      the
      end of 2006, we named Art Breitenstein as Vice President of Sales and Marketing
      for the Company's housing group. While we believe these appointments strengthen
      the Company’s management, there can be no guarantee they will positively affect
      our operating results.





**The
      recreational vehicle and housing businesses are cyclical, which can lead to
      fluctuations in our operating results.**





The
      industries in which we operate are highly cyclical and there can be
      substantial fluctuations in production, shipments, wholesale and retail sales
      and operating results, and the results for any prior period may not be
      indicative of results for any future period. Both the recreational vehicle
      and
      housing industries are subject to volatility due to external factors such as
      economic, demographic and political changes.




We cannot
      assure that the factors currently adversely affecting our business will not
      continue, or have an adverse effect beyond their present scope.





-
            7
            -





**Our businesses
      are seasonal, leading to fluctuations in sales, production and operating results
      at various times during the calendar year.**





We have
      experienced, and will likely continue to experience, significant variability
      in
      sales, production and net income as a result of seasonality in our two
      business segments. Demand for recreational vehicles and housing generally
      declines during the winter season, while sales and profits in both segments
      are
      generally highest during the spring and summer seasons. In addition, unusually
      severe weather conditions in some markets may cause delays in laying foundations
      or other site preparation work which may result in delayed deliveries
      of our system-built homes. In some markets, so-called “frost laws” may
      limit the size and weight of vehicles permitted on roadways, thus
      limiting our ability to deliver and set our homes.
      Consequently, we may experience lower production, revenues and
      profitability with higher inventory levels in the Housing Segment due to weather
      and weather-related factors.





**A
      rise in the frequency and size of product liability, wrongful death, workers’
compensation and other claims against us may result in a material adverse
      effect on our business, operating results and financial condition.**





We
      are frequently subject, in the ordinary course of business, to litigation
      involving product liability and other claims, related to personal injury and/or
      property damage. Our self-insurance retention is $250,000, and we
      maintain insurance coverage through our primary insurance carrier, as well
      as excess carriers, above the self-insurance retention. An increase in frequency
      in claims below the self-insurance retention level may adversely affect our
      financial results. In addition, insurance is not available for some kinds of
      claims, such as mold or punitive damages and occasionally an insurance
      carrier(s) may deny coverage resulting in potential litigation expenses and
      additional exposure to losses. Workers’ compensation insurance costs are
      directly attributable to experience in the workplace. In the past, we have
      experienced wrongful death claims and work practices claims arising from alleged
      workplace injuries.





We cannot
      be certain that our insurance coverage will be sufficient to cover all
      future claims against us. Any increase in the frequency and size of such claims,
      as compared to our experience in prior years, may cause the premiums
      required for insurance to rise significantly. Further, sizable product liability
      claims may damage our reputation among dealers, builders and consumers that
      may adversely affect our future operating and financial
      results.





**Significant
      warranty and “lemon law” claims against us may result in a material adverse
      effect on our business, operating results and financial condition.**





We provide
      customers of our products with a warranty covering defects in material or
      workmanship for periods generally ranging from one to two years in length,
      and
      up to ten years on certain structural components. We record a liability
      based on our estimate of the amounts necessary to settle future and
      existing claims on products sold. Such costs are accrued at the time products
      are sold and included in the cost of sales. Such claims are generally not
      insurable, and in some cases may give rise to a repurchase of an RV unit and
      payment of other damages under “lemon laws.” Should warranty claims arise which
      exceed our historical experience and associated accrued liabilities, such
      costs may have a material adverse effect on our cost of sales and
      profitability. During 2005, we experienced a $14.0 million increase in
      warranty costs related to continuing operations due to specific warranty
      reserves established and costs incurred for the recall of camping trailer lift
      systems and the repair of laminated sidewalls of certain of our
      recreational vehicles. Further, some jurisdictions have laws providing for
      a
      multiple recovery on warranty claims in some circumstances. The possibility
      for
      class actions also exists. The sizable product warranty claims relating to
      sidewalls and camping trailer lift systems damaged our reputation among RV
      dealers and consumers, which impacted our operating and financial results in
      2006 and may continue to do so in the future.





**Increased
      costs, including costs of component parts and labor may adversely
      affect our profitability if such costs cannot be offset because of market
      forces or price-protected contracts with builders.**




Our financial
      results may be significantly adversely affected by the availability and pricing
      of manufacturing components (particularly those with substantial steel, copper,
      plastic or lumber content) and labor. We attempt to mitigate the effect of
      any cost inflation in raw materials, components and labor by negotiating with
      current or new suppliers, contract price escalators, increasing labor
      productivity or increasing the sales prices of our products.
      However, we cannot assure that such actions will not have an adverse impact
      on the competitiveness of our products and result in declining revenues.
      If we are unable to successfully offset increases in manufacturing
      costs, this could have a material adverse impact on margins, operating income
      and cash flows. If we increase prices to offset higher manufacturing costs,
      the benefit of such increases may lag behind the rise in manufacturing costs.
      Specifically, in the Housing Segment, it takes time to implement such price
      increases. Further, we make a commitment to builders and consumers to
      provide a minimum level of price protection during the period when consumers
      are
      arranging financing for their home purchases.





During
      the period of rapid material cost inflation in early 2004 and again with unusual
      commodity increases in 2006, our margins were adversely affected by the
      number of price protected sales contracts with builders. Although we took
      steps to mitigate this risk in the future, there can be no assurance that rapid
      material or labor cost inflation will not have a negative impact on our
      future operating or financial results.







-
            8
            -





**Changes
      to or increases in the regulations governing our businesses could have a
      material impact on operating and financial results.**





Both
      the
      Recreational Vehicle and Housing Segments are subject to extensive federal,
      state and local regulations, including:





·
            the
                National Highway Traffic Safety Administration (NHTSA),





·
            the
                Transportation Recall Enhancement, Accountability, and Documentation
                Act
                (TREAD),





·
            state
                lemon law statutes,





·
            laws
                regulating the operation of vehicles on highways,





·
            state
                and federal product warranty statutes,





·
            state
                legislation protecting motor vehicle dealerships, and





·
            state
                and local zoning laws and building codes.




Amendments
      to any of these regulations and the implementation of new regulations could
      significantly increase the costs of manufacturing, purchasing, operating or
      selling our products and could have a material adverse impact on our
      operating and financial results. Any failure to comply with present or future
      regulations could result in fines, potential civil and criminal liability,
      suspension of sales or production, or cessation of operations.





**Changes
      in favorable tax laws could adversely affect our results of operations.**





Certain
      U.S. tax laws currently afford favorable tax treatment for the purchase and
      sale
      of recreational vehicles that are used as the equivalent of second homes. These
      laws and regulations have historically been amended frequently, and it is likely
      that further amendments and additional regulations affecting us or our
      products may be enacted in the future. Amendments to these laws and regulations
      and the implementation of new regulations could have a material adverse effect
      on our results of operations.





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





We
      have
      historically carried as assets on our books tax loss carry-forwards from past
      results and other deferred tax assets for continuing operations in the amount
      of
      $24.4 million, which can be used to offset taxes on future income for periods
      of
      up to 20 years. However, because of the losses incurred over the last two years,
      financial accounting standards required us to write down all of these deferred
      tax assets since we were not certain that we could take full advantage of them
      over the next few years. Accordingly, even though we expect to be able to
      utilize these carry-forwards to reduce taxes against future income prior to
      their expiration, in the fourth quarter of 2006 we were required to record
      a
      non-cash charge for the full book value of these deferred tax assets. This
      resulted in a net income tax expense of $19.8 million for the quarter even
      though there was no associated income tax payment or any effect on cash. Despite
      this charge, the tax loss carry-forwards still remain available to the Company
      for future use even though their carrying value on our books was reduced to
      zero. In fact, the majority of the Company’s operating loss carry-forwards do
      not begin to expire until 2026, and may continue to be used to offset taxes
      on
      income the Company generates until at least that time.





**Failure
      to comply with environmental regulations could result in significantly increased
      costs and capital expenditures.**





State
      and
      federal environmental laws also impact both the production and operation
      of our products. We have an Environmental Department dedicated to
      efforts to comply with applicable environmental regulations. To date, the
      Company has not experienced any material adverse effect from existing federal,
      state, or local environmental regulations. Elkhart County, Indiana, which is
      where most of our recreational vehicle manufacturing facilities are
      located, was designated as a non-attainment area, which could impact future
      air
      emissions permitting. Failure to comply with present or future environmental
      regulations may result in fines, potential civil and criminal liability, and
      suspension of production or operations, alterations to the manufacturing
      process, costly cleanup efforts or increased capital expenditures.





**Changes
      in labor practices could adversely affect our labor costs and
      profitability.**





Currently,
      none of our employees are members of any union or covered under any
      collective bargaining agreement. We provide competitive wages and a variety
      of benefits to our employees, including group life, dental, vision
      services, hospitalization, and major medical plans, a 401(k) plan and a stock
      purchase plan. Although we consider our relations with employees to be
      good, any material changes in labor costs or practices, including those
      resulting from union activity may have a negative impact on our
      profitability.





-
            9
            -





**Reduced
      availability of financing for our dealers or retail customers could
      adversely affect revenues and margins.**





Our RV
      dealers, as well as retail buyers of RV products, generally secure financing
      from third party lenders. Any reduction in the availability of such financing
      or
      significant increase in the cost of such financing resulting from higher
      interest rates may have an adverse effect on our business. Availability of
      financing is dependent on the lending practices of financial institutions,
      financial markets, governmental policies and economic conditions, all of which
      are largely beyond our control. For example, in the recent past, floorplan
      lenders have tightened credit availability, which has negatively affected the
      timing and accomplishment of our sales to our RV dealers, resulting in
      higher levels of finished goods inventory and associated financing costs.
      Increasing interest rates since mid-2004 have negatively impacted demand
      for our RV products. In response to this lower demand, we offered
      retail financing incentives to consumers resulting in increased selling expenses
      which negatively affected profitability.





**Repurchase
      agreements with floorplan lenders could result in increased costs.**





In
      accordance with customary practice in the RV industry, we enter into
      repurchase agreements with various financial institutions under which we
      agree to repurchase product at declining prices over the term of the agreements
      (typically 12 months), if an independent retailer defaults in its obligation
      to
      these credit sources. The difference between the gross repurchase price we
      pay and the price at which the repurchased product can then be resold, which
      is
      typically at a discount to the original sale price, represents a financial
      expense to us. As a result, if we were obligated to repurchase a large
      number of recreational vehicles in the future, this could increase costs, which
      could have a negative effect on earnings. A tightening of credit standards
      by
      lenders and more aggressive collection efforts by lenders could result in more
      defaults by dealers. These defaults could trigger repurchase obligations
      on us that may be higher than historical levels. In 2006, we
      repurchased 93 recreational vehicles at an aggregate purchase price of $5.0
      million, incurring an additional discount of about $496,000, compared to
      repurchases of 119 recreational vehicles at an aggregate gross purchase price
      of
      $5.0 million, incurring an additional discount of approximately $176,000 in
      2005.





**High
      inventories of recreational vehicles among dealers could continue to negatively
      affect our sales volume and profit margins.**





The
      level
      of recreational vehicle inventories among dealers can have a significant impact
      on manufacturing, shipments, inventory levels and operating results. As
      wholesale shipments of recreational vehicles within the industry exceed retail
      sales of vehicles, inventories at the dealer level expand to a point where
      dealers significantly cut orders from manufacturers. As manufacturers respond
      to
      reduced demand, many offer wholesale and retail discounts and incentives in
      an
      effort to maintain production volumes. As a result, dealer inventories may
      expand further resulting in increasing need for discounts and incentives, or
      in
      the alternative, a need for dramatic reduction in overall production levels
      by
      manufacturers. Both increased discounts and incentives, and reduced production
      levels negatively affect our revenues and profitability.





**Fuel
      shortages, or higher prices for fuel, could have a negative effect on sales
      of
      recreational vehicles.**





Many
      of
      the recreational vehicles produced by us require gasoline or diesel fuel
      for their operation, while our towable products often require the use of a
      vehicle requiring gasoline or diesel fuel for their operation. Gasoline and
      diesel fuel have, at various times in the past, been difficult to obtain, and
      there can be no assurance that the supply of gasoline and diesel fuel will
      continue uninterrupted, that rationing will not be imposed or that the price
      of,
      or tax on fuel will not significantly increase in the future. Shortages of
      gasoline and diesel fuel and rapid significant increases in fuel prices have
      had
      a significant adverse effect on the demand for recreational vehicles in the
      past
      and could have a material adverse effect on demand in the future. Such a
      reduction in overall demand for recreational vehicles could have a materially
      adverse impact on our revenues and profitability.




**Changes
      in consumer preferences and our ability to effectively adapt to those
      preferences may adversely affect revenues and profitability.**





Consumer
      preferences for our recreational vehicles are likely to change over time,
      and as a result, we continually introduce new features, designs and models
      to meet changing consumer demand. Delays in the introduction of new models
      or
      product features, or a lack of market acceptance of new features, designs or
      models, could have a material adverse effect on our business and operating
      results. As a result, we may incur significant additional costs in
      designing or redesigning models that are not accepted in the marketplace. We
      may
      also experience production difficulties, such as inefficiencies in purchasing
      and increased labor costs, as new models are introduced. In addition, new
      product introductions may reduce revenues from existing models and adversely
      affect operating results. There can be no assurance that any new models or
      products will be introduced to the market on time or that they will be
      successful when introduced.





**New
      product introductions may result in unanticipated expenses resulting in reduced
      earnings.**





The
      introduction of new products is critical to the success of our Recreational
      Vehicle Segment. We incur additional costs when new products are
      introduced, such as research and development costs, engineering costs, and
      initial labor or purchasing inefficiencies. Additionally, we may incur
      unexpected expenses, including those associated with unexpected engineering
      or
      design flaws that will force a recall of a new product. In the past, we
      have experienced recalls that resulted in temporary plant shutdowns and
      disruptions of the supply of finished product to the wholesale market. In
      addition, we may be prompted to offer additional incentives to stimulate
      the sales of products not adequately accepted by the market, or to stimulate
      sales of older or obsolete products. These types of costs could be substantial
      and could have a significant adverse effect on our financial results.





-
            10
            -





**We depend
      on a small group of suppliers for some of our components, and any business
      interruption among these suppliers could adversely affect our production
      costs and profitability.**





Most
      commodity components for both of our business segments are readily
      available from a variety of sources. However, a small group of suppliers produce
      a few proprietary or specialty components, primarily in the case of motorhome
      chassis. Freightliner is the primary supplier of diesel powered chassis for
      Class A diesel motorhomes, while Workhorse Custom Chassis and Ford Motor Company
      are the primary suppliers of gasoline powered chassis Class A gas motorhomes.
      Ford Motor Company and General Motors Corporation are the primary suppliers
      of
      Class C chassis. In the past, we have also experienced supply disruptions
      among other suppliers such as appliance manufacturers. Shortages, production
      delays or labor disputes at such suppliers could have a material adverse effect
      on our revenues. The inability of us to obtain adequate supplies of
      needed components could negatively impact our revenues and profitability.





**The
      consolidation of distribution channels within the RV industry could have a
      material negative effect on revenues and profitability.**





Over
      the
      last several years, several large scale recreational vehicle dealers have grown
      to represent a significant presence in the industry. In addition, one major
      consolidator of RV dealers has grown through acquisition to 53 retail locations
      throughout the United States. Although the chain of dealers is a customer
      of our RV group, the chain represents less than 10% of the group’s total RV
      sales.





The
      expansion of large scale dealers and the continued consolidation of dealerships
      among large players may result in increased pricing pressures in the industry
      in
      general and on us in particular. Such pressure exerted by the distribution
      channel may have a material adverse effect on the RV group’s revenues and
      profitability.





**The
      market for our Housing Segment is heavily concentrated in the Midwestern
      United States, and a continued weakness in demand in that area could have a
      material negative effect on revenues and profitability.**





Our Housing
      Segment is geographically concentrated, with three of its largest production
      facilities located in the Midwest. Softness in the housing market within the
      Midwest negatively impacted revenues and profitability at our production
      facilities in Ohio, Indiana, and Iowa in 2006. Softness in the housing
      market also spread in 2006 to the Southeast and Middle Atlantic regions,
      negatively impacted revenues and profitability at our production facilities
      in Virginia and North Carolina. We can offer no assurance that the demand
      for our homes will not remain weak in the Midwest or other areas in which
      we have a high sales concentration (such as the Southeast and Middle
      Atlantic regions). Any decline in sales could have a material adverse effect
      on our revenues and profitability.




**The
      performance of our Housing Segment in new markets may adversely affect
      revenues and profitability.**





Beginning
      in 2003, our Housing Segment formed All American Building Systems to pursue
      opportunities beyond its core single-family housing market. We have limited
      experience in producing multi-family residential structures, and limited
      experience in managing large-scale construction projects. The ability of the
      housing group to perform in these new markets presents a number of risks,
      including the following:





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


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


·
            potential
                increased liability from possible larger claims resulting from large-scale
                projects,





·
            construction
                of new products with significantly different designs from single-family
                homes,





·
            compliance
                with state and local building codes and zoning laws, and





·
            production
                scheduling to meet demand from existing builders and large projects.





Further,
      the per-project risks are higher for large-scale projects than with
      single-family homes. If we fail to identify and mitigate these
      risks, they may have a material adverse effect on revenues and
      profitability.




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





None.







-
          11
          -





**Item
                2.**
            Properties





The
      Registrant owns or leases 2,974,061 square feet of plant and office space,
      located on 756.0 acres, of which 2,437,941 square feet are used for
      manufacturing, 222,476 square feet are used for warehousing and distribution,
      46,024 square feet are used for research and development, 128,940 square feet
      are used for customer service and 138,680 square feet are offices. Included
      in
      these numbers are 39,310 square feet leased to others and 290,180 square feet
      available for sale or lease. The Registrant believes that its present
      facilities, consisting primarily of steel clad, steel frame or wood frame
      construction and the machinery and equipment contained therein, are well
      maintained and in good condition.





The
      following table indicates the location, number and size of the Registrant's
      properties by segment as of December 31, 2006:





Location
            
            Acreage
            
            No.
                of
              Buildings
            
            Building
                Area
              (Sq.
                Ft.)**Properties
                Owned and Used by Registrant:****Recreational
                Vehicle Group**Fitzgerald,
                Georgia
            
            
            29.6
            
            
            5
            
            
            170,670Elkhart,
                Indiana
            
            
            6.0
            
            
            1
            
            
            29,886Middlebury,
                Indiana
            
            
            170.8
            
            
            27
            
            
            1,138,643Centreville,
                Michigan
            
            
            105.0
            
            
            4
            
            
            84,865Subtotal
            
            
            311.4
            
            
            37
            
            
            1,424,064**Housing
                Group**Milliken,
                Colorado
            
            
            23.0
            
            
            1
            
            
            151,675Decatur,
                Indiana
            
            
            40.0
            
            
            2
            
            
            215,995Dyersville,
                Iowa
            
            
            20.0
            
            
            1
            
            
            168,277Rutherfordton,
                North Carolina
            
            
            37.8
            
            
            1
            
            
            169,177Zanesville,
                Ohio
            
            
            23.0
            
            
            2
            
            
            129,753Rocky
                Mount, Virginia
            
            
            39.6
            
            
            5
            
            
            199,693Subtotal
            
            
            183.4
            
            
            12
            
            
            1,034,570**Other**Elkhart,
                Indiana
            
            
            16.4
            
            
            3
            
            
            53,841Middlebury,
                Indiana
            
            
            1.3
            
            
            2
            
            
            4,800Subtotal
            
            
            17.7
            
            
            5
            
            
            58,641Total
                owned and used
            
            
            512.5
            
            
            54
            
            
            2,517,275**Properties
                Leased and Used by Registrant:****Recreational
                Vehicle Group**Chino,
                California
            
            
            4.7
            
            
            3
            
            
            84,296Elkhart,
                Indiana
            
            
            7.8
            
            
            1
            
            
            43,000Total
                leased and used
            
            
            12.5
            
            
            4
            
            
            127,296







-
            12
            -








Location
            
            
            Acreage
            
            
            No.
                of
              Buildings
            
            
            Building
                Area
              (Sq.
                Ft.)**Properties
                Owned by Registrant and Leased to Others:****Other**Crooksville,
                Ohio
            
            
            10.0
            
            
            2
            
            
            39,310Total
                owned and leased
            
            
            10.0
            
            
            2
            
            
            39,310**Properties
                Owned by Registrant and Available for Sale or
                Lease:****Recreational
                Vehicle Group**Edwardsburg,
                Michigan
            
            
            48.7
            
            
            6
            
            
            203,870Subtotal
            
            
            48.7
            
            
            6
            
            
            203,870**Housing
                Group**Decatur,
                Indiana
            
            
            3.3
            
            
            2
            
            
            86,310Rocky
                Mount, Virginia
            
            
            5.0
            
            
            -
            
            
            -Subtotal
            
            
            8.3
            
            
            2
            
            
            86,310**Other**Middlebury,
                Indiana
            
            
            164.0
            
            
            -
            
            
            -Subtotal
            
            
            164.0
            
            
            -
            
            
            -Total
                owned and available for sale or lease
            
            
            221.0
            
            
            8
            
            
            290,180**Total
                Company**
            
            
            756.0
            
            
            68
            
            
            2,974,061







-
          13
          -





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





During
      the second quarter of 2004, the Company entered into an agreement to provide
      financing of up to $4.9 million to a developer for the construction of a hotel
      for which the Company was to provide modular units. As of December 31, 2006,
      the
      Company provided $2.3 million in financing to the developer under this
      arrangement. The loans are collateralized by a first priority interest in all
      tangible and intangible property of the borrower. The developer was unable
      to
      obtain a building permit, so the Company is pursuing its legal remedies through
      litigation to recoup the financing extended to date. No additional funding
      has
      been or will be provided. During the fourth quarter of 2006, the Company
      obtained title to the real estate that was partial collateral for this Note.
      In
      the event the sale of the property does not generate proceeds sufficient to
      cover the financing previously provided, the Company will continue pursuing
      its
      legal remedies to recover any deficiency. As of December 31, 2006, the Company
      has reserved an amount for which Management believes the Company may not
      recover, however, there is a potential for exposure in excess of the amount
      reserved.





