**SECURITIES
AND EXCHANGE COMMISSION**
 **WASHINGTON,
D.C. 20549**
 
 **Form
10-Q**
 
 (MARK
ONE)
 x
    **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**
 
 For the
quarterly period ended March
31, 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 April
30, 2005:
 
 Common
Shares, without par value 15,807,432 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-
    3-4March
      31, 2005 and December 31, 2004Consolidated Statements of
      Operations-
    5Three
      Months Ended March 31, 2005 and 2004Consolidated Statements of Cash
    Flows-
    6Three
      Months Ended March 31, 2005 and 2004Notes to Consolidated Financial
    Statements
    7-15Management’s Discussion and Analysis of
      Financial
    16-20Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market
      Risk
    21Controls and
Procedures
    21Part
      II. Other InformationItem 1. Legal Proceedings
    22Item 6. Exhibits
    22Signatures
    23Index to Exhibits
    24
 
  - 2
-
 *Index*
 **Coachmen Industries, Inc. and
Subsidiaries**
 **Consolidated
Balance Sheets**
 (in
thousands)
 
 
 March
      31,
    
    December
      31,2005
    
    2004(Unaudited)**Assets**Current
      assets:Cash
      and temporary cash investments
    
    $
    6,163
    
    $
    14,992Marketable
      securities
    
    
    534
    
    
    1,747Trade
      receivables, less allowance fordoubtful
      receivables 2005 - $1,185and
      2004 - $919
    
    
    62,235
    
    
    58,805Other
      receivables
    
    
    5,338
    
    
    4,209Refundable
      income taxes
    
    
    1,512
    
    
    244Inventories
    
    
    145,976
    
    
    136,088Prepaid
      expenses and other
    
    
    3,372
    
    
    4,144Deferred
      income taxes
    
    
    6,059
    
    
    6,014Total
      current assets
    
    
    231,189
    
    
    226,243Property,
      plant and equipment, at cost
    
    
    164,630
    
    
    163,709Less,
      accumulated depreciation
    
    
    (82,469
    )
    
    (81,358
    )Property,
      plant and equipment, net
    
    
    82,161
    
    
    82,351Goodwill
    
    
    18,132
    
    
    18,132Cash
      value of life insurance, net of loans
    
    
    27,071
    
    
    25,162Real
      estate held for sale
    
    
    60
    
    
    60Other
    
    
    6,027
    
    
    5,775Total
      assets
    
    **$******
    ******364,640**
    
    **$******
    ******357,723**
 
 *See
Notes to Consolidated Financial Statements.*
 
  - 3
-
 *Index*
 **Coachmen
Industries, Inc. and Subsidiaries**
 **Consolidated
Balance Sheets** (continued)
 (in
thousands)
 
 
 March
      31,
    
    December
      31,2005
    
    2004(Unaudited)**Liabilities**Current
      liabilities:Short-term
      borrowings
    
    $
    11,355
    
    $
    20,000Accounts
      payable, trade
    
    
    50,239
    
    
    33,805Accrued
      income taxes
    
    
    387
    
    
    2,479Accrued
      expenses and other liabilities
    
    
    45,154
    
    
    39,466Floor
      plan notes payable
    
    
    5,657
    
    
    6,986Current
      portion of long-term debt
    
    
    2,195
    
    
    2,195Total
      current liabilities
    
    
    114,987
    
    
    104,931Long-term
      debt
    
    
    14,669
    
    
    14,943Deferred
      income taxes
    
    
    3,512
    
    
    3,512Postretirement
      deferred compensation benefits
    
    
    9,951
    
    
    9,724Other
    
    
    74
    
    
    195Total
      liabilities
    
    
    143,193
    
    
    133,305**Shareholders’
      equity**Common
      shares, without par value:authorized
      60,000 shares; issued 2005 - 21,114 shares
      and
      2004 - 21,108 shares
    
    
    91,928
    
    
    91,850Additional
      paid-in capital
    
    
    7,859
    
    
    8,894Retained
      earnings
    
    
    181,990
    
    
    184,284Treasury
      shares, at cost: 2005 - 5,307 sharesand
      2004 - 5,384 shares
    
