-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3Qw9p3IBEBZekIytBq7rvMeiqlzWuZxCsOT9LeKDBPRhjNza6EbfU5hGTVnYElg q3fMvzowlSU+g3vPRkBzDg== 0000021212-06-000104.txt : 20061102 0000021212-06-000104.hdr.sgml : 20061102 20061102154016 ACCESSION NUMBER: 0000021212-06-000104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061102 DATE AS OF CHANGE: 20061102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COACHMEN INDUSTRIES INC CENTRAL INDEX KEY: 0000021212 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR HOMES [3716] IRS NUMBER: 351101097 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07160 FILM NUMBER: 061182603 BUSINESS ADDRESS: STREET 1: 2831 DEXTER DRIVE CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 5742620123 MAIL ADDRESS: STREET 1: PO BOX 3300 STREET 2: 2831 DEXTER DRIVE CITY: ELKHART STATE: IN ZIP: 46515 10-Q 1 form_10q093006.htm FORM 10-Q 9/30/2006 Form 10-Q 9/30/2006
 
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 September 30, 2006.
OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.

Commission file number 1-7160
 
Coachmen Logo
 
 
 
COACHMEN INDUSTRIES, INC.
 
 
 
 
(Exact name of registrant as specified in its charter)
 
 

 
Indiana
 
35-1101097
 
 
(State of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
2831 Dexter Drive, Elkhart, Indiana
 
46514
 
 
(Address of principal executive offices)
 
(Zip Code)
 

 
Registrant's telephone number, including area code
 
(574) 262-0123
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No o

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

Large accelerated filer o
 
Accelerated filer x
 
Non-accelerated filer o

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

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

Number of shares of Common Stock, without par value, outstanding as of the close of business on October 31, 2006:  15,655,345


 

Consolidated Balance Sheets
(in thousands)
 (unaudited)
 
September 30,
 
December 31,
 
 
 
2006
 
2005
 
Assets
 
  
 
  
 
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
$
11,728
 
$
 2,780
 
Trade receivables, less allowance for doubtful receivables 2006 - $1,283 and 2005 - $1,240
 
 
20,653
 
 
47,174
 
Other receivables
 
 
1,806
 
 
1,969
 
Refundable income taxes
 
 
12,506
 
 
10,284
 
Inventories
 
 
103,611
 
 
121,304
 
Prepaid expenses and other
 
 
5,319
 
 
3,992
 
Deferred income taxes
 
 
11,146
 
 
11,421
 
Assets held for sale
 
 
2,375
 
 
291
  
Total current assets
 
 
169,144
 
 
199,215
 
Property, plant and equipment, net
 
 
58,348
 
 
67,581
 
Notes receivable
 
 
7,197
 
 
2,493
 
Goodwill
 
 
16,865
 
 
17,383
 
Cash value of life insurance, net of loans
 
 
30,651
 
 
28,880
 
Deferred income taxes
 
 
2,913
 
 
4,279
 
Other
 
 
2,183
 
 
2,985
 
TOTAL ASSETS
 
$
287,301
 
$
322,816
 
               
Liabilities and Shareholders' Equity
 
 
  
 
 
  
 
CURRENT LIABILITIES
 
 
  
 
 
  
 
Short-term borrowings
 
$
10,814
 
$
12,276
 
Accounts payable, trade
 
 
26,116
 
 
31,658
 
Accrued income taxes
 
 
-
 
 
533
 
Accrued expenses and other liabilities
 
 
39,294
 
 
54,856
 
Floorplan notes payable
 
 
4,273
 
 
4,361
 
Current maturities of long-term debt
 
 
1,077
 
 
2,223
 
Total current liabilities
 
 
81,574
 
 
105,907
 
Long-term debt
 
 
5,744
 
 
12,913
 
Postretirement deferred compensation benefits
 
 
8,427
 
 
10,182
 
Other
 
 
-
 
 
11
 
Total liabilities
 
 
95,745
 
 
129,013
 
               
COMMITMENTS AND CONTINGENCIES (see Note 10)
 
 
  
 
 
  
 
               
SHAREHOLDERS' EQUITY
 
 
  
 
 
  
 
Common shares, without par value: authorized 60,000 shares; issued 2006 - 21,151 shares and 2005 - 21,134 shares
 
 
92,331
 
 
92,164
 
Additional paid-in capital
 
 
7,313
 
 
6,465
 
Unearned compensation
 
 
-
 
 
(142
)
Accumulated other comprehensive loss
 
 
(10)
 
 
(6
)
Retained earnings
 
 
151,598
 
 
154,246
 
Treasury shares, at cost, 2006 - 5,495 shares and 2005 - 5,375 shares
 
 
(59,676
)
 
(58,924
)
Total shareholders' equity
 
 
191,556
 
 
193,803
 
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
287,301
 
$
322,816
 
- 3 -
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited) 
 
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
 
2006  
 
2005  
 
2006  
 
2005  
 
                           
Net sales 
 
$
130,715
 
$
180,168
 
$
448,590
 
$
562,448
 
Cost of sales 
 
 
117,650
 
 
166,453
 
 
404,896
 
 
509,826
 
Gross profit
 
 
 13,065
 
 
 13,715
 
 
 43,694
 
 
 52,622
 
Operating expenses: 
 
 
 
 
 
 
 
 
 
 
 
 
 
Delivery
 
 
7,084
 
 
 8,683
 
 
 23,230
 
 
 25,262
 
Selling
 
 
6,520
 
 
 6,692
 
 
 16,946
 
 
21,804
 
General and administrative
 
 
 6,226
 
 
 9,814
 
 
14,403
 
 
 22,591
 
(Gain) loss on sale of assets, net
 
 
(291
) 
 
820
 
 
(6,340
) 
 
780
  
 
 
 
 19,539
 
 
 26,009
 
 
48,239
 
 
 70,437
 
Operating loss
 
 
(6,474
) 
 
 (12,294
) 
 
(4,545
) 
 
 (17,815
) 
Nonoperating (income) expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
 916
 
 
794
 
 
2,616
 
 
 2,377
 
Investment income
 
 
(421
) 
 
 (354
) 
 
(1,165
) 
 
 (1,612
) 
Other income, net
 
 
(678
) 
 
 (93
) 
 
(897
) 
 
 (325
) 
 
 
 
 (183
) 
 
 347
 
 
 554
 
 
440
 
Loss from continuing operations before income taxes
 
 
(6,291
) 
 
 (12,641
) 
 
(5,099
) 
 
 (18,255
) 
Income tax benefit 
 
 
(2,937
) 
 
 (6,466
) 
 
 (3,249
) 
 
 (9,466
) 
Net loss from continuing operations 
 
 
 (3,354
) 
 
 (6,175
) 
 
(1,850
) 
 
(8,789
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from operations of discontinued entities (net of tax benefits of $(100), $(2,203), $(423) and $(2,372), respectively)
 
 
(162
) 
 
(3,171
 
 
) 
 
 (657
) 
 
 (3,413
) 
Gain on sale of assets of discontinued entities (net of taxes of $2,140 in 2006)
 
 
 -
 
 
 -
 
 
2,205
 
 
 -
 
Income (loss) from discontinued operations 
 
 
(162
) 
 
 (3,171
) 
 
1,548
 
 
 (3,413
) 
Net loss
 
$
 (3,516
) 
$
(9,346
) 
$
(302
)  
$
 (12,202
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share - Basic 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
(.21
)
$
(.40
) 
$
 (.12
) 
$
 (.56
) 
Discontinued operations
 
 
(.01
) 
 
 (.20
) 
 
 .10
 
 
 (.22
) 
Net loss per share
 
 
(.22
) 
 
 (.60
) 
 
(.02
) 
 
 (.78
) 
Earnings (loss) per share - Diluted 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
 (.21
) 
 
 (.40
)
 
 (.12
) 
 
 (.56
) 
Discontinued operations
 
 
 (.01
) 
 
 (.20
) 
 
 .10
 
 
 (.22
) 
Net loss per share
 
$
 (.22
)
$
(.60
) 
$
 (.02
) 
$
 (.78
) 
                           
Number of common shares used in the computation of loss per share: 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 15,634
 
 
 15,556
 
 
15,664
 
 
 15,545
 
Diluted
 
 
 15,634
 
 
 15,556
 
 
 15,664
 
 
 15,545
 
                           
Cash dividends declared per common share 
 
$
 .03
 
$
 .06
 
$
 .15
 
$
 .18
 
- 4 -
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2006
 
2005
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net loss
 
$
(302
)
$
(12,202
) 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation
 
 
4,869
 
 
6,638
 
Provision for doubtful receivables, net of recoveries
 
 
444
 
 
574
 
Provision for write-down of property to net realizable value
    
-
    
6,986
  
Net realized and unrealized gains on marketable securities and derivatives
 
 
(4
) 
 
(325
) 
Gain on sale of properties and other assets, net
 
 
(10,830
)
 
(304
)
Increase in cash surrender value of life insurance policies
 
 
(437
)
 
(923
)
Deferred income tax provision (benefit)
 
 
1,641
 
 
(6,395
)
Other
 
 
234
  
 
(871
) 
Changes in certain assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
 
 
 
Trade receivables
 
 
21,489
 
 
16,659
 
Inventories
 
 
5,527
  
 
6,350
  
Prepaid expenses and other
 
 
(1,944
) 
 
(199
) 
Accounts payable, trade
 
 
(4,502
) 
 
14,720
 
Income taxes - accrued and refundable
 
 
(2,755
) 
 
(8,981
) 
Accrued expenses and other liabilities
 
 
(11,735
)
 
9,600
 
Net cash provided by operating activities
 
 
1,695
  
 
31,327
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Proceeds from sales of marketable securities
 
 
-
 
 
1,933
 
Proceeds from sale of properties and other assets
 
 
24,680
 
 
395
 
Investments in marketable securities
 
 
(1,334
)
 
(2,181
)
Purchases of property and equipment
 
 
(4,139
)
 
(5,046
)
Other
 
 
(276
)
 
140
 
Net cash provided by (used in) investing activities
 
 
18,931
 
 
(4,759
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Proceeds from short-term borrowings
 
 
7,070
 
 
232
 
Payments of short-term borrowings
 
 
(8,620
)
 
(23,042
)
Proceeds from long-term debt
 
 
255
 
 
241
 
Payments of long-term debt
 
 
(8,570
)
 
(1,279
)
Issuance of common shares under stock incentive plans
 
 
192
 
 
283
 
Cash dividends paid
 
 
(1,876
)
 
(1,887
)
Purchases of common shares for treasury
      (129 )     -  
Other
 
 
-
 
 
67
 
Net cash used in financing activities
 
 
(11,678
)
 
(25,385
) 
Increase in cash and cash equivalents
 
 
8,948
 
 
1,183
 
CASH AND CASH EQUIVALENTS:
 
 
 
 
 
 
 
Beginning of period
 
 
2,780
 
 
14,992
 
End of period
 
$
11,728
 
$
16,175
 
               
Supplemental disclosures of cash flow information: 
 
 
 
 
 
 
 
Operating cash received during the period related to insurance settlement
 
$
 2,875
 
$
2,213
 
- 5 -
 
Notes to Consolidated Financial Statements
(Unaudited)

1.    BASIS OF PRESENTATION.

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

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

Statement of Operations Classification

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

The Company’s gross profit may not be comparable to other entities within our industry whose shipping and handling expenses are presented as a component of cost of sales. Delivery expense was $7.1 million and $8.7 million for the three months ended September 30, 2006 and 2005, respectively, and $23.2 million and $25.3 million for the nine months ended September 30, 2006 and 2005, respectively.