During
      2005, the Company settled a personal injury suit for $5.0 million, $1.0 million
      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 $1.5 million
      in addition to the amount paid by its primary carrier and recorded another
      current liability of $2.5 million to recognize the remaining amount to be paid
      on the settlement and the $250,000 retention. During June 2006, the remaining
      liability of $2.5 million was paid. Since the excess carrier initially denied
      coverage, the Company filed suit against the excess carrier to enforce coverage.
      During the first quarter of 2006, the matter was settled for $2.9 million,
      which
      the Company received on March 15, 2006 and was recorded as a reduction to the
      RV
      Segment’s general and administrative expenses. There remains ongoing litigation
      against other parties to recover the balance over the retention.




On
      November 21, 2006 the Company received a summons from the Internal Revenue
      Service which requires the Company to produce various documents relating to
      its
      research and development claims filed with the Internal Revenue Service for
      the
      tax years 1999 through 2004.





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





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





No
      matters were submitted during the quarter ended December 31, 2006 to a vote
      of
      security holders, through the solicitation of proxies or otherwise.







-
          14
          -





**Executive
      Officers of the
      Registrant**





The
      following table sets forth the executive officers of the Company, as of December
      31, 2006:








Name
            PositionRichard
                M. Lavers
            Chief
                Executive OfficerColleen
                A. Zuhl
            Chief
                Financial OfficerMichael
                R. Terlep, Jr.
            President,
                CLI dba Coachmen RV Group and President, Coachmen Recreational Vehicle
                Company, LLCLeslie
                G. Thimlar
            Vice
                President, Human Resources





Richard
      M. Lavers (age
      59) was named Chief Executive Officer of the Company in August 2006. In
      December 2005, he was named Chief Financial Officer and Chief Administrative
      Officer of the Company. Mr. Lavers assumed the position of Executive Vice
      President of the Company in May 2000 and served as General Counsel and Secretary
      of the Company from March 1999. He joined the Company in October 1997 as General
      Counsel. From 1994 through 1997 Mr. Lavers was Vice President, Secretary and
      General Counsel of RMT, Inc. and Heartland Environmental Holding Company. Mr.
      Lavers earned both his B.A. degree and his J.D. degree from the University
      of
      Michigan.





Colleen
      A. Zuhl (age  40) assumed
      the position of Chief Financial Officer in August 2006 and had previously served
      as the Company’s Vice President and Controller since joining the Company in
      April 2004. In December 2005, Mrs. Zuhl also assumed the duties of Chief
      Accounting Officer for the Company. From 1988 to 2004, Mrs. Zuhl was employed
      by
      Ernst & Young, LLP, most recently as a Senior Audit Manager. Mrs. Zuhl
      earned a B.S. degree from Hillsdale College.





Michael
      R. Terlep, Jr. (age 45)
      was appointed President of Coachmen Recreational Vehicle Company in June 1997.
      Prior to that he was Executive Vice President of Coachmen RV, with retained
      responsibility for product development, among other duties, since 1993. He
      was
      given the additional responsibility of General Manager of the Indiana Division
      in 1995. Prior to his promotion to Executive Vice President, Mr. Terlep served
      as Vice President of Sales and Product Development from 1990 to 1993. He has
      held several other management positions with the Company since joining Coachmen
      in 1984. He received his B.A. degree from Purdue University.





Leslie
      G. Thimlar (age 51)
      was appointed Vice President, Human Resources for Coachmen Industries in 2001.
      Prior to that, he was Assistant Vice President, Human Resources from 1996
      through 2001 with responsibility for corporate human resource functions. From
      1986 until 1996 Thimlar served as Vice President, Human Resources for Ancilla
      Health Care. He received his B.S. and M.P.A. degrees from Indiana
      University.





-
          15
          -





**Part
      II**





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





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





High
                & Low Sales Prices
            
            Dividends
                Declared2006
            
            2005
            
            2006
            
            20051st
                Quarter
            
            $
            13.28
                - 10.71
            
            $
            17.49
                - $13.46
            
            $
            .06
            
            $
            .062nd
                Quarter
            
            
            11.95
                - 10.30
            
            
            14.11
                - 11.22
            
            
            .06
            
            
            .063rd
                Quarter
            
            
            12.16
                - 8.90
            
            
            14.50
                - 11.23
            
            
            .03
            
            
            .064th
                Quarter
            
            
            12.90
                - 10.09
            
            
            12.63
                - 10.76
            
            
            .03
            
            
            .06





The
      Company's common stock is traded on the New York Stock Exchange: stock symbol
      COA. The number of shareholders of record as of February 28, 2007 was 1,730.





See Item
      12 for the
      Equity Compensation Table.





The
      Company did not repurchase any shares of its stock during the fourth quarter
      of
      the fiscal year ended December 31, 2006.








-
          16
          -





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





Five-Year
      Summary of Selected Financial Data


-Year
      Ended December 31-


(in
      thousands, except per share amounts)


2006
            
            2005
            
            2004
            
            2003
            
            2002Net
                sales
            
            $
            564,382
            
            $
            702,425
            
            $
            802,346
            
            $
            636,891
            
            $
            582,921Gross
                profit
            
            
            49,421
            
            
            55,960
            
            
            112,826
            
            
            92,395
            
            
            88,585Net
                income (loss) from continuing operations
            
            
            (33,215
            )
            
            (19,360
            )
            
            14,258
            
            
            8,443
            
            
            11,926Discontinued
                operationsLoss
                from operations of discontinued entities
            
            
            (795
            )
            
            (6,370
            )
            
            (659
            )
            
            (1,078
            )
            
            (1,997
            )Gain
                (loss) on sale of assets of discontinued entities
            
            
            2,205
            
            
            (620
            )
            
            1,735
            
            
            -
            
            
            -Income
                (loss) from discontinued operations
            
            
            1,410
            
            
            (6,990
            )
            
            1,076
            
            
            (1,078
            )
            
            (1,997
            )Net
                income (loss)
            
            $
            (31,805
            )
            $
            (26,350
            )
            $
            15,334
            
            $
            7,365
            
            $
            9,929Earnings
                (loss) per share - BasicContinuing
                operations
            
            $
            (2.12
            )
            $
            (1.24
            )
            $
            .92
            
            $
            .55
            
            $
            .74Discontinued
                operations
            
            
            .09
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )
            
            (.12
            )Net
                earnings (loss) per share - Basic
            
            
            (2.03
            )
            
            (1.69
            )
            
            .99
            
            
            .48
            
            
            .62Earnings
                (loss) per share - DilutedContinuing
                operations
            
            
            (2.12
            )
            
            (1.24
            )
            
            .92
            
            
            .55
            
            
            .74Discontinued
                operations
            
            
            .09
            
            
            (.45
            )
            
            .07
            
            
            (.07
            )
            
            (.12
            )Net
                earnings (loss) per share - Diluted
            
            $
            (2.03
            )
            $
            (1.69
            )
            $
            .99
            
            $
            .48
            
            $
            .62Cash
                dividends per share
            
            $
            .18
            
            $
            .24
            
            $
            .24
            
            $
            .24
            
            $
            .22At
                year-end:Working
                capital (1)
            
            $
            62,784
            
            $
            93,308
            
            $
            121,312
            
            $
            95,963
            
            $
            93,574Total
                assets
            
            
            243,134
            
            
            322,816
            
            
            357,723
            
            
            310,688
            
            
            293,195Long-term
                debt
            
            
            3,862
            
            
            12,913
            
            
            14,943
            
            
            9,419
            
            
            10,097Shareholders'
                equity
            
            
            160,331
            
            
            193,803
            
            
            224,418
            
            
            211,151
            
            
            209,426Book
                value per share
            
            $
            10.20
            
            $
            12.30
            
            $
            14.27
            
            $
            13.58
            
            $
            13.37Number
                of employees
            
            
            2,655
            
            
            3,677
            
            
            4,416
            
            
            4,490
            
            
            4,233




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




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








-
          17
          -





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





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





**EXECUTIVE
      SUMMARY**





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




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




In
      support of the Housing Segment’s growing demand in the Atlantic and Southeastern
      states, the Company embarked on a 62,000 square-foot plant expansion of its
      Virginia operation, which was completed in the third quarter of 2006. The
      Virginia facility has encountered production delays and capacity constraints
      amid surging order flow and backlogs since 2003. The new plant expansion is
      expected to increase annual production capacity by approximately
      40%.




In
      order
      to supplement the Company’s single-family residential housing business, the
      Housing Segment continues to pursue opportunities for larger projects in
      multi-family residential and commercial markets for 2007 and beyond. The
      prospects of the Company’s All American Building Systems (AABS) major projects
      branch continue to improve, but it did not significantly contribute to earnings
      in 2006 due to the long incubation periods for new projects. During 2006, AABS
      was a member of a consortium that was awarded a contract for the second phase
      of
      barracks construction at Fort Bliss in Texas. In addition, a number of bids
      involving large military construction projects are in the various stages of
      review, and management anticipates being awarded several of these new projects
      which may have a significant positive impact on operating results beginning
      in
      2007 and beyond. Another opportunity for the housing group involves the
      reconstruction of the Gulf Coast regions damaged by the hurricanes in 2005.
      As the infrastructure, including basic utilities, vital services and
      transportation networks are restored, the Company expects to receive contracts
      for its modular homes and multi-family structures which offer better costs,
      structural integrity and timeliness of completion than other alternatives.
      The
      first such contract was signed during 2006 with the housing group agreeing
      to
      provide two dozen systems-built homes for a neighborhood near New Orleans,
      with
      that initial order subsequently expanded to include twice as many
      homes.





**Intensive
      Recovery Plan**





During
      2005, the Company’s Board of Directors approved a comprehensive operational and
      cost structure realignment and restructuring plan (the Intensive Recovery Plan),
      which was largely implemented by the close of 2006 and is intended to improve
      operating performance and ensure financial strength.





Despite
      the unacceptable bottom line results in 2006, the Company has begun to see
      positive results from its Intensive Recovery Plan. The Company has completed
      the
      sale of several businesses and other properties, reduced expenses, and improved
      operating efficiencies, partially through the consolidation of a number of
      operations.





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





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
      was paid during 2006.





In
      September 2005, the Company announced the relocation of Georgie Boy
      Manufacturing, LLC (GBM) from Edwardsburg, Michigan to a newer, more
      efficient motorhome production facility within its Middlebury, Indiana
      manufacturing complex. GBM has continued to control and focus on its independent
      product design, sales, and marketing efforts to ensure the continued strength
      of
      the GBM brand with consumers and its separate dealer body, while realizing
      operating and administrative synergies. The relocation was completed late in
      the
      fourth quarter of 2005. This internal restructuring is intended to improve
      operating efficiencies and capacity utilization within the RV Segment.








-
            18
            -





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 years ended December 31, 2006, 2005 and 2004 were $0.4
      million, $14.2 million and $12.5 million, respectively, and the pre-tax income
      (loss) for the years ended December 31, 2006, 2005 and 2004 were $2.0 million,
      $(0.7) million and $0.3 million, respectively.





The
      Company has ceased operations at the All American Homes operation in
      Springfield, Tennessee. The closure of the Tennessee location resulted in an
      asset impairment charge of approximately $1.1 million, which was recorded in
      the
      third quarter of 2005. On December 15, 2006 the Company completed the sale
      of
      this property for approximately $3.2 million, which resulted in a pre-tax gain
      of approximately $1.1 million. In connection with the sale of this property,
      $1.2 million of industrial revenue bonds were paid off as of December 15, 2006.
      During December 2006, the Company also terminated the $1.2 million interest
      rate
      swap that had been associated with these revenue bonds. The closure and sale
      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
      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 years ended
      December 31, 2006, 2005 and 2004 were $0.0 million, $9.7 million and $10.2
      million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were ($0.4) million, $(2.9) million and $0.2
      million, respectively.





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, which is included in other long-term assets
      on
      the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business and as a result, the operating results of the division have been
      accounted for as a discontinued operation. Previously reported financial results
      for all periods presented have been restated to reflect this business as a
      discontinued operation. Net sales of Miller Building Systems, Inc. for the
      years
      ended December 31, 2006, 2005 and 2004 were $7.5 million, $41.6 million and
      $40.1 million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $1.5 million, $(8.2) million and $(1.7)
      million, respectively. In connection with the sale of Miller Building Systems,
      $1.7 million of industrial revenue bonds were paid off as of March 31, 2006.
      During April 2006, the Company terminated the $1.5 million and $235,000 interest
      rate swaps that had been associated with these revenue bonds.





In
      conjunction with the actions noted above, during the fourth quarter of 2005
      management allocated goodwill of $0.7 million to the discontinued operations
      from the Housing Segment goodwill based on the relative fair value of the
      discontinued operations to the entire Housing 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 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
      March
      31, 2006, the Company completed the sale of a property located in Grapevine,
      Texas for approximately $2.0 million, consisting of cash of $1.7 million and
      a
      note receivable of $0.3 million and resulting in a pre-tax gain of approximately
      $1.8 million. Also during the first quarter, the Company completed the sale
      of
      vacant farmland in Middlebury, Indiana for cash of approximately $1.0 million,
      resulting in a pre-tax gain of approximately $0.8 million.





-
            19
            -





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





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





**Housing
      Segment**





The
      housing group faced a challenging housing market in 2006, which had a
      significant impact on the group’s results. The December figures on housing
      starts from the U.S. Census Bureau show a 24.7% year-over-year decline in new
      single-family homes nationwide, and a 26.4% decline in the Midwest region served
      by the group’s plants in Iowa, Indiana and Ohio. The softening of the home
      markets has now spread to the Southeastern and middle Atlantic markets, which
      previously were doing relatively well. Single-family housing starts in the
      South
      region showed a year-over-year decline of 26.3% in December.





In
      the
      backdrop of such a difficult market, the housing group has seen the weakness
      in
      its core Midwestern markets spread into the Southeast and Middle Atlantic
      regions, negatively impacting the group’s operations in North Carolina and
      Virginia. All of group’s markets have experienced sharp discounts and
      incentives, and increased levels of new home inventories. As the downward
      pressure on new home sales persists, the group will likely see the more
      aggressive discounts and incentives by home builders continue. To mitigate
      these
      conditions, management is placing more emphasis on providing value to builders
      and consumers through the group’s products. To this end, the group introduced
      two new entry-level home collections in 2006 and will be introducing two new
      collections of homes to its builders at the upcoming Builder Meeting in March
      2007. Management’s overriding goal with these actions is to provide the group’s
      builders with the products and tools they need to best meet the challenges
      of
      their local markets.





The
      Company also replaced virtually the entire management team at the All American
      operation in Colorado during 2006 in response to operating difficulties and
      inefficiencies.





Management
      continued to work to mitigate the group’s dependence on traditional
      scattered-lot single-family housing markets by expanding into multi-family
      residential structures through All American Building Systems, or AABS. In 2006,
      AABS was a leading member of a consortium that was awarded a project for the
      second phase of barracks construction at Fort Bliss in Texas. Management
      anticipates more similar projects to be released for bid over the first half
      of
      2007. Management also is pursuing opportunities in the Gulf Coast region, and
      has orders to provide systems-built homes for a neighborhood near New Orleans.
      In addition, the group is shifting its strategy to target “large projects” such
      as dormitories, condominiums and apartment complexes. The group’s Virginia
      operation has already shifted in that direction in response to a softening
      in
      its local single-family housing market.





Overall,
      2006 was a difficult year for the housing group, but management took aggressive
      steps to reduce operating costs and maintain profitability despite lower
      revenues. At the end of 2006, the group installed a new senior management team
      with the talent, experience and drive to lead it forward. Management is
      aggressively seeking new ways to strengthen the group’s traditional markets
      while pursuing growth in new areas.





**Recreational
      Vehicle Segment**




Despite
      the improvements recognized in the RV group’s operations throughout 2006, low
      sales volumes and production levels resulted in unacceptable bottom line results
      for the year. To address the unacceptable level of revenues, the RV group has
      embarked on a number of actions to drive revenue growth and enhance
      profitability.





As
      clearly evident in the Company’s research, Industry research and other published
      findings, the customers identify quality throughout our Industry as an
      opportunity. Management believes that it can create a differentiating and
      marketable advantage by elevating the level of product quality. To accomplish
      this, the group has launched a number of initiatives. The most important of
      these initiatives is the involvement of the entire Team, inclusive of our
      production workforce. Management implemented a pilot quality incentive program
      for the production workforce in September 2006. The goals of this program were
      to motivate all team members to take full ownership of the quality of products
      produced in each plant, as well as, to provide concrete, quantifiable measures
      of quality that could be applied to all plants. The results of this pilot
      program were very successful, not only in the reduction in the number of defects
      per unit, but also in the response of dealers. This program has since been
      expanded into a company-wide quality program that rewards meaningful continuous
      improvement in the quality of our products at each and every production facility
      and includes all disciplines of operations - engineering, production and
      purchasing.





-
            20
            -





In
      addition, the RV group facility in Georgia consolidated operations into a single
      plant and entirely changed its focus to the rapidly growing sport utility
      trailer (SUT) segment of a market rather than the large variety of different
      models previously produced.





With
      regard to product line weakness, the RV group made significant strides in
      improving its product offerings and reducing product complexity. At the National
      RV Trade Show held annually in Louisville, the Company’s products displayed
      showed a substantial improvement in innovation resulting from the group’s new
      product development process. Over 30% of the products on display at Louisville
      were new and innovative products and were developed within the 90 days leading
      up to the show, including the all new Aurora Class A featuring a full wall
      slide-out and the innovative Blast multi-purpose hauler, a light-weight trailer
      that is suitable for work during the week and play on the weekends and
      vacations.





Management
      believes there are still opportunities to reduce material costs, which is where
      the majority of the group’s cost of sales lies. In order to bolster strategic
      sourcing efforts, the RV group recently hired a Vice President of Finance and
      Strategic Sourcing. Management is also currently redefining the organizational
      structure and processes of its strategic sourcing group. In order to quickly
      achieve significant results, management has engaged consultants to assist with
      identifying and executing strategic sourcing action plans. The ultimate goal
      of
      these actions is to improve quality and reduce cost in order to improve margins.
      Management also intends to apply best practices from this effort to purchasing
      and material sourcing in the housing group.





Despite
      the difficult year, management is optimistic that the hard work of its entire
      team will pay substantial future dividends. Management will strive to leverage
      the many changes and improvements that have been made throughout the RV group
      to
      generate improved results and market share gains in 2007 and the years ahead.





