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Article by DailyStocks_admin    (12-23-08 04:02 AM)

Filed with the SEC from Dec 11 to Dec 17:

Coachmen Industries (COA)
A group of funds managed by Mario Gabelli's Gamco Investors (GBL) reported raising its stake to 1,222,840 shares (7.69%) after buying 464,900 from Oct. 20 to Dec. 10 at 59 cents to $1.87 a share.

BUSINESS OVERVIEW

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

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

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

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

Recreational Vehicle Segment

RV Segment Products

The RV Segment consists of recreational vehicles. At December 31, 2007, this Group consisted of the following operating companies: Coachmen RV Company, LLC; Coachmen RV Company of Georgia, LLC; Viking Recreational Vehicles, LLC and a Company-owned retail dealership located in Elkhart, Indiana. In addition, the Company operates a service facility located in Chino, California.

The principal brand names for the RV Group are Coachmen®, Georgie Boy™, Sportscoach®, Adrenaline™ and Viking®.

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

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

RV Segment Marketing

Recreational vehicles are generally manufactured against orders received from RV dealers, who are responsible for the retail sale of the product. These products are marketed through approximately 757 independent dealers located in 49 states and internationally and through a Company-owned dealership located in Indiana. Subject to applicable laws, agreements with most of its dealers are cancelable on short notice, provide for minimum inventory levels and establish sales territories. A single recreational vehicle dealer network accounts for approximately 12% of the Company's consolidated net sales.

The RV Group considers itself customer driven. Representatives from sales and service regularly visit dealers in their regions, and respond to questions and suggestions. Plant charters are established for each manufacturing facility, aligning defined brand charters for each product line with the manufacturing capabilities of each facility. Divisions host dealer advisory groups and conduct informative dealer seminars and specialized training classes in areas such as sales and service. Open forum meetings with owners are held at campouts, providing ongoing focus group feedback for product improvements. Engineers and product development team members are encouraged to travel and vacation in Company recreational vehicles to gain a complete understanding and appreciation for the products. T he RV Group continuously endeavors to improve its product offerings and reduce product complexity. The Group has achieved a significant transformation of product with its new product development process utilizing its Advanced Design Team.

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

Most dealers' purchases of RV's from the RV Group are financed through "floorplan" arrangements. Under these arrangements, a bank or other financial institution agrees to lend the dealer all or most of the purchase price of its recreational vehicle inventory, collateralized by a lien on such inventory. The RV Group generally executes repurchase agreements at the request of the financing institution. These agreements typically provide that, for up to twelve to fifteen months after a unit is financed, the Company will repurchase a unit that has been repossessed by the financing institution for the amount then due to the financing institution. Risk of loss resulting from these agreements is spread over the Company's numerous dealers and is further reduced by the resale value of the products repurchased (see Note 12 of Notes to Consolidated Financial Statements). Resulting mainly from periodic business conditions negatively affecting the recreational vehicle industry, the Company has previously experienced losses under repurchase agreements. Accordingly, the Company has recorded an accrual for estimated losses under repurchase agreements. In addition to the standard repurchase agreement described above, as of December 31, 2007 the Company was contingently liable to the financial institutions up to a maximum of $2.0 million of aggregate losses annually, as defined by the agreement, incurred by the financial institutions on designated dealers with higher credit risks that are accepted into the reserve pool financing program. The RV Group does not finance retail consumer purchases of its products, nor does it guarantee consumer financing.

RV Segment Business Factors

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

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

Recreational vehicles are high-cost discretionary consumer durables. In the past, recreational vehicle sales have fluctuated in a generally direct relationship to overall consumer confidence and economic prosperity. It appears that the price of gasoline can also affect the demand for recreational vehicles when gas prices reach unusually high levels.

RV Segment Competition and Regulation

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

The RV Group's recreational vehicles generally compete at most price points except the ultra high-end, concentrating on the entry to mid level. The RV Group strives to be a quality and value leader in the RV industry. The RV Group emphasizes a quality product and a strong commitment to competitive pricing in the markets it serves. The RV Group estimates that its current overall share of the recreational vehicle market is approximately 3.5% of wholesale shipments, on a unit basis.

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

State and federal environmental laws also impact both the production and operation of the Company's products. The Company has an Environmental Department dedicated to efforts to comply with applicable environmental regulations. To date, the RV Group has not experienced any material adverse effect from existing federal, state, or local environmental regulations.

Housing Segment

Housing Segment Products

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

All American Homes and Mod-U-Kraf Homes design, manufacture and market system-built housing structures. All American Homes is one of the largest producers of system-built homes in the United States and has four operations strategically located in Colorado, Indiana, Iowa and North Carolina. Mod-U-Kraf operates from a plant in Virginia. Together these plants serve approximately 530 independent builders in 32 states. System-built homes are built to the same local building codes as site-built homes by skilled craftsmen in a factory environment unaffected by weather conditions during production. Production takes place on an assembly line, with components moving from workstation to workstation for framing, electrical, plumbing, drywall, roofing, and cabinet setting, among other operations. An average two-module home can be produced in just a few days. As nearly completed homes when they leave the plant, home modules are delivered to their final locations, typically in two to seven sections, and are crane set onto a waiting basement or crawl space foundation.

All American Building Systems, LLC (AABS) was established by the Company in 2003 to pursue opportunities beyond the Company’s core single-family residential housing business. AABS designs and markets system-built living facilities such as single-family home subdivisions, apartments, condominiums, townhouses, senior housing facilities and military housing facilities manufactured by the Company’s housing plants. The modules are delivered to the site location for final installation.