Reclassifications

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

2.    SEGMENT INFORMATION.

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

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

 
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
 
2006
 
2005
 
2006
 
2005
 
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
 
Recreational vehicles
 
$
90,490
 
$
129,875
 
$
321,454
 
$
425,007
 
Housing and building
 
 
40,225
 
 
50,293
 
 
127,136
 
 
137,441
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated total
 
$
130,715
 
$
180,168
 
$
448,590
 
$
562,448
 
 
- 6 -
 
 
 
 Three Months Ended September 30,
Nine Months Ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
Gross profit
 
 
 
 
 
 
 
 
 
 
 
 
 
Recreational vehicles
 
$
3,708
 
$
1,410
 
$
13,770
 
$
20,114
 
Housing and building
 
 
9,357
 
 
12,305
 
 
29,924
 
 
32,508
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated total
 
$
13,065
 
$
13,715
 
$
43,694
 
$
52,622
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Recreational vehicles
 
$
10,984
 
$
16,577
 
$
28,719
 
$
43,027
 
Housing and building
 
 
9,013
 
 
11,321
 
 
26,981
 
 
32,861
 
Other reconciling items
 
 
(458
)
 
(1,889
)
 
(7,461
)
 
(5,451
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated total
 
$
19,539
 
$
26,009
 
$
48,239
 
$
70,437
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Recreational vehicles
 
$
(7,276
)
$
(15,167
)
$
(14,950
)
$
(22,913
)
Housing and building
 
 
344
 
 
984
 
 
2,944
 
 
(353
)
Other reconciling items
 
 
458
 
 
1,889
 
 
7,461
 
 
5,451
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated total
 
$
(6,474
)
$
(12,294
)
$
(4,545
) 
$
(17,815
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-tax income (loss) from continuing operations
 
 
 
 
 
 
 
 
 
 
 
 
 
Recreational vehicles
 
$
(6,959
)
$
(15,480
)
$
(15,028
)
$
(23,541
)
Housing and building
 
 
316
 
 
1,073
 
 
2,843
 
 
(165
)
Other reconciling items
 
 
352
 
 
1,766
 
 
7,086
 
 
5,451
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated total
 
$
(6,291
) 
$
(12,641
)
$
(5,099
) 
$
(18,255
)
 
 
 
 
September 30,
 
December 31,
 
 
 
2006
 
2005
 
Total Assets
 
 
 
 
 
 
 
Recreational vehicles
 
$
125,323
 
$
152,501
 
Housing and building
 
 
64,205
 
 
83,338
 
Other reconciling items
 
 
97,773
 
 
86,977
 
 
 
 
 
 
 
 
 
Total
 
$
287,301
 
$
322,816
 
 
- 7 -

3.    INVENTORIES.

Inventories consist of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
 
2006
 
2005
 
Raw materials
 
 
 
 
 
 
 
Recreational vehicles
 
$
17,399
 
$
19,770
 
Housing and building
 
 
6,330
 
 
13,643
 
Total
 
 
23,729
 
 
33,413
 
 
 
 
 
 
 
 
 
Work in process
 
 
 
 
 
 
 
Recreational vehicles
 
 
16,460
 
 
15,515
 
Housing and building
 
 
3,567
 
 
5,280
 
Total
 
 
20,027
 
 
20,795
 
 
 
 
 
 
 
 
 
Improved lots
 
 
 
 
 
 
 
Housing and building
 
 
220
 
 
261
 
Total
 
 
220
 
 
261
 
 
 
 
 
 
 
 
 
Finished goods
 
 
 
 
 
 
 
Recreational vehicles
 
 
46,228
 
 
48,935
 
Housing and building
 
 
13,407
 
 
17,900
 
Total
 
 
59,635
 
 
66,835
 
 
 
 
 
 
 
 
 
Total
 
$
103,611
  
$
121,304
 

4.    PROPERTY, PLANT AND EQUIPMENT.

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

 
 
September 30,
2006
 
December 31,
2005
 
 
 
 
 
 
 
Land and improvements
 
$
11,598
 
$
13,255
 
Buildings and improvements
 
 
61,266
 
 
68,007
 
Machinery and equipment
 
 
24,472
 
 
31,468
 
Transportation equipment
 
 
14,583
 
 
16,279
 
Office furniture and fixtures
 
 
17,829
 
 
19,080
 
 
 
 
 
 
 
 
 
Total
 
 
129,748
 
 
148,089
 
Less, accumulated depreciation
 
 
71,400
 
 
80,508
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
$
58,348
 
$
67,581
 
 
- 8 -

5.    ACCRUED EXPENSES AND OTHER LIABILITIES.

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

 
 
September 30,
2006
 
December 31,
2005
 
 
 
 
 
 
 
Wages, salaries, bonuses and commissions
 
$
2,873
 
$
3,156
 
Dealer incentives, including volume bonuses, dealer trips, interest reimbursement, co-op advertising and other rebates
 
 
4,884
 
 
4,284
 
Warranty
 
 
11,519
 
 
20,005
 
Insurance-products and general liability, workers compensation, group health and other
 
 
8,179
 
 
6,833
 
Customer deposits and unearned revenues
 
 
4,756
 
 
10,029
 
Litigation
 
 
504
 
 
 3,740
 
Interest
 
 
630
 
 
 1,980
 
Sales and property taxes
 
 
1,754
 
 
 1,948
 
Other current liabilities
 
 
4,195
 
 
2,881
 
 
 
 
 
 
 
 
 
Total
 
$
39,294
 
$
54,856
 
 
Changes in the Company's warranty liability during the three and nine-month periods ended September 30 were as follows (in thousands):

 
 Three Months Ended September 30,
 Nine Months Ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance of accrued warranty at beginning of period
 
$
13,359
 
$
10,780
 
$
20,005
 
$
10,140
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warranties issued during the period and changes in liability for pre-existing warranties
 
 
 
4,411
 
 
 
12,114
 
 
 
15,576
 
 
 
23,657
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash settlements made during the period
 
 
(6,251
) 
 
(6,790
) 
 
(24,062
) 
 
(17,693
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance of accrued warranty at September 30
 
$
11,519
 
$
16,104
 
$
11,519
 
$
16,104
 
 
6.    COMPREHENSIVE INCOME (LOSS).

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

 
 Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(3,516
)
$
(9,346
) 
$
(302)
 
$
(12,202
) 
Unrealized losses on securities held for sale, net of taxes
 
 
-
 
 
-
 
 
-
 
 
(188
)
Unrealized gains (losses) on cash flow hedges, net of taxes
 
 
(28)
 
 
44
 
 
(4)
 
 
76
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
 
$
(3,544
)
$
(9,302
) 
$
(306
)
$
(12,314
)

As of September 30, 2006 and 2005, the accumulated other comprehensive income, net of tax, relating to unrealized gains on securities available for sale was $0 for both periods, and relating to deferred losses on cash flow hedges was $(10,000) and $(20,000), respectively.
- 9 -
 
7.    EARNINGS PER SHARE. 

Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings per common share is based on the weighted average number of shares outstanding during the period, after consideration of the dilutive effect of stock options and awards and shares held in deferred compensation plans. Basic and diluted earnings per share for the three and nine-month periods ended September 30 were calculated using the average shares as follows (in thousands):

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss available to common stockholders
 
$
(3,516
)
$
(9,346
) 
$
(302
)
$
(12,202
) 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares outstanding, end of period:
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares used in basic EPS
 
 
 
15,634
 
 
 
15,556
 
 
 
15,664
 
 
 
15,545
 
Effect of dilutive securities
 
 
-
 
 
-
 
 
-
 
 
-
 
Weighted average number of common shares used in dilutive EPS
 
 
 
15,634
 
 
 
15,556
 
 
 
15,664
 
 
 
15,545
 
 
As the Company reported a net loss for the three and nine-month periods ended September 30, 2006 and 2005, the dilutive effect of stock options and awards did not enter into the computation of diluted earnings per share because their inclusion would have been antidilutive. 

8.   INCOME TAXES.

For the third quarter ended September 30, 2006, the effective tax rate was a credit of 46.7% and the year-to-date effective tax rate was a credit of 63.7% compared with a 2005 third quarter effective tax credit of 51.1% and a year-to-date tax credit of 51.9%. The Company’s effective tax rate fluctuates based upon estimated annual pre-tax income amounts, the states where sales occur, the estimated annual amount of export sales, nontaxable increases in cash value of life insurance contracts, other permanent tax differences, increases or decreases in tax reserves and recognized federal and state tax credits.
 
The 2006 year-to-date effective tax rate was favorably impacted by the release of certain state tax reserves resulting from favorable outcomes of the Company’s participation in a number of state voluntary disclosure programs.
 
During the first quarter of 2006, the Company recorded a decrease in current deferred tax assets of $0.3 million and a decrease in long-term deferred tax assets of $1.4 million to recognize deferrals that will be utilized as a result of the sale of Miller Building Systems, Inc.
 
The Company’s effective tax rate credit for 2005 was favorably impacted by federal and state research and development (R&D) tax credits for 2005 and prior years, all of which were recognized in 2005. During the second quarter of 2005, the Company completed a project to identify eligible expenditures for the purposes of claiming R&D tax credits. As part of this project, the Company filed amended tax returns for 1999-2003 to claim federal and state R&D tax credits. In the 2005 second quarter, the Company recorded $1.5 million for prior years’ R&D tax credits which increased the Company’s effective tax benefit rate by 6.5% for the 2005 year-to-date period.
 

During 2005, the Company’s Board of Directors approved a comprehensive operational and cost structure realignment and restructuring plan (the Intensive Recovery Plan), which is intended to improve operating performance and ensure financial strength.
 
When describing the impact of these restructuring plans, determinations of the fair value of long-lived assets were based upon comparable market values for similar assets.
- 10 -
 
During the third quarter, a number of smaller properties were sold for a net pre-tax gain of approximately $0.3 million. On June 8, 2006, the Company completed the sale of its corporate aircraft for approximately $2.3 million, which resulted in a pre-tax gain of approximately $1.7 million. On June 30, 2006, the Company sold property located in Palm Shores, Florida for $2.5 million, which resulted in a pre-tax gain of approximately $1.2 million. During June 2006, the Company also sold two parcels of the former Georgie Boy Manufacturing complex for total proceeds of $0.7 million, which resulted in a pre-tax gain of approximately $0.4 million. 

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

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

Housing and Building Segment

The Company has ceased operations at the All American Homes operation in Springfield, Tennessee. The closure of the Tennessee location resulted in an asset impairment charge of approximately $1.1 million, which was recorded in the third quarter of 2005. On June 22, 2006, the Company entered into a Contract for Sale of Real Estate and Right of First Refusal for the sale of the Tennessee facility for $5.0 million, with a projected closing on or about August 22, 2006. An addendum was subsequently entered into extending the closing to October 31, 2006 and requiring an additional earnest deposit. On September 26, 2006, the Company received a subsequent purchase offer from a cash buyer in the amount of $3.4 million, excluding machinery and equipment. The original buyer was notified of the subsequent offer and the Right of First Refusal period expired on October 27, 2006. The sale of the Tennessee property is subject to certain customary conditions, and closing is now anticipated to occur with the second buyer late in 2006. The Tennessee facility has been classified as held for sale in the accompanying balance sheet as of September 30, 2006. The net book value of the Tennessee facility at December 31, 2005 was $2.4 million.

On December 31, 2005, the Company sold all operating assets of the All American Homes Kansas division. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of the Kansas division for the quarter ended September 30, 2005 were $2.2 million, and the pre-tax loss for the quarter ended September 30, 2005 was $(1.6) million. Net sales of the Kansas division for the nine-month period ended September 30, 2005 were $7.3 million and the pre-tax loss for the nine-month period ended September 30, 2005 was $(1.7) million.

On March 31, 2006, the Company sold 100% of its interest in the capital stock of Miller Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 and a $2.5 million secured note. The note is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note, which will be paid to the Company if certain income metrics are achieved by the acquiring entity. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business in 2005 and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the quarter ended September 30, 2005 were $12.0 million, and the pre-tax income for the quarter ended September 30, 2005 was $0.4 million. Net sales of Miller Building Systems, Inc. for the nine-month period ended September 30, 2005 were $30.8 million and the pre-tax loss for the nine-month period ended September 30, 2005 was $(0.2) million. In connection with the sale of Miller Building Systems, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000 interest rate swaps that had been associated with these revenue bonds.