-
            21
            -





**RESULTS
      OF OPERATIONS**





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


Percentage
                ChangePercentage
            
            
            
            Percentage
            
            
            
            Percentage
            
            2006
            
            2005of
            
            
            
            of
            
            
            
            of
            
            to
            
            to2006
            Net
                Sales
            
            2005
            Net
                Sales
            
            2004
            Net
                Sales
            
            2005
            
            2004Net
                sales:Recreational
                vehiclesMotorhomes
            $
            266,246
            
            47.2
            %
            $
            350,876
            
            50.0
            %
            $
            421,325
            
            52.5
            %
            
            (24.1
            )%
            (16.7
            )%Travel
                trailers and fifth wheels
            
            118,375
            
            21.0
            
            
            149,263
            
            21.2
            
            
            143,253
            
            17.9
            
            
            (20.7
            )
            4.2Camping
                trailers
            
            13,549
            
            2.4
            
            
            15,152
            
            2.2
            
            
            22,776
            
            2.8
            
            
            (10.6
            )
            (33.5
            )Truck
                campers
            
            -
            
            -
            
            
            -
            
            -
            
            
            4
            
            -
            
            
            -
            
            (100.0
            )Parts
                and supplies
            
            6,540
            
            1.2
            
            
            6,903
            
            1.0
            
            
            6,396
            
            0.8
            
            
            (5.3
            )
            7.9Total
                recreational vehicles
            
            404,710
            
            71.7
            
            
            522,194
            
            74.3
            
            
            593,754
            
            74.0
            
            
            (22.5
            )
            (12.1
            )Housing
            
            159,672
            
            28.3
            
            
            180,231
            
            25.7
            
            
            208,592
            
            26.0
            
            
            (11.4
            )
            (13.6
            )Consolidated
                total
            
            564,382
            
            100.0
            
            
            702,425
            
            100.0
            
            
            802,346
            
            100.0
            
            
            (19.7
            )
            (12.5
            )Gross
                profit:Recreational
                vehicles
            
            13,620
            
            2.4
            
            
            15,307
            
            2.2
            
            
            57,723
            
            7.2
            
            
            (11.0
            )
            (73.5
            )Housing
            
            35,801
            
            6.3
            
            
            40,653
            
            5.8
            
            
            54,923
            
            6.8
            
            
            (11.9
            )
            (26.0
            )Other
                reconciling items
            
            -
            
            -
            
            
            -
            
            
            
            
            180
            
            -
            
            
            -
            
            (100.0
            )Consolidated
                total
            
            49,421
            
            8.8
            
            
            55,960
            
            8.0
            
            
            112,826
            
            14.1
            
            
            (11.7
            )
            (50.4
            )Operating
                expenses:Delivery
            
            29,205
            
            5.2
            
            
            32,762
            
            4.7
            
            
            34,005
            
            4.2
            
            
            (10.9
            )
            (3.7
            )Selling
            
            23,230
            
            4.1
            
            
            28,320
            
            4.0
            
            
            28,620
            
            3.6
            
            
            (18.0
            )
            (1.0
            )General
                and administrative
            
            21,328
            
            3.8
            
            
            30,794
            
            4.4
            
            
            31,543
            
            3.9
            
            
            (30.7
            )
            (2.4
            )Asset
                impairments
            
            -
            
            -
            
            
            1,076
            
            0.2
            
            
            -
            
            -
            
            
            (100.0
            )
            100.0Gain
                on sale of assets, net
            
            (8,689
            )
            (1.5
            )
            
            (163
            )
            -
            
            
            (1,448
            )
            (0.2
            )
            
            n/m
            
            (88.7
            )Consolidated
                total
            
            65,074
            
            11.5
            
            
            92,789
            
            13.2
            
            
            92,720
            
            11.6
            
            
            (29.9
            )
            0.1Nonoperating
                (income) expense
            
            1,047
            
            0.2
            
            
            525
            
            0.1
            
            
            (745
            )
            (0.1
            )
            
            99.4
            
            (170.5
            )Income
                (loss) from continuing operations before income
                taxes
            
            (16,700
            )
            (3.0
            )
            
            (37,354
            )
            (5.3
            )
            
            20,851
            
            2.6
            
            
            55.3
            
            (279.1
            )Income
                taxes (credit)
            
            16,515
            
            2.9
            
            
            (17,994
            )
            (2.6
            )
            
            6,593
            
            0.8
            
            
            (191.8
            )
            (372.9
            )Net
                income (loss) from continuing operations
            
            (33,215
            )
            (5.9
            )
            
            (19,360
            )
            (2.8
            )
            
            14,258
            
            1.8
            
            
            (71.6
            )
            (235.8
            )Discontinued
                operations:Loss
                from operations of discontinued entities
            
            (795
            )
            (0.1
            )
            
            (6,370
            )
            (0.9
            )
            
            (659
            )
            (0.1
            )
            
            87.5
            
            (866.6
            )Gain
                (loss) on sale of assets of discontinued entities
            
            2,205
            
            0.4
            
            
            (620
            )
            (0.1
            )
            
            1,735
            
            0.2
            
            
            455.6
            
            (135.7
            )Income
                (loss) from discontinued operations
            
            1,410
            
            0.2
            
            
            (6,990
            )
            (1.0
            )
            
            1,076
            
            0.1
            
            
            120.2
            
            (749.6
            )Net
                income (loss)
            $
            (31,805
            )
            (5.6
            )%
            $
            (26,350
            )
            (3.8
            )%
            $
            15,334
            
            1.9
            %
            
            (20.7
            )%
            (271.8
            )%n/m
                - not meaningful





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


-
            22
            -





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




2006
            
            2005
            
            2004Warranty
                - additional expense incurred related to RV sidewall issues and lift
                system recall (see Note 1)
            
            $
            -
            
            $
            14,000
            
            $
            -(Gain)
                loss on sale of assets:**Continuing
                operations:**Tennessee
                facility (All American)
            
            
            (1,061
            )
            
            -
            
            
            -Virginia
                property
            
            
            (1,202
            )
            
            -
            
            
            -Texas
                property (Grapevine, TX)
            
            
            (1,674
            )
            
            -
            
            
            -Florida
                property (Palm Shores, FL)
            
            
            (1,180
            )
            
            -
            
            
            -Michigan
                property (Georgie Boy)
            
            
            (650
            )
            
            -
            
            
            -Indiana
                property (various)
            
            
            (815
            )
            
            -
            
            
            (1,448
            )Corporate
                aircraft
            
            
            (1,792
            )
            
            -
            
            
            -Other
            
            
            (315
            )
            
            (163
            )
            
            -Total
            
            
            (8,689
            )
            
            (163
            )
            
            (1,448
            )**Discontinued
                operations (see Note 11):**Miller
            
            
            (2,522
            )
            
            -
            
            
            -Prodesign
            
            
            (1,899
            )
            
            -
            
            
            -All
                American Homes - Kansas
            
            
            76
            
            
            1,051
            
            
            -Colfax
            
            
            -
            
            
            -
            
            
            (2,551
            )Total
            
            
            (4,345
            )
            
            1,051
            
            
            (2,551
            )Total
                (gain) loss on sale of assets
            
            
            (13,034
            )
            
            888
            
            
            (3,999
            )Asset
                impairments:Miller
                Building Systems
            
            
            -
            
            
            7,895
            
            
            -All
                American Homes - Tennessee
            
            
            -
            
            
            1,077
            
            
            -Other
            
            
            -
            
            
            269
            
            
            -Total
                asset impairments
            
            
            -
            
            
            9,241
            
            
            -Legal
                expense recoveries (see Note 12)
            
            
            (3,620
            )
            
            (4,425
            )
            
            n/mLitigation
                reserve (see Note 12)
            
            $
            n/m
            
            $
            4,000
            
            $
            n/m





n/m
      - not
      meaningful














-
          23
          -





**Comparison
      of 2006 to 2005**





**NET
      SALES**





Consolidated
      net sales from continuing operations decreased $138.0 million or 19.7% to $564.4
      million in 2006 from $702.4 million in 2005. The Company's RV Segment
      experienced a net sales decrease from continuing operations of $117.4 million,
      or 22.5%, from 2005. Throughout 2006, as in 2005, the RV Segment worked through
      an industry slowdown in retail activity and higher dealer inventories, in part
      related to falling consumer confidence and significantly higher fuel costs
      and
      interest rates. Full-year recreational vehicle wholesale unit shipments for
      the
      Company were down 21.9% compared to 2005, while the industry was up 1.6%.
      For the full year, the Company’s wholesale market share declined from 4.9% to
      3.8% across all product types. The Company’s retail market share for the same
      period declined from 4.9% to 3.7% across all product types. Detailed market
      share data for 2006 and 2005 for each product type are set forth in the
      following table:







Wholesale
                Share
            
            
            Retail
                Share2006
            
            
            2005
            
            
            2006
            
            
            2005Class
              A Motorhomes
            
            
            5.6
            %
            
            7.6
            %
            
            6.5
            %
            
            7.9
            %Gasoline
            
            
            n/a
            
            
            n/a
            
            
            8.4
            
            
            10.2Diesel
            
            
            n/a
            
            
            n/a
            
            
            4.7
            
            
            5.5Class
              C Motorhomes
            
            
            9.5
            
            
            9.3
            
            
            10.6
            
            
            12.5Travel
              Trailers
            
            
            3.0
            
            
            4.4
            
            
            2.7
            
            
            4.0Fifth
              Wheels
            
            
            1.7
            
            
            1.7
            
            
            1.8
            
            
            2.1Camping
              Trailers
            
            
            8.6
            
            
            10.0
            
            
            8.1
            
            
            9.9Total
            
            
            3.8
            %
            
            4.9
            %
            
            3.7
            %
            
            4.9
            %n/a
              - not availableWholesale
                share based on wholesale unit shipment data as reported by the
                Recreational Vehicle Industry Association.Retail
                share based on data provided by Statistical Surveys, Inc.




The
      decrease in wholesale Class A market share is attributable to an overall
      slowdown in the Class A market, which declined 13.7% in 2006 following a decline
      of 18.1% in 2005, as well as, being attributable to the sidewall warranty issue
      that has damaged our reputation among RV dealers and consumers. While industry
      shipments of Class C motorhomes declined 3.3%, the Company’s Class C shipments
      declined 1.2%. The non-motorized side of the industry has been very challenging
      of late as wholesale shipments of travel trailers have declined year over year
      in excess of 30% for each of the last three months. Even though industry travel
      trailer shipments were up 3.6% in 2006, comparisons are difficult with the
      heavy
      2005 shipments of FEMA-related units both by Coachmen and within the industry
      as
      a whole. Camping trailers saw an increase in industry shipments of 3.7%,
      while the Company experienced a decline in wholesale shipments of approximately
      11.8% during 2006, as issues surrounding the recall of the Company’s products
      due to the lift mechanism employed in the product negatively impacted sales.
      RV
      backlogs the end of 2006 decreased to 1,628 units from 3,964 in 2005, primarily
      due to late 2005 hurricane relief related travel trailer orders. Total
      travel trailer backlog declined from 2,857 units at the end of 2005 to 607
      units
      at the end of 2006.





The
      Housing Segment had a net sales decrease from continuing operations in 2006
      of  $20.5
      million, or 11.4%. Wholesale unit shipments declined 15.4% compared with the
      prior year and  backlogs
      at December 31, 2006 decreased to $33.2 million, compared with $45.4 million
      at
      December 31, 2005. The Segment’s results were impacted by continuing weakness in
      its core Midwest housing market, which has spread into the Southeast and Middle
      Atlantic regions. The most recent statistics on new home sales from the U.S.
      Census Bureau showed a 2.9% decline in year over year comparison in the Midwest
      region, and an 8.9% decline in the South. This is consistent with the challenges
      faced at the All American Homes operations in Ohio, Indiana and Iowa through
      much of 2005 and throughout 2006, and the 2006 challenges faced by the company’s
      operations in North Carolina and Virginia. For 2006, the Housing Segment
      experienced an 11.9% increase in the average sales price per unit largely
      due to a shift in product mix, which partially offset the decline in unit
      sales. Historically, the Company's first and fourth quarters are the
      slowest for sales in both segments.





**GROSS
      PROFIT**





Gross
      profit from continuing operations was $49.4 million, or 8.8% of net sales,
      in 2006 compared to $56.0 million, or 8.0% of net sales, in 2005. For the RV
      Segment, gross profit in dollars declined in 2006 as a result
      of decreased sales and corresponding production volume decrease, resulting
      in lower utilization of the Company's manufacturing facilities. For the Housing
      Segment, gross profit in dollars declined due to the 11.4% decrease in sales
      combined with higher insurance and workers compensation. Gross profit as a
      percentage of sales increased due to expense reductions and operating
      efficiencies, partially through the consolidation of a number of operations.
      Margins were also squeezed by increases in commodity prices that were unusual
      in
      terms of size and number of commodities affected in 2006.





-
            24
            -





**OPERATING
      EXPENSES**





Operating
      expenses for continuing operations, consisting of selling, delivery, general
      and
      administrative expenses, were $73.8 million and $91.9 million, or as a
      percentage of net sales, 13.1% for 2006 and 2005. Delivery expenses were $29.2
      million in 2006 or 5.2% of net sales, compared with $32.8 million in 2005 or
      4.7% of net sales. Delivery expenses were impacted by increases in fuel costs,
      offset by reductions in payroll related costs and lower total outside carrier
      expense due to a reduction in unit sales volumes. Selling expenses for 2006
      were
      $23.2 million, or 4.1% of net sales, a 0.1 percentage point increase from
      the $28.3 million, or 4.0% of net sales, experienced in 2005. The $5.1 million
      decrease in selling expense was primarily the result of reductions in payroll
      related expenses and reductions in sales promotions expenses. General and
      administrative expenses were $21.3 million in 2006, or 3.8% of net sales,
      compared with $30.8 million, or 4.4% of net sales, in 2005. The decrease of
      $9.5 million in general and administrative expenses was primarily related
      to reductions in professional services and litigation settlements expense of
      $6.3 million, plus reductions in payroll related expenses, insurance expenses
      and property tax expenses. The litigation expense reduction largely resulted
      from insurance settlements recovered of approximately $3.6 million.





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





In
      2006,
      the Company had gains on the sale of assets of $8.7 million, compared to gains
      on the sale of assets of $0.2 million in 2005. Gains on the sale of assets
      in
      2006 resulted from the Company’s restructuring plan and resulting asset sales
      including the former All American Homes facility in Tennessee resulting in
      a
      $1.1 million gain, property from the former Georgie Boy Manufacturing facilities
      resulting in a $0.7 million gain, the Company’s aircraft resulting in a $1.7
      million gain, and other idle properties in Indiana, Virginia, Texas and Florida
      resulting in a $5.2 million gain. Assets are continually analyzed and every
      effort is made to sell or dispose of properties that are determined to be excess
      or unproductive.





**OPERATING
      LOSS**





Operating
      loss from continuing operations in 2006 of $15.7 million decreased $21.1 million
      compared with the operating loss of $36.8 million in 2005. This decrease is
      the
      result of the $6.5 million decrease in gross profit offset by a significant
      decrease in operating expenses of $18.1 million, a decrease of $1.1 million
      in
      asset impairments and an increase in gain on sale of assets of $8.5
      million.





**INTEREST
      EXPENSE**





Interest
      expense from continuing operations for 2006 and 2005 was $3.8 million and $3.2
      million, respectively. Interest expense increased due to the higher amount
      of
      average outstanding balances of short-term borrowings incurred by the Company
      combined with higher applicable interest rates.  During 2006, the Company
      continued to borrow from its line of credit ($9.3 million outstanding at
      December 31, 2006) and continued to borrow against the cash surrender value
      of
      its investment in life insurance contracts ($15 million outstanding throughout
      2006 and at December 31, 2006).





**INVESTMENT
      INCOME**





Investment
      income from continuing operations for 2006 and 2005 was $1.6 million and $2.2
      million, respectively. 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.  (see Note
      1 of Notes
      to Consolidated Financial Statements).





**PRE-TAX
      LOSS**





Pre-tax
      loss from continuing operations for 2006 was $16.7 million compared with a
      pre-tax loss from continuing operations of $37.4 million for 2005. The Company's
      RV Segment generated pre-tax loss from continuing operations of $25.4
      million, or 6.3% of recreational vehicle net sales in 2006, compared with a
      pre-tax loss from continuing operations of $40.8 million, or 7.8% of the RV
      Segment's net sales in 2005. The Housing Segment recorded 2006 pre-tax
      income from continuing operations of $2.7 million or 1.7% of segment net
      sales compared with a pre-tax loss from continuing operations of $2.4 million,
      or 1.3% of segment net sales (see Note
      2 of Notes
      to Consolidated Financial Statements).





**INCOME
      TAXES**





The
      provision for income taxes related to continuing operations was an expense
      of
      $16.5 million for 2006 versus a benefit of $18.0 million for 2005. Given the
      losses incurred by the Company over the last two years, a non-cash charge from
      continuing operations of $24.4 million was recorded to establish a valuation
      allowance for the full value of its deferred tax assets as of December 31,
      2006.
      (see Note
      10 of Notes
      to Consolidated Financial Statements).





-
            25
            -





**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 years ended
      December 31, 2006, 2005 and 2004 were $0.0 million, $9.7 million and $10.2
      million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $(0.4) million, $(2.9) million and $0.2
      million, respectively.




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 years ended December 31, 2006, 2005 and 2004 were $0.4
      million, $14.2 million and $12.5 million, respectively, and the pre-tax income
      (loss) for the years ended December 31, 2006, 2005 and 2004 were $2.0 million,
      $(0.7) million and $0.3 million, respectively.





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, which is included in other long-term assets
      on
      the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business and as a result, the operating results of the division have been
      accounted for as a discontinued operation. Previously reported financial results
      for all periods presented have been restated to reflect this business as a
      discontinued operation. Net sales of Miller Building Systems, Inc. for the
      years
      ended December 31, 2006, 2005 and 2004 were $7.5 million, $41.6 million and
      $40.1 million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $1.5 million, $(8.2) million and $(1.7)
      million, respectively. In connection with the sale of Miller Building Systems,
      $1.7 million of industrial revenue bonds were paid off as of March 31, 2006.
      During April 2006, the Company terminated the $1.5 million and $235,000 interest
      rate swaps that had been associated with these revenue bonds.





**NET
      LOSS**





Net
      loss
      from continuing operations for the year ended December 31, 2006 was $33.2
      million (a loss of $2.12 per diluted share) compared to net loss from continuing
      operations for the year ended December 31, 2005 of $19.4 million (a loss of
      $1.24 per diluted shared). Net loss for the year ended December 31, 2006
      was $31.8 million (a loss of $2.03 per diluted share) compared to net loss
      of
      $26.4 million (loss of $1.69 per diluted share) for 2005.





-
            26
            -





**Comparison
      of 2005 to 2004**





**NET
      SALES**





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





Wholesale
                Share
            
            Retail
                Share2005
            
            2004
            
            2005
            
            2004Class
                A Motorhomes
            
            
            7.6
            %
            
            7.9
            %
            
            7.9
            %
            
            7.1
            %Gasoline
            
            
            n/a
            
            
            n/a
            
            
            10.2
            
            
            9.5Diesel
            
            
            n/a
            
            
            n/a
            
            
            5.5
            
            
            4.4Class
                C Motorhomes
            
            
            9.3
            
            
            12.5
            
            
            12.5
            
            
            12.0Travel
                Trailers
            
            
            4.4
            
            
            4.4
            
            
            4.0
            
            
            4.3Fifth
                Wheels
            
            
            1.7
            
            
            2.1
            
            
            2.1
            
            
            2.4Camping
                Trailers
            
            
            10.0
            
            
            14.6
            
            
            9.9
            
            
            11.9Total
            
            
            4.9
            %
            
            5.8
            %
            
            4.9
            %
            
            5.4
            %n/a
                - not available*Wholesale
                share based on wholesale unit shipment data as reported by the
                Recreational Vehicle Industry Association.**Retail
                share based on data provided by Statistical Surveys,
                Inc.*


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





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





-
            27
            -





**GROSS
      PROFIT**





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





**OPERATING
      EXPENSES**





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





**OPERATING
      LOSS**




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





**ASSET
      IMPAIRMENT**





At
      December 31, 2005, the Company was in the latter stages of closing the All
      American Homes operation in Springfield, Tennessee. The pending closure of
      the
      Tennessee location resulted in an asset impairment charge of $1.1 million during
      2005.





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





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





**INTEREST
      EXPENSE**





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








-
            28
            -





**INVESTMENT
      INCOME**





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





**PRE-TAX
      INCOME (LOSS)**





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





**INCOME
      TAXES**





The
      provision for income taxes related to continuing operations was a benefit of
      $18.0 million for 2005 versus an expense of $6.6 million for 2004, representing
      an effective tax rate of (48.2%) for 2005 and 31.6% for 2004. The Company’s
      effective tax rate fluctuates based upon income levels, the states where sales
      occur, the amount of export sales, nontaxable dividends on investments,
      nontaxable increases in cash value of life insurance contracts and recognized
      federal and state tax credits. The impact of nontaxable income and tax credits
      in profitable years reduces the effective tax rate; however, in loss years
      the
      impact of these items causes an increase in the effective tax rate
      credit.