Due to transportation requirements, system-built structures are often built with more structural lumber and/or steel than site-assembled structures. Faster construction times also allow our customers to occupy buildings much sooner when compared to site-built buildings.

The Company announced on September 21, 2007 that it would consolidate its All American Homes production facility located in Zanesville, Ohio with its larger facility located in Decatur, Indiana. This will increase production backlogs and capacity utilization at the Indiana plant as all builders previously served by the Ohio plant will now be served from Indiana. This consolidation was completed during the fourth quarter of 2007.

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 million and a $2.5 million secured note. The note, which is included in other long-term assets on the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note. In October 2007, a subsequent agreement with Miller Building Systems waived the interest on the secured $2.5 million note for two years; hence no interest will be earned from March 31, 2007 to March 31, 2009. The subsequent agreement with Miller Building Systems also canceled the $2.0 million contingent earn-out note. There is no financial impact as a result of this cancellation. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the years ended December 31, 2006 and 2005 were $7.5 million and $41.6 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $1.5 million and $(8.2) million, respectively. In connection with this sale, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000 interest rate swaps that had been associated with these revenue bonds.

Housing Segment Marketing

The Housing Group participates in the system-built or modular subset of the overall housing market. Housing is marketed directly to approximately 530 builders in 32 states who will sell, rent or lease the buildings to the end-user.

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

In 2003, the Company formed All American Building Systems, LLC. All American Building Systems is responsible for expanding sales into new markets for the Company's products through channels other than the traditional builder/dealer network. Many of these new markets are “large project” markets such as dormitories, military barracks and apartments that typically have a long incubation period, but can result in contracts of a substantial size. We also launched several initiatives going direct in selected venues, with two “home stores” offering turn-key houses to consumers at Mod-U-Kraf and at All American Homes of Indiana. In addition, we are also introducing high-end modular homes to the long ignored subdivision sector, where 80% of housing sales occur.

Housing Segment

Housing Segment Products

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

All American Homes and Mod-U-Kraf Homes design, manufacture and market system-built housing structures. All American Homes is one of the largest producers of system-built homes in the United States and has four operations strategically located in Colorado, Indiana, Iowa and North Carolina. Mod-U-Kraf operates from a plant in Virginia. Together these plants serve approximately 530 independent builders in 32 states. System-built homes are built to the same local building codes as site-built homes by skilled craftsmen in a factory environment unaffected by weather conditions during production. Production takes place on an assembly line, with components moving from workstation to workstation for framing, electrical, plumbing, drywall, roofing, and cabinet setting, among other operations. An average two-module home can be produced in just a few days. As nearly completed homes when they leave the plant, home modules are delivered to their final locations, typically in two to seven sections, and are crane set onto a waiting basement or crawl space foundation.

All American Building Systems, LLC (AABS) was established by the Company in 2003 to pursue opportunities beyond the Company’s core single-family residential housing business. AABS designs and markets system-built living facilities such as single-family home subdivisions, apartments, condominiums, townhouses, senior housing facilities and military housing facilities manufactured by the Company’s housing plants. The modules are delivered to the site location for final installation.

Due to transportation requirements, system-built structures are often built with more structural lumber and/or steel than site-assembled structures. Faster construction times also allow our customers to occupy buildings much sooner when compared to site-built buildings.

The Company announced on September 21, 2007 that it would consolidate its All American Homes production facility located in Zanesville, Ohio with its larger facility located in Decatur, Indiana. This will increase production backlogs and capacity utilization at the Indiana plant as all builders previously served by the Ohio plant will now be served from Indiana. This consolidation was completed during the fourth quarter of 2007.

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 million and a $2.5 million secured note. The note, which is included in other long-term assets on the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note. In October 2007, a subsequent agreement with Miller Building Systems waived the interest on the secured $2.5 million note for two years; hence no interest will be earned from March 31, 2007 to March 31, 2009. The subsequent agreement with Miller Building Systems also canceled the $2.0 million contingent earn-out note. There is no financial impact as a result of this cancellation. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the years ended December 31, 2006 and 2005 were $7.5 million and $41.6 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $1.5 million and $(8.2) million, respectively. In connection with this sale, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000 interest rate swaps that had been associated with these revenue bonds.

Housing Segment Marketing

The Housing Group participates in the system-built or modular subset of the overall housing market. Housing is marketed directly to approximately 530 builders in 32 states who will sell, rent or lease the buildings to the end-user.

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

In 2003, the Company formed All American Building Systems, LLC. All American Building Systems is responsible for expanding sales into new markets for the Company's products through channels other than the traditional builder/dealer network. Many of these new markets are “large project” markets such as dormitories, military barracks and apartments that typically have a long incubation period, but can result in contracts of a substantial size. We also launched several initiatives going direct in selected venues, with two “home stores” offering turn-key houses to consumers at Mod-U-Kraf and at All American Homes of Indiana. In addition, we are also introducing high-end modular homes to the long ignored subdivision sector, where 80% of housing sales occur.

Seasonality

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

Employees

At December 31, 2007, Coachmen employed 2,305 people, 609 of whom are salaried and involved in operations, engineering, purchasing, manufacturing, service and warranty, sales, distribution, marketing, human resources, accounting and administration. The Company provides group life, dental, vision services, hospitalization, and major medical plans under which the employee pays a portion of the cost. In addition, employees can participate in a 401(k) plan and a stock purchase plan. Certain employees also participate in deferred and supplemental deferred compensation plans (see Notes 8 and 9 of Notes to Consolidated Financial Statements). The Company considers its relations with employees to be good.