In conjunction with the actions noted above, during the fourth quarter of 2005 management allocated goodwill of $0.7 million to the discontinued operations from the Housing and Building Segment goodwill based on the relative fair value of the discontinued operations to the entire Housing and Building Segment. The $0.7 million of allocated goodwill consisted of $0.6 million allocated to Miller Building Systems, which was written off as part of the 2005 loss from operations of discontinued operations and $0.1 million allocated to All American Homes of Kansas, which was included in the 2005 loss on sale of assets of discontinued operations. During the first quarter of 2006, an additional $0.3 million of goodwill was allocated to Miller Building Systems based on the final sales price relative to the fair value of the entire Housing and Building Segment. The additional $0.3 million of allocated goodwill was written off as part of the 2006 gain on sale of assets of discontinued operations.
- 11 -
 
Assets and liabilities of the All American Homes of Kansas and Miller Building Systems disposal groups, which are included in the consolidated balance sheet, were as follows at December 31, 2005 (in thousands):

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

On January 13, 2006, the Company sold all operating assets of Prodesign, LLC. The total sales price was $8.2 million, of which the Company received $5.7 million in cash, a $2.0 million promissory note and $0.5 million to be held in escrow to cover potential warranty claims and uncollectible accounts receivable, as defined in the sale agreement. The promissory note is to be repaid over a period of 10 years, using an amortization period of 15 years, and bears interest at 6% per annum with interest only payments being required in the first three years. Any funds remaining in the escrow account after a period of 13 months will revert to the Company. In accordance with Statement of Financial Accounting Standard No. 144, Prodesign qualified as a separate component of the Company’s business and as a result, the operating results of Prodesign have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. In conjunction with the classification of Prodesign as a discontinued operation, management allocated goodwill of $0.3 million to the discontinued operations from the Recreational Vehicle Segment goodwill based on the relative fair value of the discontinued operations to the Recreational Vehicle Segment. The $0.3 million of allocated goodwill has been included in the calculation of the final gain on sale of assets in the first quarter of 2006. Net sales of Prodesign for the quarter ended September 30, 2005 were $3.7 million and the pre-tax income for the quarter ended September 30, 2005 was $0.1 million. Net sales of Prodesign for the nine-month period ended September 30, 2005 were $11.6 million and the pre-tax income for the nine-month period ended September 30, 2005 was $0.4 million.
 
Assets and liabilities of the Prodesign disposal group, which are included in the consolidated balance sheet, were as follows at December 31, 2005 (in thousands):

 
 
 
 
2005
 
 
 
 
 
 
 
Accounts and other receivables
 
 
 
 
$
781
 
Prepaid expenses
 
 
 
 
 
51
 
Inventories
 
 
 
 
 
909
 
Other long-term assets
 
 
 
 
 
437
 
Fixed assets
 
 
 
 
 
4,144
 
Accounts payable
 
 
 
 
 
(116
)
Other current liabilities
 
 
 
 
 
(495
)
 
 
 
 
 
 
 
 
Net assets held for sale 
 
 
 
 
$
5,711
 
 
- 12 -

10.  COMMITMENTS AND CONTINGENCIES.

Obligation to Purchase Consigned Inventories

The Company obtains vehicle chassis for its recreational vehicle products directly from automobile manufacturers under converter pool agreements. The agreements generally provide that the manufacturer will provide a supply of chassis at the Company's various production facilities under the terms and conditions as set forth in the agreement. Chassis are accounted for as consigned inventory until assigned to a unit in the production process. At that point, the Company is obligated to purchase the chassis and it is recorded as inventory. At September 30, 2006 and December 31, 2005 chassis inventory, accounted for as consigned inventory, approximated $13.4 million and $26.8 million, respectively. 

Repurchase Agreements

The Company was contingently liable at September 30, 2006 to banks and other financial institutions on repurchase agreements in connection with financing provided by such institutions to most of the Company's independent dealers in connection with their purchase of the Company's recreational vehicle products. These agreements provide for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a dealer's default. Products repurchased from dealers under these agreements are accounted for as a reduction in revenue at the time of repurchase. Although the estimated contingent liability approximates $209 million at September 30, 2006 ($262 million at December 31, 2005), the risk of loss resulting from these agreements is spread over the Company's numerous dealers and is further reduced by the resale value of the products repurchased. Based on losses previously experienced under these obligations, the Company has established a reserve for estimated losses under repurchase agreements. At September 30, 2006 and December 31, 2005, $0.3 million and $0.4 million, respectively, were recorded as an accrual for estimated losses under repurchase agreements. 

The Company was also contingently liable at September 30, 2006 to a financial institution on repurchase agreements in connection with financing provided by the institution to certain of the Company's independent home builders in connection with their purchase of the Company's housing products. This agreement provides for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a builder's default. Products repurchased from builders under this agreement are accounted for as a reduction in revenue at the time of repurchase. Although the estimated contingent liability approximates $17.0 million at September 30, 2006 ($15.9 million at December 31, 2005), the risk of loss resulting from these agreements is spread over the Company's numerous builders and is further reduced by the resale value of the products repurchased. The Company has evaluated the potential for losses under this agreement and has recorded an accrual of $0.2 million at September 30, 2006 and $0.3 million at December 31, 2005 for estimated losses under the repurchase agreement.

Corporate Guarantees

The Company was contingently liable under guarantees to a financial institution of their loans to independent dealers for amounts totaling approximately $5.6 million at September 30, 2006 and $6.2 million at December 31, 2005. The Company has an agreement with a financial institution to form a private-label financing program to provide wholesale inventory financing to the Company's dealers in the Recreational Vehicle Segment. The agreement provides for a preferred program that provides financing that is subject to the standard repurchase agreement described above. In addition, the agreement provides for a reserve pool whereby the financial institution makes available an aggregate line of credit not to exceed $40 million that will provide financing for dealers that may not otherwise qualify for credit approval under the preferred program. No dealer being provided financing from the reserve pool can receive an aggregate line of credit exceeding $5 million. In addition to the standard repurchase agreement described above, for 2006 the Company will be contingently liable to the financial institutions up to a maximum of $2.0 million of aggregate losses, as defined by the agreement, incurred by the financial institutions on designated dealers with higher credit risks that are accepted into the reserve pool financing program. After 2006, the Company will be liable up to a maximum of $2 million of aggregate losses. The Company has recorded a loss reserve of $0.1 million at September 30, 2006 and December 31, 2005 associated with these guarantees.
 
The Company is liable under an agreement to guarantee the indebtedness incurred by a recreational vehicle dealer towards the purchase of a dealership facility. The guarantee is in the principal amount of $1 million for a period of five years or until all indebtedness has been fully paid, whichever occurs first. The Company has evaluated the potential for losses under this agreement and has determined that the resolution of any claims that may arise in the future would not materially affect the Company's financial statements.
- 13 -
 
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 September 30, 2006 is $0.4 million ($0.6 million at December 31, 2005). Any losses incurred under this guarantee would be offset by the proceeds from the resale of the model home and losses are limited to 20% of the original contract price, and cannot exceed a total of $2.0 million. As of September 30, 2006, no losses have been incurred by the Company under the model home financing program. 
  
Litigation

During the second quarter of 2004, the Company entered into an agreement to provide financing of up to $4.9 million to a developer for the construction of a hotel for which the Company was to provide modular units. The construction loan may be converted to a term loan for a period of two years, subject to the terms and conditions of the agreement. The loans are collateralized by a first priority interest in all tangible and intangible property of the borrower. As of September 30, 2006, the Company provided $2.3 million in financing to the developer under these arrangements. The developer is now unable to obtain a building permit, so the Company is pursuing its legal remedies through litigation to recoup the financing extended to date. No additional funding will be provided.

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

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

During 2005, the Company settled a personal injury suit for $5,000,000, $1,000,000 of which was paid by the Company’s primary insurance carrier. The Company’s self-insured retention is $250,000. During 2005, the Company paid $1,500,000 in addition to the amount paid by its primary carrier and recorded another current liability of $2,500,000 to recognize the remaining amount to be paid on the settlement and the $250,000 retention. During June 2006, the remaining liability of $2,500,000 was paid. Since the excess carrier initially denied coverage, the Company filed suit against the excess carrier to enforce coverage. During the first quarter of 2006, the matter was settled for $2,875,000, which the Company received on March 15, 2006 and was recorded as a reduction to the RV Segment’s general and administrative expenses. There remains ongoing litigation against other parties to recover the balance over the retention.
 
During the first quarter of 2006, the Company also entered into a partial settlement of another insurance matter for $745,000, net of a contingency fee.  This amount was recorded as a reduction to the Company's general and administrative expenses in the first quarter. The settlement was received during the second quarter of 2006.

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

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

Share Repurchase Programs

Periodically, the Company has repurchased its common stock as authorized by the Board of Directors. Under the repurchase program, common shares are purchased from time to time, depending on market conditions and other factors, on the open market or through privately negotiated transactions. There were no shares repurchased in 2005. During August 2006, the Company announced that the Board of Directors had authorized a share repurchase of up to one million shares. During the third quarter of 2006, the Company repurchased 11,700 shares for a total cost, including commissions, of $128,516. At September 30, 2006, there are 988,300 shares remaining authorized for repurchase by the Board of Directors.
- 14 -
 
 11.  STOCK-BASED COMPENSATION.

Prior to January 1, 2006, the Company accounted for its stock-based compensation plans under the recognition and measurement provision of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation. No stock option employee compensation cost was recognized in the Statement of Operations for the three or nine-month periods ended September 30, 2005, as all options granted under the stock-based compensation plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method and accordingly, the Company has not restated the consolidated results of income from prior interim periods and fiscal years. Under SFAS 123R, the Company is required to measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation expense over the period that the awards are expected to vest. Restricted stock and stock options issued under the Company’s equity plans, as well as, stock purchases under the employee stock purchase plan are subject to the provisions of SFAS 123R. Since the adoption of SFAS 123R, there have been no modifications to outstanding stock-based awards.
 
Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. Excess tax benefits for the three and nine-month periods ended September 30, 2006 were not significant.

Stock options generally vest over a four-year service period. The Company has not granted any stock option awards since 2003. The remaining unvested stock options, net of forfeitures, at January 1, 2006 were not significant. Compensation expense related to the Company's Employee Stock Purchase Plan was not significant for the three or nine-month periods ended September 30, 2006.

On March 31, 2006, the Company granted Restricted Stock Awards to certain key employees as a means of retaining and rewarding them for performance and to increase their ownership in the Company. The awards are governed by the Company’s 2000 Omnibus Stock Plan. Participants will earn the restricted shares awarded to them based on attainment of certain performance goals for the calendar year 2006. If the Company meets 50%, 75% or 100% of the performance goal established, the participants will earn the corresponding percentage of their restricted shares. To the extent the Company meets the performance goals for the year, and the participant remains employed by the Company during the vesting period, the earned restricted shares will vest and be delivered to the Participants over a three-year vesting period: one-third on January 1, 2007, one-third on January 1, 2008 and one-third on January 1, 2009. Compensation expense is recognized on a straight-line basis over the requisite service period as the awards contingently vest over the performance and service periods. A total of 110,000 shares, assuming 100% of the performance goal is achieved, were granted with a weighted average grant-date fair value of $11.05 per share. At September 30, 2006, the Company determined that it was not yet probable that 50% of the performance goal would be achieved; therefore, no compensation expense has been recorded related to this plan for the three or nine-month periods ended September 30, 2006. Either due to termination of employment or as a condition to receiving the 2006 Restricted Stock Awards, the participants forfeited all rights to the 99,600 shares and 75,600 shares awarded in 2004 and 2005, respectively, under the Performance Based Restricted Stock Plan. Shares awarded under this plan in 2003 were forfeited as of December 31, 2005 due to failure to meet the performance goals.

During the first quarter of 2005, the Company had determined that it was probable that the performance requirements of the 2003 Performance Based Restricted Stock Plan would not be achieved and as a result, reversed the expenses that had been recorded related to this plan. During the third quarter of 2005, the Company determined that it was probable that the performance requirements of the 2004 and 2005 Plans would not be achieved and as a result, reversed the expenses that had been previously recorded related to these two plans. For the three months ended September 30, 2005, the Company reduced compensation expense, which is a component of general and administrative expenses, by $690,000 related to these programs. For the nine months ended September 30, 2005, the Company reduced compensation expense by $1.4 million related to these three programs.