    
    (58,537
    )
    
    (59,002
    )Unearned
      compensation
    
    
    (1,813
    )
    
    (1,700
    )Accumulated
      other comprehensive income
    
    
    20
    
    
    92Total
      shareholders’ equity
    
    
    221,447
    
    
    224,418Total
      liabilities and shareholders’ equity
    
    **$******
    ******364,640**
    
    **$******
    ******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 March 31,2005
    
    2004Net
      sales
    
    $
    205,117
    
    $
    197,465Cost
      of sales
    
    
    183,956
    
    
    173,148Gross
      profit
    
    
    21,161
    
    
    24,317Operating
      expenses:Delivery
    
    
    9,857
    
    
    8,799Selling
    
    
    7,897
    
    
    6,931General
      and administrative
    
    
    5,371
    
    
    9,255Gain
      on sale of properties, net
    
    
    (4
    )
    
    (1,010
    )23,121
    
    
    23,975Operating
      income (loss)
    
    
    (1,960
    )
    
    342Nonoperating
      (income) expense:Interest
      expense
    
    
    1,082
    
    
    413Investment
      income
    
    
    (817
    )
    
    (928
    )Other
      income, net
    
    
    (75
    )
    
    (60
    )190
    
    
    (575
    )Income
      (loss) from continuing operations before income taxes
    
    
    (2,150
    )
    
    917Income
      taxes (credit)
    
    
    (764
    )
    
    330Net
      income (loss) from continuing operations
    
    
    (1,386
    )
    
    587Discontinued
      operations:Income
      from operations of discontinued entity (net of taxes)
    
    
    -
    
    
    55Net
      income (loss)
    
    $
    (1,386
    )
    $
    642Earnings
      per share - BasicContinuing
      operations
    
    $
    (.09
    )
    $
    .04Discontinued
      operations
    
    
    -
    
    
    -Net
      earnings per share
    
    $
    (.09
    )
    $
    .04Earnings
      per share - DilutedContinuing
      operations
    
    $
    (.09
    )
    $
    .04Discontinued
      operations
    
    
    -
    
    
    -Net
      earnings per share
    
    $
    (.09
    )
    $
    .04Number
      of common shares used in computation of earnings per
share:Basic
    
    
    15,526
    
    
    15,459Diluted
    
    
    15,526
    
    
    15,550Cash
      dividends per common share
    
    $
    .06
    
    $
    .06
 **
 *See
Notes to Consolidated Financial Statements* .
 
 
 - 5
-
 *Index*
 **Coachmen Industries, Inc. and
Subsidiaries**
 **Consolidated
Statements of Cash Flows**
 (in
thousands)
 (Unaudited)
 
 Three
      Months Ended March 31,2005
    
    2004Cash
      flows from operating activities:Net
      income (loss)
    
    $
    (1,386
    )
    $
    642Adjustments
      to reconcile net income (loss) to netcash
      provided by (used in) operating activities:Depreciation
    
    
    2,232
    
    
    2,430Provision
      for doubtful receivables, net of recoveries
    
    
    274
    
    
    (19
    )Gain
      on sale of properties and other assets
    
    
    (4
    )
    
    (1,010
    )Increase
      in cash surrender value oflife
      insurance policies
    
    
    (425
    )
    
    (579
    )Net
      realized and unrealized (gains) losseson
      marketable securities and derivatives
    
    
    (285
    )
    
    185Deferred
      income tax benefit
    
    
    (45
    )
    
    (570
    )Tax
      benefit from stock options exercised
    
    
    3
    
    
    11Other
    
    
    (593
    )
    
    479Changes
      in certain assets and liabilities:Trade
      receivables
    
    
    (4,833
    )
    
    (15,357
    )Inventories
    
    
    (9,888
    )
    
    (21,046
    )Prepaid
      expenses and other
    
    
    772
    
    
    (962
    )Accounts
      payable, trade
    
    
    16,434
    
    
    15,427Income
      taxes - accrued and refundable
    
    
    (3,360
    )
    