Research and Development

During 2007, the Company’s continuing operations spent approximately $6.3 million on research related to the development of new products and improvement of existing products. The amounts spent in 2006 and 2005 were approximately $6.7 million and $7.2 million, respectively.


MANAGEMENT DISCUSSION FROM LATEST 10K

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

EXECUTIVE SUMMARY

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

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

In order to supplement the Company’s single-family residential housing business, the Housing Segment continues to pursue opportunities for larger projects in multi-family residential and commercial markets for 2007 and beyond. The results of the Company’s All American Building Systems (AABS) major projects efforts continue to improve, and did contribute to earnings in 2007, primarily through the production of military barracks. During 2006, AABS was a member of a consortium that was awarded a contract for the second phase of barracks construction at Fort Bliss in Texas, and contributed in excess of $10 million to revenue in 2007. In addition, in January 2008, AABS signed an agreement to provide military housing at Ft. Carson in Colorado. The Housing Group began production of the barracks modules late in 2007 with initial deliveries scheduled to commence in the first quarter of 2008. This agreement will result in revenues of over $30 million during 2008. Another opportunity for the Housing Group involves the reconstruction of the Gulf Coast regions damaged by 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.

Intensive Recovery Plan

During 2005, the Company’s Board of Directors approved a comprehensive operational and cost structure realignment and restructuring plan (the Intensive Recovery Plan), which was largely implemented by the end of 2006, and undertook further restructuring and consolidation during 2007 intended to improve operating performance and ensure financial strength.

Despite the unacceptable bottom line results in 2007, the Company has begun to see positive results from these actions. The Company has completed the sale of several businesses and other properties, reduced expenses, and improved operating efficiencies, partially through the consolidation of a number of operations.

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

In September 2005, the Company announced the relocation of Georgie Boy Manufacturing, LLC (GBM) from Edwardsburg, Michigan to a newer, more efficient motorhome production facility within its Middlebury, Indiana manufacturing complex. GBM has continued to control and focus on its independent product design, sales, and marketing efforts to ensure the continued strength of the GBM brand with consumers and its separate dealer body. The relocation was completed late in the fourth quarter of 2005. This internal restructuring improved capacity utilization within the RV 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. The funds remaining in the escrow account of $0.4 million reverted to the Company in February 2007 per the sales agreement. In accordance with Statement of Financial Accounting Standard No. 144, Prodesign qualified as a separate component of the Company’s business and as a result, the operating results of Prodesign have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been adjusted to reflect this business as a discontinued operation. In conjunction with the classification of Prodesign as a discontinued operation, management allocated goodwill of $0.3 million to the discontinued operations from the RV Segment goodwill based on the relative fair value of the discontinued operations to the RV Segment. The $0.3 million of allocated goodwill has been included in the calculation of the final gain on sale of assets in the first quarter of 2006. Net sales of Prodesign for the years ended December 31, 2006 and 2005 were $0.4 million and $14.2 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $2.0 million and $(0.7) million, respectively.

The Company ceased operations at the All American Homes operation in Springfield, Tennessee in 2005. The closure of the Tennessee location resulted in an asset impairment charge of approximately $1.1 million, which was recorded in the third quarter of 2005. On December 15, 2006 the Company completed the sale of this property for approximately $3.2 million, which resulted in a pre-tax gain of approximately $1.1 million. In connection with the sale of this property, $1.2 million of industrial revenue bonds were paid off as of December 15, 2006. During December 2006, the Company also terminated the $1.2 million interest rate swap that had been associated with these revenue bonds. The closure and sale of the Tennessee facility had minimal impact on revenues, as all existing builders in that region have continued to be served by the Company’s housing operations in Indiana and North Carolina.

On December 31, 2005, the Company sold all operating assets of the All American Homes Kansas division. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of the Kansas division for the years ended December 31, 2006 and 2005 were $0.0 million and $9.7 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $(0.4) million and $(2.9) million, respectively.

On March 31, 2006, the Company sold 100% of its interest in the capital stock of Miller Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and a $2.5 million secured note. The note, which is included in other long-term assets on the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note. In October 2007, a subsequent agreement with Miller Building Systems waived the interest on the secured $2.5 million note for two years; hence no interest will be earned from March 31, 2007 to March 31, 2009. The subsequent agreement with Miller Building Systems also canceled the $2.0 million contingent earn-out note. There is no financial impact as a result of this cancellation. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the years ended December 31, 2006 and 2005 were $7.5 million and $41.6 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $1.5 million and $(8.2) million, respectively. In connection with this sale, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000 interest rate swaps that had been associated with these revenue bonds.

In conjunction with the actions noted above, during the fourth quarter of 2005 management allocated goodwill of $0.7 million to the discontinued operations from the Housing Segment goodwill based on the relative fair value of the discontinued operations to the entire Housing Segment. The $0.7 million of allocated goodwill consisted of $0.6 million allocated to Miller Building Systems, which was written off as part of the 2005 loss from operations of discontinued operations and $0.1 million allocated to All American Homes of Kansas, which was included in the 2005 loss on sale of assets of discontinued operations. During the first quarter of 2006, an additional $0.3 million of goodwill was allocated to Miller Building Systems based on the final sales price relative to the fair value of the entire Housing Segment. The additional $0.3 million of allocated goodwill was written off as part of the 2006 gain on sale of assets of discontinued operations.

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

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

On December 28, 2006 the Company contracted for the sale of a property located in Roanoke, Virginia for approximately $1.3 million, consisting of cash of $0.1 million and a note receivable of $1.2 million that was paid in 2007, which resulted in pre-tax gain of approximately $1.2 million.

