**SECURITIES
AND EXCHANGE COMMISSION**


**WASHINGTON,
D.C. 20549**





**Form
10-Q**





(MARK
ONE)


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





For the
quarterly period ended June
30, 2005





OR





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





For the
transition period from __________________to__________________





Commission
file number 1-7160










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





**INDIANA**
    
    **35-1101097**(State
      or other jurisdiction of
    
    (I.R.S.
      Employerincorporation
      or organization)
    
    Identification
      number)**2831
      Dexter Drive, Elkhart, Indiana**
    
    **46514**(Address
      of principal executive offices)
    
    (Zip
      Code)





Registrant’s
      telephone number, including area code
    
    **574-262-0123**





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





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





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





At July
31, 2005:





Common
Shares, without par value 15,826,766 shares outstanding including an equivalent
number of common share purchase rights.
















**







FORM
10-Q





**INDEX**Page
      No.Part
      I. Financial InformationFinancial
      Statements:Consolidated Balance Sheets-
    3-4June
      30, 2005 and December 31, 2004Consolidated Statements of
      Operations-
    5Three
      and Six Months Ended June 30, 2005 and 2004Consolidated Statements of Cash
      Flows-
    6Six
      Months Ended June 30, 2005 and 2004Notes to Consolidated Financial
    Statements
    7-15Management’s Discussion and Analysis of
      Financial
    16-19Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market
      Risk
    20Controls and Procedures
    20Part
      II. Other InformationItem 4. Submission of Matters to a Vote of
      Security Holders
    21Item 6. Exhibits
    21Signatures
    22Index to Exhibits
    23












-
2 -
 
 *Index*





**Coachmen Industries, Inc. and
Subsidiaries**


**Consolidated
Balance Sheets**


(in
thousands)








June
      30,
    
    December
      31,2005
    
    2004(Unaudited)**Assets**Current
      assets:Cash
      and cash equivalents
    
    $
    4,905
    
    $
    14,992Marketable
      securities
    
    
    -
    
    
    1,747Trade
      receivables, less allowance fordoubtful
      receivables 2005 - $1,491and
      2004 - $919
    
    
    49,930
    
    
    58,805Other
      receivables
    
    
    6,189
    
    
    4,209Refundable
      income taxes
    
    
    4,385
    
    
    244Inventories
    
    
    152,769
    
    
    136,088Prepaid
      expenses and other
    
    
    3,247
    
    
    4,144Deferred
      income taxes
    
    
    6,110
    
    
    6,014Total
      current assets
    
    
    227,535
    
    
    226,243Property,
      plant and equipment, at cost
    
    
    166,584
    
    
    163,709Less,
      accumulated depreciation
    
    
    (84,351
    )
    
    (81,358
    )Property,
      plant and equipment, net
    
    
    82,233
    
    
    82,351Goodwill
    
    
    18,132
    
    
    18,132Cash
      value of life insurance, net of loans of $15,000
    
    
    27,693
    
    
    25,162Real
      estate held for sale
    
    
    60
    
    
    60Other
    
    
    5,708
    
    
    5,775Total
      assets
    
    **$**************
    **************361,361**
    
    **$**************
    **************357,723**





*See
Notes to Consolidated Financial Statements.*





- 3 -
 *Index*





**Coachmen
Industries, Inc. and Subsidiaries**


**Consolidated
Balance Sheets** (continued)


(in
thousands)








June
      30,
    
    December
      31,2005
    
    2004(Unaudited)**Liabilities**Current
      liabilities:Short-term
      borrowings
    
    $
    2,940
    
    $
    20,000Accounts
      payable, trade
    
    
    59,206
    
    
    33,805Accrued
      income taxes
    
    
    -
    
    
    2,479Accrued
      expenses and other liabilities
    
    
    43,223
    
    
    39,466Floorplan
      notes payable
    
    
    6,542
    
    
    6,986Current
      portion of long-term debt
    
    
    2,242
    
    
    2,195Total
      current liabilities
    
    
    114,153
    
    
    104,931Long-term
      debt
    
    
    14,304
    
    
    14,943Deferred
      income taxes
    
    
    3,512
    
    
    3,512Postretirement
      deferred compensation benefits
    
    
    10,052
    
    
    9,724Other
    
    
    142
    
    
    195Total
      liabilities
    
    
    142,163
    
    
    133,305**Shareholders’
      equity**Common
      shares, without par value:authorized
      60,000 shares; issued 2005 - 21,122 shares
      and
      2004 - 21,108 shares
    
    
    92,008
    
    
    91,850Additional
      paid-in capital
    
    
    7,772
    
    
    8,894Retained
      earnings
    
    
    179,577
    
    
    184,284Treasury
      shares, at cost: 2005 - 5,295 sharesand
      2004 - 5,384 shares
    
    
    (58,463
    )
    
    (59,002
    )Unearned
      compensation
    
    
    (1,632
    )
    
    (1,700
    )Accumulated
      other comprehensive income (loss)
    
    
    (64
    )
    
    92Total
      shareholders’ equity
    
    
    219,198
    
    
    224,418Total
      liabilities and shareholders’ equity
    
    **$**************
    **************361,361**
    
    **$**************
    **************357,723**





*See
Notes to Consolidated Financial Statements.*









- 4 -
 *Index*




**Coachmen Industries, Inc. and
Subsidiaries**


**Consolidated
Statements of Operations**


(in
thousands, except per share amounts)


(Unaudited)





Three
      Months Ended June 30,
    
    Six
      Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net
      sales
    
    $
    208,978
    
    $
    231,138
    
    $
    414,095
    
    $
    428,603Cost
      of sales
    
    
    184,868
    
    
    195,500
    
    
    368,824
    
    
    368,648Gross
      profit
    
    
    24,110
    
    
    35,638
    
    
    45,271
    
    
    59,955Operating
      expenses:Delivery
    
    
    10,519
    
    
    10,337
    
    
    20,376
    
    
    19,136Selling
    
    
    8,675
    
    
    8,277
    
    
    16,572
    
    
    15,208General
      and administrative
    
    
    8,648
    
    
    9,334
    
    
    14,019
    
    
    18,589Gain
      on sale of properties, net
    
    
    (45
    )
    
    (69
    )
    
    (49
    )
    
    (1,079
    )Total
      operating expenses
    
    
    27,797
    
    
    27,879
    
    
    50,918
    
    
    51,854Operating
      income (loss)
    