- 15 -

For the three and nine-month periods ended September 30, 2005, had the Company accounted for all employee stock-based compensation based on the estimated grant date fair values, as defined by SFAS 123, the Company’s net income and net income per share would have been adjusted to the following pro forma amounts (in thousands, except per share data):
 
 
 
Three Months
Ended
 
Nine Months
Ended
 
 
 
September 30, 2005
 
September 30, 2005
 
 
 
 
 
 
 
 
 
Net loss, as reported
 
$
(9,346
) 
$
(12,202
)
Add: stock-based compensation expense (credit) under variable plan included in reporting net income, net of taxes 
 
 
(353
) 
 
(865
)
Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of taxes 
 
 
505
  
 
795
 
Pro forma net loss 
 
$
(9,194
) 
$
(12,272
)
 
 
 
 
 
 
 
 
Loss per share: 
 
 
 
 
 
 
 
Basic - as reported 
 
$
(.60
) 
$
(.78
)
Basic - pro forma 
 
$
(.59
) 
$
(.79
)
 
 
 
 
 
 
 
 
Diluted - as reported 
 
$
(.60
) 
$
(.78
)
Diluted - pro forma 
 
$
(.59
) 
$
(.79
)
 
12.  SHORT-TERM BORROWINGS.

On August 2, 2006, the Company executed a $55 million, five-year, secured revolving credit facility with LaSalle Business Credit, LLC. This new five-year facility replaces the previous $35 million facility that was due to expire on August, 31, 2006. Under the new facility, available borrowings are based on 85% of eligible accounts receivable plus the lesser of 60% of eligible inventory or 85% liquidation value of inventory, 70% of appraised value of mortgaged real estate and 80% liquidation value of equipment. The new agreement, which expires August 2, 2011, also has an accordion feature enabling the credit facility to be increased by an additional $25 million, subject to customary conditions. Outstanding borrowings under the new agreement bear interest at rates based on the prime or LIBOR rates as outlined in the agreement. The new credit facility is secured by certain assets of the Company, including cash, trade accounts and other receivables, inventory, fixed assets and notes receivable, which total approximately $257 million. Financial covenant ratios are required to be calculated only in the event a Funds Control Event occurs, as defined in the agreement.

On August 2, 2006, the Company paid off the remaining $6.1 million of a term loan that had been a component of the prior credit facility. On August 2, 2006, the Company utilized the new revolving credit facility to provide $9.3 million of cash collateral to support a number of outstanding letters of credit issued from the prior credit facility until they can be replaced under the new facility. This cash collateral remained outstanding as of September 30, 2006. Total outstanding borrowings on the revolving credit facility were $10.8 million as of September 30, 2006.

Borrowings under the revolving credit facility have been classified as current liabilities in the consolidated balance sheets based upon the expected timing of repayment.
 
13.  NEW ACCOUNTING PRONOUNCEMENTS.

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

- 16 -

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 Months
 
Nine Months
 
 
 
Ended September 30, 2006 and 2005
 
 
 
Increases (Decreases)
 
 
 
Amount
 
Percentage
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
  
$
(49,453
)
  
(27.4
)
%
  
$
(113,858
)
  
(20.2
)
%
 
                                 
 
Cost of sales
    
(48,803
)
  
(29.3
)
      
(104,930
)
  
(20.6
)
  
 
                                 
 
Delivery expenses
    
(1,599
)
  
(18.4
)
      
(2,032
)
  
(8.0
)
  
 
                                 
 
Selling expenses
    
(172
)
  
(2.6
)
      
(4,858
)
  
(22.3
)
  
 
                                 
 
General and administrative expenses
    
(3,588
)
  
(36.6
)
      
(8,188
)
  
(36.2
)
  
 
                                 
 
Gain on sale of assets, net
    
1,111
    
n/m
        
7,120
    
n/m
    
 
                                 
 
Interest expense
    
122
    
15.4
        
239
    
10.1
    
 
                                 
 
Investment income
    
67
    
18.9
        
(447
)
  
(27.7
)
  
 
                                   
Other income, net
    
585
 
  
n/m
        
572
 
  
n/m
      
                                   
Loss from continuing operations before income taxes
    
(6,350
)
  
(50.2
)
      
(13,156
)
  
(72.1
)
    
                                   
Income tax benefit
    
(3,529
)
  
(54.6
)
      
(6,217
)
  
(65.7
)
    
                                   
Net loss from continuing operations
    
(2,821
)
  
(45.7
)
      
(6,939
)
  
(80.0
)
    
                                   
Income (loss) from operations of discontinued operations, net of taxes
    
3,009
    
94.9
 
      
4,961
    
145.4
 
    
                                   
Net loss
    
(5,830
)
  
(62.4
)
      
(11,900
)
  
(97.5
)
    

  n/m - not meaningful
 
- 17 -

The following table presents certain key items impacting the results of operations for the periods presented (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2006
 
2005
 
2006
 
2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Gain) loss on sale of assets, net
  
$
(291
)
$
820
 
$
(6,340
)
$
780
 
Legal settlements
 
 
-
  
 
 -
  
 
 3,620
 
 
 4,425
  
 
NET SALES

Consolidated net sales from continuing operations for the quarter ended September 30, 2006 were $130.7 million, a decrease of $49.5 million, or 27.4%, from the $180.2 million reported for the corresponding quarter last year. Net sales for the nine months ended September 30, 2006 were $448.6 million, representing a decrease of $113.9 million, or 20.2%, reported for the same period in 2005. The Company’s Recreational Vehicles Segment experienced a net sales decrease of 30.3% for the quarter and a decrease of 24.4% for the nine-month period. The net sales decline in the RV Segment was primarily due to the continued industry-wide weakness in the motorized products market, together with a more challenging non-motorized product market than the previous year, as well as, a decline in hurricane influenced sales in 2006. Sales were also negatively affected by lingering market effects of the warranty matters stemming from sidewalls of most product types and camping trailer lift system issues encountered in 2005.

RV Segment wholesale unit shipments of all product types decreased by 27.3% to 2,887 units for the quarter and decreased by 16.0% to 11,589 units for the nine-month period. For the quarter, shipments of motorized products fell 31.8% to 784 units, while shipments of non-motorized products decreased by 25.5% to 2,103 units. For the nine-month period, shipments of motorized products fell 29.0% to 2,996 units, while shipments of non-motorized products decreased by 10.2% to 8,593 units. Backlogs in units fell to 744 from 4,965 at the end of the third quarter of 2005. However, comparisons to the prior year reflect not only the current weakness in the motorized and towable markets, but also the hurricane influenced orders in 2005. 

The Company’s Housing and Building Segment experienced a net sales decrease for the quarter ended September 30, 2006 of 20.0%, from $50.3 million during the third quarter of 2005 to $40.2 million for the third quarter of 2006. Net sales for the nine months ended September 30, 2006 were $127.1 million, representing a decrease of $10.3 million from the $137.4 reported for the same period in 2005. Wholesale unit shipments of residential units were down 21.2% for the quarter and 13.6% for the nine-month period ended September 30, 2006. Despite the decline in unit shipments for the three-month period, the decline in the Segment’s revenues for the period was mitigated by a 9.9% increase in average revenues per unit due to a shift in product mix. Backlog for the Housing and Building Segment as of September 30, 2006 decreased 35.6% to $28.4 million, compared with $44.1 million at September 30, 2005.

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

COST OF SALES

Cost of sales decreased 29.3%, or $48.8 million, for the three months ended September 30, 2006. For the nine-month period, cost of sales decreased $104.9 million or 20.6%. As a percentage of net sales, cost of sales was 90.0% and 92.4% for the three-month periods ended September 30, 2006 and 2005, respectively, and 90.3% and 90.6% for the nine-month periods ended September 30, 2006 and 2005, respectively. The change in the dollar amount of cost of sales in the current quarter and nine-month periods is attributable to the decrease in sales dollars and a decrease in warranty costs partially offset by higher contract and quality control labor and workers compensation costs.
- 18 -

OPERATING EXPENSES

As a percentage of net sales, operating expenses, which include delivery, selling, general and administrative expenses, were 15.2% and 14.0% for the three months ended September 30, 2006 and 2005, respectively. For the nine-month period, operating expenses were 12.2% and 12.4% for 2006 and 2005, respectively. As a percentage of sales, delivery expenses increased by 0.6 and 0.7 percentage points for the three and nine-month periods ended September 30, 2006 as compared to the prior year three and nine-month periods. In dollars, delivery expense declined $1.6 million and $2.0 million for the three and nine-month periods ended September 30, 2006 as compared to the prior year periods. The increase in delivery expense as a percent of net sales during the quarter and nine-month periods was a result of the significant decline in net sales as compared to the decline in delivery expense dollars. Decrease in freight costs, as a result of the lower sales volume, was partially offset by higher fuel costs. 

Selling expenses were 5.0% of net sales for the 2006 quarter compared to 3.7% of net sales for the three-month period ended September 30, 2005. For the nine-month periods, selling expenses were 3.8% of net sales for 2006 compared to 3.9% of net sales for 2005. The increase in selling expense as a percentage of net sales during the quarter is a result of the significant decline in net sales and a minimal decline in selling expense during the period. The decrease in selling expense as a percentage of net sales during the nine-month period is related to decreased payroll expenses, due to the reduction in force which occurred in 2005, as well as, due to decreased expenses related to product shows, literature, and other promotional expenses.

General and administrative expenses were 4.8% of net sales for the quarter compared to 5.4% for the 2005 corresponding quarter. General and administrative expenses were 3.2% of net sales for the nine-month period ended September 30, 2006 compared to 4.0% for the 2005 corresponding period.  The decrease in expenses for the nine-month period was primarily the result of two legal settlements received during the first quarter which totaled $3.6 million, but that were partially offset by other legal fees and the reduction of a legal accrual during the third quarter based on the results of binding arbitration. In addition, payroll costs decreased during the three and nine-month periods of 2006 as compared to the comparable periods of 2005 due to the reduction of force that occurred in 2005. Employee relocation expenses also decreased during the three and nine-month periods of 2006 as compared to the comparable periods of 2005.

GAIN ON THE SALE OF ASSETS, NET

For the three months ended September 30, 2006, the gain on the sale of assets was $0.3 million. There was no individually significant property transactions during the three-month period ended September 30, 2006. For the nine months ended September 30, 2006, the gain on the sale of assets was $6.3 million. On June 8, 2006, the Company completed the sale of its Cessna Jet for approximately $2.3 million, which resulted in a pre-tax gain of approximately $1.7 million. On June 30, 2006, the Company sold property located in Palm Shores, Florida for $2.5 million, which resulted in a pre-tax gain of approximately $1.2 million. During June 2006, the Company also sold two parcels of the former Georgie Boy Manufacturing complex for total proceeds of $0.7 million, which resulted in a pre-tax gain of approximately $0.4 million.  On March 31, 2006 the Company completed the sale of a property located in Grapevine, Texas for $2.0 million, which resulted in a gain of $1.8 million. Also during the first quarter, the Company completed the sale of vacant farmland in Middlebury, Indiana for $1.0 million, which resulted in a gain of $0.8 million.

For the three months ended September 30, 2005, the loss on the sale of assets was $0.8 million. For the nine months ended September 30, 2005, the loss on the sale of assets was also $0.8 million. There was no individually significant property transactions during either the three or nine-month periods ended September 30, 2005.

INTEREST EXPENSE

Interest expense was $0.9 million for the three-month period ended September 30, 2006 and $0.8 million for the three-month period ended September 30, 2005. Interest expense was $2.6 million and $2.4 million for the nine-month periods ended September 30, 2006 and 2005, respectively. On August 2, 2006, the Company utilized the new revolving credit facility to provide $9.3 million of cash collateral to support a number of outstanding letters of credit issued from the prior credit facility until they can be replaced under the new facility. As a result of these borrowings on the new credit facility, combined with higher applicable interest rates as compared to the 2005 period, interest expense for 2006 has increased over the comparable periods in 2005.

INVESTMENT INCOME

There was a net investment income of $0.4 million for both quarters ended September 30, 2006 and 2005. Net investment income for the nine-month period ended September 30, 2006 was $1.2 million compared to $1.6 million in the same period of 2005. Investment income is principally attributable to earnings of the life insurance policies held and in 2005 also included realized gains on the sale of preferred stock. 
- 19 -
 
OTHER INCOME, NET

Other income, net, represents income of $0.7 million for the third quarter of 2006 and income of $0.1 million for the same quarter of the previous year. For the nine-month period, other income, net, for 2006 and 2005 was $0.9 million and $0.3 million, respectively. 

INCOME TAXES

For the third quarter ended September 30, 2006, the effective tax rate was a credit of 46.7% and the year-to-date effective tax rate was a credit of 63.7% compared with a 2005 third quarter effective tax credit of 51.1% and a year-to-date tax credit of 51.9%. The Company’s effective tax rate fluctuates based upon estimated annual pre-tax income amounts, the states where sales occur, the estimated annual amount of export sales, nontaxable increases in cash value of life insurance contracts, other permanent tax differences, increases or decreases in tax reserves and recognized federal and state tax credits.
 