During the first three months of 2007, the Company completed the sale of two parcels of the former Georgie Boy Manufacturing complex for approximately $0.6 million, resulting in a pre-tax gain of approximately $0.3 million. Also during the first three months, the Company completed the sale of vacant farmland in Middlebury, Indiana for cash of approximately $0.1 million, resulting in a pre-tax gain of approximately $0.1 million.

During the third quarter of 2007, two smaller properties were sold for a net pre-tax gain of approximately $0.1 million.

During July 2007, the Company announced plans to reduce overhead costs by consolidating Class A production into a single facility, relocating the paint facility located in Elkhart, Indiana to the main complex in Middlebury, Indiana, and consolidating two towable assembly plants into a single facility in order to reduce expenses and improve profitability through improved capacity utilization of fewer facilities. The consolidation of the Class A assembly plants was substantially completed in the third quarter of 2007. The consolidation and subsequent mothballing of a towable plant was completed in the fourth quarter of 2007. The paint facility was relocated to the main complex in the fourth quarter of 2007.

On December 5, 2007 the Company sold property and the equipment of a paint facility located in Elkhart, Indiana for $2.9 million consisting of cash of $0.3 million and a $2.6 million secured note due in full December 2008. The sale resulted in pre-tax gain of $0.4 million on the equipment and a deferred gain of $1.1 million on the property which is included in the accrued expenses and other liabilities on the Consolidated Balance Sheet.

The Company announced on September 21, 2007 that it would consolidate its All American Homes production facility located in Zanesville, Ohio with its larger facility located in Decatur, Indiana. This will increase production backlogs and capacity utilization at the Indiana plant as all builders previously served by the Ohio plant will now be served from Indiana. This consolidation occurred during the fourth quarter. The closure of the Ohio facility had minimal impact on revenues, as all existing builders in that region have continued to be served by the Company’s housing operations in Indiana and North Carolina.

Housing Segment

The Housing Group faced a challenging housing market in 2007. The December full year figures on housing starts from the U.S. Census Bureau show a 28.6% year to year decline in new single-family homes nationwide, and a 27.2% decline in the Midwest region served by the Group’s plants in Indiana and Iowa. The decline includes the Southeastern and middle Atlantic markets, which are served by the Group’s plants in Virginia and North Carolina. Single-family housing starts in the South region showed a year to year decline of 28.7% in December.

In the backdrop of such a difficult market, the Housing Group has seen weakness in its core Midwestern markets as well as in the Southeast and Middle Atlantic regions, negatively impacting the Group’s operations in Indiana, Iowa, North Carolina and Virginia. All of the Group’s markets have experienced sharp discounts, larger incentives, and increased levels of new home inventories. As the downward pressure on new home sales persists, the Group will likely see the more aggressive discounts and incentives by home builders continue. To mitigate these conditions, management is placing more emphasis on providing value to builders and consumers through the Group’s products, including the launch of the Green Catalog in the first quarter of 2008. Driven by consumer interest and high energy costs, the housing industry is beginning to recognize the increasing need for energy efficiency and the use of sustainable materials in the construction of new homes. The Company has taken a leadership position in this market transformation with this initiative. The Green Catalog will allow consumers to choose what technologies and earth-friendly materials they want included in their new homes. The Group is working with design/build architectural firms that specialize in sustainable, innovative, high-quality modular architecture. Sustainable, well-designed buildings should be accessible to more people. Off-site modular technology is a means to create beautiful, eco-friendly homes and buildings. This project resulted in the mkSolaire® home which will be prominently displayed in the “Smart Home: Green & Wired” exhibit at the Museum of Science and Industry in Chicago from May 2008 through January 2009. This endeavor should put modular construction in a new light for the general public and fits well with our commitment to sustainable construction. Management’s overriding goal with these actions is to provide the Group’s builders with the products and tools they need to best meet the challenges of their markets.

Management continued to work to mitigate the Group’s dependence on traditional scattered-lot single-family housing markets by increasing the expansion into multi-family residential structures through All American Building Systems, or AABS. Many of these multi-family structures markets are “large project” markets such as dormitories, military barracks and apartments that typically have a long incubation period, but generally result in a significant contract. In 2007, AABS was a leading member of a consortium that completed the second phase of barracks construction at Fort Bliss in Texas. On January 24, 2008, the Company announced that AABS had signed a final agreement to provide modules for barracks construction at Fort Carson in Colorado. AABS continues to pursue military opportunities with our partners, and AABS expects to make proposals in 2008 for additional military housing contracts. The Company is delivering homes to the Gulf Coast region and our major projects sales group is pursuing additional opportunities now that the rebuilding effort is finally gaining momentum. The Group has also targeted other “large projects” such as dormitories, condominiums and apartment complexes.

Overall, 2007 was a difficult year for the Housing Group , but management took aggressive steps to reduce operating costs and maintain profitability despite lower revenues. Early in 2007, the Group installed a new senior management team with the talent, experience and drive to lead it forward. Management is aggressively seeking new ways to strengthen the Group’s traditional markets while pursuing growth in new areas.

Recreational Vehicle Segment

Despite the improvements recognized in the RV Group’s operations throughout 2007, low sales volumes and production levels resulted in unacceptable bottom line results for the year. To address the unacceptable level of revenues, the RV Group has embarked on a number of actions to drive revenue growth and enhance profitability.