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





**NET
      INCOME (LOSS)**





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





**DISCONTINUED
      OPERATIONS**





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







-
            29
            -





**Liquidity
      and Capital Resources**





The
      Company generally relies on funds from operations as its primary source of
      working capital and liquidity. In addition, the Company maintains a $55.0
      million unsecured line of credit to meet its seasonal working capital needs
      (see Note
      5 of Notes
      to Consolidated Financial Statements). At December 31, 2006, 2005 and 2004
      there
      were $9.3 million, $12.3 million and $10.0 million in outstanding borrowings,
      respectively. In addition to the line of credit borrowings, on December 30,
      2004, the Company entered into an Amendment to the Credit Agreement. The
      amendment provided for a one-time short-term loan to the Company of $10.0
      million. This short-term loan bore interest at the prime rate and was due and
      paid on February 28, 2005. At December 31, 2004, there was $10.0 million
      outstanding on this loan. During 2004, the Company also borrowed against the
      cash surrender value of the Company's investment in life insurance contracts.
      As
      of December 31, 2006, 2005 and 2004, $15.0 million had been borrowed against
      the
      cash surrender value of Company-owned life insurance contracts.





During
      2006 operations used cash of $5.0 million as significant reductions in inventory
      and accounts receivable were offset by the net loss, reduction in accounts
      payable, and a reduction in accrued expenses. The decreases in accounts
      receivable and inventories resulted from management’s continued focus on
      effectively managing these assets. The reduction in accounts payable resulted
      from reduced production and inventory levels and the reduced accrued expenses
      was largely due to warranty repairs made during 2006. During 2005, operations
      generated cash of $7.6 million as the net loss and increases in accrued
      expenses, deferred tax assets and refundable taxes were offset by decreases
      in
      accounts receivable and inventories and non-cash charges related to
      depreciation, impairments and losses on sales of assets. The decreases in
      accounts receivable and inventories were a result of management’s focus on the
      reduction of these assets. During 2004, mainly as a result of increased
      inventories and receivables, offset somewhat by an increase in trade payables,
      the Company generated a negative cash flow from operations of $22.3 million.
      For
      2004, net income adjusted for depreciation and a slight increase in trade
      payables were the significant factors in generating cash flows, which were
      offset by larger increases in accounts receivables and
      inventories.





Investing
      activities provided cash of $20.4 million in 2006, used cash of $4.4 million
      in
      2005, and $9.8 million in 2004. In 2006, proceeds from sales of assets and
      properties of $28.1 million offset purchases of property and equipment. In
      2005,
      cash of $5.7 million was used to acquire machinery and equipment for both
      operating segments while cash of $1.8 million was generated from the sale of
      assets. Purchases of investments, net of sales, used cash flows of $0.6 million.
      In 2004, the investment in the West Coast Service Center and in the business
      unit that was to have been dedicated to the Coleman® brand of recreational
      vehicles represented major uses of cash, which were offset in part by the sale
      of the property and equipment of a company-owned dealership and certain other
      property and equipment. The sale of marketable securities, net of purchases,
      provided cash flows of $1.0 million for 2004. These proceeds were used in part
      to fund the investment in the additional manufacturing facilities. Capital
      expenditures in 2004 of $16.5 million consisted of the investment in the West
      Coast Service Center and the business unit that was to have been dedicated
      to
      the Coleman® brand of recreational vehicles, and investments in machinery and
      equipment and transportation equipment for both the Recreational Vehicle Segment
      and the Housing Segment





In
      2006,
      financing activities used cash flows of $15.5 million. Payments on borrowings
      on
      the line of credit, and the long-term debt, net of borrowings, used cash of
      $13.4 million. Additionally, $2.8 million in dividends were paid in 2006. In
      2005, financing activities used cash flows of $15.4 million. Payments on
      borrowings on the line of credit, including a short-term loan from 2004, and
      the
      long-term debt, net of borrowings, used cash of $12.4 million. In addition,
      dividends of $3.8 million were paid in 2005. In 2004, financing activities
      provided cash flows of $40.7 million. Proceeds from borrowings on the line
      of
      credit, including the short-term loan, borrowings on the cash surrender value
      of
      life insurance polices and proceeds from long-term debt, net of repayments,
      provided cash of $43.7 million. Offsetting the cash provided by borrowings
      in
      2004 was the payment of cash dividends. For a more detailed analysis of the
      Company's cash flows for each of the last three years, see the Consolidated
      Statements of Cash Flows .





The
      Company's cash and cash equivalents at December 31, 2006 were $2.7 million
      or a
      decrease of $0.1 million from 2005. At December 31, 2006, the Company has $41.2
      million available for borrowing under the unsecured line of credit. The Company
      anticipates that available funds, together with anticipated cash flows generated
      from future operations and amounts available under its existing credit
      facilities, will be sufficient to fund future planned capital expenditures
      and
      other operating cash requirements through the end of 2007.





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





In
      2006,
      working capital decreased $30.5 million, to $62.8 million from $93.3 million.
      The $69.8 million decrease in current assets at December 31, 2006 versus
      December 31, 2005 was primarily due to decreases in trade receivables,
      inventories, deferred income taxes, which were impacted by the sale of Miller
      Building Systems and Prodesign. Current liabilities at December 31, 2006 were
      $39.3 million lower than at December 31, 2005, primarily due to decreases in
      accounts payable and accrued expenses, which were impacted by the sale of Miller
      Building Systems and Prodesign.





The
      Company anticipates capital expenditures in 2007 of approximately $6.5 million.
      The planned capital expenditures for 2007 will be for purchase or replacement
      of
      machinery and equipment and transportation equipment to be used in the ordinary
      course of business. The Company plans to finance these expenditures with funds
      generated from operating cash flows.





-
            30
            -





**Principal
      Contractual Obligations and Commercial Commitments**





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






Payment
                Period2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            Thereafter
            
            
            TotalCredit
              facility borrowings
            $
            9,284.2
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            9,284.2Long-term
              debt
            
            1,077.4
            
            
            852.2
            
            
            819.4
            
            
            819.9
            
            
            770.3
            
            
            600.0
            
            
            4,939.2Floorplan
              note payable
            
            4,156.4
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,156.4Operating
              leases
            
            1,068.4
            
            
            862.1
            
            
            842.7
            
            
            714.5
            
            
            509.6
            
            
            4.2
            
            
            4,001.5Deferred
              compensation obligations
            
            1,534.1
            
            
            531.2
            
            
            403.1
            
            
            636.4
            
            
            450.2
            
            
            5,701.7
            
            
            9,256.7Open
              purchase orders and purchase obligations
            
            12,725.8
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            12,725.8Interest
              payments on long-term debt
            
            184.7
            
            
            143.1
            
            
            107.8
            
            
            73.3
            
            
            40.2
            
            
            24.4
            
            
            573.5Total
            $
            30,031.0
            
            $
            2,388.6
            
            $
            2,173.0
            
            $
            2,244.1
            
            $
            1,770.3
            
            $
            6,330.3
            
            $
            44,937.3




Notes:


-
      Projected interest payments for variable-rate debt were calculated based on
      the
      outstanding principal amounts and prevailing market rates as of December 31,
      2006.


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





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




Total
                Amounts
            
            
            Amount
                of Commitment
            
            
            Expiration
                Per PeriodCommitted
            
            
            Less
                Than One Year
            
            
            In
                Excess of One YearLetters
                of credit
            
            $
            4,989.0
            
            $
            4,989.0
            
            $
            -Guarantees
            
            
            5,260.6
            
            
            3,870.8
            
            
            1,389.8Standby
                repurchase obligations
            
            
            203,313.5
            
            
            187,131.8
            
            
            16,181.7Chassis
                pool obligations
            
            
            11,362.0
            
            
            11,362.0
            
            
            -Total
            
            $
            224,925.1
            
            $
            207,353.6
            
            $
            17,571.5





**Critical
      Accounting Policies and Estimates**





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




**Long-Lived
      Assets** **-** Long-lived
      assets held and used by the Company, including property, plant and equipment
      and
      intangible assets are reviewed for impairment whenever events or circumstances
      indicate that the carrying amount of an asset may not be recoverable (see Note
      11 of Notes
      to Consolidated Financial Statements for asset impairments recorded in 2005,
      including impairments of intangible assets).




Goodwill
      represents the excess of the purchase price over the fair value of net tangible
      and identifiable intangible assets of acquired businesses. Goodwill assets
      deemed to have indefinite lives are not amortized, but are subject to impairment
      tests at least annually in accordance with SFAS No. 142 *,
      Goodwill and Other*  *Intangible
      Assets* .
      The
      Company reviews the carrying amounts of goodwill assets annually by segment
      to
      determine if such assets may be impaired. If the carrying amounts of these
      assets are not recoverable based upon a discounted cash flow analysis, such
      assets are reduced by the estimated shortfall of fair value to recorded value.
      The Company has performed the required annual impairment tests and has
      determined that there was no impairment indicated for recorded goodwill. Our
      estimates of fair value of the reporting units could change as a result of
      our
      actual cash flows differing from our forecasted cash flows, which were used
      in
      our estimate of fair value. Further, a variance in the discount rate used could
      have an impact on the amount of goodwill impairment recorded.





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





-
            31
            -





**Warranty
      Reserves -** The
      Company provides customers of its products with a warranty covering defects
      in
      material or workmanship for periods generally ranging from one to two years
      in
      length and up to ten years on certain structural components. The Company records
      a liability based on its estimate of the amounts necessary to settle future
      and
      existing claims on products sold as of the balance sheet date. Estimated costs
      related to product warranty are accrued at the time of sale and included in
      cost
      of sales. General warranty reserves are estimated based upon past warranty
      claims and unit sales history and adjusted as required to reflect actual costs
      incurred, as information becomes available. Specific warranty reserves are
      based
      on specific identified issues with the amounts accrued based on the estimated
      cost to correct the problem. While the Company believes this method to be
      consistent and appropriate, changes in estimates could materially affect the
      Company’s recorded liability for loss. Warranty expense from continuing
      operations totaled $21.6 million, $34.8 million and $20.8 million in 2006,
      2005
      and 2004, respectively. Accrued liabilities for warranty expense at December
      31,
      2006 and 2005 were $11.1 million and $20.0 million, respectively.





The
      increase in warranty expense from continuing operations for 2005 of $14.0
      million to $34.8 million is primarily the result of costs associated with the
      recall of camping trailer lift systems and the repair of laminated sidewalls
      of
      certain of the Company’s recreational vehicles. The sizable product warranty
      claims relating to sidewalls and camping trailer lift systems damaged our
      reputation among RV dealers and consumers, which impacted our operating and
      financial results in 2006 and may continue to do so in the future.




**Litigation
      and Product Liability Reserves -** At December 31, 2006 the Company had
      reserves for certain other loss exposures, such as product liability ($2.5
      million) and litigation ($0.3 million) (see Note 12
      of Notes to Consolidated Financial Statements). The Company's litigation reserve
      is determined based on an individual case evaluation process. The Company is
      self-insured for a portion of its product liability and certain other liability
      exposures. Depending on the nature of the claim and the date of occurrence,
      the
      Company's maximum exposure ranges from $250,000 to $500,000 per claim. The
      Company accrues an estimated liability based on various factors, including
      sales
      levels, insurance coverage and the amount of outstanding claims. Management
      believes the liability recorded (see Note
      7 of Notes to Consolidated Financial Statements) is adequate to
      cover the Company's self-insured risk. The Company's estimated loss
      reserves for product liability are determined using loss triangles established
      by the Company's management reflecting historical claims incurred by the
      Company. While the Company believes this method to be consistent and
      appropriate, changes in estimates based on historical trends could materially
      affect the Company's recorded liabilities for loss.





**Income
      Taxes -** The
      Company recognizes income tax expense in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      Deferred tax assets and liabilities are established for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns using enacted tax rates in effect for the years in which the
      differences are expected to reverse and are subject to ongoing assessment of
      realizability. Deferred income tax expense (benefit) represents the change
      in
      net deferred tax assets and liabilities during the year. Deferred tax assets
      may
      be recognized for temporary differences that will result in deductible amounts
      in future periods and for loss carry forwards. A valuation allowance is
      recognized if, based on the weight of available evidence, it is more likely
      than
      not that some portion or all of the deferred tax asset will not be realized.
      Primarily due to the Company’s losses from continuing operations over the last
      two years, a non-cash charge of $24.4 million was recorded in the fourth quarter
      of 2006 to establish a reserve for its deferred tax assets. Depending on future
      operating results it is possible the valuation allowance could be reversed
      which
      would increase deferred tax assets and the Company’s income tax benefit.





**New
      and Pending Accounting Policies**





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








-
            32
            -





**Forward-Looking
      Statements**





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


·
            the
                ability of the new management team to achieve desired
                results; ·
            interest
                rates, which affect the affordability of the Company's
                products; ·
            consumer
                confidence and the availability of
                credit; ·
            the
                Company’s ability to utilize manufacturing resources efficiently; ·
            the
                Company’s ability to introduce new models that achieve consumer
                acceptance; ·
            the
                margins associated with the mix of products the Company sells in
                a
                particular period; ·
            the
                availability of floorplan financing for the Company's recreational
                vehicle
                dealers and corresponding availability of cash to the
                Company; ·
            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; ·
            potential
                liabilities under repurchase agreements and guarantees; ·
            consolidation
                of distribution channels in the recreational vehicle industry; ·
            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; ·
            the
                price volatility of materials used in production and the ability
                to pass
                on rapidly increasing costs of product components and raw materials
                to end
                buyers; ·
            the
                availability and cost of real estate for residential housing; ·
            the
                increased size and scope of work of military housing projects, and
                other
                major projects, as compared to the Company's traditional single-family
                homes business, with increased reliance on third parties for performance
                which could impact the Company; ·
            the
                ability of the Housing Segment to perform in new market segments
                where it
                has limited experience; ·
            the
                impact of performance on the valuation of intangible
                assets; ·
            the
                supply of existing homes within the Company’s
                markets; ·
            the
                impact of home values on housing demand; ·
            uncertainties
                and timing with respect to sales resulting from recovery efforts
                in the
                Gulf Coast. ·
            adverse
                weather conditions affecting home
                deliveries; ·
            changing
                government regulations, including those covering accounting standards; ·
            environmental
                matters or product warranties and recalls, which may affect costs
                of
                operations, revenues, product acceptance and profitability; ·
            the
                state of the recreational vehicle and housing industries in the United
                States; ·
            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; ·
            oil
                supplies; ·
            further
                developments in the war on terrorism and related international
                crises; ·
            uncertainties
                of matters in litigation and other risks and
                uncertainties; ·
            the
                ability of the Company to generate taxable income in future years
                to
                utilize deferred tax assets and net operating loss carryforwards
                that are
                available;


·
            the
                accuracy of the estimates of the costs to remedy the disclosed
                recreational vehicle warranty issues; ·
            the
                Company’s ability to increase gross margins which are critical whether or
                not there are increased sales; ·
            the
                Company’s use of incentives at either the wholesale or retail
                level;


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.





-
            33
            -





**Item
      7A.**  **Quantitative
      and Qualitative Disclosures about Market Risk**




In
      the
      normal course of business, operations of the Company are exposed to fluctuations
      in interest rates. These fluctuations can vary the costs of financing and
      investing yields. During 2006, 2005 and 2004, the Company has utilized its
      revolving credit facility to meet short-term working capital needs. The
      Company had $9.3 million outstanding against the revolving credit facility
      on
      December 31, 2006. 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. The Company had $12.3 million
      outstanding against the revolving credit facility on December 31, 2005 and
      $10
      million outstanding against the revolving credit facility on December 31, 2004.
      In addition, on December 30, 2004, the Company entered into an Amendment to
      the
      Credit Agreement. The December amendment provided for a one-time short-term
      loan
      to the Company of $10 million. At December 31, 2004, there was $10 million
      outstanding on this loan. Accordingly, changes in interest rates would impact
      both the Company's short and long-term debt. At December 31, 2006, the Company
      had $4.9 million of long-term debt, including current maturities. Long-term
      debt
      consists mainly of industrial development revenue bonds of approximately $4.4
      million.





At
      December 31, 2006, the Company had one interest rate swap agreement with a
      notional amount of $3.0 million that was used to convert the variable interest
      rates on an industrial development revenue bond to a fixed rate. In
      accordance with the terms of the swap agreement, the Company pays a 3.71%
      interest rate, and receives the Bond Market Association Index (BMA), calculated
      on the notional amount, with net receipts or payments being recognized as
      adjustments to interest expense. This swap agreement, along with those
      terminated in 2006 and 2005, are designated as a cash flow hedge for accounting
      purposes and effectively converts a portion of the Company's variable-rate
      borrowing to a fixed-rate basis through November of 2011, thus reducing the
      impact of changes in interest rates on future interest expense. The fair value
      of the Company's interest rate swap agreement represents the estimated receipts
      or payments that would be made to terminate the agreements. A cumulative loss
      of
      $4,000, net of taxes, attributable to changes in the fair value of interest
      rate
      swap agreements was recorded as a component of accumulated other comprehensive
      income (loss) for the year ended December 31,2006. 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).





-
            34
            -





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


**Index
                to Financial Statements**
            **Page**Financial
                Statements:Report
                of Independent Registered Public Accounting
                Firm
            36Report
                of Independent Registered Public Accounting Firm
                on Internal Control over Financial Reporting
            37Consolidated
                Balance Sheets at December 31, 2006 and
                2005
            38Consolidated
                Statements of Operations for
                the years ended December 31, 2006, 2005 and 2004
            39Consolidated
                Statements of Shareholders' Equity
                for the years ended December 31, 2006, 2005 and 2004
            40Consolidated
                Statements of Cash Flows for the years ended
                December 31, 2006, 2005 and 2004
            41Notes
                to Consolidated Financial
                Statements
            42-66Financial
                Statement Schedule:II
                - Valuation and Qualifying Accounts for the years
                ended December 31, 2006, 2005 and 2004
            67





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







-
          35
          -
 *Index*





**Report
      of Independent Registered Public Accounting
      Firm**











Board
      of
      Directors and Shareholders


Coachmen
      Industries, Inc.








We
      have
      audited the accompanying consolidated balance sheets of Coachmen Industries,
      Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, shareholders' equity, and cash
      flows for each of the three years in the period ended December 31, 2006. Our
      audits also included the financial statement schedule listed in the Index at
      Item 15(a)(2). These financial statements and schedule are the responsibility
      of
      the Company's management. Our responsibility is to express an opinion on these
      financial statements and schedule based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Coachmen
      Industries, Inc. and subsidiaries at December 31, 2006 and 2005, and the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2006, in conformity with U.S.
      generally accepted accounting principles. Also, in our opinion, the related
      financial statement schedule, when considered in relation to the basic
      consolidated financial statements taken as a whole, presents fairly, in all
      material respects, the information set forth therein.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company's internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission and our report dated
      February 28, 2007 expressed an unqualified opinion thereon.








/s/
                Ernst & Young LLP







Grand
      Rapids, Michigan


February
      28, 2007







-
          36
          -
 *Index*





**Report
      of Independent Registered Public Accounting
      Firm**


**On
      Internal Control Over Financial Reporting**





Board
      of
      Directors and Shareholders


Coachmen
      Industries, Inc.





We
      have
      audited management's assessment, included in the accompanying Management's
      Report on Internal Control Over Financial Reporting, that Coachmen Industries,
      Inc. and subsidiaries (the Company) maintained effective internal control over
      financial reporting as of December 31, 2006, based on criteria established
      in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (the COSO criteria). The Company's
      management is responsible for maintaining effective internal control over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting. Our responsibility is to express an opinion
      on
      management's assessment and an opinion on the effectiveness of the Company's
      internal control over financial reporting based on our audit.





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





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





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





In
      our
      opinion, management's assessment that Coachmen Industries, Inc. and subsidiaries
      maintained effective internal control over financial reporting as of December
      31, 2006, is fairly stated, in all material respects, based on the COSO
      criteria. Also, in our opinion, Coachmen Industries, Inc. and subsidiaries
      maintained, in all material respects, effective internal control over financial
      reporting as of December 31, 2006, based on **** the
      COSO
      criteria.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Coachmen
      Industries, Inc. and subsidiaries as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, shareholders' equity, and cash
      flows for each of the three years in the period ended December 31, 2006 of
      Coachmen Industries, Inc. and subsidiaries and our report dated February 28,
      2007 expressed an unqualified opinion thereon.