    (935
    )Accrued
      expenses and other liabilities
    
    
    4,359
    
    
    6,892Net
      cash provided by (used in)operating
      activities
    
    
    3,255
    
    
    (14,412
    )Cash
      flows from investing activities:Proceeds
      from sales of marketable securities
    
    
    1,399
    
    
    1,207Proceeds
      from sale of property and other assets
    
    
    8
    
    
    2,317Investments
      in marketable securities
    
    
    (1,457
    )
    
    (1,330
    )Purchases
      of property and equipment
    
    
    (2,028
    )
    
    (1,108
    )Other
    
    
    (270
    )
    
    (5
    )Net
      cash provided by (used in)investing activities
    
    
    (2,348
    )
    
    1,081Cash
      flows from financing activities:Proceeds
      from short-term borrowings
    
    
    232
    
    
    21,000Payments
      of short-term borrowings
    
    
    (8,877
    )
    
    (5,000
    )Payments
      of long-term debt
    
    
    (274
    )
    
    (33
    )Issuance
      of common shares under stock incentive plans
    
    
    91
    
    
    141Cash
      dividends paid
    
    
    (943
    )
    
    (933
    )Other
    
    
    35
    
    
    -Net
      cash provided by (used in)financing
      activities
    
    
    (9,736
    )
    
    15,175Increase
      (decrease) in cash and temporarycash
      investments
    
    
    (8,829
    )
    
    1,844Cash
      and temporary cash investments:Beginning
      of period
    
    
    14,992
    
    
    6,408End
      of period
    
    **$**************
    **************6,163**
    
    **$**************
    **************8,252**
 
 *See
Notes to Consolidated Financial Statements* *.*
 
  - 6
-
 *Index*
 **Coachmen Industries, Inc. and Subsidiaries**
 **Notes
to Consolidated Financial Statements**
 (Unaudited)
 
 **1.**
    **BASIS
      OF PRESENTATION**
 
 The
consolidated balance sheet data as of December 31, 2004 was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States. The interim
financial statements should be read in connection with the financial statements
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2004.
 
 In the
opinion of management, the information furnished herein includes all adjustments
of a normal and recurring nature necessary to reflect a fair presentation of the
statements of the interim period reported. The results of operations for the
three months ended March 31, 2005 are not necessarily indicative of the results
to be expected for the full year.
 
 **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 that are not allocated to segments.
 
 The table
below presents information about segments used by the chief operating decision
maker of the Company for the three months ended March 31 (in
thousands):
 
 Three
      Months Ended March 31,2005
    
    2004Net
      salesRecreational
      Vehicles
    
    $
    157,307
    
    $
    150,201Housing
      and Building
    
    
    47,810
    
    
    47,264Total
    
    **$******
    ******205,117**
    
    **$******
    ******197,465**Gross
      profitRecreational
      Vehicles
    
    $
    11,920
    
    $
    14,023Housing
      and Building
    
    
    9,174
    
    
    10,260Other
    
    
    67
    
    
    34Total
    
    **$******
    ******21,161**
    
    **$******
    ******24,317**Operating
      expensesRecreational
      Vehicles
    
    $
    13,401
    
    $
    10,664Housing
      and Building
    
    
    13,085
    
    
    12,744Other
    
    
    (3,365
    )
    
    567Total
    
    **$******
    ******23,121**
    
    **$******
    ******23,975**
 
  - 7
-
 *Index*
  
 Three
      Months Ended March 31,2005
    
    2004Operating
      income (loss)Recreational
      Vehicles
    
    $
    (1,481
    )
    $
    3,360Housing
      and Building
    
    
    (3,911
    )
    
    (2,484
    )Other
    
    
    3,432
    
    
    (534
    )Total
    
    **$******
    ******(1,960**
    ******)**
    **$******
    ******342**Pre-tax
      income (loss) fromcontinuing
      operationsRecreational
      Vehicles
    