The 2006 year-to-date effective tax rate was favorably impacted by the release of certain state tax reserves resulting from favorable outcomes of the Company’s participation in a number of state voluntary disclosure programs.
 
During the first quarter of 2006, the Company recorded a decrease in current deferred tax assets of $0.3 million and a decrease in long-term deferred tax assets of $1.4 million to recognize deferrals that will be utilized as a result of the sale of Miller Building Systems, Inc.
 
The Company’s effective tax rate credit for 2005 was favorably impacted by federal and state research and development (R&D) tax credits for 2005 and prior years, all of which were recognized in 2005. During the second quarter of 2005, the Company completed a project to identify eligible expenditures for the purposes of claiming R&D tax credits. As part of this project, the Company filed amended tax returns for 1999-2003 to claim federal and state R&D tax credits. In the 2005 second quarter, the Company recorded $1.5 million for prior years’ R&D tax credits which increased the Company’s effective tax benefit rate by 6.5% for the 2005 year-to-date period.

DISCONTINUED OPERATIONS

On January 13, 2006, the Company sold all operating assets of Prodesign, LLC. The total sales price was $8.2 million, of which the Company received $5.7 million in cash, a $2.0 million promissory note and $0.5 million to be held in escrow to cover potential warranty claims and uncollectible accounts receivable, as defined in the sale agreement. The promissory note is to be repaid over a period of 10 years, using an amortization period of 15 years, and bears interest at 6% per annum with interest only payments being required in the first three years. Any funds remaining in the escrow account after a period of 13 months will revert to the Company. In accordance with Statement of Financial Accounting Standard No. 144, Prodesign qualified as a separate component of the Company’s business and as a result, the operating results of Prodesign have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. In conjunction with the classification of Prodesign as a discontinued operation, management allocated goodwill of $0.3 million to the discontinued operations from the Recreational Vehicle Segment goodwill based on the relative fair value of the discontinued operations to the Recreational Vehicle Segment. The $0.3 million of allocated goodwill has been included in the calculation of the final gain on sale of assets in the first quarter of 2006. Net sales of Prodesign for the quarter ended September 30, 2005, were $3.7 million and the pre-tax income for the quarter ended September 30, 2005, was $0.1 million. Net sales of Prodesign for the nine-month period ended September 30, 2005, were $11.6 million and the pre-tax income for the nine-month period ended September 30, 2005, was $0.4 million.

On March 31, 2006, the Company sold 100% of its interest in the capital stock of Miller Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 and a $2.5 million secured note. The note is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note, which will be paid to the Company if certain income metrics are achieved by the acquiring entity. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business in 2005 and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the quarter ended September 30, 2005 were $12.0 million, and the pre-tax income for the quarter ended September 30, 2005, was $0.4 million. Net sales of Miller Building Systems, Inc. for the nine-month period ended September 30, 2005, were $30.8 million and the pre-tax loss for the nine-month period ended September 30, 2005, was $(0.2) million. In connection with the sale of Miller Building Systems, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000, interest rate swaps that had been associated with these revenue bonds.
- 20 -
 
In conjunction with the actions noted above, during the fourth quarter of 2005 management allocated goodwill of $0.7 million to the discontinued operations from the Housing and Building Segment goodwill based on the relative fair value of the discontinued operations to the entire Housing and Building Segment. The $0.7 million of allocated goodwill consisted of $0.6 million allocated to Miller Building Systems, which was written off as part of the 2005 loss from operations of discontinued operations and $0.1 million allocated to All American Homes of Kansas, which was included in the 2005 loss on sale of assets of discontinued operations. During the first quarter of 2006, an additional $0.3 million of goodwill was allocated to Miller Building Systems based on the final sales price relative to the fair value of the entire Housing and Building Segment. The additional $0.3 million of allocated goodwill was written off as part of the 2006 gain on sale of assets of discontinued operations.

On December 31, 2005, the Company sold all operating assets of the All American Homes Kansas division. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of the Kansas division for the quarter ended September 30, 2005, were $2.2 million, and the pre-tax loss for the quarter ended September 30, 2005 was $(1.6) million. Net sales of the Kansas division for the nine-month period ended September 30, 2005, were $7.3 million and the pre-tax loss for the nine-month period ended September 30, 2005, was $(1.7) million.

NET INCOME (LOSS)

Net loss from continuing operations for the quarter ended September 30, 2006 was $3.4 million (loss of $0.21 per diluted share) compared to a net loss from continuing operations for the quarter ended September 30, 2005 of $6.2 million (a loss of $0.40 per diluted shared). Net loss from continuing operations for the nine-month period ended September 30, 2006 was $1.9 million (loss of $0.12 per diluted share) compared to a net loss from continuing operations for the nine-month period ended September 30, 2005 of $8.8 million (a loss of $0.56 per diluted share).

Net loss for the quarter ended September 30, 2006 was $3.5 million (loss of $0.22 per diluted share) compared to a net loss of $9.3 million (a loss of $0.60 per diluted share) for 2005. Net loss for the nine-month period ended September 30, 2006 was $0.3 million (loss of $0.02 per diluted share) compared to a net loss of $12.2 million (a loss of $0.78 per diluted share) for 2005.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

The Company generally relies on funds from operations and borrowings under its revolving credit facility as its primary sources of liquidity.

On August 2, 2006, the Company executed a $55 million, five-year, secured Revolving Credit Facility with LaSalle Business Credit, LLC to meet its seasonal working capital needs. At September 30, 2006 there were short-term borrowings of $10.8 million outstanding against this bank line of credit. At December 31, 2005 there were short-term borrowings of $12.3 million outstanding. As of September 30, 2006 and December 31, 2005, $15 million had been borrowed against the cash surrender value of Company-owned life insurance contracts.

The new five-year credit facility replaces the previous $35 million facility that was due to expire on August 31, 2006. Under the new facility, available borrowings are based on 85% of eligible accounts receivable plus the lesser of 60% of eligible inventory or 85% liquidation value of inventory, 70% of appraised value of mortgaged real estate and 80% liquidation value of equipment. The new agreement, which expires July 31, 2011, also has an accordion feature enabling the credit facility to be increased by an additional $25 million, subject to customary conditions. Outstanding borrowings under the new agreement bear interest at rates based on the prime or LIBOR rates as outlined in the agreement. The new credit facility is secured by certain assets of the Company, including cash, trade accounts and other receivables, inventory, fixed assets and notes receivable, which total approximately $257 million. Financial covenant ratios are required to be calculated only in the event a Funds Control Event occurs, as defined in the agreement. No Funds Control Events occurred during the quarter ended September 30, 2006.

On August 2, 2006, the Company paid off the remaining $6.1 million of a term loan that had been a component of the prior credit facility. On August 2, 2006, the Company utilized the new revolving credit facility to provide $9.3 million of cash collateral to support a number of outstanding letters of credit issued from the prior credit facility until they can be replaced under the new facility. This cash collateral remained outstanding as of September 30, 2006.
- 21 -
 
At September 30, 2006, working capital, defined as current assets less current liabilities, decreased to $87.6 million from $93.3 million at December 31, 2005. The $30.1 million decrease in current assets at September 30, 2006 versus December 31, 2005 was primarily due to the sale of Miller Building Systems, Inc. and Prodesign, LLC, as well as, a decrease in accounts receivable and inventories at the remaining subsidiaries, partially offset by an increase in cash and cash equivalents. Likewise, the $24.3 million decrease in current liabilities at September 30, 2006 versus December 31, 2005 was also due to the sale of Miller Building Systems and decreases in accounts payable, warranty and litigation accruals at the remaining subsidiaries.

Management believes that the Company’s existing cash and cash equivalents as of September 30, 2006, together with its available revolving credit facility under the August 2006 facility and cash expected to be generated from future operations, will be sufficient to fund future planned capital expenditures and other operating cash requirements for the foreseeable future.
 
CRITICAL ACCOUNTING POLICIES
 
The preparation of the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company's estimates. However, actual results may differ from these estimates under different assumptions or conditions. A summary of the Company’s more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company’s 10-K report for the year ended December 31, 2005. During the first nine months of fiscal 2006, there was no material change in the accounting policies and assumptions previously disclosed.

Statement of Operations Classification

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

The Company’s gross profit may not be comparable to other entities within our industry whose shipping and handling expenses are presented as a component of cost of sales. Delivery expense was $7.1 million and $8.7 million for the three months ended September 30, 2006 and 2005, respectively, and $23.2 million and $25.3 million for the nine months ended September 30, 2006 and 2005, respectively.
 
FORWARD-LOOKING STATEMENTS

This Form 10-Q Report contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on management’s expectations and beliefs concerning future events. Forward-looking statements are necessarily subject to risks and uncertainties, and are dependent on various factors, many of which are outside the control of the Company. These uncertainties and other factors include, but are not limited to:
 
§  
the potential fluctuations in the Company's operating results;
§  
the availability for floorplan financing for the Company's recreational vehicle dealers and corresponding availability of cash to the Company;
§  
uncertainties regarding the impact on sales of the disclosed restructuring steps in both the Recreational Vehicle and Housing and Building Segments;
§  
the ability to sell and close the operations for sale as described;
§  
the accuracy of the estimates of the costs to remedy the disclosed recreational vehicle warranty issues;
§  
price volatility of materials used in production and the ability to pass on rapidly increasing costs of product components and raw materials to end buyers;
§  
uncertainties and timing with respect to sales resulting from recovery efforts in the Gulf Coast;
§  
the availability and price of gasoline and diesel fuel, which can impact the sale of recreational vehicles;
§  
the Company's dependence on chassis and other suppliers;
§  
interest rates, which affect the affordability of the Company's products;
 
- 22 -
 
§   the impact of performance on the valuation of intangible assets;
§  
the availability and cost of real estate for residential housing;
§  
the supply of existing homes within the Company's markets;
§   the impact of home values on housing demand;
§  
the increased size and scope of work of commercial and military housing projects as compared to the Company's traditional single-family homes business; 
§  
the ability of the Housing and Building Segment to perform in new market segments where it has limited experience;
§  
adverse weather conditions affecting home deliveries;
§  
potential liabilities under repurchase agreements and guarantees;
§  
changing government regulations, such as those covering accounting standards;
§  
environmental matters or product warranties and recalls, which may affect costs of operations, revenues, product acceptance and profitability;
§  
legislation governing the relationships of the Company with its recreational vehicle dealers, which may affect the Company’s options and liabilities in the event of a general economic downturn;
§  
consolidation of distribution channels in the recreational vehicle industry;
§  
the impact of consumer confidence and economic uncertainty on high-cost discretionary product purchases, which can hinder the sales of recreational vehicles; and
§  
the state of the recreational vehicle and housing industries in the United States.

Other factors affecting forward-looking statements include:

§  
changes in property taxes and energy costs;
§  
changes in federal income tax laws and federal mortgage financing programs;
§  
competition in the industries in which the Company operates;
§  
consumer confidence;
§  
oil supplies;
§  
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; and
§  
uncertainties of matters in litigation and other risks and uncertainties.
 
In addition, investors should be aware that generally accepted accounting principles prescribe when a company must disclose or reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore appear to be volatile in certain accounting periods. The foregoing lists are not exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements.

At times, the Company's actual performance differs materially from its projections and estimates regarding the economy, the recreational vehicle and building industries and other key performance indicators. Readers of this Report are cautioned that reliance on any forward-looking statements involves risks and uncertainties. Although the Company believes that the assumptions on which the forward-looking statements contained herein are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's objectives will be achieved.
 
- 23 -

 
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 nine months of 2006, the Company has utilized its revolving credit facility to meet short-term working capital needs. The Company had $10.8 million outstanding against the revolving credit facility on September 30, 2006.