/s/
                Ernst & Young LLP








Grand
      Rapids, MI


February
      28, 2007







-
          37
          -
 *Index*


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Balance Sheets**


as
      of
      December 31


(in
      thousands)


2006
            
            
            2005**Assets**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            2,651
            
            $
            2,780Trade
                receivables, less allowance for doubtful receivables 2006 - $1,134
                and
                2005 - $1,240
            
            
            25,874
            
            
            47,174Other
                receivables
            
            
            2,332
            
            
            1,969Refundable
                income taxes
            
            
            10,820
            
            
            10,284Inventories
            
            
            83,511
            
            
            121,304Prepaid
                expenses and other
            
            
            3,957
            
            
            3,992Deferred
                income taxes
            
            
            -
            
            
            11,421Assets
                held for sale
            
            
            288
            
            
            291Total
                current assets
            
            
            129,433
            
            
            199,215Property,
                plant and equipment**,**net
            
            
            57,018
            
            
            67,581Goodwill
            
            
            16,865
            
            
            17,383Cash
                value of life insurance, net of loans
            
            
            31,119
            
            
            28,880Deferred
                income taxes
            
            
            -
            
            
            4,279Other
            
            
            8,699
            
            
            5,478TOTAL
                ASSETS
            
            $
            243,134
            
            $
            322,816**Liabilities
                and Shareholders' Equity**CURRENT
                LIABILITIESShort-term
                borrowings
            
            $
            9,284
            
            $
            12,276Accounts
                payable, trade
            
            
            16,998
            
            
            31,658Accrued
                income taxes
            
            
            18
            
            
            533Accrued
                expenses and other liabilities
            
            
            35,116
            
            
            54,856Floorplan
                notes payable
            
            
            4,156
            
            
            4,361Current
                maturities of long-term debt
            
            
            1,077
            
            
            2,223Total
                current liabilities
            
            
            66,649
            
            
            105,907Long-term
                debt
            
            
            3,862
            
            
            12,913Deferred
                income taxes
            
            
            4,524
            
            
            -Postretirement
                deferred compensation benefits
            
            
            7,768
            
            
            10,182Other
            
            
            -
            
            
            11Total
                liabilities
            
            
            82,803
            
            
            129,013COMMITMENTS
                AND CONTINGENCIES****(Note
                12)SHAREHOLDERS'
                EQUITYCommon
                shares, without par value: authorized 60,000 shares; issued 2006
                - 21,156
                shares and 2005 - 21,134 shares
            
            
            92,382
            
            
            92,164Additional
                paid-in capital
            
            
            7,648
            
            
            6,465Unearned
                compensation
            
            
            -
            
            
            (142
            )Accumulated
                other comprehensive loss
            
            
            (10
            )
            
            (6
            )Retained
                earnings
            
            
            119,623
            
            
            154,246Treasury
                shares, at cost, 2006 - 5,433 shares and 2005 - 5,375
                shares
            
            
            (59,312
            )
            
            (58,924
            )Total
                shareholders' equity
            
            
            160,331
            
            
            193,803TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            243,134
            
            $
            322,816


See Notes
      to Consolidated Financial Statements .


-
          38
          -
 *Index*


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Operations**


for
      the
      years ended December 31


(in
      thousands, except per share amounts)


2006
            
            2005
            
            2004Net
                sales
            
            $
            564,382
            
            $
            702,425
            
            $
            802,346Cost
                of sales
            
            
            514,961
            
            
            646,465
            
            
            689,520Gross
                profit
            
            
            49,421
            
            
            55,960
            
            
            112,826Operating
                expenses:Delivery
            
            
            29,205
            
            
            32,762
            
            
            34,005Selling
            
            
            23,230
            
            
            28,320
            
            
            28,620General
                and administrative
            
            
            21,328
            
            
            30,794
            
            
            31,543Asset
                impairments
            
            
            -
            
            
            1,076
            
            
            -Gain
                on sale of assets, net
            
            
            (8,689
            )
            
            (163
            )
            
            (1,448
            )65,074
            
            
            92,789
            
            
            92,720Operating
                income (loss)
            
            
            (15,653
            )
            
            (36,829
            )
            
            20,106Nonoperating
                (income) expense:Interest
                expense
            
            
            3,829
            
            
            3,168
            
            
            1,794Investment
                income
            
            
            (1,617
            )
            
            (2,182
            )
            
            (2,193
            )Other
                (income) expense, net
            
            
            (1,165
            )
            
            (461
            )
            
            (346
            )1,047
            
            
            525
            
            
            (745
            )Income
                (loss) from continuing operations before income taxes
            
            
            (16,700
            )
            
            (37,354
            )
            
            20,851Income
                taxes (credit)
            
            
            16,515
            
            
            (17,994
            )
            
            6,593Net
                income (loss) from continuing operations
            
            
            (33,215
            )
            
            (19,360
            )
            
            14,258Discontinued
                operationsLoss
                from operations of discontinued entities
              (net
                of tax credits of $(546), $(4,426) and $(303),
                respectively)
            
            
            (795
            )
            
            (6,370
            )
            
            (659
            )Gain
                (loss) on sale of assets of discontinued entities
              (net
                of taxes (credits) of $2,140, $(431) and $816,
                respectively)
            
            
            2,205
            
            
            (620
            )
            
            1,735Income
                (loss) from discontinued operations
            
            
            1,410
            
            
            (6,990
            )
            
            1,076Net
                income (loss)
            
            $
            (31,805
            )
            $
            (26,350
            )
            $
            15,334Earnings
                (loss) per share - BasicContinuing
                operations
            
            $
            (2.12
            )
            $
            (1.24
            )
            $
            .92Discontinued
                operations
            
            
            .09
            
            
            (.45
            )
            
            .07Net
                earnings (loss) per share
            
            
            (2.03
            )
            
            (1.69
            )
            
            .99Earnings
                (loss) per share - DilutedContinuing
                operations
            
            
            (2.12
            )
            
            (1.24
            )
            
            .92Discontinued
                operations
            
            
            .09
            
            
            (.45
            )
            
            .07Net
                earnings (loss) per share
            
            
            (2.03
            )
            
            (1.69
            )
            
            .99Number
                of common shares used in the computation of earnings (loss) per
                share:Basic
            
            
            15,633
            
            
            15,551
            
            
            15,483Diluted
            
            
            15,633
            
            
            15,551
            
            
            15,551


See Notes
      to Consolidated Financial Statements .


-
          39
          -
 *Index*


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Shareholders' Equity**


for
      the
      years ended December 31, 2006, 2005 and 2004


(in
      thousands, except per share amounts)


AccumulatedAdditional
            
            
            
            Other
            
            
            
            
            
            
            
            TotalComprehensive
            
            Common
            
            Shares
            
            Paid-In
            
            Unearned
            
            Comprehensive
            
            Retained
            
            Treasury
            
            Shares
            
            Shareholders'Income
                (Loss)
            
            Number
            Amount
            
            Capital
            
            Compensation
            
            Income(Loss)
            
            Earnings
            
            Number
            
            Amount
            
            EquityBalance
                at January 1, 2004
            
            
            
            
            
            21,086
            
            $
            91,539
            
            $
            7,616
            
            $
            (1,136
            )
            $
            290
            
            $
            172,700
            
            
            (5,533
            )
            $
            (59,858
            )
            $
            211,151Net
                income
            
            $
            15,334
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15,334
            
            
            -
            
            
            -
            
            
            15,334Net
                unrealized loss on securitiesnet
                of taxes of $160
            
            
            (262
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (262
            )
            
            -
            
            
            -
            
            
            -
            
            
            (262
            )Net
                unrealized gain on cash flowhedges
                net of taxes of $39
            
            
            64
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            64
            
            
            -
            
            
            -
            
            
            -
            
            
            64Total
                comprehensive income
            
            $
            15,136Issuance
                of common shares uponthe
                exercise of stock optionsnet
                of tax benefit of $46
            
            
            
            
            
            -
            
            
            -
            
            
            250
            
            
            -
            
            
            -
            
            
            -
            
            
            34
            
            
            199
            
            
            449Issuance
                of common shares underemployee
                stock purchase plan
            
            
            
            
            
            22
            
            
            311
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            311Issuance
                of common sharesfrom
                treasury
            
            
            
            
            
            -
            
            
            -
            
            
            1,028
            
            
            (564
            )
            
            -
            
            
            -
            
            
            115
            
            
            657
            
            
            1,121Cash
                dividends of $.24 percommon
                share
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,750
            )
            
            -
            
            
            -
            
            
            (3,750
            )Balance
                at December 31, 2004
            
            
            
            
            
            21,108
            
            
            91,850
            
            
            8,894
            
            
            (1,700
            )
            
            92
            
            
            184,284
            
            
            (5,384
            )
            
            (59,002
            )
            
            224,418Comprehensive
                Income - 2005Net
                loss
            
            $
            (26,350
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (26,350
            )
            
            -
            
            
            -
            
            
            (26,350
            )Reversal
                of unrealized gain onsecurities
                net of taxes of $116
            
            
            (188
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (188
            )
            
            -
            
            
            -
            
            
            -
            
            
            (188
            )Net
                unrealized gain on cash flowhedges
                net of taxes of $57
            
            
            90
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            90
            
            
            -
            
            
            -
            
            
            -
            
            
            90Total
                comprehensive loss
            
            $
            (26,448
            )Issuance
                of common shares uponthe
                exercise of stock optionsnet
                of tax benefit of $7
            
            
            
            
            
            -
            
            
            -
            
            
            164
            
            
            -
            
            
            -
            
            
            -
            
            
            28
            
            
            165
            
            
            329Issuance
                of common shares underemployee
                stock purchase plan
            
            
            
            
            
            26
            
            
            314
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            314Issuance
                (cancellations) ofcommon
                shares from treasury
            
            
            
            
            
            -
            
            
            -
            
            
            (2,593
            )
            
            1,558
            
            
            -
            
            
            -
            
            
            (19
            )
            
            (87
            )
            
            (1,122
            )Other
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            68
            
            
            -
            
            
            -
            
            
            68Cash
                dividends of $.24 percommon
                share
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,756
            )
            
            -
            
            
            -
            
            
            (3,756
            )Balance
                at December 31, 2005
            
            
            
            
            
            21,134
            
            
            92,164
            
            
            6,465
            
            
            (142
            )
            
            (6
            )
            
            154,246
            
            
            (5,375
            )
            
            (58,924
            )
            
            193,803Comprehensive
                Income - 2006Net
                loss
            
            $
            (31,805
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (31,805
            )
            
            -
            
            
            -
            
            
            (31,805
            )Net
                unrealized (loss) on cash flow hedges net of taxes of $3
            
            
            (4
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4
            )
            
            -
            
            
            -
            
            
            -
            
            
            (4
            )Total
                comprehensive loss
            
            $
            (31,809
            )Issuance
                of common shares uponthe
                exercise of stock optionsnet
                of tax benefit of $25
            
            
            
            
            
            -
            
            
            -
            
            
            284
            
            
            -
            
            
            -
            
            
            -
            
            
            64
            
            
            376
            
            
            660Issuance
                of common shares underemployee
                stock purchase plan
            
            
            
            
            
            22
            
            
            218
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            218Issuance
                (cancellations) ofcommon
                    shares from treasury
            
            
            
            
            
            -
            
            
            -
            
            
            899
            
            
            142
            
            
            -
            
            
            -
            
            
            (122
            )
            
            (764
            )
            
            277Cash
                dividends of $.18 percommon
                share
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,818
            )
            
            -
            
            
            -
            
            
            (2,818
            )Balance
                at December 31, 2006
            
            
            
            
            
            21,156
            
            $
            92,382
            
            $
            7,648
            
            $
            -
            
            $
            (10
            )
            $
            119,623
            
            
            (5,433
            )
            $
            (59,312
            )
            $
            160,331


See Notes
      to Consolidated Financial Statements .


-
          40
          -
 *Index*


**Coachmen
      Industries, Inc. and
      Subsidiaries**


**Consolidated
      Statements of Cash Flows**


for
      the
      years ended December 31


(in
      thousands)


CASH
                FLOWS FROM OPERATING ACTIVITIES:
            
            
            2006
            
            
            2005
            
            
            2004Net
                income (loss)
            
            $
            (31,805
            )
            $
            (26,350
            )
            $
            15,334Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
            
            
            6,533
            
            
            8,554
            
            
            9,402Provision
                for doubtful receivables
            
            
            1,631
            
            
            988
            
            
            200Provision
                for write-down of assets to net realizable value
            
            
            -
            
            
            9,241
            
            
            -Net
                realized and unrealized (gains) losses on marketable securities and
                derivatives
            
            
            (4
            )
            
            (311
            )
            
            93(Gain)
                loss on sale of properties and other assets, net
            
            
            (13,183
            )
            
            1,592
            
            
            (4,305
            )Increase
                in cash surrender value of life insurance policies
            
            
            (317
            )
            
            (1,142
            )
            
            (1,074
            )Deferred
                income tax provision (benefit)
            
            
            20,224
            
            
            (13,198
            )
            
            (892
            )Tax
                benefit from stock options exercised
            
            
            25
            
            
            7
            
            
            46Other
            
            
            127
            
            
            (848
            )
            
            2,696Changes
                in certain assets and liabilities, net of effects of acquisitions
                and
                dispositions:Trade
                receivables
            
            
            16,642
            
            
            12,883
            
            
            (15,076
            )Inventories
            
            
            25,627
            
            
            14,784
            
            
            (34,789
            )Prepaid
                expenses and other
            
            
            (582
            )
            
            152
            
            
            478Accounts
                payable, trade
            
            
            (13,150
            )
            
            (2,147
            )
            
            3,319Income
                taxes - accrued and refundable
            
            
            (1,051
            )
            
            (11,986
            )
            
            366Accrued
                expenses and other liabilities
            
            
            (15,750
            )
            
            15,390
            
            
            1,880Net
                cash provided by (used in) operating activities
            
            
            (5,033
            )
            
            7,609
            
            
            (22,322
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sales of marketable securities
            
            
            -
            
            
            1,933
            
            
            3,629Proceeds
                from sale of properties and other assets
            
            
            28,104
            
            
            1,846
            
            
            7,034Investments
                in marketable securities and cash surrender value
            
            
            (2,574
            )
            
            (2,549
            )
            
            (2,582
            )Purchases
                of property and equipment
            
            
            (4,622
            )
            
            (5,696
            )
            
            (16,477
            )Other
            
            
            (517
            )
            
            48
            
            
            (1,377
            )Net
                cash provided by (used in) investing activities
            
            
            20,391
            
            
            (4,418
            )
            
            (9,773
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from short-term borrowings
            
            
            11,713
            
            
            232
            
            
            39,938Payments
                of short-term borrowings
            
            
            (14,910
            )
            
            (10,581
            )
            
            (17,952
            )Proceeds
                from long-term debt
            
            
            255
            
            
            241
            
            
            8,036Payments
                of long-term debt
            
            
            (10,452
            )
            
            (2,243
            )
            
            (1,307
            )Proceeds
                from borrowings on cash value of life insurance policies
            
            
            -
            
            
            -
            
            
            20,000Repay
                borrowings against cash value of life insurance policies
            
            
            -
            
            
            -
            
            
            (5,000
            )Issuance
                of common shares under stock incentive plans
            
            
            878
            
            
            643
            
            
            760Tax
                benefit from stock options exercised
            
            
            (25
            )
            
            (7
            )
            
            (46
            )Cash
                dividends paid
            
            
            (2,818
            )
            
            (3,756
            )
            
            (3,750
            )Purchases
                of common shares for treasury
            
            
            (129
            )
            
            -
            
            
            -Other
            
            
            1
            
            
            68
            
            
            -Net
                cash provided by (used in) financing activities
            
            
            (15,487
            )
            
            (15,403
            )
            
            40,679Increase
                (decrease) in cash and cash equivalents
            
            
            (129
            )
            
            (12,212
            )
            
            8,584CASH
                AND CASH EQUIVALENTSBeginning
                of year
            
            
            2,780
            
            
            14,992
            
            
            6,408End
                of year
            
            $
            2,651
            
            $
            2,780
            
            $
            14,992Supplemental
                disclosures of cash flow information:Cash
                paid during the year for interest
            
            $
            1,383
            
            $
            2,314
            
            $
            1,460Cash
                paid (refunded) during the year for income taxes
            
            
            (127
            )
            
            2,240
            
            
            7,114Operating
                cash received related to insurance settlement
            
            
            2,875
            
            
            2,213
            
            
            -(Gain)
                loss on sale of assets - Continuing operations
            
            
            (8,689
            )
            
            (163
            )
            
            (1,448
            )(Gain)
                loss on sale of assets - Discontinued operations
            
            
            (4,345
            )
            
            1,051
            
            
            (2,551
            )Provision
                for write-down of assets to net realizable value - Continuing
                operations
            
            
            -
            
            
            1,077
            
            
            -Provision
                for write-down of assets to net realizable value - Discontinued
                operations
            
            
            -
            
            
            8,164
            
            
            -


See
Notes
      to Consolidated Financial Statements.


-
          41
          -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**







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





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





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





**Use
      of Estimates -** The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the amounts reported in the financial statements
      and
      accompanying notes. Actual results could differ from those estimates.





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





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





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


2006
            
            2005
            
            2004Issuance
                (cancellations) of common shares, at market value, in lieu of cash
                compensation
            
            $
            125
            
            $
            (1,122
            )
            $
            1,121Notes
                receivable received in connection with the sale of certain assets
                (seeNote
                11)
            
            
            5,920
            
            
            -
            
            
            1,000





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





At
      December 31, 2006 and 2005, cash and cash equivalents invested in money market
      accounts or certificates of deposit were less than $0.6 million and $0.1
      million, respectively.





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





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





2006
            
            2005
            
            2004Interest
                income
            
            $
            474
            
            $
            510
            
            $
            143Increase
                in cash value of life insurance policies
            
            
            1,138
            
            
            1,116
            
            
            1,148Dividend
                income on preferred stocks
            
            
            5
            
            
            54
            
            
            770Net
                realized gains on sale of preferred stocks and bond funds
            
            
            -
            
            
            505
            
            
            586Net
                realized losses on closed U.S. Treasury bond futures
                options
            
            
            -
            
            
            (12
            )
            
            (55
            )Other
                than temporary unrealized losses on preferred stocks
            
            
            -
            
            
            -
            
            
            (390
            )Unrealized
                gains (losses) on open U.S. Treasury bond futures options
            
            
            -
            
            
            9
            
            
            (9
            )Total
            
            $
            1,617
            
            $
            2,182
            
            $
            2,193




-
            42
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**







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





**Fair
      Value of Financial Instruments -** The
      carrying amounts of cash and cash equivalents, receivables and accounts payable
      approximated fair value as of December 31, 2006 and 2005, because of the
      relatively short maturities of these instruments. The carrying amount of
      long-term debt, including current maturities, approximated fair value as of
      December 31, 2006 and 2005, based upon terms and conditions
      currently available to the Company in comparison to terms and conditions of
      the existing long-term debt. The Company has investments in life insurance
      contracts principally to fund obligations under deferred compensation agreements
      (see Note
      9 ).
      At
      December 31, 2006 and 2005, the carrying amount of life insurance policies,
      which equaled their fair value, was $31.1 million ($46.1 million, net of $15
      million of policy loans) and $28.9 million ($43.9 million, net of $15 million
      of
      policy loans), respectively.





SFAS
      No.
      133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      requires that all derivative instruments be recorded on the balance sheet at
      their fair value. Changes in the fair value of derivatives are recorded each
      period in current earnings or other comprehensive income, depending on whether
      a
      derivative is designated as part of a hedge transaction and, if it is, the
      type
      of hedge transaction. The Company has entered into various interest rate swap
      agreements to manage the economic risks associated with fluctuations in interest
      rates by converting a portion of the Company's variable rate debt to a fixed
      rate basis, thus reducing the impact of changes in interest rates on future
      interest expense. These financial instruments have been designated as cash
      flow
      hedges, with changes in fair value being included as a component of other
      comprehensive income (loss) within shareholders' equity. Hedge effectiveness
      is
      evaluated by the hypothetical derivative method and any hedge ineffectiveness
      is
      reported as interest expense. Hedge ineffectiveness was not material in 2006
      or
      2005.





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




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





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





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




**Long-Lived
      Assets -** Long-lived
      assets held and used by the Company, including property, plant and equipment
      and
      intangible assets are reviewed for impairment whenever events or circumstances
      indicate that the carrying amount of an asset may not be recoverable (see Note
      11 for
      asset impairments recorded in 2005, including impairments of intangible assets).





Goodwill
      represents the excess of the purchase price over the fair value of net tangible
      and identifiable intangible assets of acquired businesses. Goodwill assets
      deemed to have indefinite lives are not amortized, but are subject to impairment
      tests at least annually in accordance with SFAS No. 142 *,
      Goodwill and Other*  *Intangible
      Assets* .
      The
      Company reviews the carrying amounts of goodwill assets annually by segment
      to
      determine if such assets may be impaired. If the carrying amounts of these
      assets are not recoverable based upon a discounted cash flow analysis, such
      assets are reduced by the estimated shortfall of fair value to recorded value.
      The Company has performed the required annual impairment tests and has
      determined that there was no impairment indicated for recorded
      goodwill.