    
    (3,687
    )
    
    7,759
    
    
    (5,647
    )
    
    8,101Nonoperating
      (income) expense:Interest
      expense
    
    
    846
    
    
    478
    
    
    1,928
    
    
    891Investment
      income
    
    
    (440
    )
    
    (347
    )
    
    (1,257
    )
    
    (1,275
    )Other
      income, net
    
    
    (218
    )
    
    (26
    )
    
    (293
    )
    
    (86
    )Total
      nonoperating (income) expenses
    
    
    188
    
    
    105
    
    
    378
    
    
    (470
    )Income
      (loss) from continuing operations before income taxes
    
    
    (3,875
    )
    
    7,654
    
    
    (6,025
    )
    
    8,571Income
      taxes (credit)
    
    
    (2,405
    )
    
    2,579
    
    
    (3,169
    )
    
    2,909Net
      income (loss) from continuing operations
    
    
    (1,470
    )
    
    5,075
    
    
    (2,856
    )
    
    5,662Discontinued
      operations:Income
      from operations of discontinued entity (net of taxes)
    
    
    -
    
    
    109
    
    
    -
    
    
    164Net
      income (loss)
    
    $
    (1,470
    )
    $
    5,184
    
    $
    (2,856
    )
    $
    5,826Earnings
      per share - BasicContinuing
      operations
    
    $
    (.09
    )
    $
    .33
    
    $
    (.18
    )
    $
    .37Discontinued
      operations
    
    
    -
    
    
    .01
    
    
    -
    
    
    .01Net
      earnings per share
    
    $
    (.09
    )
    $
    .34
    
    $
    (.18
    )
    $
    .38Earnings
      per share - DilutedContinuing
      operations
    
    $
    (.09
    )
    $
    .33
    
    $
    (.18
    )
    $
    .36Discontinued
      operations
    
    
    -
    
    
    .01
    
    
    -
    
    
    .01Net
      earnings per share
    
    $
    (.09
    )
    $
    .34
    
    $
    (.18
    )
    $
    .37Number
      of common shares used in computation of earnings per
share:Basic
    
    
    15,546
    
    
    15,468
    
    
    15,540
    
    
    15,464Diluted
    
    
    15,546
    
    
    15,542
    
    
    15,540
    
    
    15,545Cash
      dividends per common share
    
    $
    .06
    
    $
    .06
    
    $
    .06
    
    $
    .06


**


*See
Notes to Consolidated Financial Statements* .


- 5 -
 *Index*




**Coachmen Industries, Inc. and
Subsidiaries**


**Consolidated
Statements of Cash Flows**


(in
thousands)


(Unaudited)


Six
      Months Ended June 30,2005
    
    2004Cash
      flows from operating activities:Net
      income (loss)
    
    $
    (2,856
    )
    $
    5,826Adjustments
      to reconcile net income (loss) to netcash
      provided by (used in) operating activities:Depreciation
    
    
    4,463
    
    
    4,817Provision
      for doubtful receivables, net of recoveries
    
    
    418
    
    
    (9
    )Gain
      on sale of properties and other assets
    
    
    (49
    )
    
    (1,079
    )Increase
      in cash surrender value of life insurance policies
    
    
    (385
    )
    
    (1,008
    )Net
      realized and unrealized (gains) losses on marketable securities and
      derivatives
    
    
    (369
    )
    
    289Deferred
      income tax benefit
    
    
    (96
    )
    
    (622
    )Tax
      benefit from stock options exercised
    
    
    3
    
    
    14Other
    
    
    (266
    )
    
    640Changes
      in certain assets and liabilities:Trade
      receivables
    
    
    6,477
    
    
    (17,018
    )Inventories
    
    
    (16,681
    )
    
    (22,734
    )Prepaid
      expenses and other
    
    
    897
    
    
    1,197Accounts
      payable, trade
    
    
    25,401
    
    
    10,920Income
      taxes - accrued and refundable
    
    
    (6,620
    )
    
    (82
    )Accrued
      expenses and other liabilities
    
    
    3,313
    
    
    7,782Net
      cash provided by (used in) operating activities
    
    
    13,650
    
    
    (11,067
    )Cash
      flows from investing activities:Proceeds
      from sales of marketable securities
    
    
    1,933
    
    
    1,199Proceeds
      from sale of property and other assets
    
    
    77
    
    
    2,393Investments
      in marketable securities
    
    
    (2,119
    )
    
    (1,458
    )Purchases
      of property and equipment
    
    
    (4,338
    )
    
    (6,413
    )Other
    
    
    32
    
    
    (863
    )Net
      cash used in investing activities
    
    
    (4,415
    )
    
    (5,142
    )Cash
      flows from financing activities:Proceeds
      from short-term borrowings
    
    
    232
    
    
    28,500Payments
      of short-term borrowings
    
    
    (17,292
    )
    
    (8,000
    )Proceeds
      from long-term debt
    
    
    224
    
    
    -Payments
      of long-term debt
    
    
    (816
    )
    
    (264
    )Issuance
      of common shares under stock incentive plans
    
    
    181
    
    
    234Cash
      dividends paid
    
    
    (1,887
    )
    
    (1,873
    )Other
    
    
    36
    
    
    -Net
      cash provided by (used in) financing activities
    
    
    (19,322
    )
    
    18,597Increase
      (decrease) in cash and cash equivalents
    
    
    (10,087
    )
    
    2,388Cash
      and cash equivalents:Beginning
      of period
    
    
    14,992
    
    
    6,408End
      of period
    
    **$******
    ******4,905**
    
    **$******
    ******8,796**


*See
Notes to Consolidated Financial Statements.*


****


- 6
-
 *Index*








**Coachmen Industries, Inc. and Subsidiaries**


**Notes
to Consolidated Financial Statements**


(Unaudited)





**1.
BASIS OF PRESENTATION**





The
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
 In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.  Operating results for the six-month period ended June 30, 2005
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005.  For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004.





**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, including related parts and supplies, and housing and building. The
Company evaluates the performance of its segments and allocates resources to
them based on performance. Differences between reported segment amounts and
corresponding consolidated totals represent corporate expenses for
administrative functions and income or expenses relating to property and
equipment or other items that are not allocated to segments.