In January of 2003, the Company entered into various interest rate swap agreements that became effective beginning in October of 2003. These swap agreements, which are designated as cash flow hedges for accounting purposes, effectively convert a portion of the Company's variable-rate borrowings to a fixed-rate basis through November of 2011, thus reducing the impact of changes in interest rates on future interest expense. The fair value of the Company's interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreements. A cumulative loss of $28,000, 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 third quarter of 2006. Total accumulated loss on the swap agreements for the nine-month period ended September 30, 2006 was $4,000. If in the future the interest rate swap agreements were determined to be ineffective or were terminated before the contractual termination dates, or if it became probable that the hedged variable cash flows associated with the variable-rate borrowings would stop, the Company would be required to reclassify into earnings all or a portion of the unrealized losses on cash flow hedges included in accumulated other comprehensive income (loss). At September 30, 2006, the Company had two remaining interest rate swap agreements with notional amounts of $3.2 million and $1.6 million, respectively, that were used to convert the variable interest rates on certain industrial development revenue bonds to fixed rates. In accordance with the terms of the swap agreements, the Company pays 3.71% and 3.36% interest rates, respectively, and receives the Bond Market Association Index (BMA), calculated on the notional amounts, with net receipts or payments being recognized as adjustments to interest expense.


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 September 30, 2006. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2006.

During the first quarter of 2006, the Company outsourced the processing of payroll to a third-party provider. Other than this outsourcing of payroll processing, there have been no changes during the three or nine-month periods ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 
 
- 24 -

PART II. OTHER INFORMATION



See Index to Exhibits incorporated by reference herein.
 
- 25 -
 

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: November 2, 2006
By:
/s/ Richard M. Lavers
 
 
Richard M. Lavers, Chief Executive Officer
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Date: November 2, 2006
By:
/s/ Colleen A. Zuhl
 
 
Colleen A. Zuhl, Chief Financial Officer
 
 
  
     
 
 
 
 
 
 
 
 
 
     
 
 
 
 
- 26 -

 
Number Assigned
In Regulation
S-K, Item 601
Description of Exhibit
 
 
(3)(a)(i)
Articles of Incorporation of the Company as amended on May 30, 1995 (incorporated by reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
 
 
(3)(a)(ii)
Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 4.2 to the Company's Form S-3 Registration Statement, File No. 333-14579).
 
 
(3)(b)
By-Laws as modified through September 9, 2005 (incorporated by reference to the Company's Form 8-K filed September 15, 2005).
 
 
*(10)(a)  Severance and Early Retirement Agreement and General Release of All Claims dated October 23, 2006 among Coachmen Industries, Inc. and Claire C. Skinner. 
   
*(10)(b) 
Form of Restricted Stock Award Agreement under the Coachmen Industries, Inc. 2000 Omnibus Stock Incentive Program (incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 27, 2000 for its Annual Meeting in 2000). 
   
(31.1)
Rule 13a-14(a) Certification of Chief Executive Officer.
 
 
(31.2)
Rule 13a-14(a) Certification of Chief Financial Officer.
 
 
(32.1)
Section 1350 Certification of Chief Executive Officer.
 
 
(32.2)
Section 1350 Certification of Chief Financial Officer.
   
* Management Contract or Compensatory Plan.
 
 
- 27 -
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Exhibit 10(a)
SEVERANCE AND EARLY RETIREMENT AGREEMENT
AND GENERAL RELEASE OF ALL CLAIMS


THIS SEVERANCE AND EARLY RETIREMENT AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS (“Agreement”) is made and entered into this 23rd day of October 2006, between Claire C. Skinner (“Executive”) and Coachmen Industries, Inc. (“Company”).

WHEREAS, Executive was employed by Company as its Chief Executive Officer and held the position of Chairman of the Board of Directors; and

WHEREAS, Executive has elected to take early retirement and resign from the Board of Directors.

NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, it is agreed as follows:

1. Termination of Employment and Resignation. The termination of Executive’s service with Company shall be effective as of August 31, 2006 (“Termination Date”). Executive shall resign as an officer and employee of Company (and any of its parent companies, subsidiaries, affiliates and divisions) and as a member of the Company’s Board of Directors, including without limitation her position as Chairman of the Board of Directors, effective on the Termination Date. Company will pay Executive her salary and any directors’ fees or other amounts earned by and due to Executive for the period through the Termination Date in accordance with past practices.

2. Severance Benefits and Consideration. In consideration of Executive’s execution and agreement to the terms and conditions of this Agreement, Company shall provide Executive with the following severance benefits (“Severance Benefits”) to which she would otherwise not be entitled but for entry into this Agreement:
 
a. Health Insurance. Executive has elected to continue her group health insurance coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) and paid COBRA premiums for the period from the Termination Date through December 31, 2006. The Company shall reimburse Executive for such premium payments not later than three business days after the date on which this Agreement becomes enforceable as set out in Paragraph 17. Company shall reimburse Executive for COBRA premiums attributable to maintaining such insurance coverage for herself and her eligible dependents for the period beginning January 1, 2007, and lasting until 18 months following the Termination Date or until the earlier to occur of (1) Executive becoming enrolled in other health insurance or (2) such COBRA coverage terminating. The Company shall reimburse Executive for such premium payments not later than five business days after Executive delivers proof of payment to Company. Executive’s health care expenses incurred after the Termination Date and before Executive has elected and paid for COBRA coverage (including the reimbursement of any covered expenses paid by Executive) shall be paid by the Coachmen Medical Plan in accordance with the terms of the Plan.
 
b. Severance Payments. Company shall pay (via wire transfer) and provide the following severance payments to Executive (provided Executive is not at any time in material breach of this Agreement or any other agreement with Company), subject to applicable federal and state tax withholding:

(1) Company shall pay Executive $672,750 (representing 23 months of Executive’s current regular base salary, excluding incentive pay, bonuses and other compensation or benefits) as follows:

A. On the Company’s first regular pay date following the later of the date on which this Agreement becomes enforceable as set forth in paragraph 17 or March 1, 2007, the Company shall pay Executive $175,500 (representing six months of salary). For purposes of this Agreement, the Company’s regular pay dates are the 15th day and the last day of each calendar month (“Regular Pay Dates”).
 
B. The balance of $497,250 shall be paid in installments of $14,625 on each of the Company’s Regular Pay Dates which are on and after the later of the date on which this Agreement becomes enforceable as set forth in paragraph 17 or March 15, 2007.

(2) Executive shall receive payment of her Deferred Benefit Account (“Account”) in the Executive Benefit and Estate Accumulation Plan (“EBP Plan”) as a Termination Benefit, pursuant to Section 3.4 of the EBP Plan and Paragraph 8 of her EBP Plan Agreement. Her Account shall be paid to her in a lump sum within three business days following the date on which this Agreement becomes enforceable as set forth in paragraph 17 in the amount of $965,929.00.

(3) Both parties stipulate that payment for any accrued but unused vacation days as of the Termination Date is included in the foregoing amounts, and that under the Company’s policies there are no payments due for payment of “sick pay”; and

(4) Effective on the Termination Date, Executive shall cease making Salary Reduction Contributions to her SERP Account in the Supplemental Deferred Compensation Plan (“ESP Plan”), and accordingly the Company shall discontinue making Employer Matching Contributions to Executive’s SERP Account. Executive shall also cease making contributions to the Coachmen Industries, Inc. Retirement Plan and Trust (“401(k) Plan”) as of the Termination Date, and the Company shall discontinue making Employer Matching Contributions to the Executive’s Account in the 401(k) Plan as of said date. No contributions shall be made to Executive’s SERP Account or the 401(k) Plan from the severance payments described in Paragraph 2(b)(1) above. Under the terms of the Supplemental Deferred Compensation Plan and the 401(k) Plan, all Employer Matching Contributions in the Executive’s SERP Account and 401(k) Account are fully vested, except that Executive’s SERP Account remains subject to the claims of creditors of the Company. Executive’s 401(k) Plan Account shall be distributed in accordance with the terms of the 401(k) Plan. Company shall distribute to Executive all of the Executive’s pre-2005 Salary Reduction and Bonus Reduction sub-Accounts of her SERP Account within 60 to one hundred 100 days following the Termination Date. The Company shall distribute to Executive the balance of her Accounts in the SERP (i.e., all post-December 31, 2004 Salary Reduction and Bonus Reduction sub-Accounts and all Employer Contribution sub-Accounts) no sooner than six months after the Termination Date and no later than seven months after the Termination Date.

c. Vesting in Benefit Programs and Exercise of Stock Options.

(1) Except as specifically otherwise provided herein, all participation in and all vesting in Company benefit programs will end as of the Termination Date. To the extent Executive is vested in options to purchase common stock of the Company, Executive shall exercise all such options within 90 days after the Termination Date. All unvested options shall be forfeited as of the Termination Date, and Executive shall have no further rights under such award agreements as of the Termination Date.

(2) To the extent Executive has participated in other equity-based compensation plans of the Company, and has received restricted stock or other equity-based compensation or awards under Company plans or programs, all further vesting in such compensation and awards shall end as of the Termination Date. Any outstanding equity-based award, including restricted stock granted under the long term incentive program, which has not vested as of the Termination Date shall terminate and be forfeited, and Executive shall have no further rights under such award agreements as of the Termination Date.

(3) In connection with exercises of the Executive’s options pursuant to Section 2(c)(1) of this Agreement, the Company agrees with the Executive, and represents and warrants to the Executive, that (A)  under the outstanding grants of non-qualified stock options to the Executive under the Plan dated October 9, 2000, February 19, 2002, and March 31, 2003, the Executive had, as of the Termination Date, the fully vested right to purchase an aggregate of 59,500 shares  of Common Stock of Coachmen (the option rights with respect to 500 shares not having satisfied the vesting requirements as of the Termination Date), at the prices specified in such grants, and such options are therefore exercisable pursuant to and subject to Section 2(c)(1);  (B) the Committee, acting pursuant to Section 6(b) of the Plan and SEC Rule 16b-3(e), has authorized the Executive to deliver to the Company, in connection with any or all exercises of her options pursuant to Section 2(c)(1), certificates for shares of Common Stock of the Company owned by the Executive on the date of each exercise of such options, in payment of some or all of the exercise price(s) applicable to such exercise(s), with the per share value of such already-owned shares for each such exercise being deemed to be equal to the Fair Market Value of the Company’s shares (as determined in accordance with Section 15 of the Plan) on the applicable exercise date;  (C) the Committee, acting pursuant to Section 16 of the Plan and SEC Rule 16b-3(e), has authorized the Executive to require that the Company satisfy all of its withholdings of federal, state and local taxes arising in connection with each exercise of her stock options pursuant to Section 2(c)(1) by withholding shares of Common Stock from the delivery of the shares otherwise deliverable to the Executive that have a Fair Market Value (as determined in accordance with Section 15 of the Plan) equal to the amount to be withheld; and (D) the shares of Company Common Stock that will be issued and delivered to the Executive upon any and all of her exercises of options pursuant to Section 2(c)(1), (i) will be issued pursuant to the prospectus covering such option exercises that is part of a then-effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) covering the offer and sale of such shares to the Executive, (ii) will not be “restricted securities” upon issuance by the Company to the Executive, as that term is defined by Rule 144 under the Securities Act, and (iii) will be evidenced by certificates that will not bear any restrictive legends, and will be  freely transferable, immediately and fully, by the Executive without being subjected to any “stop transfer” instructions of the Company.

3. Transition Assistance. During the three-month period following the Termination Date, Company may require Executive to provide reasonable transition assistance to Company, at no additional compensation, other than reimbursement of reasonable expenses documented by Executive, if any, on a part-time basis (with the obligation on the part of Executive to make herself reasonably available to satisfy the reasonable transition needs of Company). It is understood and agreed that Executive’s obligation to provide ongoing assistance to Company is not, in and of itself, an obligation to receive material non-public information by Executive. However, it is also understood and acknowledged that it may be necessary for Company to disclose such information solely for the limited purpose of facilitating Executive’s duty of cooperation.