The
      changes in the carrying amount of goodwill for the years ended December 31,
      2006
      and 2005 are as follows (in
      thousands) :


****


GoodwillBalance
                at January 1, 2005
            $
            18,132Allocation
                to discontinued operations
            
            (749
            )Balance
                at December 31, 2005
            $
            17,383Allocation
                to discontinued operations
            
            (518
            )Balance
                at December 31, 2006
            $
            16,865




-
            43
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





**Warranty
      Expense -** The
      Company provides to its customers a variety of warranties on its products
      ranging from 1 to 2 years in length and up to ten years on certain structural
      components. Estimated costs related to product warranty are accrued at the
      time
      of sale and included in cost of sales. General warranty reserves are based
      upon
      past warranty claims and sales history and adjusted as required to reflect
      actual costs incurred, as information becomes available. Specific warranty
      reserves are based on specific identified issues with the amounts accrued based
      on the estimated cost to correct the problem. Warranty expense from continuing
      operations totaled $21.6 million, $34.8 million and $20.8 million in 2006,
      2005
      and 2004, respectively. The higher warranty expense for 2005 is primarily the
      result of specific reserves established related to the recall of camping trailer
      lift systems and the repair of laminated sidewalls of certain of the Company’s
      recreational vehicles.





Changes
      in the Company's warranty liability during the years ended December 31, 2006
      and
      2005 were as follows (in thousands):


2006
            
            2005Balance
                of accrued warranty at January 1
            
            $
            20,005
            
            $
            10,140Warranties
                issued during the period and changes in liability for pre-existing
                warranties
            
            
            21,598
            
            
            34,771Cash
                settlements made during the period
            
            
            (30,504
            )
            
            (24,906
            )Balance
                of accrued warranty at December 31
            
            $
            11,099
            
            $
            20,005





The
      decrease in warranty accrual for 2006 of $8.9 million to $11.1 million is
      primarily the result of specific reserves established in 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. Most of the claims against these specific reserves were paid by the
      Company in 2006.





**Stock-Based
      Compensation -** On
      March
      1, 2003, the Company adopted the Performance Based Restricted Stock Plan
      initiated to motivate and reward participants for superior achievement of the
      Company's pre-established long-term financial performance goals. This new plan,
      effective as of January 1, 2003, utilizes variable plan accounting, meaning
      that
      the cost of the awards are expensed over the vesting period based upon the
      fair
      value of the estimated shares to be earned at the end of the vesting period.
      The
      Company also has stock option plans and an employee stock purchase plan. These
      plans are described in more detail in Note
      8 .





Prior
      to
      January 1, 2006, the Company accounted for its stock-based compensation plans
      under the recognition and measurement provision of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations, as permitted by FASB Statement No. 123, *Accounting
      for Stock-Based Compensation* .
      Effective January 1, 2006, the Company adopted the fair value recognition
      provisions of FASB Statement No. 123(R), *Share-Based
      Payment* ,
      using
      the modified-prospective-transition method and accordingly, the Company 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 benefit for the year ended
      December 31, 2006 was 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 December 31, 2006 were not significant.





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





-
            44
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





The
      following table illustrates the effect on net income and earnings per share
      if
      the Company had applied the fair value recognition provisions of SFAS No.
      123, *Accounting
      for Stock-Based Compensation* ,
      to
      stock-based compensation for the years ended December 31, 2005 and
      2004:





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





The
      Company did not grant any stock options in 2006 or 2005.





**New
      Accounting Pronouncements-** On
      July
      13, 2006 , the  Financial
      Accounting Standards Board (FASB) issued interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109* (FIN
      48).
      FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an
      enterprise’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* (SFAS
      109). This Interpretation prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. This Interpretation
      also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. FIN 48 is effective
      for fiscal years beginning after December 15, 2006 .
      Management expects that FIN 48 will not have a material effect on our
      consolidated financial statements.





In
      September 2006, the Financial
      Accounting Standards Board ( FASB)
      issued SFAS No. 157, *Fair
      Value Measurements* (SFAS
      No. 157).  SFAS No. 157 establishes a framework for measuring the fair
      value of assets and liabilities.  This framework is intended to provide
      increased consistency in how fair value determinations are made under various
      existing accounting standards which permit, or in some cases require, estimates
      of fair market value.  SFAS No. 157 also expands financial statement
      disclosure requirements about a company’s use of fair value measurements,
      including the effect of such measures on earnings.  SFAS No. 157 is
      required to be adopted at the beginning of the fiscal year ending December
      31,
      2008. Management expects that SFAS No. 157 will not have a material effect
      on
      our consolidated financial statements.





**Research
      and Development Expenses -** Research
      and development expenses charged to continuing operations were $6.7 million,
      $7.2 million, and $7.0 million for the years ended December 31, 2006, 2005
      and
      2004, respectively.








-
          45
          -
 *Index*




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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





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





The
      Company’s gross profit may not be comparable to other entities within our
      industry whose shipping and handling expenses are presented as a component
      of
      cost of sales. Delivery expense was as follows (in thousands):





2006
            
            
            2005
            
            
            2004Delivery
                Expense
            
            $
            29,205
            
            $
            32,762
            
            $
            34,005Percentage
                of Net Sales
            
            
            5.2%
            
            
            4.7%
            
            
            4.2%





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





Unrealized
              Gains
                (Losses)
              on
                Securities
            
            Unrealized
              Gains
                (Losses)
              on
                Cash Flow
              Hedges
            
            Accumulated
              Other
              Comprehensive
              Income(Loss)Balances
                at January 1, 2004
            
            $
            450
            
            $
            (160
            )
            $
            290Other
                comprehensive income (loss)
            
            
            (262
            )
            
            64
            
            
            (198
            )Balances
                at December 31, 2004
            
            
            188
            
            
            (96
            )
            
            92Other
                comprehensive income (loss)
            
            
            (188
            )
            
            90
            
            
            (98
            )Balances
                at December 31, 2005
            
            
            -
            
            
            (6
            )
            
            (6
            )Other
                comprehensive income (loss)
            
            
            -
            
            
            (4
            )
            
            (4
            )Balances
                at December 31, 2006
            
            $
            -
            
            $
            (10
            )
            $
            (10
            )





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





**Income
      Taxes -** The
      Company recognizes income tax expense in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      Deferred tax assets and liabilities are established for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns using enacted tax rates in effect for the years in which the
      differences are expected to reverse and are subject to ongoing assessment of
      realizability. Deferred income tax expense (benefit) represents the change
      in
      net deferred tax assets and liabilities during the year. Deferred tax assets
      may
      be recognized for temporary differences that will result in deductible amounts
      in future periods and for loss carryforwards. A valuation allowance is
      recognized if, based on the weight of available evidence, it is more likely
      than
      not that some portion or all of the deferred tax asset will not be realized.
      Primarily due to the Company’s losses from continuing operations over the last
      two years, a non-cash charge of $24.4 million was recorded in the fourth quarter
      of 2006 to establish a reserve for its deferred tax assets.





**Reclassifications
      -** Certain
      reclassifications have been made in the fiscal 2005 and 2004 consolidated
      financial statements and related footnotes to conform to the presentation used
      in 2006.





-
            46
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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





2006
            
            2005
            
            2004Net
                sales:Recreational
                vehiclesMotorhomes
            
            $
            266,246
            
            $
            350,876
            
            $
            421,325Travel
                trailers and fifth wheels
            
            
            118,375
            
            
            149,263
            
            
            143,253Camping
                trailers
            
            
            13,549
            
            
            15,152
            
            
            22,776Truck
                campers
            
            
            -
            
            
            -
            
            
            4Parts
                and supplies
            
            
            6,540
            
            
            6,903
            
            
            6,396Total
                recreational vehicles
            
            
            404,710
            
            
            522,194
            
            
            593,754Housing
            
            
            159,672
            
            
            180,231
            
            
            208,592Consolidated
                total
            
            $
            564,382
            
            $
            702,425
            
            $
            802,346Gross
                profitRecreational
                vehicles
            
            $
            13,620
            
            $
            15,307
            
            $
            57,723Housing
            
            
            35,801
            
            
            40,653
            
            
            54,923Other
                reconciling items
            
            
            -
            
            
            -
            
            
            180Total
            
            $
            49,421
            
            $
            55,960
            
            $
            112,826Operating
                expensesRecreational
                vehicles
            
            $
            38,996
            
            $
            55,049
            
            $
            47,051Housing
            
            
            33,152
            
            
            43,335
            
            
            45,530Other
                reconciling items
            
            
            (7,074
            )
            
            (5,595
            )
            
            139Total
            
            $
            65,074
            
            $
            92,789
            
            $
            92,720Operating
                income (loss)Recreational
                vehicles
            
            $
            (25,376
            )
            $
            (39,742
            )
            $
            10,672Housing
            
            
            2,649
            
            
            (2,682
            )
            
            9,393Other
                reconciling items
            
            
            7,074
            
            
            5,595
            
            
            41Total
            
            $
            (15,653
            )
            $
            (36,829
            )
            $
            20,106Pre-tax
                income (loss) from continuing operationsRecreational
                vehicles
            
            $
            (25,383
            )
            $
            (40,760
            )
            $
            10,628Housing
            
            
            2,665
            
            
            (2,403
            )
            
            9,834Other
                reconciling items
            
            
            6,018
            
            
            5,809
            
            
            389Total
            
            $
            (16,700
            )
            $
            (37,354
            )
            $
            20,851




-
            47
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**2.   
      SEGMENT INFORMATION, Continued.**


2006
            
            2005
            
            2004Total
                assetsRecreational
                vehicles
            
            $
            113,627
            
            $
            152,501
            
            $
            174,101Housing
            
            
            57,968
            
            
            83,338
            
            
            111,099Other
                reconciling items
            
            
            71,539
            
            
            86,977
            
            
            72,523Total
            
            $
            243,134
            
            $
            322,816
            
            $
            357,723Total
                goodwillRecreational
                vehicles
            
            $
            3,872
            
            $
            4,132
            
            $
            4,132Housing
            
            
            12,993
            
            
            13,251
            
            
            14,000Total
            
            $
            16,865
            
            $
            17,383
            
            $
            18,132




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


2006
            
            2005
            
            2004Interest
                expenseRecreational
                vehicles
            
            $
            840
            
            $
            1,171
            
            $
            135Housing
            
            
            281
            
            
            339
            
            
            212Other
                reconciling items
            
            
            2,708
            
            
            1,658
            
            
            1,447Consolidated
                total
            
            $
            3,829
            
            $
            3,168
            
            $
            1,794DepreciationRecreational
                vehicles
            
            $
            3,547
            
            $
            3,515
            
            $
            2,852Housing
            
            
            2,522
            
            
            2,879
            
            
            3,058Other
                reconciling items
            
            
            453
            
            
            709
            
            
            1,687Consolidated
                total
            
            $
            6,522
            
            $
            7,103
            
            $
            7,597




**3.   
      INVENTORIES.**


Inventories
      consist of the following (in thousands):


December
                31,
            
            December
                31,2006
            
            2005Raw
                materialsRecreational
                vehicles
            $
            13,874
            
            $
            19,770Housing
            
            6,065
            
            
            13,643Total
            
            19,939
            
            
            33,413Work
                in processRecreational
                vehicles
            
            15,661
            
            
            15,515Housing
            
            3,466
            
            
            5,280Total
            
            19,127
            
            
            20,795Improved
                lotsHousing
            
            221
            
            
            261Total
            
            221
            
            
            261Finished
                goodsRecreational
                vehicles
            
            35,079
            
            
            48,935Housing
            
            9,145
            
            
            17,900Total
            
            44,224
            
            
            66,835Total
            $
            83,511
            
            $
            121,304


-
            48
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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


2006
            
            2005Land
                and improvements
            
            $
            11,562
            
            $
            13,255Buildings
                and improvements
            
            
            61,043
            
            
            68,007Machinery
                and equipment
            
            
            24,798
            
            
            31,468Transportation
                equipment
            
            
            14,310
            
            
            16,279Office
                furniture and fixtures
            
            
            17,481
            
            
            19,080Total
            
            
            129,194
            
            
            148,089Less,
                accumulated depreciation
            
            
            72,176
            
            
            80,508Property,
                plant and equipment, net
            
            $
            57,018
            
            $
            67,581





**5.   
SHORT-TERM
      BORROWINGS.**





On
      August
      2, 2006, the Company executed a $55 million, five-year, secured Revolving Credit
      Facility with LaSalle Business Credit, LLC to meet its seasonal working capital
      needs. At December 31, 2006 there were short-term borrowings of
      $9.3 million outstanding against this bank line of credit, and
      outstanding letters of credit totaling $5.0 million.





At
      December 31, 2005 there were short-term borrowings of $12.3 million outstanding
      and outstanding letters of credit totaling $5.0 million. As of December 31,
      2006, and December 31, 2005, $15 million had been borrowed against the cash
      surrender value of Company-owned life insurance contracts.





The
      new
      five-year credit facility replaces the previous $35 million facility that was
      due to expire on August 31, 2006. Under the new facility, available borrowings
      are based on 85% of eligible accounts receivable plus the lesser of 60% of
      eligible inventory or 85% liquidation value of inventory, 70% of appraised
      value
      of mortgaged real estate and 80% liquidation value of equipment. The new
      agreement, which expires August 2, 2011, also has an accordion feature enabling
      the credit facility to be increased by an additional $25 million, subject to
      customary conditions. Outstanding borrowings under the new agreement bear
      interest at rates based on the prime or LIBOR rates as outlined in the
      agreement. The new credit facility is secured by substantially all of the assets
      of the Company. Financial covenant ratios are required to be calculated only
      in
      the event a Funds Control Event occurs, as defined in the agreement. No Funds
      Control Events occurred during the year ended December 31, 2006.





At
      December 31, 2006, the new and used recreational vehicle inventory of the
      Company-owned dealership was pledged as collateral on floorplan notes
      aggregating $4.2 million. The interest rate on these floorplan notes is tiered
      based on the outstanding note balance. The effective rate at December 31, 2006
      was 7.85%.





-
            49
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**6.   
      LONG-TERM DEBT.**





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




2006
            
            2005Term
                Loan, variable rate (5.9% and 7.2% at December 31, 2006 and 2005,
                respectively), maturities through 2009
            
            $
            -
            
            $
            6,438Obligations
                under industrial development revenue bonds, variable rates (effective
                weighted-average interest rates of 4.1% and 3.7% at December 31,
                2006 and
                2005, respectively), with various maturities through 2015
            
            
            4,350
            
            
            8,035Obligations
                under capital leases, interest imputed at rates ranging from 4.7%
                to 5.4%,
                with maturities through 2008
            
            
            292
            
            
            663Other
            
            
            297
            
            
            -Subtotal
            
            
            4,939
            
            
            15,136Less,
                current maturities of long-term debt
            
            
            1,077
            
            
            2,223Long-term
                debt
            
            $
            3,862
            
            $
            12,913





Principal
      maturities of long-term debt during the four fiscal years succeeding 2007 are
      as
      follows: 2008 - $852,000; 2009 - $820,000; 2010 - $820,000; 2011 - $770,000
      and
      thereafter - $600,000.





In
      connection with the industrial development revenue bond obligations, the Company
      obtained, as a credit enhancement for the bondholders, irrevocable letters
      of
      credit in favor of the bond trustees. Under the industrial revenue bond for
      the
      Mod-U-Kraf Homes manufacturing facility in Virginia, the issuer of the letter
      of
      credit holds a first lien and security interest on that facility.





In
      January of 2003, the Company entered into various interest rate swap agreements
      that became effective beginning in October of 2003. These swap agreements are
      designated as cash flow hedges under the provisions of Statement of Financial
      Accounting Standards No. 133, " *Accounting
      for Derivative Instruments and Hedging Activities* ,"
      and
      are used to manage the economic risks associated with fluctuations in interest
      rates by converting a portion of the Company's variable-rate debt to a
      fixed-rate basis through November of 2011, thus reducing the impact of changes
      in interest rates on future interest expense. Hedge effectiveness is evaluated
      by the hypothetical derivative method. Any hedge ineffectiveness is reported
      within the interest expense caption of the statements of income. Hedge
      ineffectiveness was not material in 2006, 2005 or 2004. The fair value of the
      Company's interest rate swap agreements represents the estimated receipts or
      payments that would be made to terminate the agreements. If, in the future,
      the
      interest rate swap agreements are determined to be ineffective hedges or are
      terminated before the contractual termination dates, or if it became probable
      that the hedged variable cash flows **** associated
      with the variable-rate borrowings would stop, the Company would be required
      to
      reclassify into earnings all or a portion of the unrealized amounts on cash
      flow
      hedges included in accumulated other comprehensive income (loss) within
      shareholders' equity.





At
      December 31, 2006, the Company had one remaining interest rate swap agreement
      with a notional amount of $3.0 million that was used to convert the variable
      interest rates on certain industrial development revenue bonds to fixed
      rates. In accordance with the terms of the swap agreement, the Company pays
      a 3.71% interest rate, and receives the Bond Market Association Index (BMA),
      calculated on the notional amount, with net receipts or payments being
      recognized as adjustments to interest expense. The Company recorded a liability
      for the potential early settlements of these swap agreements in the amount
      of
      $17,000 at December 31, 2006 and $11,000 at December 31, 2005. This exposure
      represents the fair value of the swap instruments and has been recorded in
      the
      balance sheets in accordance with SFAS No. 133 as a noncurrent liability. The
      effective portion of the cash flow hedge has been recorded, net of taxes, as
      a
      reduction of shareholders' equity as a component of accumulated other
      comprehensive loss.





-
            50
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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


2006
            
            2005Wages,
                salaries, bonuses and commissions
            
            $
            3,135
            
            $
            3,156Dealer
                incentives, including volume bonuses, dealer trips, interest
                reimbursement, co-op advertising and other rebates
            
            
            4,140
            
            
            4,284Warranty
            
            
            11,099
            
            
            20,005Insurance-products
                and general liability, workers compensation, group health and
                other
            
            
            7,593
            
            
            6,833Customer
                deposits and unearned revenues
            
            
            3,865
            
            
            10,029Litigation
            
            
            345
            
            
            3,740Interest
            
            
            955
            
            
            1,980Sales
                and property taxes
            
            
            1,226
            
            
            1,948Other
                current liabilities
            
            
            2,758
            
            
            2,881Total
            
            $
            35,116
            
            $
            54,856




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





**Stock
      Option Plan**





The
      Company has stock option plans, including the 2000 Omnibus Stock Incentive
      Program (the "2000 Plan"), which was approved by the shareholders on May 4,
      2000. The 2000 Plan provides for 1.0 million common shares to be reserved for
      grants under the Company's stock option and award plans. The Company's stock
      option plan provides for the granting of options to directors, officers and
      eligible key employees to purchase common shares. The 2000 Plan permits the
      issuance of either incentive stock options or nonqualified stock options. Stock
      Appreciation Rights ("SAR's") may be granted in tandem with stock options or
      independently of and without relation to options. There were no SAR's
      outstanding at December 31, 2006 or 2005. The option price for incentive stock
      options shall be an amount of not less than 100% of the fair market value per
      share on the date of grant and the option price for nonqualified stock options
      shall be an amount of not less than 90% of the fair market value per share
      on
      the date the option is granted. No such options may be exercised during the
      first year after grant, and are exercisable cumulatively in four installments
      of
      25% each year thereafter. Outstanding options have terms of ten years.





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


Number
              of
                Shares
            
            Weighted-
              Average
              Exercise
              PriceOutstanding,
                January 1, 2004
            
            
            546
            
            $
            15.05Granted
            
            
            -
            
            
            -Canceled
            
            
            (184
            )
            
            20.52Exercised
            
            
            (35
            )
            
            12.21Outstanding,
                December 31, 2004
            
            
            327
            
            
            12.26Granted
            
            
            -
            
            
            -Canceled
            
            
            (15
            )
            
            14.69Exercised
            
            
            (28
            )
            
            11.66Outstanding,
                December 31, 2005
            
            
            284
            
            
            12.19Granted
            
            
            -
            
            
            -Canceled
            
            
            (71
            )
            
            13.60Exercised
            
            
            (64
            )
            
            9.95Outstanding,
                December 31, 2006
            
            
            149
            
            $
            12.48




-
            51
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





Options
      outstanding at December 31, 2006 are exercisable at prices ranging from $10.00
      to $18.68 per share and have a weighted-average remaining contractual life
      of
      4.6 years. The following table summarizes information about stock options
      outstanding and exercisable at December 31, 2006 (in thousands):




Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise
            
            Number
                Outstanding at
            
            Weighted-Average
              Remaining
            
            Weighted-Average
            
            Number
                Exercisable at
            
            Weighted-AveragePrice
            
            December
                31, 2006
            
            Contractual
                Life
            
            Exercise
                Price
            
            December
                31, 2006
            
            Exercise
                Price$10.00
                - $12.00
            
            93
            
            4.1
            
            $10.21
            
            91
            
            $10.1812.01
                - 17.00
            
            49
            
            5.3
            
            15.95
            
            47
            
            16.0717.01
                - 18.68
            
            7
            
            5.3
            
            18.68
            
            7
            
            18.68149
            
            
            
            
            
            145




At
      December 31, 2005 and 2004 there were exercisable options to purchase 252,000
      and 245,000 shares, respectively, at weighted-average exercise prices of $11.85
      and $11.54, respectively. There were no options granted during 2006 or 2005.
      As
      of December 31, 2006, 1.4 million shares were reserved for the granting of
      future stock options and awards, compared with 1.2 million shares at December
      31, 2005.