Management believes that customers of the RV industry are demanding improved quality. Accordingly, management believes it can differentiate Coachmen’s products from those of its competitors, and gain a marketing advantage, by improving product quality. The RV Group has launched a number of initiatives to this end. The most important new program rewards meaningful, continuous improvement in the quality of products at every production facility. The program provides our team members with incentive to meet and exceed concrete, quantifiable measures of quality applicable to each facility. The incentive program was launched as a pilot program in 2006, and expanded into a company-wide program in 2007. The incentive program has been very successful in reducing the average number of defects per unit, and has resulted in greater satisfaction among dealers.

With regard to efforts to build upon product line strengths that began in late 2006, the RV Group continued to make significant strides in improving its product offerings and reducing product complexity. The Group has achieved a significant transformation of product with its new product development process utilizing its Advanced Design Team. At the National RV Trade Show held annually in Louisville, the Company’s products displayed showed continued improvement in innovation resulting from the Group’s more robust product development process. Over 40% of the products on display at Louisville were new or redesigned innovative products including the new touring Prism™ Class C motorhome featuring yacht inspired interiors and estimated gas mileage of 17-19 miles per gallon, a Freelander™ Class C motorhome with an innovative rear wall slide out, a re-engineered Spirit of America® travel trailer line that is fully laminated with aluminum cage construction providing high line features at a reduced weight at an entry level price point, total redesign and step out of the Leprechaun® Class C, and a very creative new floorplan offered in both the Pursuit® and Mirada™ Class A product lines featuring dual living areas with a unique Murphy bed.

During July 2007, the Company announced plans to reduce overhead costs by consolidating Class A production into a single facility, relocating the paint facility located in Elkhart, Indiana to the main complex in Middlebury, Indiana, and consolidating two towable assembly plants into a single facility in order to reduce expenses and improve profitability through improved capacity utilization of fewer facilities. The consolidation of the Class A assembly plants was substantially completed in the third quarter of 2007. The consolidation and subsequent mothballing of a towable plant was completed in the fourth quarter of 2007. The paint facility was relocated to the main complex in the fourth quarter of 2007.

Management believes there are still opportunities to reduce material costs, which make up the majority of the Group’s cost of sales. In order to quickly achieve significant results, in early 2007, consultants were engaged to assist with identifying and executing strategic sourcing action plans, resulting in significant savings. Management has reorganized its strategic sourcing team into a cohesive unit that continues to apply the processes and practices developed with the consultants’ guidance. The ultimate goal of these actions is to continue to improve quality and reduce cost in order to improve margins. Management is also applying best practices from this effort to purchasing and material sourcing in the Housing Group .

Despite the difficult year, management is optimistic that the hard work of its entire team will pay substantial future dividends. Management will strive to leverage the many changes and improvements that have been made throughout the RV Group to generate improved results and market share gains in 2008 and the years ahead.

GROSS PROFIT

Gross profit from continuing operations was $12.7 million, or 2.6% of net sales, in 2007, compared to $20.2 million, or 3.6% of net sales, in 2006. Gross profit was negatively impacted in 2007 as a result of decreased sales, discounting and corresponding production volume decrease, resulting in lower utilization of the Company's manufacturing facilities yielding reduced operating leverage.

During 2007, the Company took several actions to reduce costs and improve capacity utilization including consolidation of Class A motorhome production into one facility from two, consolidation of two RV towable plants into one plant, and consolidation of a housing plant in Ohio into the larger Indiana facility.

OPERATING EXPENSES

Operating expenses for continuing operations, consisting of selling and general and administrative expenses, were $49.0 million and $44.6 million, or as a percentage of net sales, 10.2% and 7.9% for 2007 and 2006. Selling expenses for 2007 were $22.7 million, or 4.7% of net sales, a 0.6 percentage point increase from the $23.2 million, or 4.1% of net sales, experienced in 2006. The $0.5 million decrease in selling expense was primarily the result of reductions in payroll related expenses of $1.3 million offset by increased promotional expenses of $0.8 million. General and administrative expenses were $26.3 million in 2007, or 5.5% of net sales, compared with $21.3 million, or 3.8% of net sales, in 2006. The increase of $5.0 million in general and administrative expenses was primarily related to increases in professional services and litigation settlements expense of $7.1 million, offset by decreases in payroll related expenses and bad debt expense. The litigation expense increase largely resulted from insurance settlements recovered in 2006 of approximately $3.6 million, resulting in reductions to the 2006 expense.

GOODWILL IMPAIRMENT CHARGE

At December 31, 2006, the Company had $16.9 million of goodwill, $13.0 million attributable to the Housing reporting unit and $3.9 million attributable to the RV reporting unit. The RV reporting unit goodwill originated from the Company’s purchase of recreational vehicle assets. The Company conducted its annual goodwill impairment test as required by FASB Statement No. 142, Goodwill and Other Intangible Assets, during the fourth quarter of 2006 and the results indicated that the estimated fair value of each of the Company’s reporting units exceeded their carrying value. As a result of the continued weakness in the RV market, combined with continuing losses incurred by the RV reporting unit, SFAS No. 142 required the Company to perform an interim goodwill impairment evaluation during the quarter ended June 30, 2007. Because the carrying value of the RV reporting unit exceeded its fair value as calculated using the expected present value of future cash flows, the Company concluded that the goodwill was impaired as of June 30, 2007. Accordingly, the Company recorded a non-cash goodwill impairment charge of $3.9 million in the quarter ended June 30, 2007. The Company has performed the required annual impairment tests and has determined that there was no impairment indicated for remaining Housing reporting unit goodwill as of December 31, 2007.