    $
    (1,670
    )
    $
    3,418Housing
      and Building
    
    
    (3,957
    )
    
    (2,297
    )Other
    
    
    3,477
    
    
    (204
    )Total
    
    **$******
    ******(2,150**
    ******)**
    **$******
    ******917**
 
 
 March
      31,
    
    December
      31,2005
    
    2004Total
      assetsRecreational
      Vehicles
    
    $
    186,463
    
    $
    174,101Housing
      and Building
    
    
    110,445
    
    
    111,099Other
    
    
    67,732
    
    
    72,523Total
    
    **$******
    ******364,640**
    
    **$******
    ******357,723**
 
 
 **3.**
    **INVENTORIES**
 
 Inventories
consist of the following (in thousands):
 
 March
      31,
    
    December
      31,2005
    
    2004Raw
      materials
    
    $
    42,676
    
    $
    39,524Work
      in process
    
    
    25,696
    
    
    21,173Improved
      lots
    
    
    2,235
    
    
    2,236Finished
      goods
    
    
    75,369
    
    
    73,155Total
    
    **$**
    **145,976**
    
    **$**
    **136,088**
 
  - 8
-
 *Index*
  
 **4.**
    **ACCRUED
      EXPENSES AND OTHER LIABILITIES**
 
 Accrued
expenses and other liabilities consist of the following (in
thousands):
 
 March
      31,
    
    December
      31,2005
    
    2004Wages,
      salaries, bonuses and commissions
    
    $
    5,436
    
    $
    5,366Dealer
      incentives, including volumebonuses,
      dealer trips, interestreimbursement,
      co-op advertising andother
      rebates
    
    
    9,110
    
    
    5,119Warranty
    
    
    10,316
    
    
    10,140Insurance-products
      and general liability,workers
      compensation, group health andother
    
    
    7,134
    
    
    5,589Customer
      deposits and unearned revenues
    
    
    8,275
    
    
    7,340Other
      current liabilities
    
    
    4,883
    
    
    5,912Total
    
    **$******
    ******45,154**
    
    **$******
    ******39,466**
 
 Changes
in the Company’s warranty liability during the three month period ended March
31, were as follows (in thousands):
 
 Three
      Months Ended March 31,2005
    
    2004Balance
      of accrued warranty at beginning of period
    
    $
    10,140
    
    $
    8,658Warranties
      issued during the period and changes in
      liability
      for pre-existing warranties
    
    
    5,276
    
    
    5,724Cash
      settlements made during the quarter
    
    
    (5,100
    )
    
    (4,898
    )Balance
      of accrued warranty at March 31
    
    **$**************
    **************10,316**
    
    **$**************
    **************9,484**
 
  - 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 months ended March 31 were calculated as follows (in
thousands):
 
 Three
      Months Ended March 31,2005
    
    2004Numerator:Net
      income (loss) applicable to common stock
    
    $
    (1,386
    )
    $
    642Denominator:Number
      of shares outstanding, end of period:Common
      stock
    
    
    15,807
    
    
    15,665Effect
      of weighted averagecontingently
      issuable sharesoutstanding
      during period
    
    
    (199
    )
    
    (101
    )Effect
      of weighted averageshares
      outstanding duringperiod
    
    
    (82
    )
    
    (105
    )Weighted
      average number ofcommon
      shares used in basicEPS
    
    
    15,526
    
    
    15,459Effect
      of dilutive securities,stock
      options and awards
    
    
    -
    
    
    91Weighted
      average number ofcommon
      shares used indiluted
      EPS
    
    
    **15,526**
    
    
    **15,550**
 
 
 As the
Company reported a net loss for the three months ended March 31, 2005, the
dilutive effect of stock options and awards did not enter into the computation
of diluted earnings because their inclusion would have been antidilutive.
 
 For the
three months ended March 31, 2004, 14,000 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 periods and
their inclusion would have been antidilutive.
 