The table
below presents information about segments used by the chief operating decision
maker of the Company for the three and six month periods ended June 30, 2005 (in
thousands):




Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,2005
    
    2004
    
    2005
    
    2004Net
      salesRecreational
      Vehicles
    
    
    $
    145,737
    
    $
    162,713
    
    $
    303,044
    
    $
    312,914Housing
      and Building
    
    
    
    63,241
    
    
    68,425
    
    
    111,051
    
    
    115,689Total
    
    
    **$**
    **208,978**
    
    **$**
    **231,138**
    
    **$**
    **414,095**
    
    **$**
    **428,603**Gross
      profitRecreational
      Vehicles
    
    
    $
    8,508
    
    $
    18,326
    
    $
    20,428
    
    $
    32,349Housing
      and Building
    
    
    
    15,669
    
    
    17,144
    
    
    24,843
    
    
    27,404Other
    
    
    
    (67
    )
    
    168
    
    
    -
    
    
    202Total
    
    
    **$**
    **24,110**
    
    **$**
    **35,638**
    
    **$**
    **45,271**
    
    **$**
    **59,955**Operating
      expensesRecreational
      Vehicles
    
    
    $
    14,400
    
    $
    12,772
    
    $
    27,801
    
    $
    23,530Housing
      and Building
    
    
    
    13,595
    
    
    14,042
    
    
    26,680
    
    
    26,786Other
    
    
    
    (198
    )
    
    1,065
    
    
    (3,563
    )
    
    1,538Total
    
    
    **$**
    **27,797**
    
    **$**
    **27,879**
    
    **$**
    **50,918**
    
    **$**
    **51,854**







- 7 -
 *Index*






Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,2005
    
    2004
    
    2005
    
    2004Operating
      income (loss)Recreational
      Vehicles
    
    
    $
    (5,892
    )
    $
    5,554
    
    $
    (7,373
    )
    $
    8,819Housing
      and Building
    
    
    
    2,074
    
    
    3,102
    
    
    (1,837
    )
    
    618Other
    
    
    
    131
    
    
    (897
    )
    
    3,563
    
    
    (1,336
    )Total
    
    
    **$**
    **(3,687)**
    
    **$**
    **7,759**
    
    **$**
    **(5,647)**
    
    **$**
    **8,101**Pre-tax
      income (loss) fromcontinuing
      operationsRecreational
      Vehicles
    
    
    $
    (6,063
    )
    $
    5,539
    
    $
    (7,733
    )
    $
    8,794Housing
      and Building
    
    
    
    1,979
    
    
    3,053
    
    
    (1,978
    )
    
    756Other
    
    
    
    209
    
    
    (938
    )
    
    3,686
    
    
    (979
    )Total
    
    
    **$**
    **(3,875**
    )
    **$**
    **7,654**
    
    **$**
    **(6,025**
    )
    **$**
    **8,571**








June
      30,
    
    December
      31,2005
    
    2004Total
      assetsRecreational
      Vehicles
    
    $
    184,305
    
    $
    174,101Housing
      and Building
    
    
    110,326
    
    
    111,099Other
    
    
    66,730
    
    
    72,523Total
    
    **$**
    **361,361**
    
    **$**
    **357,723**





**3.**  **INVENTORIES**





Inventories
consist of the following (in thousands):





June
      30,
    
    December
      31,2005
    
    2004Raw
      materials
    
    $
    37,482
    
    $
    39,524Work
      in process
    
    
    22,646
    
    
    21,173Improved
      lots
    
    
    2,239
    
    
    2,236Finished
      goods
    
    
    90,402
    
    
    73,155Total
    
    **$**
    **152,769**
    
    **$**
    **136,088**










- 8 -
 *Index*








**4.**  **ACCRUED
EXPENSES AND OTHER LIABILITIES**





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





June
      30,
    
    December
      31,2005
    
    2004Wages,
      salaries, bonuses and commissions
    
    $
    2,902
    
    $
    5,366Dealer
      incentives, including volumebonuses,
      dealer trips, interestreimbursement,
      co-op advertising andother
      rebates
    
    
    2,579
    
    
    5,119Warranty
    
    
    10,780
    
    
    10,140Insurance-products
      and general liability,workers’
      compensation, group health and other
    
    
    7,139
    
    
    5,589Customer
      deposits and unearned revenues
    
    
    9,550
    
    
    7,340Other
      current liabilities
    
    
    10,273
    
    
    5,912Total
    
    **$**
    **43,223**
    
    **$**
    **39,466**








During
the three-month period June 30, 2005, approximately 120 salaried positions were
eliminated throughout the Company. Severance costs related to the eliminations
were $0.4 million, of which $0.2 million had been paid as of June 30 and $0.2
million is accrued at June 30 and will be paid by September 30, 2005.





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





Three
      Months Ended
      June
      30,
    
    Six
      Months Ended
      June
      30,2005
    
    2004
    
    2005
    
    2004Balance
      of accrued warranty at beginning of period
    
    $
    10,316
    
    $
    9,484
    
    $
    10,140
    
    $
    8,658Warranties
      issued during the period and changes in
      liability
      for pre-existing warranties
    
    
    6,267
    
    
    6,114
    
    
    11,543
    
    
    11,838Cash
      settlements made during the period
    
    
    (5,803
    )
    
    (5,088
    )
    
    (10,903
    )
    
    (9,986
    )Balance
      of accrued warranty at June 30
    
    **$**
    **10,780**
    
    **$**
    **10,510**
    
    **$**
    **10,780**
    
    **$**
    **10,510**







-
9 -
 
 *Index*







**5.**  **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. Basic and diluted earnings per
share for the three and six-month periods ended June 30 were calculated as
follows (in thousands):





Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,2005
    
    2004
    
    2005
    
    2004Numerator:Net
      income (loss) applicable to common stock
    
    
    $
    (1,470
    )
    $
    5,184
    
    $
    (2,856
    )
    $
    5,826Denominator:Number
      of shares outstanding, end of period:Common
      stock
    
    
    
    15,827
    
    
    15,672
    
    
    15,827
    
    
    15,672Effect
      of weighted averagecontingently
      issuable sharesoutstanding
      during period
    
    
    
    (272
    )
    
    (198
    )
    
    (232
    )
    
    (149
    )Effect
      of weighted average sharesoutstanding
      during period
    
    
    
    (9
    )
    
    (6
    )
    
    (55
    )
    
    (59
    )Weighted
      average number ofcommon
      shares used in basic EPS
    
    
    
    15,546
    
    
    15,468
    
    
    15,540
    
    
    15,464Effect
      of dilutive securities,stock
      options and awards
    
    
    
    -
    
    
    74
    
    
    -
    
    
    81Weighted
      average number ofcommon
      shares used indiluted
      EPS
    
    
    
    15,546
    
    
    15,542
    
    
    15,540
    
    
    15,545








As the
Company reported a net loss for the three and six-month periods ended June 30,
2005, the dilutive effect of stock options and awards did not enter into the
computation of diluted earnings per share because their inclusion would have
been antidilutive.