**Stock
      Award Programs**





The
      2000
      Plan also permits the granting of restricted and unrestricted stock awards
      to
      the Company's key employees and non-employee directors. In accordance with
      the
      provisions of the 2000 Plan, the Board of Directors may grant shares of stock
      to
      eligible participants for services to the Company. Restricted shares vest over
      a
      period of time as determined by the Board of Directors and are granted at no
      cost to the recipient. For restricted shares that are not subject to
      pre-established Company performance objectives, compensation expense is
      recognized over the vesting period at an amount equal to the fair market value
      of the shares on the grant date. Compensation expense for discretionary
      unrestricted stock awards is recognized at date of grant. There were 21,728,
      22,490, and 17,900 restricted non-contingent stock awards granted at a
      weighted-average per share grant-date fair value of $11.03, $11.80, and $15.95,
      in 2006, 2005 and 2004, respectively. Compensation expense of $238,000,
      $259,000, and $148,700 was recognized in the years ended December 31, 2006,
      2005
      and 2004, respectively .





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





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




-
            52
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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





Number
              of
                SharesOutstanding,
                January 1, 2004
            
            
            86,700Granted
            
            
            99,600Forfeited
            
            
            (17,190
            )Outstanding,
                December 31, 2004
            
            
            169,110Granted
            
            
            75,600Forfeited
            
            
            (102,410
            )Outstanding,
                December 31, 2005
            
            
            142,300Granted
            
            
            110,000Forfeited
            
            
            (252,300
            )Outstanding,
                December 31, 2006
            
            
            -





The
      following table summarizes, by plan year, the number of contingent shares
      awarded, forfeited and the remaining contingent shares outstanding as of
      December 31, 2006:


Plan
                Year2006
            
            2005
            
            2004Contingent
                shares awarded
            
            
            110,000
            
            
            75,600
            
            
            99,600Shares
                forfeited
            
            
            110,000
            
            
            75,600
            
            
            99,600Contingent
                shares outstanding as of December 31, 2006
            
            
            **-**
            
            
            **-**
            
            
            **-**





**Stock
      Purchase Plan**





The
      Company has an employee stock purchase plan under which a total of 800,000
      shares of the Company's common stock are reserved for purchase by full-time
      employees through weekly payroll deductions. Shares of the Company's common
      stock are purchased quarterly by the employees at a price equal to 90% of the
      market price. The market price was based on the lower of the beginning or the
      ending day of the quarter until June 30, 2006, and subsequently is based on
      the
      market price at the end of the quarter. As of December 31, 2006, there were
      162
      employees actively participating in the plan. Since its inception, a total
      of
      438,000 shares have been purchased by employees under the plan. The Company
      sold
      to employees 21,830, 25,700 and 21,600 shares at weighted fair values of $10.02,
      $11.07 and $14.48 in 2006, 2005 and 2004, respectively. Certain restrictions
      in
      the plan limit the amount of payroll deductions an employee may make in any
      one
      quarter. There are also limitations as to the amount of ownership in the Company
      an employee may acquire under the plan.




-
          53
          -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





**Earnings
      Per Share**





Basic
      earnings per share is based on the weighted-average number of shares outstanding
      during the period. Diluted earnings per common share is based on the weighted
      average number of shares outstanding during the period, after consideration
      of
      the dilutive effect of stock options and awards and shares held in deferred
      compensation plans. Basic and diluted earnings per share were calculated using
      the average shares as follows (in thousands):




2006
            
            2005
            
            2004Numerator:Net
                income (loss) available to common stockholders
            
            $
            (31,805
            )
            $
            (26,350
            )
            $
            15,334Denominator:Number
                of shares outstanding, end of period:Weighted-average
                number of common shares used in Basic EPS
            
            
            15,633
            
            
            15,551
            
            
            15,483Stock
                options and awards
            
            
            -
            
            
            -
            
            
            68Weighted-average
                number of common shares used in Diluted EPS
            
            
            15,633
            
            
            15,551
            
            
            15,551





As
      the
      Company reported a net loss for the years ended December 31, 2006 and 2005,
      the
      dilutive effect of stock options and awards did not enter into the computation
      of diluted earnings per share because their inclusion would have been
      antidilutive. For the year ended December 31, 2004, 85,400 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.





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





**Shareholder
      Rights Plan**





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





**Share
      Repurchase Programs**





Periodically,
      the Company has repurchased its common stock as authorized by the Board of
      Directors. Under the repurchase program, common shares are purchased from time
      to time, depending on market conditions and other factors, on the open market
      or
      through privately negotiated transactions. There were no shares repurchased
      in
      2005 or 2004. During August 2006, the Company announced that the Board of
      Directors had authorized a share repurchase of up to one million shares. During
      the third quarter of 2006, the Company repurchased 11,700 shares for a total
      cost, including commissions, of $128,516. At December 31, 2006, there are
      988,300 shares remaining authorized for repurchase by the Board of
      Directors.





-
            54
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**9.   
COMPENSATION
      AND BENEFIT
      PLANS.**





**Incentive
      Compensation**





The
      Company has incentive compensation plans for its officers and other key
      personnel. The amounts charged to expense for the years ended December 31,
      2006,
      2005 and 2004 aggregated $363,000, $920,000, and $3,516,000, respectively.





**Deferred
      Compensation**





The
      Company has established a deferred compensation plan for executives and other
      key employees. The plan provides for benefit payments upon termination of
      employment, retirement, disability, or death. The Company recognizes the cost
      of
      this plan over the projected service lives of the participating employees based
      on the present value of the estimated future payment to be made. The plan is
      funded by insurance contracts on the lives of the participants. At December
      31,
      2006 and December 31, 2005, the carrying amount of these policies, which equaled
      their fair value, was $25.9 million ($42.3 million, net of $15.0 million of
      policy loans and $1.4 million interest on policy loans) and $24.9 million ($39.9
      million, net of $15.0 million of policy loans), respectively. The deferred
      compensation obligations, which aggregated $5.9 million and $7.6 million at
      December 31, 2006 and 2005, respectively, are included in other non-current
      liabilities, with the current portion ($731,000 and $391,000 at December 31,
      2006 and 2005, respectively) included in other current liabilities.




In
      connection with the acquisition of Mod-U-Kraf Homes in 2000, the Company assumed
      obligations under existing deferred compensation agreements. The remaining
      liability recognized in the consolidated balance sheet related to the Mod-U-Kraf
      agreements aggregated $38,000 and $287,000 at December 31, 2006 and 2005,
      respectively. As part of the Mod-U-Kraf acquisition, the Company assumed
      ownership of life insurance contracts and trust accounts established for the
      benefit of participating executives. Such assets, which are valued at fair
      value, aggregated $63,000 and $61,000 at December 31, 2006 and 2005,
      respectively.





**Supplemental
      Deferred Compensation**





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





The
      Company has also established a supplemental deferred compensation plan
      (Executive Savings Plan) for certain key executive management as determined
      by
      the Board of Directors. This plan allows participants to defer compensation
      without regard to participation in the Company's 401(k) plan. The participants
      select certain mutual funds investments and Company stock whose performance
      is
      tracked by the Company. In addition, the Company matches a certain level of
      participant contributions that vests after a five-year period. Under the plan,
      the investments are not funded directly, including the matching contributions
      and investments in Company stock. Instead, the plan administrator tracks the
      performance of investments in mutual funds and Company stock as directed by
      the
      participant and a liability to the participants is recorded by the Corporation
      based on the performance of the phantom investments. Participant benefits are
      limited to the value of the vested benefits recorded on their behalf. The plan
      is funded by insurance contracts on the lives of the participants. At December
      31, 2006 and 2005, the carrying amount of these policies, which equaled their
      fair value, was $5.0 million and $3.8 million, respectively. Liabilities
      recorded on the consolidated balance sheets related to these plans as of
      December 31, 2006 and 2005 are $1.8 million and $2.8 million,
      respectively.





**Employee
      Benefit Plans**





The
      Company sponsors a retirement plan (the "Plan"), under Section 401(k) of the
      Internal Revenue Code (IRS) that covers all eligible employees. The Plan is
      a
      defined contribution plan and allows employees to make voluntary contributions
      up to 20% of annual compensation. Effective January 1, 2005, the Plan was
      amended to allow for voluntary contributions of up to 50% of annual
      compensation, not to exceed IRS limits. Under the Plan, the Company may make
      discretionary matching contributions on up to 6% of participants' compensation.
      Expenses under the Plan aggregated $1.0 million, $1.3 million, and $1.3 million
      for the years ended December 31, 2006, 2005 and 2004, respectively.




-
            55
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**







**10.   INCOME
      TAXES.**





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




2006
            
            2005
            
            2004Federal:Current
            
            $
            (2,119
            )
            $
            (8,673
            )
            $
            7,090Deferred
            
            
            15,255
            
            
            (5,888
            )
            
            (1,587
            )13,136
            
            
            (14,561
            )
            
            5,503State:Current
            
            
            448
            
            
            (2,964
            )
            
            1,192Deferred
            
            
            2,931
            
            
            (469
            )
            
            (102
            )3,379
            
            
            (3,433
            )
            
            1,090Total
            
            $
            16,515
            
            $
            (17,994
            )
            $
            6,593




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




2006
            
            2005
            
            2004Computed
                federal income tax at federal statutory rate
            
            $
            (5,845
            )
            $
            (13,074
            )
            $
            7,298Changes
                resulting from:Increase
                in cash surrender value of life insurance contracts
            
            
            (370
            )
            
            (397
            )
            
            (395
            )Loss
                on sale of stock of Miller Building Systems, Inc.
            
            
            (1,690
            )
            
            -
            
            
            -Current
                year state income taxes, net of federal income tax benefit
            
            
            (652
            )
            
            (1,942
            )
            
            436Preferred
                stock dividend exclusion
            
            
            -
            
            
            (9
            )
            
            (189
            )Extraterritorial
                income exclusion
            
            
            -
            
            
            (71
            )
            
            (57
            )Tax
                benefit on prior years' federal and state research and development
                (R&D) credits
            
            
            -
            
            
            (2,378
            )
            
            -Tax
                benefit of current years' federal R&D tax credit carryforward, AMT
                credit carryforward and other credits
            
            
            -
            
            
            (454
            )
            
            -Decrease
                in federal tax reserves, net of additional state tax
                reserves
            
            
            325
            
            
            53
            
            
            (487
            )Valuation
                allowance for NOL, AMT, deferred tax assets and general business
                credits
            
            
            24,360
            
            
            -
            
            
            -Other,
                net
            
            
            387
            
            
            278
            
            
            (13
            )Total
            
            $
            16,515
            
            $
            (17,994
            )
            $
            6,593




The
      Company accounts for corporate income taxes in accordance with SFAS No. 109,
      “Accounting for Income Taxes,” which requires the Company to evaluate the need
      to establish a valuation allowance to reduce the carrying value of its deferred
      tax assets on the balance sheet. Deferred tax assets arise as a result of tax
      loss carryforwards and various differences between the book value of assets
      and
      the values used for income tax purposes. SFAS No 109 states that a valuation
      allowance is generally required if a company has cumulative losses in recent
      years. Given the losses incurred by the Company over the last two years, a
      noncash charge from continuing operations of $24.4 million was recorded to
      establish a valuation allowance for the full value of its deferred tax assets
      as
      of December 31, 2006. At December 31, 2006 the Company has a tax benefit of
      $8.6
      million related to Federal net operating loss carryforwards which may be
      utilized to offset future taxable income, and if not utilized, will expire
      in
      2026.


-
            56
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**10.  
      INCOME TAXES, Continued.**





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




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




2006
            
            2005Current
              deferred tax asset (liability):Accrued
                warranty expense
            
            $
            3,484
            
            $
            6,815Accrued
                self-insurance
            
            
            2,137
            
            
            1,900Inventories
            
            
            959
            
            
            956Receivables
            
            
            431
            
            
            471Prepaid
                insurance
            
            
            (564
            )
            
            (602
            )Litigation
                reserve
            
            
            131
            
            
            1,421Other
            
            
            278
            
            
            460Valuation
                allowance
            
            
            (6,856
            )
            
            -Net
              current deferred tax asset
            
            $
            -
            
            $
            11,421Noncurrent
              deferred tax asset (liability):Deferred
                compensation
            
            $
            3,548
            
            $
            3,950Property
                and equipment and other real estate
            
            
            (1,823
            )
            
            (636
            )Intangible
                assets
            
            
            (2,557
            )
            
            (2,459
            )Notes
                receivable
            
            
            348
            
            
            -Federal
                net operating loss carryforward credits
            
            
            8,597
            
            
            -Alternative
                minimum tax credit carryover
            
            
            623
            
            
            171Federal
                research and development credit carryover
            
            
            1,102
            
            
            420State
                net operating loss carryforward credits
            
            
            3,378
            
            
            2,777Other
            
            
            135
            
            
            56Valuation
                allowance
            
            
            (17,875
            )
            
            -Net
              noncurrent deferred tax asset (liability)
            
            $
            (4,524
            )
            $
            4,279





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





During
      2005, the Company’s Board of Directors approved a comprehensive operational and
      cost structure realignment and restructuring plan (the Intensive Recovery Plan),
      which was largely implemented by the close of 2006 and is intended to improve
      operating performance and ensure financial strength.





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





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
      was paid in 2006.




-
          57
          -
 *Index*




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





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





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





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





**Housing
      Segment**





The
      Company has ceased operations at the All American Homes operation in
      Springfield, Tennessee. The closure of the Tennessee location resulted in an
      asset impairment charge of approximately $1.1 million, which was recorded in
      the
      third quarter of 2005. On December 15, 2006 the Company completed the sale
      of
      this property for approximately $3.2 million, which resulted in a pre-tax gain
      of approximately $1.1 million. In connection with the sale of this property,
      $1.2 million of industrial revenue bonds were paid off as of December 15, 2006.
      During December 2006, the Company also terminated the $1.2 million interest
      rate
      swap that had been associated with these revenue bonds. The closure and sale
      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
      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 years ended
      December 31, 2006, 2005 and 2004 were $0.0 million, $9.7 million and $10.2
      million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $(0.4) million, $(2.9) million and $0.2
      million, respectively.





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, which is included in other long-term assets
      on
      the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest
      at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments
      beginning September 30, 2006. Principal payments of $125,000 per quarter
      commence on June 30, 2009 and continue through the maturity date of March 31,
      2011. In addition, the Company accepted a $2.0 million contingent earn-out
      note,
      which will be paid to the Company if certain income metrics are achieved by
      the
      acquiring entity. In accordance with Statement of Financial Accounting Standard
      No. 144, the division qualified as a separate component of the Company’s
      business and as a result, the operating results of the division have been
      accounted for as a discontinued operation. Previously reported financial results
      for all periods presented have been restated to reflect this business as a
      discontinued operation. Net sales of Miller Building Systems, Inc. for the
      years
      ended December 31, 2006, 2005 and 2004 were $7.5 million, $41.6 million and
      $40.1 million, respectively, and the pre-tax income (loss) for the years ended
      December 31, 2006, 2005 and 2004 were $1.5 million, $(8.2) million and $(1.7)
      million, respectively. In connection with this sale, $1.7 million of industrial
      revenue bonds were paid off as of March 31, 2006. During April 2006, the Company
      terminated the $1.5 million and $235,000 interest rate swaps that had been
      associated with these revenue bonds.





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 Segment goodwill based on the relative fair value of the
      discontinued operations to the entire Housing 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 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.





-
            58
            -
 *Index*




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





Assets
      and liabilities of All American Homes of Kansas and Miller Building Systems,
      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 adjusted to reflect this business as a discontinued
      operation. In conjunction with the classification of Prodesign as a discontinued
      operation, management allocated goodwill of $0.3 million to the discontinued
      operations from the 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 years ended December 31, 2006, 2005 and 2004 were $0.4
      million, $14.2 million and $12.5 million, respectively, and the pre-tax income
      (loss) for the years ended December 31, 2006, 2005 and 2004 were $2.0 million,
      $(0.7) million and $0.3 million, respectively.




Assets
      and liabilities of Prodesign, 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




On
      December 31, 2004, the Company sold all operating assets of the Company-owned
      dealership located in North Carolina. The total sale price was $11.8 million.
      The sale resulted in a gain on sale of discontinued operations of $1.7 million,
      net of $.8 million in taxes. In accordance with SFAS No. 144, the dealership
      qualified as a separate component of the Company's business and as a result,
      the
      operating results and the gain on the sale of assets have been accounted for
      as
      a discontinued operation. Previously reported financial results for all periods
      presented have been adjusted to reflect this business as a discontinued
      operation. Net sales of the North Carolina dealership for the year ended
      December 31, 2004 was $20.0 million, and the pre-tax income for the year ended
      December 31, 2004 was $2.8 million.


-
          59
          -
 *Index*




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**12. 
COMMITMENTS
      AND CONTINGENCIES.**





**Lease
      Commitments**





The
      Company leases various manufacturing and office facilities under non-cancelable
      agreements that expire at various dates through November 2011. Several of the
      leases contain renewal options and options to purchase and require the payment
      of property taxes, normal maintenance and insurance on the properties. Certain
      office and delivery equipment is also leased under non-cancelable agreements
      that expire at various dates through October 2012. The above-described leases
      are accounted for as operating leases.





Future
      minimum annual operating lease commitments at December 31, 2006 aggregated
      $4.0
      million and are payable during the next 5 years as follows: 2007 - $1.1 million,
      2008 - $0.9 million, 2009 - $0.8 million, 2010 - $0.7 million, and 2011 - $0.5
      million. Total rental expense for the years ended December 31, 2006, 2005 and
      2004 aggregated $1.6 million, $1.6 million and $1.1 million, respectively.





**Obligation
      to Purchase Consigned Inventories**





The
      Company obtains vehicle chassis for its recreational vehicle products directly
      from automobile manufacturers under converter pool agreements. The agreements
      generally provide that the manufacturer will provide a supply of chassis at
      the
      Company's various production facilities under the terms and conditions as set
      forth in the agreement. Chassis are accounted for as consigned inventory until
      assigned to a unit in the production process. At that point, the Company is
      obligated to purchase the chassis and it is recorded as inventory. At December
      31, 2006 and 2005, chassis inventory, accounted for as consigned inventory,
      approximated $11.4 million and $26.8 million, respectively.





**Repurchase
      Agreements**





The
      Company was contingently liable at December 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 and cost of sales at the time of
      repurchase. Although the estimated contingent liability approximates $187
      million at December 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
      December 31, 2006 and 2005, $0.3 million and $0.4 million, respectively, was
      recorded as an accrual for estimated losses under repurchase agreements.





The
      Company was also contingently liable at December 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 and cost of sales at the time of repurchase.
      Although the estimated contingent liability approximates $16.2 million at
      December 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 at December 31, 2006 and December 31, 2005
      for estimated losses under the repurchase agreement.





-
            60
            -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





**Corporate
      Guarantees**





The
      Company was contingently liable under guarantees to financial institutions
      of
      their loans to independent dealers for amounts totaling approximately $3.9
      million at December 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, as of December 31, 2006 the Company was contingently liable
      to
      the financial institutions up to a maximum of $2.1 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. The Company will be liable up to a maximum of $2.1
      million of aggregate losses thru June 30, 2007, and thereafter, the Company
      will
      be liable up to a maximum of $2.0 million of aggregate losses. The Company
      has
      recorded a loss reserve of $0.1 million at December 31, 2006 and December 31,
      2005 associated with these guarantees.