  - 10
-
 *Index*
  
 **6.**
    **COMPREHENSIVE
      INCOME (LOSS)**
 
 The
changes in components of comprehensive income for the three months ended March
31 are as follows (in thousands):
 
 Three
      Months EndedMarch
      31,2005
    
    2004Net
      income (loss)
    
    $
    (1,386
    )
    $
    642Unrealized
      losses on securities held for sale, net of taxes
    
    
    (131
    )
    
    (207
    )Unrealized
      gains (losses) on cash flow hedges, net of taxes
    
    
    59
    
    
    (43
    )Comprehensive
      income (loss)
    
    **$**
    **(1,458**
    **)**
    **$******
    ******392**
 
 As of
March 31, 2005 and 2004, the accumulated other comprehensive income, net of tax,
relating to unrealized gains on securities available for sale was $57,000 and
$243,000, respectively, and relating to deferred losses on cash flow hedges was
($37,000) and ($203,000), 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 March 31, 2005 and December 31, 2004, consigned
chassis inventory approximated $30.7 million and $29.7 million,
respectively.
 
 **Repurchase
Agreements**
 
 The
Company was contingently liable at March 31, 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 $265
million at March 31, 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 March
31, 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 March 31, 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 $6.1 million at March 31, 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 March
31, 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 institutions for a maximum of $3.5
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. Thereafter, the Company will
be liable to the financial institutions for the first $2 million of aggregate
losses annually. The total amount financed under the reserve pool arrangement
totaled approximately $10.0 million at March 31, 2005 ($19.2 million at December
31, 2004). The Company has recorded a loss reserve of $0.1 million at March 31,
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 March 31, 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 March 31, 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
March 31, 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 has been 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.
 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 period ended March 31, 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 recorded
related to this plan. For the period ended March 31, 2005, the Company reduced
compensation expense, which is a component of general and administrative
expenses, by $758,000 related to these programs. The Company amortized $218,000
to compensation expense for the period ended March 31, 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 EndedMarch
      31,2005
    
    2004(in
      thousands, except per share amounts)Net
      income (loss), as reported
    
    $
    (1,386
    )
    $
    642Add:
      Stock-based compensation expense under variable plan included in reporting
      net income, net of taxes
    
    
    (489
    )
    
    144Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of taxes
    
    
    291
    
    
    (207
    )Pro
      forma net income (loss)
    
    $
    (1,584
    )
    $
    579Earnings
      per share:Basic
      - as reported
    
    $
    (.09
    )
    $
    .04Basic
      - pro forma
    
    $
    (.10
    )
    $
    .04Diluted
      - as reported
    
    $
    (.09
    )
    $
    .04Diluted
      - pro forma
    
    $
    (.10
    )
    $
    .04
 
  - 14
-
 *Index*
  
 **9.**
    **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
      of Three MonthsEnded
      March 31,
      2005
      and 2004Increases
      (Decreases)Amount
    
    PercentageNet
      sales
    
    $
    7,652
    
    
    3.9
    %Cost
      of sales
    
    
    10,808
    
    
    6.2Delivery
      expenses
    
    
    1,058
    
    
    12.0Selling
      expenses
    
    
    966
    
    
    13.9General
      and administrative expenses
    
    
    (3,884
    )
    
    (42.0
    )Gain
      on sale of properties, net
    
    
    (1,006
    )
    
    (99.6
    )Interest
      expense
    
    
    669
    
    
    162.0Investment
      income
    
    
    (111
    )
    
    (12.0
    )Other
      income, net
    
    
    15
    
    
    25.0Income
      (loss) from continuing operations before income taxes
    
    
    (3,067
    )
    
    (334.5
    )Income
      taxes (credit)
    
    
    (1,094
    )
    
    (331.5
    )Net
      income (loss) from continuing operations
    
    
    (1,973
    )
    
    (336.1
    )Income
      from operations of discontinued entity, net of taxes
    
    
    (55
    )
    
    (100.0
    )Net
      income (loss)
    
    
    (2,028
    )
    
    (315.9
    )
 
 
  - 16
-
 *Index*
  
 **NET
SALES**
 
 Consolidated
net sales for the quarter ended March 31, 2005 were  $205.1
million, an increase of  $7.7
million, or 3.9%, from the $197.5 million reported for the corresponding quarter
last year. The Company’s Recreational Vehicles segment experienced a net sales
increase of 4.7% for the quarter. Wholesale unit shipments for the RV segment
decreased 12.6% during the first quarter of 2005.  Wholesale
unit shipments of motorized products decreased 9.2% for the three month period
ended March 31, 2005, while wholesale unit shipments of towable products were
down 14.3% for the three-month period ended March 31, 2005.  Backlog
for the RV segment increased 2.2% to $90.9 million from $89.0 million at the end
of the first quarter of 2004.
 