For the
three and six-month periods ended June 30, 2004, outstanding stock options
covering 85,800 and 12,000 shares, respectively, were not included in the
computation of diluted earnings per share because their exercise price was
greater than the average market prices for the periods and their inclusion would
have been antidilutive.









-
10 -
 
 *Index*







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





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





Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,2005
    
    2004
    
    2005
    
    2004Net
      income (loss)
    
    $
    (1,470
    )
    $
    5,184
    
    $
    (2,856
    )
    $
    5,826Unrealized
      losses on securities held for sale, net of taxes
    
    
    (57
    )
    
    61
    
    
    (188
    )
    
    (146
    )Unrealized
      gains (losses) on cash flow hedges, net of taxes
    
    
    (27
    )
    
    118
    
    
    32
    
    
    75Comprehensive
      income (loss)
    
    $
    (1,554
    )
    $
    5,363
    
    **$**
    (3,012
    )
    **$**
    5,755








As of
June 30, 2005 and 2004, the accumulated other comprehensive income (loss), net
of tax, relating to unrealized gains (losses) on securities available for sale
was $0 and $304,000, respectively, and relating to deferred losses on cash flow
hedges was ($64,000) and ($85,000), respectively.




**7.**  **COMMITMENTS,
CONTINGENCIES AND GUARANTEES**





**Obligation
to Purchase Consigned Inventories**





The
Company obtains vehicle chassis for its recreational vehicle products directly
from automobile manufacturers under converter pool agreements. The agreements
generally provide that the manufacturer will provide a supply of chassis at the
Company's various production facilities under the terms and conditions as set
forth in the agreement. Chassis are accounted for as consigned inventory until
either assigned to a unit in the production process or 90 days have passed. At
the earlier of these dates, the Company is obligated to purchase the chassis and
it is recorded as inventory. At June 30, 2005 and December 31, 2004, consigned
chassis inventory approximated $38.3 million and $29.7 million,
respectively.





**Repurchase
Agreements**





The
Company was contingently liable at June 30, 2005 to banks and other financial
institutions on repurchase agreements in connection with financing provided by
such institutions to most of the Company’s independent dealers in connection
with their purchase of the Company’s recreational vehicle products. These
agreements provide for the Company to repurchase its products from the financing
institution in the event that they have repossessed them upon a dealer’s
default. Products repurchased from dealers under these agreements are accounted
for as a reduction in revenue at the time of repurchase. Although the estimated
contingent liability approximates $288 million at June 30, 2005 ($298 million at
December 31, 2004), the risk of loss resulting from these agreements is spread
over the Company’s numerous dealers and is further reduced by the resale value
of the products repurchased. Based on losses previously experienced under these
obligations, the Company has established a reserve for estimated losses under
repurchase agreements. At June 30, 2005, $0.4 million ($0.3 million at December
31, 2004) was recorded as an accrual for estimated losses under repurchase
agreements.







-
11 -
 
 *Index*





The
Company was also contingently liable at June 30, 2005 to a financial institution
on repurchase agreements in connection with financing provided by the
institution to certain of the Company’s independent home builders in connection
with their purchase of the Company’s housing products. This agreement provides
for the Company to repurchase its products from the financing institution in the
event that they have repossessed them upon a builder’s default. Products
repurchased from builders under this agreement are accounted for as a reduction
in revenue at the time of repurchase. Although the estimated contingent
liability approximates $8.0 million at June 30, 2005 ($4.5 million at December
31, 2004), the risk of loss resulting from these agreements is spread over the
Company’s numerous builders and is further reduced by the resale value of the
products repurchased. The Company has evaluated the potential for losses under
this agreement and has recorded an accrual of $0.1 million at June 30, 2005
($0.1 million at December 31, 2004) for estimated losses under the repurchase
agreement.





**Corporate
Guarantees**





During
2003, the Company entered into 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 Vehicles Segment. The agreement
provides for a preferred program that provides financing that is subject to the
standard repurchase agreement described above. In addition, the agreement
provides for a reserve pool whereby the financial institution makes available an
aggregate line of credit not to exceed $40 million that will provide financing
for dealers that may not otherwise qualify for credit approval under the
preferred program. No dealer being provided financing from the reserve pool can
receive an aggregate line of credit exceeding $5 million. In addition to the
standard repurchase agreement described above, for the remainder of 2005 the
Company will be liable to the financial institution for a maximum of $3.1
million of aggregate losses, as defined by the agreement, incurred by the
financial institution on designated dealers with higher credit risks that are
accepted into the reserve pool financing program. Thereafter, the Company will
be liable to the financial institution for the first $2 million of aggregate
losses annually. The total amount financed under the reserve pool arrangement
totaled approximately $11.3 million at June 30, 2005 ($19.2 million at December
31, 2004). The Company has recorded a loss reserve of $0.1 million at June 30,
2005 ($0.3 million at December 31, 2004) associated with these
guarantees.





During
the first quarter of 2004, the Company entered into an agreement to guarantee
the indebtedness incurred by a recreational vehicle dealer towards the purchase
of a dealership facility. The guarantee is in the principal amount of $1 million
for a period of five years or until all indebtedness has been fully paid,
whichever occurs first. The Company has evaluated the potential for losses under
this agreement and has determined that the resolution of any claims that may
arise in the future would not materially affect the Company’s financial
statements.





In
addition, the Company is liable under a guarantee to a financial institution for
model home financing provided to certain independent builders doing business
with the Company’s Housing and Building Segment. The amount outstanding under
this agreement at June 30, 2005 is $0.9 million ($1.2 million at December 31,
2004). 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 $2.0 million. As of June 30, 2005, no losses
have been incurred by the Company under the model home financing
program.