GAIN ON THE SALE OF ASSETS, NET

In 2007, the Company had gains on the sale of assets of $1.0 million, compared to gains on the sale of assets of $8.7 million in 2006. Gains on the sale of assets in 2007 resulted from the Company’s asset sales including properties in Edwardsburg, Michigan and Rocky Mount, Virginia as well as paint equipment. Gains on the sale of assets in 2006 resulted from the Company’s restructuring plan and resulting asset sales including the former All American Homes facility in Tennessee resulting in a $1.1 million gain, property from the former Georgie Boy Manufacturing facilities resulting in a $0.7 million gain, the Company’s aircraft resulting in a $1.7 million gain, and other idle properties in Indiana, Virginia, Texas and Florida resulting in a $5.2 million gain. Assets are continually analyzed and every effort is made to sell or dispose of properties that are determined to be excess or unproductive.

OPERATING LOSS

Operating loss from continuing operations in 2007 of $39.1 million increased $23.4 million compared with the operating loss of $15.7 million in 2006. This increase is the result of the $7.5 million decrease in gross profit combined with a $4.4 million increase in operating expenses, a goodwill impairment charge of $3.8 million and a decrease in gain on sale of assets of $7.7 million.

INTEREST EXPENSE

Interest expense from continuing operations for 2007 and 2006 was $3.5 million and $3.8 million, respectively. Interest expense decreased due to the lower amount of average outstanding balances of short-term borrowings incurred by the Company combined with lower applicable interest rates. During 2007, the Company continued to borrow from its line of credit ($20.1 million outstanding at December 31, 2007) and continued to borrow against the cash surrender value of its investment in life insurance contracts ($17.6 million outstanding at December 31, 2007).

INVESTMENT INCOME

Investment income from continuing operations for 2007 and 2006 was $1.5 million and $1.6 million, respectively. Investment income is principally attributable to earnings of the life insurance policies held (see Note 1 of Notes to Consolidated Financial Statements).

PRE-TAX LOSS

Pre-tax loss from continuing operations for 2007 was $40.5 million compared with a pre-tax loss from continuing operations of $16.7 million for 2006. The Company's RV Segment generated pre-tax loss from continuing operations of $33.9 million, or 9.4% of recreational vehicle net sales in 2007, compared with a pre-tax loss from continuing operations of $25.4 million, or 6.3% of the RV Segment's net sales in 2006. The Housing Segment recorded 2007 pre-tax loss from continuing operations of $7.4 million or 6.2% of segment net sales compared with pre-tax income from continuing operations of $2.7 million, or 1.7% of segment net sales in 2006 (see Note 2 of Notes to Consolidated Financial Statements).

INCOME TAXES

The provision for income taxes related to continuing operations was a credit of $1.8 million for 2007 versus an expense of $16.5 million for 2006. Given the losses incurred by the Company over the last two years, a non-cash charge from continuing operations of $13.3 million and $24.4 million was recorded to establish a valuation allowance for the full value of its deferred tax assets as of December 31, 2007 and December 31, 2006, respectively (see Note 10 of Notes to Consolidated Financial Statements).

DISCONTINUED OPERATIONS

On December 31, 2005, the Company sold all operating assets of the All American Homes Kansas division. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of the Kansas division for the years ended December 31, 2006 and 2005 were $0.0 million and $9.7 million, respectively, and the pre-tax losses for the years ended December 31, 2006 and 2005 were $(0.4) million and $(2.9) million, respectively.

On January 13, 2006, the Company sold all operating assets of Prodesign, LLC. The total sales price was $8.2 million, of which the Company received $5.7 million in cash, a $2.0 million promissory note and $0.5 million to be held in escrow to cover potential warranty claims and uncollectible accounts receivable, as defined in the sale agreement. The promissory note is to be repaid over a period of 10 years, using an amortization period of 15 years, and bears interest at 6% per annum with interest only payments being required in the first three years. The funds remaining in the escrow account of $0.4 million reverted to the Company in February 2007 per the sales agreement. In accordance with Statement of Financial Accounting Standard No. 144, Prodesign qualified as a separate component of the Company’s business and as a result, the operating results of Prodesign have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been adjusted to reflect this business as a discontinued operation. In conjunction with the classification of Prodesign as a discontinued operation, management allocated goodwill of $0.3 million to the discontinued operations from the RV Segment goodwill based on the relative fair value of the discontinued operations to the RV Segment. The $0.3 million of allocated goodwill has been included in the calculation of the final gain on sale of assets in the first quarter of 2006. Net sales of Prodesign for the years ended December 31, 2006 and 2005 were $0.4 million and $14.2 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $2.0 million and $(0.7) million, respectively.

On March 31, 2006, the Company sold 100% of its interest in the capital stock of Miller Building Systems, Inc. for $11.5 million, consisting of cash of $9.0 million and a $2.5 million secured note. The note, which is included in other long-term assets on the Consolidated Balance Sheet, is to be repaid over 5 years and bears interest at the 1 year LIBOR rate plus 2.75% per annum with quarterly interest payments beginning September 30, 2006. Principal payments of $125,000 per quarter commence on June 30, 2009 and continue through the maturity date of March 31, 2011. In addition, the Company accepted a $2.0 million contingent earn-out note. In October 2007, a subsequent agreement with Miller Building Systems waived the interest on the secured $2.5 million note for two years; hence no interest will be earned from March 31, 2007 to March 31, 2009. The subsequent agreement with Miller Building Systems also canceled the $2.0 million contingent earn-out note. There is no financial impact as a result of this cancellation. In accordance with Statement of Financial Accounting Standard No. 144, the division qualified as a separate component of the Company’s business and as a result, the operating results of the division have been accounted for as a discontinued operation. Previously reported financial results for all periods presented have been restated to reflect this business as a discontinued operation. Net sales of Miller Building Systems, Inc. for the years ended December 31, 2006 and 2005 were $7.5 million and $41.6 million, respectively, and the pre-tax income (loss) for the years ended December 31, 2006 and 2005 were $1.5 million and $(8.2) million, respectively. In connection with this sale, $1.7 million of industrial revenue bonds were paid off as of March 31, 2006. During April 2006, the Company terminated the $1.5 million and $235,000 interest rate swaps that had been associated with these revenue bonds.