4. Trade Secrets/Mutual Non-Disparagement/Cooperation/Indemnification. In further consideration of the payments and benefits set forth above, Executive agrees and commits to protect Company from intrusion into its business by not disclosing to any third-party any confidential information or trade secrets of Company, and will abide by all post-employment obligations. Executive further agrees to refrain from any disparaging remarks concerning the Company, its executives, employees, agents, operations, or plans. Likewise, the Company will take reasonable efforts to prevent its Officers and Directors from making any disparaging remarks concerning the Executive, and agrees that employment inquiries will be responded to consistent with the letter of recommendation, attached hereto, and incorporated herein, as Exhibit 1 (a signed copy of which, on Company letterhead, will be forwarded to Executive upon her signing of this Agreement). In further protection of the interests of the Company, Executive agrees that, as to any matters currently pending, or which arise relating to the Executive’s employment at Company, she will provide reasonable cooperation to the Company and its attorneys in connection with any proceeding involving the Company before a court, an administrative agency, governmental organization, or an arbitrator. It is understood that Executive’s reasonable cooperation includes, but is not limited to, responding to reasonable requests involving: assisting in the preparation and compiling of exhibits; assisting in the preparation of witnesses; appearing at deposition and/or trial; giving truthful testimony; and assisting in any respect in the preparation of Company’s case. Executive’s failure to provide such reasonable cooperation will be deemed a material breach of this Agreement. Any such reasonable cooperation Executive provides during the first 23 months after the Termination Date will be without any remuneration, except that Executive will be reimbursed for her reasonable and documented expenses relating to such cooperation, including, but not limited to, travel and meal expenses. After 23 months from the Termination Date, in addition to reimbursement for reasonable and documented expenses, the Company shall pay Executive for such cooperation at a rate of $275 per hour, except for any actual time Executive spends on the witness stand as a witness. It is also understood and agreed that Executive shall be provided with full coverage under the Company’s Directors and Officers liability insurance policies, including full tail coverage in the event of policy termination, equal to and on the same basis as that provided to retired Officers and Directors of the Company. In addition, the Company agrees to indemnify and hold Executive harmless for any taxes, interest, related reasonable professional fees and costs, and/or penalties payable by Executive under Code Section 409A on account of the failure of the Company to timely amend the EBP Plan or the ESP Plan to comply with Code Section 409A.

5. General Release. In consideration of the promises set forth in this Agreement and other good and valuable consideration, Executive hereby irrevocably and unconditionally releases, acquits, and forever discharges Company, Company’s parent companies, subsidiaries, affiliates, and divisions, as well as each of their respective officers, directors, executives, employees, consultants, and agents (being collectively referred to herein as the “Releasees”), or any of them, from any and all charges, complaints, claims (including but not limited to wages, commissions, and bonuses), liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorney fees and costs actually incurred), of any nature whatsoever, known or unknown, in law or equity, arising out of or related in any way to Executive’s employment with Company, the termination of that employment, or Executive’s resignation as an officer or as a member of the Board of Directors, including, without limitation of the foregoing general terms, any and all claims arising from any alleged violation by the Releasees of any federal, state, or local statutes, ordinances, or common law, including but not limited to, the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act; the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964, as amended; 42 U.S.C. § 1981, as amended; the Fair Labor Standards Act; the Equal Pay Act; the Employee Retirement Income Security Act; COBRA; the Rehabilitation Act of 1973; the Civil Rights Act of 1991; the Family and Medical Leave Act; the Civil Rights Act of 1866; the Indiana Civil Rights Act; and any other employment discrimination laws, as well as any other claims based on constitutional, statutory, common law, or regulatory grounds, as well as any claims based on theories of breach of contract or implied covenant or fiduciary duty, deprivation of equity interest, conversion, defamation (libel or slander), retaliation, wrongful or constructive discharge, fraud, misrepresentation, or intentional and/or negligent infliction of emotional distress (“Claim” or “Claims”), which Executive now has, owns, or holds, or claims to have, own, or hold, or which Executive had owned, or held, or claimed to own at any time before execution of this Agreement, against any or all of the Releasees. Executive does not waive any future claims. Executive acknowledges that she has not suffered any physical or mental injuries arising out of her employment with Company or the termination of that employment. The Company hereby warrants and represents that it knows of no claims it or any Releasee currently possesses against Executive.

6. Future Employment.

a. With Company. Executive agrees not to apply for future employment with Company, or any of its affiliates or successors. Executive will not apply for or otherwise seek reemployment with Company or its affiliates and successors at any time, and neither Company nor its successors have any obligation, contractual or otherwise, to rehire, reemploy, recall, or hire her in the future.

b. With Competitors. For 23 months after the Termination Date, Executive shall obtain the written approval of the Chairman of the Company before engaging or participating (whether as an employee, contractor, consultant, partner, shareholder, investor, or any other type of participant) in any business that directly or indirectly competed with Company prior to the Termination Date, and if Executive does so without such approval, then at Company’s option: Company may declare all payments made and to be made under this Agreement forfeited (except for those required by law and those returning salary deferrals made by Executive) and seek to recover same; and/or Company may seek injunctive relief and damages to protect its rights under any or all agreements Executive has with the Company. This shall not prevent Executive’s ownership (directly or indirectly) of not more than one percent of the total shares of all classes of stock outstanding of any publicly held company, or five percent of the total outstanding securities of any privately held company. Executive acknowledges and agrees that her departure from the Company shall be treated as a resignation for purposes of the interpretation and application of Section 1 of the Business Protection Agreement, Senior Officers, dated December 1, 1998).

7. Confidentiality. Executive covenants and agrees that she will keep confidential and will not repeat or disclose any of the terms or conditions of this Agreement, or any of the negotiations which resulted in this Agreement, except to her legal counsel, financial advisors, and her immediate family. Nothing in this Agreement, nor the fact of settlement, shall constitute, or be construed as, an admission of wrongdoing by either party, nor shall this Agreement be construed as a limitation on the ability to respond to a lawful subpoena or court order.

8. Construction. The fact that one party drafted this Agreement or any specific provision hereof shall not be construed against either party. The parties hereby confirm and agree that this Agreement is the result of negotiation and compromise, and that in interpreting this Agreement neither party shall be considered to be the drafter of the document, and that the language should not be strictly construed against either party. Instead, the language of the Agreement should be interpreted consistently with the ordinary and reasonable meaning of the words used.

9. Non-reliance on Other Statements or Promises. Executive represents and acknowledges that in executing this Agreement, she does not and has not relied on any representation or statement by Company or its agents, except the statements which are contained within this Agreement. Executive agrees and understands that she is receiving additional severance benefits beyond that to which she would otherwise be entitled, in return for the release of claims set forth herein. Executive and Company further agree and acknowledge that, except as set forth in this Agreement, any agreements or arrangements entered into between Executive and Company are terminated as of the Termination Date and shall have no further force or effect.

10. Enforcement Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any provisions of this Agreement, the non-breaching party or parties shall be entitled to recover from the breaching party any reasonable attorney fees, court costs and all expenses, even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals) incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled.

11. Limitation of Remedies. Executive acknowledges and agrees that the release, discharge and covenants granted by her in this Agreement shall survive the execution of this Agreement and shall also remain binding upon Executive except in the event of a breach of any part of this Agreement by Company. In the event of any such breach by Company, Executive shall be entitled to revoke or cancel this Agreement including the binding nature of the release and discharge as contained in this Agreement, in addition to all other rights in law or equity. Any failure by the Company to make timely payments under this Agreement shall accelerate the timing of any remaining payments to Executive under this Agreement upon demand by Executive to the extent permissible under Code Section 409A. Any claimed breach must be brought to the attention of the other party by written notice within 90 days of the date the party making the claim knew or reasonably should have known of the breach, and any breach not so reported shall be untimely and waived.

12. Severability. If any one or more of the provisions contained in this Agreement as to any of the parties to this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other party to this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained therein.

13. Integration. This Agreement sets forth the entire Agreement and understanding between Company and Executive and fully supersedes any and all prior oral or written and express or implied agreements or understandings between Executive and Company or its agents, relating to the subject matter hereof; provided¸ however, this Agreement does not supersede or replace the following agreements, which are independent and remain in full force and effect: Business Protection Agreement, Senior Officers, dated December 1, 1998; Confidentiality, Conflict of Interest and Invention Agreement for Senior Executives, Division Presidents & Senior Managers dated December 1, 1998. The Change in Control agreement with Executive, by its terms, terminated as of the Termination Date.

14. Binding Agreements. The terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, agents, successors and assigns; provided, however, that in no event shall Executive be entitled to assign any rights or delegate any duties or obligations under this Agreement without the written approval of Company.

15. Governing Law. This Agreement shall be subject to and governed by the laws of the State of Indiana.

16. Counterparts. This Agreement may be executed in identical counterparts, each of which shall constitute an original of this Agreement. It is herein agreed and acknowledged that each party to this Agreement shall bear its or her own costs and attorney fees incurred as of the date of this Agreement.

17. Time for Consideration and Revocation. Company and Executive acknowledge and agree that Executive has had at least 21 days to consider this Agreement, and that she was encouraged by Company to consult with counsel concerning this Agreement. Upon executing this Agreement, Executive shall have seven days following her execution of this Agreement in which she may revoke this Agreement. This Agreement shall not be enforceable until this revocation period has expired. Notice of the revocation of this Agreement must be in writing and delivered via hand-delivery or overnight express mail to:

Richard Lavers, Esq.
Coachmen Industries, Inc.
2831 Dexter Drive
P.O. Box 3300
Elkhart, IN 46515

no later than 10:00 o’clock a.m. on the next business day following the expiration of the seven-day period.

18. Notice. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given on (a) the date of service if served personally, or (b) on the third day after mailing to the party to whom notice is to be given by certified or registered mail, return receipt requested, and properly addressed as follows:
 
 

 
If to Company at:

Richard Lavers, Esq.
Coachmen Industries, Inc.
2831 Dexter Drive
P.O. Box 3300
Elkhart, IN 46515
 
 
If to Executive at:

Claire C. Skinner
 

 
Any party may change its or her address for purposes of this paragraph by giving the other party written notice of the new address in the manner set forth above.

19. Advice Concerning Attorney, Understanding and Voluntariness. Executive and company both represent and agree that executive has been advised by company to seek legal counsel prior to executing this agreement, that she has sought and received the advice of counsel, that she has carefully read and fully understands all of the provisions of this agreement, and that she is voluntarily entering into this agreement.

Please read this agreement carefully. This agreement and general release of all claims includes a release of all known and unknown claims.


In witness whereof, this Severance and Early Retirement Agreement and General Release of All Claims has been executed the day and year first above written.


 
Claire C. Skinner    Coachmen Industries, Inc. 
     
/s/ Claire C. Skinner    /s/ Richard M. Lavers 
Signature    Signature 
     
Claire C. Skinner    Richard M. Lavers, Chief Executive Officer 
Printed name    Printed name and title 
     
Dated: October 17, 2006    Dated: October 23, 2006         



WAIVER OF TWENTY-ONE DAY PERIOD
FOR EVALUATION OF
SEVERANCE AND EARLY RETIREMENT AGREEMENT AND
GENERAL RELEASE OF ALL CLAIMS


THIS WAIVER OF TWENTY-ONE DAY PERIOD FOR EVALUATION OF SEVERANCE AND EARLY RETIREMENT AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS (“Waiver”) is made and entered into this 17th day of October, 2006, by Claire C. Skinner (“Executive”) as to her legal rights regarding Coachmen Industries, Inc. Coachmen Industries, Inc., its affiliates and subsidiaries are all hereinafter referred to as “Coachmen.”

WHEREAS, Executive was employed by Coachmen (or by a Coachmen affiliate); and,

WHEREAS, Executive and Coachmen have reached mutual agreement on the termination of Executive’s employment, and on the terms of a Severance and Early Retirement Agreement and General Release of All Claims (“Agreement”) which includes a release of claims by Executive, and provides for 21 days to consider and evaluate the Agreement; and

WHEREAS, Executive acknowledges the right to take the 21 days to consider the Agreement, but chooses to voluntarily waive this right, as allowed by 29 CFR 1625.22(e)(6), to take the full amount of time permitted to evaluate the Agreement.

NOW, THEREFORE, Executive issues the following waiver of rights:

1. Waiver of 21-Day Time Period. Executive hereby waives the right to take 21 days to consider the Agreement. By signing this Waiver, Executive acknowledges that sufficient time has been provided to Executive for Executive to seek legal counsel, fully consider the situation, and provide this knowing and voluntary waiver of Executive’s legal right to take 21 days before signing the Agreement.

2. Non-reliance on Other Statements or Promises. Executive represents and acknowledges that in executing this Waiver, Executive does not and has not relied on any representation or statement by Coachmen or its agents, except the statements which are contained within the Agreement between Coachmen and Executive. Executive acknowledges that there has been no fraud, threat, or misrepresentation as to this Waiver, or otherwise, and that this is a knowing and voluntary waiver by Executive of the right to take 21 days before signing the Agreement.


Executive agrees that executive has been advised by coachmen that executive should seek legal counsel prior to executing this waiver, that to the extent executive desired such counsel, executive has received same, that executive has carefully read and fully understands all of the provisions of this waiver, and that executive is voluntarily entering into this waiver.