 The
Company’s housing and building segment experienced a slight net sales increase
for the quarter ended March 31, 2005 of  1.2%.
Wholesale unit shipments were down 6.1% for the quarter. Backlog for the housing
and building segment as of March 31, 2005 has increased 19.5% to $46.5 million,
compared with $39.0 million at March 31, 2004.
 
 **COST
OF SALES**
 
 Cost of
sales increased 6.2%, or $10.8 million, for the three months ended March 31,
2005. As a percentage of net sales, cost of sales was  89.7% for
the three months ended March 31, 2005 compared to 87.7% for the three months
ended March 31, 2004. The increase in the dollar amount of cost of sales in the
current quarter is partially attributable to the increase in sales dollars as
well as higher labor, insurance and workers’ compensation costs. In addition,
reductions in the production levels caused lower overhead absorption and labor
inefficiencies.  The
increases in the dollar amount of cost of sales also caused the cost of sales
percentage to net sales for the quarter to increase.
 
 **OPERATING
EXPENSES**
 
 As a
percentage of net sales, operating expenses, which include delivery, selling,
general and administrative expenses, were 11.3% for the 2005 quarter compared
to  12.7% for
the quarter of 2004. As a percentage of sales, delivery expenses increased by
0.3 percentage points for the three-month period as compared to the prior year
three month period.  The
increase in delivery dollars spent during the quarter was primarily related to
higher fuel costs and higher utilization of outside carriers for delivery
services. Selling expenses were 3.8% of net sales for the 2005 quarter compared
to 3.5% of net sales for the three-month period ended March 31, 2004. The
increase in selling expense dollars during the quarter ended March 31, 2005
is  related
to increased personnel costs and increased expenses related to travel, new
product shows, and promotional expenses.  General
and administrative expenses were 2.6% of net sales for the first quarter
compared to 4.7% for the 2004 corresponding quarter.  The
decrease for the quarter in general and administrative expenses as a percentage
of net sales was primarily related to the settlement of the Company’s dispute
over an RV licensing agreement with The Coleman Company, Inc. and the 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.
 
 **GAIN
ON THE SALE OF PROPERTIES, NET**
 
 There
were no significant gains or losses from property transactions for the three
months ended March 31, 2005. For the quarter ended March 31, 2004, the gain on
the sale of properties was  $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.
 
 
  - 17
-
 *Index*
  **INTEREST
EXPENSE**
 
 Interest
expense was $1,082,000 for the quarter ended March 31, 2005 compared to $413,000
in the same period last year. Interest expense increased based on the higher
amount of average outstanding long-term debt and borrowings on the Company’s
revolving credit facility and higher applicable interest rates.
 
 **INVESTMENT
INCOME**
 
 There was
a net investment income of $817,000 for the quarter ended March 31, 2005
compared to $928,000 in the same quarter of 2004. Investment income is
principally attributable to earnings of the life insurance policies held and
realized gains on the sale of preferred stock.
 
 **OTHER
INCOME, NET**
 
 Other
income, net, represents income of $75,000 for the first quarter of 2005 and
income of $60,000 for the same quarter of the previous year. No items of
significance caused the variances between the comparable quarters.
 
 **INCOME
TAXES**
 
 For the
first quarter ended March 31, 2005, the effective tax rate was 35.5% compared
with a 2004 first quarter rate of 34.0%. The Company’s effective tax rate
fluctuates based upon the states where sales occur, with the level of export
sales and also with the amount of nontaxable dividend income on
investments.
 