**Financing
Obligation**





During
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. After the construction
loan financing period, as defined in the agreement, the construction loan may be
converted to a term loan for a period of two years, provided the terms and
conditions of the agreement are met. The loans are collateralized by a first
priority interest in all tangible and intangible property of the borrower. As of
June 30, 2005, the Company has provided $2.0 million in financing to the
developer.







-
12 -
 
 *Index*





**Litigation**





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





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





During
the three months ended June 30, 2005, the Company settled a personal injury suit
for $5,000,000, $1,000,000 of which has been paid by the Company’s primary
insurance carrier. The Company’s self-insured retention is $250,000. Although
the excess carrier has currently denied coverage, the Company believes it is
probable that the excess carrier will ultimately be required to honor its
obligation to fund the remaining settlement costs of $3,750,000. As of June 30,
2005, the Company has paid $1,500,000 in addition to the amount paid by its
primary carrier and has recorded an other current liability of $2,500,000 to
recognize the remaining amount to be paid on the settlement and the $250,000
retention. Due to the probable coverage of the claim by the excess
carrier, a receivable of $3,750,000 has been recorded as an other current
receivable.





The
Company is involved in various 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.








**8.**  **STOCK-BASED
COMPENSATION**





In 2003,
the Company adopted the Performance Based Restricted Stock Plan 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. The plan is accounted for in accordance with the
variable plan accounting provisions of FASB Interpretation No. 44, *Accounting
for Certain Transactions Involving Stock Compensation* , and
therefore awards are expensed based upon the fair value of the estimated shares
to be earned over the vesting period. The exact number of shares that each
employee will receive is dependent on the Company’s performance, with respect to
net income, over a three-year period. The weighted-average grant-date fair value
was $13.60 in 2005 and $16.65 in 2004, for the shares awarded under the plan
during the respective years. The market value of the shares awarded is
recognized as unearned compensation in the consolidated statements of
shareholders’ equity and is amortized to operations over the vesting period.
During the first quarter of 2005, the Company determined that it was probable
that the performance requirements of the 2003 Plan would not be achieved and as
a result, reversed the expenses which had been previously recorded related to
this plan. For the three months ended June 30, 2005, the Company amortized
$48,000 to compensation expense related to the 2004 and 2005 Plans. For the six
months ended June 30, 2005, the Company reduced compensation expense, which is a
component of general and administrative expenses, by $710,000 related to these
programs. The Company amortized $217,000 and $435,000 to compensation expense
for the three and six-month periods ended June 30, 2004.










-
13 -
 
 *Index*





The
Company has stock option plans and an employee stock purchase plan. The Company
accounts for these plans under the recognition and measurement principles of APB
Opinion No. 25, *Accounting
for Stock Issued to Employees,* and
related interpretations. No stock-based employee compensation cost is reflected
in net earnings for these plans, as all options granted under these plans have
an exercise price equal to the market value of the underlying common stock at
the date of grant. The table below illustrates the effect on net income (loss)
and earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, *Accounting
for Stock-Based Compensation.*





Three
      Months Ended
    
    Six
      Months EndedJune
      30,
    
    June
      30,2005
    
    2004
    
    2005
    
    2004(in
      thousands, except per share amounts)Net
      income (loss), as reported
    
    $
    (1,470
    )
    $
    5,184
    
    $
    (2,856
    )
    $
    5,826Add:
      Stock-based compensation expense under variable plan included in reporting
      net income, net of taxes
    
    
    (23
    )
    
    144
    
    
    (512
    )
    
    288Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of taxes
    
    
    (1
    )
    
    (208
    )
    
    290
    
    
    (415
    )Pro
      forma net income (loss)
    
    $
    (1,494
    )
    $
    5,120
    
    $
    (3,078
    )
    $
    5,699Net
      earnings per share:Basic
      - as reported
    
    $
    (.09
    )
    $
    .34
    
    $
    (.18
    )
    $
    .38Basic
      - pro forma
    
    $
    (.10
    )
    $
    .33
    
    $
    (.20
    )
    $
    .37Diluted
      - as reported
    
    $
    (.09
    )
    $
    .34
    
    $
    (.18
    )
    $
    .37Diluted
      - pro forma
    
    $
    (.10
    )
    $
    .33
    
    $
    (.20
    )
    $
    .37







-
14 -
 
 *Index*





**9.**  **INCOME
TAXES**





For the
second quarter ended June 30, 2005, the effective tax credit was 62.1% and the
year-to-date credit was 52.6% compared with a 2004 second quarter and
year-to-date tax rate from continuing operations of 33.7% and 33.9%,
respectively. The Company’s effective tax rate fluctuates based upon income
levels, the states where sales occur, the amount of export sales and the impact
of nontaxable dividend on investments.





In
addition, the Company has recently completed a project to identify eligible
research and development (“R&D”) expenditures for the purpose of filing
amended Federal and Indiana income tax returns to claim tax credits for eligible
R&D activities. The Company is in the process of preparing those amended
income tax returns for 1999 - 2003 which will reflect refund claims for R&D
tax credits. In addition, the Company’s 2004 Federal and Indiana income tax
returns, when filed, will also include R&D tax credits which were not
considered in the calculation of the 2004 income tax provision. During the
quarter ended June 30, 2005, the Company recorded $1.5 million of tax refunds
receivable, applicable to estimated refunds for prior years’ R&D tax
credits, with a related credit to the 2005 income tax provision. The prior
years’ R&D tax credits, recorded in the current year, increased the
Company’s effective tax benefit rate by 38.5% for the quarter and 24.7% for the
2005 year-to-date. In addition, the Company expects that its effective tax rate
for 2005 will be favorably impacted by 3.6% for estimated current year’s R&D
tax credits and by 0.8% for additional tax deductions provided to manufacturers
under the 2004 American Jobs Creation Act.





**10.**  **NEW
ACCOUNTING PRONOUNCEMENTS**





On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), *Share-Based
Payment* , which
is a revision of FASB Statement No. 123, *Accounting
for Stock-Based Compensation* .
Statement 123(R) supersedes APB Opinion No. 25, *Accounting
for Stock Issued to Employees* , and
amends FASB Statement No. 95, *Statement
of Cash Flows* .
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative.





Statement
123(R) must be adopted no later than January 1, 2006 for the Company. Early
adoption will be permitted in periods in which financial statements have not yet
been issued. The Company expects to adopt Statement 123(R) on January 1,
2006.