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





In
      addition, the Company is liable under a guarantee to a financial institution
      for
      model home financing provided to certain independent builders doing business
      with the Company's Housing Segment. The amount outstanding under this agreement
      at December 31, 2006 is $0.4 million ($0.6 million at December 31, 2005). Any
      losses incurred under this guarantee would be offset by the proceeds from the
      resale of the model home and losses are limited to 20% of the original contract
      price, and cannot exceed a total of $2.0 million. As of December 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. As of December 31, 2006,
      the
      Company provided $2.3 million in financing to the developer under this
      arrangement. The loans are collateralized by a first priority interest in all
      tangible and intangible property of the borrower. The developer was unable
      to
      obtain a building permit, so the Company is pursuing its legal remedies through
      litigation to recoup the financing extended to date. No additional funding
      has
      been or will be provided. During the fourth quarter of 2006, the Company
      obtained title to the real estate that was partial collateral for this Note.
      In
      the event the sale of the property does not generate proceeds sufficient to
      cover the financing previously provided, the Company will continue pursuing
      its
      legal remedies to recover any shortfall. As of December 31, 2006, the Company
      has reserved an amount for which Management believes the Company may not
      recover, however, there is a potential for exposure in excess of the amount
      reserved.





**Self-Insurance**





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




-
          61
          -
 *Index*





**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








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





**Change
      of Control Agreements**





On
      February 3, 2000, the Company entered into Change of Control Agreements with
      key
      executives. Under the terms of these agreements, in the event of a change in
      control of the Company, as defined, the Company would be obligated to pay these
      key executives for severance and other benefits. These agreements had aggregated
      obligations of approximately $8.3 million and $10.4 million based on salaries
      and benefits at December 31, 2006 and 2005, respectively. In addition, in the
      event of a change of control of the Company, all outstanding stock options
      and
      SAR's shall become immediately exercisable, restrictions are removed from
      restricted stock, and all stock awards shall immediately be deemed fully
      achieved.





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





**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 $4.4 million from The Coleman
      Company, Inc. in exchange for releasing all claims in the suit. The settlement
      of $4.4 million was paid in two installments of $2.2 million, 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 $0.5 million if certain provisions of
      the
      agreement are breached. The settlement of $4.4 million was recorded in the
      first
      quarter of 2005 as a reduction of $1.7 million to cost of sales and a reduction
      of $0.5 million to operating expenses at the RV Segment plus a reduction of
      $2.2
      million to the Company’s general and administrative expenses.





During
      2005, the Company settled a personal injury suit for $5.0 million, $1.0 million
      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 $1.5 million
      in addition to the amount paid by its primary carrier and recorded another
      current liability of $2.5 million to recognize the remaining amount to be paid
      on the settlement and the $250,000 retention. During June 2006, the remaining
      liability of $2.5 million was paid. Since the excess carrier initially denied
      coverage, the Company filed suit against the excess carrier to enforce coverage.
      During the first quarter of 2006, the matter was settled for $2.875 million,
      which the Company received on March 15, 2006 and was recorded as a reduction
      to
      the RV Segment’s general and administrative expenses. There remains ongoing
      litigation against other parties to recover the balance over the retention.




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





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





On
      November 21, 2006 the Company received a summons from the Internal Revenue
      Service which requires the Company to produce various documents relating to
      its
      research and development claims filed with the Internal Revenue Service for
      the
      tax years 1999 through 2004.





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.




-
          62
          -
 *Index*




**Coachmen
      Industries, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements, Continued**








**13. 
      UNAUDITED INTERIM FINANCIAL INFORMATION.**





Certain
      selected unaudited quarterly financial information for the years ended December
      31, 2006 and 2005 is as follows (in thousands):




2006Quarter
                EndedMarch
                31
            
            June
                30
            
            September
                30
            
            December
                31Net
                Sales
            
            $
            162,554
            
            $
            155,321
            
            $
            130,715
            
            $
            115,792Gross
                profit
            
            
            14,642
            
            
            15,987
            
            
            13,065
            
            
            5,727Net income
                (loss) from continuing operations
            
            
            404
            
            
            480
            
            
            (2,733
            )
            
            (31,366
            )Net
                profit (loss)
            
            
            2,910
            
            
            304
            
            
            (3,516
            )
            
            (31,503
            )Net
                profit (loss) per common share - BasicContinuing
                operations
            
            
            .03
            
            
            .03
            
            
            (.17
            )
            
            (2.01
            )Discontinuing
                operations
            
            
            .16
            
            
            (.01
            )
            
            (.05
            )
            
            (0.01
            ).19
            
            
            .02
            
            
            (.22
            )
            
            (2.02
            )Net
                loss per common share - DilutedContinuing
                operations
            
            
            .03
            
            
            .03
            
            
            (.17
            )
            
            (2.01
            )Discontinuing
                operations
            
            
            .16
            
            
            (.01
            )
            
            (.05
            )
            
            (0.01
            ).19
            
            
            .02
            
            
            (.22
            )
            
            (2.02
            )2005Quarter
                EndedMarch
                31
            
            
            June
                30
            
            
            September
                30
            
            
            December
                31Net
                sales
            
            $
            192,249
            
            $
            190,031
            
            $
            180,168
            
            $
            139,977Gross
                profit
            
            
            18,785
            
            
            20,121
            
            
            13,715
            
            
            3,338Net
                loss from continuing operations
            
            
            (953
            )
            
            (1,660
            )
            
            (6,175
            )
            
            (10,572
            )Net
                loss
            
            
            (1,386
            )
            
            (1,470
            )
            
            (9,346
            )
            
            (14,148
            )Net
                loss per common share - BasicContinuing
                operations
            
            
            (.06
            )
            
            (.10
            )
            
            (.40
            )
            
            (.68
            )Discontinuing
                operations
            
            
            (.03
            )
            
            .01
            
            
            (.20
            )
            
            (.23
            )(.09
            )
            
            (.09
            )
            
            (.60
            )
            
            (.91
            )Net
                income (loss) per common share - DilutedContinuing
                operations
            
            
            (.06
            )
            
            (.10
            )
            
            (.40
            )
            
            (.68
            )Discontinuing
                operations
            
            
            (.03
            )
            
            .01
            
            
            (.20
            )
            
            (.23
            )(.09
            )
            
            (.09
            )
            
            (.60
            )
            
            (.91
            )




-
          63
          -
 *Index*





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





Not
      Applicable in 2006.





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





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





The
      Company's management, with the participation of the Company's Chief Executive
      Officer and Chief Financial Officer, has conducted an evaluation, as of December
      31, 2006, of the Company's disclosure controls and procedures; as such term
      is
      defined under Exchange Act Rule 13a-15(e). Based on this evaluation, the
      Company's Chief Executive Officer and Chief Financial Officer concluded that
      the
      Company's disclosure controls and procedures were effective as of the end of
      the
      period covered by this annual report.





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





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





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





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





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





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





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





Management
      assessed the effectiveness of the Company's internal control over financial
      reporting as of December 31, 2006. In making this assessment, management used
      the criteria set forth by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO) in Internal Control-Integrated Framework. Based
      on
      our assessment and those criteria, management believes that the Company
      maintained effective internal control over financial reporting as of December
      31, 2006.





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





**Changes
      in Internal Control Over Financial Reporting**





No
      change
      in the Company's internal control over financial reporting (as such term is
      defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter
      ended
      December 31, 2006 that materially affected, or is reasonably likely to
      materially affect, the Company's internal control over financial reporting.







-
          64
          -
 *Index*





**Part
      III.**





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





**(a)
      Identification of Directors**





Information
      regarding the Registrant's directors is contained under the caption "Election
      of
      Directors" in the Company's Proxy Statement dated March 30, 2007 and is
      incorporated herein by reference.





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





See
      " Executive
      Officers of the Registrant "
      contained herein.





**(c)
      Beneficial Ownership Reporting Compliance**





Information
      for "Section 16(a) Beneficial Ownership Reporting Compliance" is contained
      under
      that caption in the Company's Proxy Statement dated March 30, 2007 and is
      incorporated herein by reference.





**(d)
      Code of Ethics**





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





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





Information
      regarding the Registrant's Audit Committee, including the committee members
      designated as Financial Experts is contained under the caption "Audit Committee"
      in the Company's Proxy Statement dated March 30, 2007 and is incorporated herein
      by reference.





**(f)
      Nominations for Director**





Information
      regarding the Registrant's procedures for nominations for director is contained
      under the caption "Nomination for Director" in the Company's Proxy Statement
      dated March 30, 2007 and is incorporated herein by reference.





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





Information
      for Item 11 is contained under the headings "Management Development/Compensation
      Committee," “Compensation Discussion and Analysis,” and "Outside Director
      Compensation" in the Company's Proxy Statement dated March 30, 2007 and is
      incorporated herein by reference.





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





Information
      for Item 12 is contained under the captions "Directors' and Officers' Stock
      Ownership" and "Stock Ownership Information" in the Company's Proxy Statement
      dated March 30, 2007 and is incorporated herein by reference.







-
          65
          -
 *Index*





The
      following table summarizes share and exercise price information about the
      Company's equity compensation plans as of December 31, 2006:





Equity
      Compensation Plan Information





Plan
                Category
            
            #
                of securities
              to
                be issued
              upon
                exercise of
              outstanding
                options,
              warrants
                and rights
            
            Weighted-average
              exercise
                price of
              outstanding
                options,
              warrants
                and rights
            
            #
                of securities remaining available for future issuance under equity
                compensation plansEquity
                compensation plans approved by shareholders
            
            $
            149,550
            
            $
            12.48
            
            $
            1,400,102Equity
                compensation plans not approved by shareholders
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            149,550
            
            $
            12.48
            
            $
            1,400,102





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





Information
      for Item 13 is contained under the heading “Determination of Independence of
      Directors” in the Company’s Proxy Statement dated March 30, 2007 and is
      incorporated herein by reference.





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





Information
      regarding the Principal Accountant Fees and Services is contained under the
      caption "Independent Registered Public Accounting Firm" in the Company's Proxy
      Statement dated March 30, 2007 and is incorporated herein by reference.




**Part
      IV.**





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




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





1. Financial
      Statements





Reports
      of Independent Registered Public Accounting
      Firm


Consolidated
      Balance Sheets at December 31, 2006 and 2005


Consolidated
      Statements of Operations for the
      years ended December 31, 2006, 2005 and 2004


Consolidated
      Statements of Shareholders' Equity for
      the years ended December 31, 2006, 2005 and 2004


Consolidated
      Statements of Cash Flows for the years ended
      December 31, 2006, 2005 and 2004


Notes
      to Consolidated Financial Statements





2. **** Financial
      Statement Schedule





Schedule
      II - Valuation and Qualifying
      Accounts





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





3. Exhibits




See Index
      to Exhibits .




-
          66
          -
 *Index*





**SCHEDULE
      II**


**VALUATION
      AND QUALIFYING ACCOUNTS**


**(in
      thousands)**





Description
            
            Balance
                at
              Beginning
              of
                Period
            
            Additions
                Charged
              to
                Costs
              and
                Expenses
            
            Payment
                or
              Utilization
            
            Balance
                at End
              of
                Period**Fiscal
                year ended December 31, 2006:**Allowance
                for doubtful accounts:
            
            $
            1,240
            
            $
            1,631
            
            $
            (1,737)
            (A)
            $
            1,134Product
                warranty reserves:
            
            $
            20,005
            
            $
            21,598
            
            $
            (30,504)
            (B)
                (C)
            $
            11,099Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            775
            
            $
            356
            
            $
            (496)
            
            $
            635Valuation
                allowance against deferred tax assets:
            
            $
            -
            
            $
            24,731
            (D)
            $
            -
            
            $
            24,731**Fiscal
                year ended December 31, 2005:**Allowance
                for doubtful accounts:
            
            $
            919
            
            $
            988
            
            $
            (667
            )
                (A)
            $
            1,240Product
                warranty reserves:
            
            $
            10,140
            
            $
            34,771
            (C)
            $
            (24,906
            )
                (B)
            $
            20,005Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            726
            
            $
            225
            
            $
            (176
            )
            $
            775**Fiscal
                year ended December 31, 2004:**Allowance
                for doubtful accounts:
            
            $
            1,208
            
            $
            158
            
            $
            (447
            )
                (A)
            $
            919Product
                warranty reserves:
            
            $
            8,658
            
            $
            22,189
            
            $
            (20,707
            )
                (B)
            $
            10,140Repurchase
                agreement and Corporate guarantee loss reserves:
            
            $
            350
            
            $
            564
            
            $
            (188
            )
            $
            726








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


(B)
            Claims
                paid, less recoveries.


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


(D)
            Allowance
                charged to Continuing Operations $24,360, Discontinued Operations
                $371.







-
          67
          -
 *Index*





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





COACHMEN
                INDUSTRIES, INC.Date:
                March5,
                2007/s/
                R. M. LaversR.
                M. Lavers(Chief
                Executive Officer)/s/
                C. A. ZuhlC.
                A. Zuhl(Chief
                Financial Officer)










Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities as of March 5 ,
      2007.











/s/
                G. B. Bloom
            
            /s/
                W. P. JohnsonG.
                B. Bloom
            
            W.
                P. Johnson(Director)
            
            (Director)/s/
                R. J. Deputy
            
            /s/
                P. G. LuxR.
                J. Deputy
            
            P.
                G. Lux(Director)
            
            (Director)/s/
                J. A. Goebel
            
            /s/
                E. W. MillerJ.
                A. Goebel
            
            E.
                W. Miller(Director)
            
            (Director)/s/
                D. W. HudlerD.
                W. Hudler(Director)




-
          68
          -
 *Index*





**INDEX
      TO EXHIBITS**




Number
                Assigned
              In
                Regulation
              S-K,
                Item 601
            Description
                of Exhibit(3)(a)(i)
            Articles
                of Incorporation of the Company as amended on May 30, 1995 (incorporated
                by reference to Exhibit 3(i) to the Company's Annual Report on Form
                10-K
                for the fiscal year ended December 31, 1995).(3)(a)(ii)
            Articles
                of Amendment to Articles of Incorporation (incorporated by reference
                to
                Exhibit 4.2 to the Company's Form S-3 Registration Statement, File
                No.
                333-14579).(3)(b)
            By-Laws
                as modified through September 9, 2005 (incorporated by reference
                to the
                Company's Form 8-K filed September 15, 2005).(4)(a)
            Credit
                Agreement dated as of June 30, 2003 among Coachmen Industries, Inc.,
                the
                Lenders named therein, and Bank One, Indiana, N.A. (incorporated
                by
                reference to Exhibit 4(a) to the Company's Quarterly Report on Form
                10-Q
                for the quarter ended June 30, 2003).(4)(b)
            Stockholder
                Rights Agreement (incorporated by reference to Exhibit 1 to Form
                8-A dated
                January 5, 2000).(4)(c)
            Loan
                and Security Agreement dated as of August 2, 2006 among Coachmen
                Industries, Inc., the Lenders named therein and LaSalle Business
                Credit,
                LLC (incorporated by reference to Exhibit 4 to the Company’s Form 8-K
                filed August 3, 2006).(4)(d)
            Amendment
                No. 1 to Loan and Security Agreement dated as of August 2, 2006 among
                Coachmen Industries, Inc., the Lenders named therein and LaSalle
                Business
                Credit, LLC.(4)(e)
            Amendment
                No. 2 to Loan and Security Agreement dated as of August 2, 2006 among
                Coachmen Industries, Inc., the Lenders named therein and LaSalle
                Business
                Credit, LLC.





*(10)(a)
            Executive
                Benefit and Estate Accumulation Plan, as amended and restated effective
                as
                of September 30, 2000 (incorporated by reference to Exhibit 10(a)
                to the
                Company's Annual Report on Form 10-K for the fiscal year ended December
                31, 2001).*(10)(b)
            2000
                Omnibus Stock Incentive Program (incorporated by reference to Exhibit
                A to
                the Company's Proxy Statement dated March 27, 2000 for its Annual
                Meeting
                in 2000).*(10)(b)(i)
            Resolution
                regarding Amendment of 2000 Omnibus Stock Incentive Program adopted
                by the
                Company's Board of Directors on July 27, 2000 (incorporated by reference
                to Exhibit 10(b)(i) to the Company's Annual Report on Form 10-K for
                the
                fiscal year ended December 31, 2001).*(10)(c)
            Form
                of Change in Control Agreements for certain executive officers (Tier
                1)
                (incorporated by reference to Exhibit 10(c) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2000).*(10)(d)
            Form
                of Change in Control Agreements for certain executive officers (Tier
                2)
                (incorporated by reference to Exhibit 10(d) to the Company's Annual
                Report
                on Form 10-K for the fiscal year ended December 31,
                2000).*(10)(e)
            Coachmen
                Industries, Inc. Supplemental Deferred Compensation Plan (Amended
                and
                Restated as of January 1, 2003) (incorporated by reference to Exhibit
                10(e) to the Company's Annual Report on Form 10-K for the fiscal
                year
                ended December 31, 2004).*(10)(f)
            Executive
                Annual Performance Incentive Plan effective January 1, 2002 (incorporated
                by reference to Exhibit 10(f) to the Company's Annual Report on Form
                10-K
                for the fiscal year ended December 31, 2002).*(10)(g)
            Long
                Term Incentives Performance Based Restricted Stock Plan effective
                January
                1, 2003 (incorporated by reference to Exhibit 10(g) to the Company's
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2002).*(10)(h)
            Form
                of Restricted Stock Agreement under the Coachmen Industries, Inc.
                Long
                Term Incentives Performance Based Restricted Stock Plan (incorporated
                by
                reference to Exhibit 10(h) to the Company's Annual Report on Form
                10-K for
                the fiscal year ended December 31, 2004).(10)(i)
            Loan
                and Security Agreement dated as of August 2, 2006 among Coachmen
                Industries, Inc., the Lenders named therein and LaSalle Business
                Credit,
                LLC (included in Exhibit 4(c)).





-
            69
            -
 *Index*








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





(10)(l)
            Closing
                Documents and Contract on Sale of Real Estate in
                Tennessee.(10)(m)
            Form
                of the 2006 Restricted Stock Award Agreement and listing of the maximum
                number of shares each Executive Officer may earn under the Agreements
                (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
                Report on Form 10-Q for the quarter ended March 31,
                2006).(10)(n)
            Entry
                into a Material Definitive Stock Purchase Agreement for the Sale
                of Miller
                Building Systems, Inc. (incorporated by reference to Exhibit 10 to
                the
                Company’s Form 8-K filed April 4, 2006).(10)(o)
            Entry
                into a Material Definitive Stock Purchase Agreement for the Sale
                of Cessna
                1994 Citation Jet (incorporated by reference to Exhibit 10 to the
                Company's Form 8-K filed June 2, 2006).(10)(p)
            Program
                Agreement and related Repurchase Agreement dated as of May 10, 2004
                between Textron Financial Corporation and certain subsidiaries of
                Coachmen
                Industries, Inc. (incorporated by reference to Exhibit 10.2 to the
                Company's Quarterly Report on Form 10-Q for the quarter ended September
                30, 2004).*(10)(q)
            Summary
                of Life Insurance and Long Term Disability Benefits for
                Executives.*(10)(r)
            Description
                of Non-management Director Compensation.*(10)(s)
            Summary
                of 2005 Performance Metrics under the Company's Executive Annual
                Performance Incentive Plan.(10)(t)
            Mentor
                Protégé Agreement between Coachmen Industries, Inc. and The Warrior Group,
                Inc. (incorporated by reference to Exhibit 10.1 to the Company's
                Current
                Report on Form 8-K filed August 19, 2005).(10)(u)
              
              
              (10)(v)
            Entry
                into a Material Definitive Stock Purchase Agreement for the Sale
                of Palm
                Shores, Brevard County, Florida property (incorporated by reference
                to
                Exhibit 10 to the Company's Form 8-K filed June 30, 2006).
              
              Severance
                and Early Retirement Agreement and General Release of All Claims
                dated
                October 23, 2006 among Coachmen Industries, Inc. and Claire C. Skinner
                (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                2006).(10)(w)
            Form
                of the 2006 Restricted Stock Award Agreement and listing of the maximum
                number of shares each Executive Officer may earn under the Agreements
                (incorporated by reference to Exhibit 10(a) to the Company's Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                2006).(11)
            No
                Exhibit - SeeConsolidated
                Statements of OperationsandNote
                8of
                Notes to Consolidated Financial Statements, contained
                herein.(14)
            Code
                of Ethics (incorporated by reference to Exhibit 14 to the Company's
                Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2004).(21)
            Registrant
                and Subsidiaries of the Registrant.(23)
            Consent
                of Ernst & Young LLP.(31.1)
            Rule
                13a-14(a) Certification of Chief Executive Officer.(31.2)
            Rule
                13a-14(a) Certification of Chief Financial Officer.(32)
            Section
                1350 Certification of Chief Executive Officer and Chief Financial
                Officer.




*
      Management Contract or Compensatory Plan.


-
      70
      -