 **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 March 31, 2005,
there were outstanding borrowings of  $11.4
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 March 31, 2005 and
December 31, 2004, $15 million had been borrowed against the cash surrender
value of Company owned life insurance contracts.
 
 At March
31, 2005, working capital decreased to $116.2 million from $121.3 million at
December 31, 2004. The  $4.9
million increase in current assets at March 31, 2005 versus December 31, 2004
was primarily due to increased trade receivables and inventories. The increase
in current liabilities of $10.1 million was substantially due to increased trade
payables and other accrued expenses.
  Management
believes that the Company’s existing cash and temporary cash investments as of
March 31, 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.
    - 18
-
 *Index*
  **CRITICAL
ACCOUNTING POLICIES**
 
 The
preparation of the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. On an
ongoing basis, management evaluates these estimates. Estimates are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Historically, actual results have not
been materially different from the Company's estimates. However, actual results
may differ from these estimates under different assumptions or conditions. A summary
of the Company’s more significant accounting policies that require the use of
estimates and judgments in preparing the financial statements is provided in the
Company’s 10-K report for the year ended December 31, 2004. During the first
three months of fiscal 2005, there was no material change in the accounting
policies and assumptions previously disclosed.
   - 19
-
 *Index*
  
 **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 floor plan financing for the Company's
recreational vehicle dealers and corresponding availability of cash to the
Company; the condition of the telecommunications industry which purchases
system-built structures; 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; 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; 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; consolidation of
distribution channels in the recreational vehicle industry; and also on the
state of the recreational vehicle and housing industries in the United States.
Other factors affecting forward-looking statements include potential adverse
weather conditions affecting home deliveries, 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 maintain or 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.
 
  - 20 -
 *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. Throughout the first quarter, the Company utilized its
revolving credit facility to meet short-term working capital needs. The Company
had $11.4 **** million
outstanding against the revolving credit facility on March 31, 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 gain of $59,000, net of taxes, attributable to
changes in the fair value of interest rate swap agreements was recorded as a
component of accumulated other comprehensive income (loss) as of March 31, 2005.
If in the future the interest rate swap agreements were determined to be
ineffective or were terminated before the contractual termination dates, or if
it became probable that the hedged variable cash flows associated with the
variable-rate borrowings would stop, the Company would be required to reclassify
into earnings all or a portion of the unrealized losses on cash flow hedges
included in accumulated other comprehensive income (loss).
 
 At March
31, 2005, the Company had $0.5 million invested in marketable securities. The
Company’s marketable securities consist of public utility preferred stocks which
typically pay quarterly fixed rate dividends. These financial instruments are
subject to market risk in that available energy supplies and changes in
available interest rates would impact the market value of the preferred stocks.
 
 **ITEM 4. CONTROLS AND
PROCEDURES**
 
 The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures as of March 31, 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 March 31, 2005.
 
 During
the period covered by this Report, there have been no material changes in the
Company's internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the Company’s internal
control over financial reporting.
 
  - 21 -
 *Index*
  
 **PART II. OTHER INFORMATION**
 
 Item 1.
Legal Proceedings
 
 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 has been 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.
 
 Item 6. Exhibits
 
 See
Index to Exhibits incorporated by reference herein.
  - 22
-
 *Index*
  
 **SIGNATURES**
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
 
 
 
 
 **COACHMEN
INDUSTRIES, INC.**
 (Registrant)
 
 
 
 
 Date:
      May 4, 2005
    By:
    /s/
      Claire C. SkinnerClaire
      C. Skinner, Chairman of theBoard
      and Chief Executive OfficerDate:
      May 4, 2005
    By:
    /s/
      Joseph P. TomczakJoseph
      P. Tomczak, Executive VicePresident
      and Chief Financial OfficerDate:
      May 4, 2005
    By:
    /s/
      Colleen A. ZuhlColleen
      A. Zuhl, Vice Presidentand
      Controller
 
  - 23
-
 *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).
 
 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
   - 24
-