Statement
123(R) permits public companies to adopt its requirements using one of two
methods:





1.  A
“modified prospective” method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of Statement 123(R) for
all share-based payments granted after the effective date and (b) based on the
requirements of Statement 123 for all awards granted to employees prior to the
effective date of Statement 123(R) that remain unvested on the effective
date.





2.  A
“modified retrospective” method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based
on the amounts previously recognized under Statement 123 for purposes of pro
forma disclosures for all prior periods presented.





The
Company is still evaluating the adoption alternatives available to adopt
Statement 123(R).





As
permitted by Statement 123, the Company currently accounts for share-based
payments to employees using the intrinsic value method of APB Opinion 25 and, as
such, generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)’s fair value method will have an
impact on our results of operations, although it will have no impact on our
overall financial position. The impact of adoption of Statement 123(R) cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had we adopted Statement 123(R) in prior
periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share as previously noted. Statement 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after
adoption.







-
15 -
 
 *Index*





**Coachmen Industries, Inc. and Subsidiaries**


**Management’s
Discussion and Analysis**


**Of
Financial Condition and Results of Operations**








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





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








Comparison
      ofThree
      Months
    
    Six
      MonthsEnded
      June 30, 2005 and 2004Increase
      (Decrease)Amount
    
    
    Percentage
    
    
    
    Amount
    
    
    PercentageNet
      sales
    
    $
    (22,160
    )
    
    (9.6
    )%
    
    $
    (14,508
    )
    
    (3.4
    )%Cost
      of sales
    
    
    (10,632
    )
    
    (5.4
    )
    
    
    176
    
    
    0.0Delivery expenses
    
    
    182
    
    
    1.8
    
    
    
    1,240
    
    
    6.5Selling
      expenses
    
    
    398
    
    
    4.8
    
    
    
    1,364
    
    
    9.0General
      and administrative expenses
    
    
    (686
    )
    
    (7.3
    )
    
    
    (4,570
    )
    
    (24.6
    )Gain
      on sale of properties, net
    
    
    (24
    )
    
    (34.8
    )
    
    
    (1,030
    )
    
    (95.5
    )Interest
      expense
    
    
    368
    
    
    77.0
    
    
    
    1,037
    
    
    116.4Investment
      income
    
    
    93
    
    
    26.8
    
    
    
    (18
    )
    
    (1.4
    )Other
      income, net
    
    
    192
    
    
    n/m
    
    
    
    207
    
    
    n/mIncome
      (loss) from continuing operations before income taxes
    
    
    (11,529
    )
    
    (150.6
    )
    
    
    (14,596
    )
    
    (170.3
    )Income
      taxes (credit)
    
    
    (4,984
    )
    
    (193.3
    )
    
    
    (6,078
    )
    
    (208.9
    )Net
      income (loss) from continuing operations
    
    
    (6,545
    )
    
    (129.0
    )
    
    
    (8,518
    )
    
    (150.4
    )Income
      from operations of discontinued entity, net of taxes
    
    
    (109
    )
    
    (100.0
    )
    
    
    (164
    )
    
    (100.0
    )Net
      income (loss)
    
    
    (6,654
    )
    
    (128.4
    )
    
    
    (8,682
    )
    
    (149.0
    )






-
16 -
 
 *Index*





**NET
SALES**





Consolidated
net sales for the quarter ended June 30, 2005 were $209.0 million, a decrease of
$22.2 million, or 9.6%, from the $231.1 million reported for the corresponding
quarter last year. Net sales for the six months were $414.1 million,
representing a decrease of 3.4%, or $14.5 million, reported for the same period
in 2004. The Company’s Recreational Vehicles Segment experienced a net sales
decrease of 10.4% for the quarter and a decrease of 3.2% for the six-month
period. Wholesale unit shipments for the RV Segment decreased 13.5% during the
second quarter of 2005 and 12.3% for the six-month period. Wholesale unit
shipments of motorized products decreased 21.2% and 15.2% for the three and
six-month periods ended June 30, 2005, respectively, while wholesale unit
shipments of towable products were down 10.1% and 10.9% for the three and
six-month periods ended June 30, 2005, respectively. Backlog for the RV Segment
increased 19.4% to $88.6 million from $74.2 million at the end of the second
quarter of 2004.





The
Company’s Housing and Building Segment experienced a net sales decrease for the
quarter ended June 30, 2005 of 7.6% and a decrease of 4.0% for the six-month
period. The decreases in sales dollars were principally attributable to
wholesale unit shipments being down 19.2% for the quarter and down 13.8% for the
six-month period ended June 30. The Housing and Building Segment continued to
experience an increase in the average sales price per unit, thereby partially
offsetting the reductions in shipments. Backlog for the Housing and Building
Segment as of June 30, 2005 has decreased 19.4% to $56.2 million, compared with
$69.7 million at June 30, 2004.





**COST
OF SALES**





Cost of
sales decreased 5.4%, or $10.6 million, for the three months ended June 30,
2005. For the six-month period, cost of sales was $0.2 million greater in 2005
than 2004. As a percentage of net sales, cost of sales was 88.5% and 89.1% for
the three and six-month periods ended June 30, 2005 compared to 84.6% and 86.0%
for the three and six months ended June 30, 2004. The change in the dollar
amount of cost of sales in the current quarter and six-month periods is
attributable to the decrease in sales dollars offset by higher labor, which
included severance expenses, insurance, and workers’ compensation costs. In
addition, reductions in the production levels caused lower overhead absorption
and labor inefficiencies.





**OPERATING
EXPENSES**





As a
percentage of net sales, operating expenses, which include delivery, selling,
general and administrative expenses, were 13.3% and 12.3% for the 2005 quarter
and six-month periods compared to 12.1% and 12.4% for the 2004 quarter and
six-month periods. As a percentage of sales, delivery expenses increased by 0.5
and 0.4 percentage points for the three and six-month periods of 2005 as
compared to the prior year three and six-month periods. The increase in delivery
expense during the quarter and six-month period was primarily related to higher
fuel costs and higher utilization of outside carriers for delivery services.





Selling
expenses were 4.2% of net sales for the 2005 quarter compared to 3.6% of net
sales for the three-month period ended June 30, 2004. For the six-month periods,
selling expenses were 4.0% of net sales for 2005 compared to 3.5% of net sales
for 2004. The increase in selling expense dollars and as a percentage of net
sales during the quarter and six months ended June 30, 2005 is related to
increased personnel costs and increased expenses related to travel, new product
shows, and promotional expenses.