NET LOSS

Net loss from continuing operations for the year ended December 31, 2007 was $38.8 million (a loss of $2.46 per diluted share) compared to net loss from continuing operations for the year ended December 31, 2006 of $33.2 million (a loss of $2.12 per diluted shared). Net loss for the year ended December 31, 2007 was $38.8 million (a loss of $2.46 per diluted share) compared to net loss of $31.8 million (loss of $2.03 per diluted share) for 2006.

Comparison of 2006 to 2005

NET SALES

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

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

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

GROSS PROFIT

Gross profit from continuing operations was $20.2 million, or 3.6% of net sales, in 2006 compared to $23.2 million, or 3.3% of net sales, in 2005. For the RV Segment, gross profit in dollars declined in 2006 as a result of decreased sales and corresponding production volume decrease, resulting in lower utilization of the Company's manufacturing facilities. For the Housing Segment, gross profit in dollars declined due to the 11.4% decrease in sales combined with higher insurance and workers compensation. Gross profit as a percentage of sales increased due to expense reductions and operating efficiencies, partially through the consolidation of a number of operations. Margins were also squeezed by increases in commodity prices that were unusual in terms of size and number of commodities affected in 2006.

OPERATING EXPENSES

Operating expenses for continuing operations, consisting of selling, general and administrative expenses, were $44.5 million and $59.1 million, or as a percentage of net sales, 7.9% for 2006 and 8.4% for 2005. Selling expenses for 2006 were $23.2 million, or 4.1% of net sales, a 0.1 percentage point increase from the $28.3 million, or 4.0% of net sales, experienced in 2005. The $5.1 million decrease in selling expense was primarily the result of reductions in payroll related expenses and reductions in sales promotions expenses. General and administrative expenses were $21.3 million in 2006, or 3.8% of net sales, compared with $30.8 million, or 4.4% of net sales, in 2005. The decrease of $9.5 million in general and administrative expenses was primarily related to reductions in professional services and litigation settlements expense of $6.3 million, plus reductions in payroll related expenses, insurance expenses and property tax expenses. The litigation expense reduction largely resulted from insurance settlements recovered of approximately $3.6 million.

GAIN ON THE SALE OF ASSETS, NET

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

OPERATING LOSS

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

INTEREST EXPENSE

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

INVESTMENT INCOME

Investment income from continuing operations for 2006 and 2005 was $1.6 million and $2.2 million, respectively. Investment income is principally attributable to earnings of the life insurance policies held and in 2005 also included realized gains on the sale of preferred stock. (see Note 1 of Notes to Consolidated Financial Statements).

PRE-TAX LOSS

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

CONF CALL

Jeff Tryka

Thank you and welcome to this Coachmen conference call to review the company's results for the fourth quarter and full year ended December 31st, 2007, which were released yesterday afternoon. Before we start, let me offer the cautionary note that comments made during this conference call that are not historical facts including those regarding future growth, corporate performance or products or forward-looking statements within the context of the Private Securities Litigation Reform Act of 1995. Many factors could cause actual results to differ materially from those expressed in the forward-looking statement. Information on the risks that could affect Coachmen’s results may be found in the company's recent filings with the SEC. Comments made today represent management’s views on January 29, 2008, and these views may change based on subsequent events and the risk factors detailed in the company's core public filings. Although these comments may be available for a period of time through the company's website, the company undertakes no obligation to update these comments during that period.

With that stated, I will turn the call over to Rick Lavers, our President and Chief Executive Officer.

Rick Lavers

Thank you Jeff and welcome everyone. With us today are Colleen A. Zohl, our Chief Financial Officer, Mike Terlep, President of the RV group, Rick Bedell, President of our Housing Group and Todd Woelfer, our General Counsel.

Last Friday, I glanced at my Forbe’s Success Calendar on my desk and the quote for the day was from Edward Ziegler, “It is a good rule to face difficulties at the time they arise and not allow them to increase unacknowledged.” As well as being one of the management principles, I have tried to inculcate in this company to confront realities and solve them rather than try to sweep things under the rug.

That quote seemed a very apt call in the circumstances. It is m y distinctly unpleasant duty today to report very disappointing bottom-line results for the fourth quarter. This should come as no real surprise to anybody who has been paying attention to the numbers that were turned in for the first three quarters and the collapse of the markets in both of our business segments and who recognizes that the fourth quarter is traditionally our most difficult; however, we are especially disappointed in this performance because of the improvements, which we have scored in the third quarter.

With the impact of the spread of the sub-prime mortgage crisis, the quarter did not begin well on October and deteriorated further in November. December was nothing short of a train wreck with RV dealers increasingly concerned about the prospects of a recession and with the housing market flat on it’s back. Media talking heads were in a frenzy to be the first to announce that the U.S. economy is in recession and helped create a self-fulfilling prophecy by instilling near panic among consumers, small businesses, and individual investors, despite low interest rates and low unemployment. I am quite certain that substantially contributed to a precipitous drop in the consumer confidence index. That index now stands at 88.6 - a drop of almost 25 points since July, and that was before January’s stock market gyrations. This has had a predictable and inevitable depressing effect on the market for high cost discretionary consumer durables.