In witness whereof, this Waiver has been executed the day and year first above written.


 
Claire C. Skinner     
     
/s/ Claire C. Skinner     
Signature     
     
Claire C. Skinner     
Printed name     
     
Dated: October 17, 2006    
  
 
 
ATTORNEY’S CERTIFICATE OF APPROVAL


I, David Carr, attorney for Executive, hereby acknowledge this Waiver.

Dated this 17th day of October, 2006.



By:  
 /s/ David Carr   
  Attorney for Executive   
     
  David Carr   
  Printed Name   




Exhibit 10(b)
2006 RESTRICTED STOCK AWARD AGREEMENT
 
THIS RESTRICTED STOCK AWARD AGREEMENT (“Agreement”) is made and entered into as of this ______ day of _______, 2006 (“Grant Date”), by and between COACHMEN INDUSTRIES, INC., an Indiana corporation (the “Company”), and ____________, an individual, employee of the Company (the “Participant”).
 
WHEREAS, the Company has heretofore adopted the 2000 Omnibus Stock Plan of Coachmen Industries, Inc. (the “Plan”);
 
WHEREAS, the Company desires to grant an award of restricted stock to the Participant pursuant to the Plan.
 
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the parties do hereby agree as follows:
 
1.  Certain Definitions. When used herein, the following terms shall have the meanings set forth below:
 
A.  “Change in Control” of the Company shall mean the occurrence of any of the following:
 
(i)  any “person” (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding the Company, its affiliates, any qualified or non-qualified plan maintained by the Company or its affiliates, and any Passive Investor) becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under such Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company’s then outstanding securities;
 
(ii)  during a period of 24 months, a majority of the Board of Directors of the Company ceases to consist of the existing membership or successors nominated by the existing membership or their similar successors;
 
(iii)  shareholder approval of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or
 
(iv)  shareholder approval of either (i) a complete liquidation or dissolution of the Company or (ii) a sale or other disposition of all or substantially all of the assets of the Company, or a transaction having a similar effect.
 
B.  “Code” means the Internal Revenue Code of 1986, as amended, or any successor revenue code which may hereafter be adopted in lieu thereof.
 
C.  “Committee” means the Management Development/Compensation Committee of the Board of Directors of the Company.
 
D.  “Company Stock” means shares of the Company’s common stock.
 
E.  “Retirement” means the date a Participant terminates Service with the Company upon attaining age 65, or such earlier retirement age as determined by the Committee, in its discretion.
 
F.  “Passive Investor” means any person who becomes a beneficial owner of 20% or more of the combined voting power of the Company’s then outstanding securities solely because (i) of a change in the aggregate number of voting shares outstanding since the last date on which the person acquired beneficial ownership of any voting shares or (ii) (A) the person acquired beneficial ownership of the shares based on calculations correctly performed and using the Company’s most current reports publicly on file with the Securities and Exchange Commission which indicated that acquisition of the shares would not cause the person to become the beneficial owner of 20% or more of the voting shares then outstanding, and (B) the person had no notice or reason to believe that acquisition of the shares would result in the person becoming the beneficial owner of 20% or more of the voting shares then outstanding, and (iii) the person sells a number of shares that reduces the person’s beneficial ownership of the voting shares to less than 20% of the voting shares outstanding within 10 business days after receiving notice from the Company that the 20% threshold had been exceeded.
 
G.  “Restricted Stock Award” means the grant of restricted Company Stock to Participant subject to the terms of this Agreement.
 
H.  “Restricted Share(s)” means a Share(s) underlying a Restricted Stock Award before the vesting of such Share.
 
I.  “Service” shall mean the performance of services as an employee for the Company (or any parent or subsidiary) on a consistent basis for the Company (or any parent or subsidiary).
 
J.  “Share(s)” means a share(s) of common stock of the Company.
 
2.  Grant of Award. The Company hereby grants to the Participant ___________ (______) Restricted Shares, subject to the terms and conditions set forth herein. The Restricted Stock Award will vest as set forth in Section 6.
 
3.  Issuance of Shares. The Shares shall be issued in the Participant’s name as soon as reasonably practicable after the Lapse Date as provided in Section 6 of this Agreement.
 
4.  Rights of Participant. The Participant shall not be entitled to any rights of a shareholder of the Company with respect to the Restricted Shares, including the right to vote the Shares or the right to receive dividends and/or other distributions, if any, declared on such Shares until the Lapse Date.
 
5.  Transfer Restrictions. Until the Lapse Date, the Restricted Shares shall not be sold, exchanged, assigned, pledged, bequeathed, devised, or otherwise transferred, directly or indirectly, voluntarily or involuntarily, by the Participant, or any person or entity claiming through or on behalf of the Participant, and no Restricted Shares may be subject in any manner to attachment, lien, execution, transfer by bankruptcy, judicial order or by operation of law, garnishment or other alienation or encumbrance of any kind, either direct or indirect, voluntarily or involuntarily before the Lapse Date; provided, however, that, subject to the terms of this Agreement, such Shares may be transferred upon the death of the Participant to the legal representative of the estate of the Participant or the person or persons who shall acquire the right to receive the vested Shares by bequest or inheritance or by reason of the death of the Participant. Any transfer or purported transfer of Restricted Shares in violation of the restrictions set forth in this Section 5 shall be null and void and shall result in the forfeiture to the Company, without notice and without consideration to the Participant, of the Restricted Shares transferred or purportedly transferred.
 
6.  Release of Restrictions. The restrictions set forth in Section 5 shall lapse upon the earliest of the following (the “Lapse Date”): (i) the second anniversary of the Grant Date, provided the Participant has remained in continuous Service with the Company from the Grant Date through such second anniversary (the “Vesting Period”); (ii) the death of the Participant; (iii) the disability of the Participant; (iv) the Retirement of the Participant; or (v) the occurrence of a Change in Control.
 
7.  Forfeitures. The Shares shall be forfeited without notice and without consideration immediately in accordance with the following:
 
A.  if the Participant’s Service with the Company is terminated during the Vesting Period for any reason other than death, disability or Retirement, unless the Committee, in its discretion, determines otherwise; or
 
B.  if the Participant attempts to transfer or transfers the Shares in any manner in violation of Section 5; or
 
C.  if, at any time during the Vesting Period, the Participant is not in compliance with the Company’s Code of Conduct and/or Participant’s Business Protection Agreement, as determined by the Committee in its discretion; or
 
D.  with respect to any Shares that are not vested pursuant to Section 6 of this Agreement.
 
Any Shares forfeited under this Section 7 shall be retained by the Company.
 
8.  Termination of Service Upon Death, Disability or Retirement. If the Participant’s Service is terminated during the Vesting Period by reason of the Participant’s death, disability or Retirement, the vesting of the outstanding Restricted Shares shall be accelerated, the restrictions on the Restricted Shares shall lapse, and certificates for the vested Shares shall be issued and delivered to the Participant or the legal representative of the estate of the Participant or the person or persons who shall acquire the right to receive the vested Shares by bequest or inheritance or by reason of the death of the Participant, as soon as practicable after such death, disability or Retirement.
 
9. Code Section 162(m) Limitation. Notwithstanding anything in this Agreement to the contrary, to the extent that Code Section 162(m) would operate to limit the Company’s federal income tax deduction for remuneration with respect to a Participant, resulting in federal income tax liability to the Company, the Participant’s receipt of Shares shall be deferred until Section 162(m) no longer operates to result in such federal income tax liability to the Company. The determination of whether Code Section 162(m) operates to limit the Company’s deduction in a manner resulting in federal income tax liability to the Company will be determined by the Committee. Payment of the Shares shall occur in the following calendar year (or, if necessary, each subsequent calendar year) to the extent such payment, when added to other remuneration subject to the Section 162(m) limit for such year, does not result in federal income tax liability to the Company. Shares deferred hereunder shall be fully vested and shall not be forfeited for any reason, including, without limitation, termination of Service.
 
10. Change in Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Vesting Period, the Participant will be presumptively and conclusively deemed to have satisfied the conditions of this Restricted Stock Award and the Shares granted by the Restricted Stock Award shall vest immediately. Certificates for all vested Shares shall be issued and delivered to the Participant as soon as reasonably practicable after a Change in Control, regardless of whether the Participant continues to provide Service to the Company or any successor to the Company.
 
11.  Provisions of the Plan. All of the provisions of the Plan pursuant to which this Agreement is made are hereby incorporated by reference and made a part hereof as if specifically set forth herein, and to the extent of any conflict between this Agreement and the terms in the aforesaid Plan, the Plan shall control. To the extent any capitalized terms are not otherwise defined herein, they shall have the meaning set forth in the Plan.
 
12.  Adjustments Upon changes in Capitalization. In the event of changes in all of the outstanding Company Stock by reason of stock dividends, stock splits, reclassifications, recapitalizations, mergers, consolidations, combinations or exchanges of shares, reorganizations or liquidations or similar event, the number and class of Shares subject to a Restricted Stock Award shall be equitably adjusted by the Committee. Any such adjustment may provide for the elimination of any fractional shares which might otherwise become subject to a Restricted Stock Award.
 
13.  Parties in Interest; Section Headings. This Agreement shall inure to the benefit of the Company, its successors and assigns, and shall be binding on the Participant and the Participant’s heirs, personal representatives, successors and assigns. The Company may assign its rights under this Agreement. The Participant may not assign his/her rights hereunder. The section headings contained in this Agreement are inserted as a matter of convenience and shall not be considered in interpreting or construing this Agreement. 
 
14.  Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana.
 
15.  Entire Agreement; Waiver. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede all prior agreements, written and oral, between the parties hereto with respect to the subject matter hereof. The waiver of a breach of any term or condition of this Agreement must be in writing signed by the party sought to be charged with such waiver, and such waiver shall not be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions.
 
16.  Amendment. This Agreement may be amended only by a writing signed by each of the parties hereto.  
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
 
 
 
  Coachmen Industries, Inc.   
     
     
     
By:  
    
     
     
     
Title:  
   
     
     
     
 
 "Participant"   
     
     
     
 
 
Exhibit A to 2006 Restricted Stock Award Agreement
 
The following number of restricted shares were awarded on September 8, 2006 to the following executive officer of the Registrant pursuant to the Restricted Stock Award Agreement between the officer and the Registrant:

Number of Restricted
Executive Officer’s Name and Title   Shares Awarded
Colleen A. Zuhl 
Chief Financial Officer         1,000
 
 EX-31 4 exhibit31.htm EXHIBIT 31 - CERTIFICATIONS Exhibit 31
Exhibit 31.1
CERTIFICATION

I, Richard M. Lavers, certify that:

 
1.
 I have reviewed this quarterly report on Form 10-Q of Coachmen Industries, Inc.;

 
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a) - 15(e) and 15(d) - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a) - 15(f) and 15(d) - 15(f)), for the registrant and have:

 
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
 
 
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 2, 2006
 
 
 
 
 
 
By:
/s/ Richard M. Lavers
 
 
Richard M. Lavers
 
 
Chief Executive Officer

Exhibit 31.2
CERTIFICATION

I, Colleen A. Zuhl, certify that:
 
 
1.
I have reviewed this quarterly report on Form 10-Q of Coachmen Industries, Inc.;

 
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a) - 15(e) and 15(d) - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a) - 15(f) and 15(d) - 15(f)), for the registrant and have:

 
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
 
 
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 2, 2006
 
 
 
 
 
 
By:
/s/ Colleen A. Zuhl
 
 
Colleen A. Zuhl
 
 
Chief Financial Officer
 
 
 
 EX-32 5 exhibit32.htm EXHIBIT 32 - CERTIFICATIONS Exhibit 32
Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q of Coachmen Industries, Inc. (the “Company”) for the quarterly period ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Richard M. Lavers, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period(s) covered in the Report.

Date: November 2, 2006
 
 
 
 
By:
/s/ Richard M. Lavers
 
 
Richard M. Lavers
 
 
Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q of Coachmen Industries, Inc. (the “Company”) for the quarterly period ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Colleen A. Zuhl, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period(s) covered in the Report.
 
Date: November 2, 2006
 
 
 
 
By:
/s/ Colleen A. Zuhl
 
 
Colleen A. Zuhl
 
 
Chief Financial Officer
 
 
 
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