General
and administrative expenses were 4.1% of net sales for the quarter compared to
4.0% for the 2004 corresponding quarter and 3.4% of net sales for the six-month
period compared to 4.3% for 2004. For the second quarter, general and
administrative expense dollars decreased, although as a percentage of net sales,
the expenses increased 0.1 percentage points. The decrease in dollars for the
three-month period was primarily a result of reduced payroll related costs. The
decrease in both dollars and as a percentage of net sales of general and
administrative expenses for the six-month period was primarily related to the
first quarter 2005 settlement of the Company’s dispute over an RV licensing
agreement with The Coleman Company, Inc. which reduced operating expenses by
$2,704,000, the first quarter 2005 reversal of expenses related to the 2003
Performance Based Restricted Stock Plan grant due to the probable failure to
meet the Plan’s required thresholds for payment which reduced operating expenses
by $758,000 and reduced payroll related costs.








- 17
-
 *Index*







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





There
were no significant gains or losses from property transactions for the three or
six months ended June 30, 2005. For the six months ended June 30, 2004, the gain
on the sale of properties was $1.1 million. In late March 2004, Coachmen RV
Company sold its 70,000 square-foot facility in Goshen, Indiana, and moved
production to a newly acquired replacement facility located five miles north of
its Middlebury, Indiana complex. There were no significant gains or losses from
property transactions for the three months ended June 30, 2004.





**INTEREST
EXPENSE**





Interest
expense was $846,000 and $1,928,000 for the three and six-month periods ended
June 30, 2005 compared to $478,000 and $891,000 in the same periods last year.
Interest expense increased based on the higher amount of average outstanding
long-term debt, borrowings on the Company’s revolving credit facility and higher
applicable interest rates.





**INVESTMENT
INCOME**





There was
a net investment income of $440,000 for the quarter ended June 30, 2005 compared
to $347,000 in the same quarter of 2004. For the six-month period, the net
investment income of $1,257,000 compared to investment income of $1,275,000 in
the previous year. The investment income for the three-month period ended June
30, 2005 and 2004 was principally attributable to earnings of the life insurance
policies held and realized gains on the sale of preferred stock. The investment
income for the six-month period ended June 30, 2005 was also attributable to
earnings of the life insurance policies held and realized gains on the sale of
preferred stock. The investment income for the six-month period ended June 30,
2004 was attributable to a cumulative preferred dividend of $536,000 from a
utility company emerging from bankruptcy and earnings of the life insurance
policies held.





**OTHER
INCOME, NET**





Other
income, net, represents income of $218,000 for the second quarter of 2005 and
income of $26,000 for the same quarter of the previous year. For the six-month
period, other income, net for 2005 was $293,000 compared to income of $86,000 in
2004. No items of significance caused the variances between the comparable
quarters.





**INCOME
TAXES**





For the
second quarter ended June 30, 2005, the effective tax credit was 62.1% and the
year-to-date credit was 52.6% compared with a 2004 second quarter and
year-to-date tax rate from continuing operations of 33.7% and 33.9%,
respectively. The Company’s effective tax rate fluctuates based upon income
levels, the states where sales occur, the amount of export sales and the impact
of nontaxable dividend on investments.





In
addition, the Company has recently completed a project to identify eligible
research and development (“R&D”) expenditures for the purpose of filing
amended Federal and Indiana income tax returns to claim tax credits for eligible
R&D activities. The Company is in the process of preparing those amended
income tax returns for 1999 - 2003 which will reflect refund claims for R&D
tax credits. In addition, the Company’s 2004 Federal and Indiana income tax
returns, when filed, will also include R&D tax credits which were not
considered in the calculation of the 2004 income tax provision. During the
quarter ended June 30, 2005, the Company recorded $1.5 million of tax refunds
receivable, applicable to estimated refunds for prior years’ R&D tax
credits, with a related credit to the 2005 income tax provision. The prior
years’ R&D tax credits, recorded in the current year, increased the
Company’s effective tax benefit rate by 38.5% for the quarter and 24.7% for the
2005 year-to-date. In addition, the Company expects that its effective tax rate
for 2005 will be favorably impacted by 3.6% for estimated current year’s R&D
tax credits and by 0.8% for additional tax deductions provided to manufacturers
under the 2004 American Jobs Creation Act.





**LIQUIDITY,
CAPITAL RESOURCES AND FINANCIAL CONDITION**





The
Company generally relies on funds from operations as its primary source of
liquidity. In addition, the Company maintains a $35 million, unsecured revolving
credit facility to meet its seasonal working capital needs. At June 30, 2005,
there were outstanding borrowings of $2.9 million against this bank line of
credit. At December 31, 2004, there were short-term borrowings of $20.0 million
outstanding. During 2004, the Company also borrowed against the cash surrender
value of the Company’s investments in life insurance contracts. As of June 30,
2005 and December 31, 2004, $15 million had been borrowed against the cash
surrender value of Company owned life insurance contracts.






- 18
-
 *Index*





At June
30, 2005, working capital decreased to $113.4 million from $121.3 million at
December 31, 2004. The $1.3 million increase in current assets at June 30, 2005
versus December 31, 2004 was primarily due to increased inventories and
refundable income taxes, offset by decreases in cash and cash equivalents
and trade receivables. The increase in current liabilities of $9.2 million was
substantially due to increased trade payables and other accrued expenses offset
by a decrease in short-term borrowings.





Management
believes that the Company’s existing cash and cash equivalents as of June 30,
2005, together with its available revolving credit facility and cash expected to
be generated from future operations, will be sufficient to fund future planned
capital expenditures and other operating cash requirements for the foreseeable
future.





**CRITICAL
ACCOUNTING POLICIES**





The
preparation of the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. On an
ongoing basis, management evaluates these estimates. Estimates are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Historically, actual results have not
been materially different from the Company's estimates. However, actual results
may differ from these estimates under different assumptions or conditions. A
summary of the Company’s more significant accounting policies that require the
use of estimates and judgments in preparing the financial statements is provided
in the Company’s 10-K report for the year ended December 31, 2004. During the
first six months of fiscal 2005, there was no material change in the accounting
policies and assumptions previously disclosed.





**FORWARD-LOOKING
STATEMENTS**





This Form
10-Q Report contains certain statements that are "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are based on management’s expectations and beliefs concerning future
events. Forward-looking statements are necessarily subject to risks and
uncertainties, and are dependent on various factors, many of which are outside
the control of the Company. These uncertainties and other factors include, but
are not limited to, the potential fluctuations in the Company’s operating
results; the availability for floorplan financing for the Company's recreational
vehicle dealers and corresponding availability of cash to the Company; overcapacity
and discounting in the recreational vehicle industry ; the
impact of performance on the valuation of intangible assets; the availability
and price of gasoline and diesel fuel, which can impact the sale of recreational
vehicles; price
volatility of raw materials used in production; the
Company's dependence on chassis and appliance suppliers, which are used in the
production of many of the Company's recreational vehicle products; interest
rates, which affect the affordability of the Company's products; the
availability and cost of real estate for residential housing; the ability of the
Housing and Building Segment to perform in new market segments where it has
limited experience; potential liabilities under repurchase agreements and
guarantees; changing government regulations, such as those covering accounting
standards; environmental matters or product warranties and recalls, which may
affect costs of operations, revenues, product acceptance and profitability;
legislation governing the relationships of the Company with its recreational
vehicle dealers, which may affect the Company’s options and liabilities in the
event of a general economic downturn; consolidation
of distribution channels in the recreational vehicle industry; the
impact of consumer confidence and economic uncertainty on high-cost
discretionary product purchases, which can hinder the sales of recreational
vehicles; the demand for commercial structures in the various industries that
the Housing and Building Segment serves; and also on the state of the
recreational vehicle and housing industries in the United States. Other factors
affecting forward-looking statements include changes in property taxes and
energy costs, changes in federal income tax laws and federal mortgage financing
programs, changes in public policy, competition in these industries, the
Company’s ability to increase gross margins which are critical to profitability
whether there are or are not increased sales, the Company’s use of incentives at
either the wholesale or retail level, further developments in the war on
terrorism and related international crises, oil supplies, and other risks and
uncertainties. In addition, investors should be aware that generally accepted
accounting principles prescribe when a company must disclose or reserve for
particular risks, including litigation exposures. Accordingly, results for a
given reporting period could be significantly affected if and when a reserve is
established for a major contingency. Reported results may therefore appear to be
volatile in certain accounting periods. The foregoing lists are not exhaustive,
and the Company disclaims any obligation to subsequently revise any
forward-looking statements to reflect events or circumstances after the date of
such statements.





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






- 19
-
 *Index*





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





In the
normal course of business, operations of the Company are exposed to fluctuations
in interest rates. These fluctuations can vary the costs of financing and
investing yields. During the first six months of 2005, the Company has utilized
its revolving credit facility to meet short-term working capital needs. The
Company had $2.9 million outstanding against the revolving credit facility on
June 30, 2005.





In
January of 2003, the Company entered into various interest rate swap agreements
that became effective beginning in October of 2003. These swap agreements, which
are designated as cash flow hedges for accounting purposes, effectively convert
a portion of the Company’s variable-rate borrowings to a fixed-rate basis
through November of 2011, thus reducing the impact of changes in interest rates
on future interest expense. The fair value of the Company’s interest rate swap
agreements represents the estimated receipts or payments that would be made to
terminate the agreements. A loss of $27,000, net of taxes, attributable to
changes in the fair value of interest rate swap agreements was recorded as a
component of accumulated other comprehensive income (loss) during the second
quarter of 2005. Total accumulated gain on the swap agreements for the
six-month period ended June 30, 2005 was $32,000. If in the future the
interest rate swap agreements were determined to be ineffective or were
terminated before the contractual termination dates, or if it became probable
that the hedged variable cash flows associated with the variable-rate borrowings
would stop, the Company would be required to reclassify into earnings all or a
portion of the unrealized losses on cash flow hedges included in accumulated
other comprehensive income (loss).





**ITEM 4. CONTROLS AND PROCEDURES**





The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures as of June 30, 2005. Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective
as of June 30, 2005.





During
the second quarter of 2005, the Company established a shared service center for
the processing of accounts payable for its Recreational Vehicle Segment. Other
than the establishment of this shared service center, there have been no changes
during the quarter ended June 30, 2005 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. Subsequent to the end of the second quarter, the shared
service center also began processing of accounts payable for the Housing and
Building Segment.







-
20 -
 
 *Index*





**PART II. OTHER INFORMATION**








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





(a)
    The
      annual meeting of the shareholders of Coachmen Industries, Inc. was held
      on May 5, 2005.





(b)
    The
      following nominees were elected Directors for three-year terms expiring in
      2008:





Geoffrey
B. Bloom


William
P. Johnson


Rex
Martin





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




For
    
    WithheldGeoffrey B. Bloom
    14,923,107
    
    55,028William P. Johnson
    13,875,130
    
    1,103,005Rex Martin
    14,454,746
    
    523,389




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





Donald W.
Hudler, Philip G. Lux, Claire C. Skinner, Robert J. Deputy, Edwin W.
Miller








Item 6. Exhibits





See Index
to Exhibits incorporated by reference herein.







-
21 -
 
 *Index*





**SIGNATURES**





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














**COACHMEN
INDUSTRIES, INC.**


(Registrant)














Date:
      August 8, 2005
    By:
    /s/
      Claire C. SkinnerClaire
      C. Skinner, Chairman of theBoard
      and Chief Executive OfficerDate:
      August 8, 2005
    By:
    /s/
      Joseph P. TomczakJoseph
      P. Tomczak, Executive VicePresident
      and Chief Financial OfficerDate:
      August 8, 2005
    By:
    /s/
      Colleen A. ZuhlColleen
      A. Zuhl, Vice Presidentand
      Controller






-
22 -
 
 *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 March 1, 2005 (incorporated by reference to the Company's
Form 8-K filed March 4, 2005)





10(e) Coachmen
Industries, Inc. Supplemental Deferred Compensation Plan (Amended and Restated
as of January 1, 2003)




31.1  Certification
of Chief Executive Officer Pursuant to Exchange Act Rules
13(a)-14(a)/15(d)-14(a)





31.2  Certification
of Chief Financial Officer Pursuant to Exchange Act Rules
13(a)-14(a)/15(d)-14(a)





32.1  Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350





32.2  Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350









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