Our quarter’s results were also affected by delays in the (inaudible) of military barracks project that were entirely outside our control. While we commenced building modules for that project in December as planned, as a result of onsite delays, revenues for the modules built in 2007 cannot be recognized as income until 2008. Further, due to gathering storm clouds from the credit markets, we deemed it prudent to increase reserves in several areas, which also affected our bottom-line performance numbers. Colleen will provide you more detail.

Nonetheless, I am acutely aware that this kind of result simply cannot continue. Well, it is an understatement that I am displeased. I am not despondent, not at all. I said that the second half of 2007 would be better than the first half and despite all of these problems, that prediction was correct, just barely subtle at the bottom line, but very much so operationally. As a result of the restructuring we undertook, the redirection of the company we launched, the new products we introduced and the cost reductions we made, we expect to make a profit in 2008, even if our markets do not fully rebound.

Last call we went into some detail as to why our stock price sorely undervalues our realizable assets. In this call, we tend to emphasize why in stark contrast in 2007, we expect to be profitable in 2008. We have kept you advised of the many steps undertaken in 2007 to reduce our cost of operations such as strategic sourcing, planned consolidations and product simplification and cautioned you that the savings would not all drop to the bottom line until 2008. We should now start reaping a full measure of those efforts.

Colleen Zuhl

Thank you Rick. As mentioned in our release yesterday, the weakness in both of our industry segments continued in the fourth quarter with a significant adverse impact on our financial results. While our pre-tax loss from continuing operations for 2007 was worse than 2006, if you strip out the gains on asset sales and other positive items impacting the results of operation for 2006 and the negative items impacting the results of operations for 2007, given a 33% reduction in revenues in the fourth quarter, our results actually indicate operating performance improvement.

For the fourth quarter of 2007, sales fell 33.5% to $77 million versus $115.8 million last year. Consolidated growth margin was negative 3.2% compared to negative 0.2% for the same period a year ago. The deterioration in growth margin is directly attributable to the decline in sales volumes in the quarter.

Selling, general, and administrative expenses were reduced by $1.3 million compared to the fourth quarter of 2006, due primarily to reduced selling expenses as result of lower sales commissions associated with the reduced revenue level. Pre-tax loss was $14.6 million for the fourth quarter versus an $11.6 million pre-tax loss for the fourth quarter of 2006. At the bottom line, the net loss from continuing operations for the quarter was $13.8 million or $0.87 per share in 2007 compared with a net loss of $31.4 million or $2.01 per share in the year ago quarter.

However, the loss in the fourth quarter of 2006 included a non-cash charge of $24.4 million to establish a valuational allowance for the full value of the company's deferred tax assets. The fourth quarter results include a number of non-standard items. We realized gains on the sale of assets of $400,000 in the current quarter compared to gains of $2.3 million for the fourth quarter of 2006. The incurred expense was totaling $200,000 leading to the closure of the Ohio housing plant, primarily for an inventory movement to Indiana, inventory reserve and severance costs.

We incurred expenses of $100,000 and additional capital investments of $700,000 relating to the move of the RV Group’s paint facility back on to the main Middlebury's production complex. We also incurred incremental legal fees in connection with our efforts to recover certain damages and recorded increased reserve for sales and new tax issues, inventory, and other reserve arising from the current economic environment totaling $1.7 million. Excluding these items from the 2007 and 2006 pre-tax loss from continuing operation, our results would have been a loss for 2007 of $13.1 million compared to a loss of $14 million for 2006 on 33.5% fewer sales.

Turning to our results for the full year, sales fell 14.8% to $480.8 million versus $564.4 million in 2006. Consolidated growth margin was 2.7% compared to 3.6% for 2006. Despite a significant decrease in revenues, we were able to mitigate the decrease in gross profit levels due, in large part to the cost reduction efforts achieved primarily in the second half of 2007 as we have discussed previously. Selling, general, and administrative expenses increased by $4.4 million to $49 million; however, SG&A expenses in 2006 were reduced by the impact of legal recoveries in the amount of $3.6 million, which did not occur in 2007. Combined, these factors resulted in a pre-tax loss of $40.5 million for 2007 versus $16.7 million pre-tax loss reported in 2006.

At the bottom-line, the net loss from continuing operations for the year was $38.8 million or $2.46 per share in 2007, compared with a net loss of $33.2 million or $2.12 per share in 2006. Within the full-year result, the company incurred a number of non-standard items that impacted our results. We realized gains on the sale of assets of $1 million in the current year compared to gains of $8.7 million in 2006. While in 2006, we received a legal recovery of $3.6 million. In 2007, we incurred incremental legal costs in our efforts to recover damages from various losses incurred in prior years, expenses associated with the plant consolidation and restructuring, sales and new tax reserves, additional reserves related to the current economic environment, and consulting fees associated with our strategic sourcing efforts, which combined to reduce profitability by approximately $4 million.

We also incurred the non-cash legal goodwill impairment charge of $3.9 million in 2007. Excluding these items from 2007 and 2006, pre-tax loss from continuing operations, our results would have been a loss for 2007 of $33.7 million compared to a loss of $29 million for 2006 on 14.8% lower sales. For the 12 months ending December 31st, 2007, net cash flow from operations with an outflow was $7.9 million compared with an outflow of $5 million from operations in 2006. We held a tight line on capital expenditures throughout the year, spending only $3.6 million in 2007, $700,000 of which related to the move of our paint facility in the fourth quarter versus $4.6 million expenditure in 2006.

On the balance sheet, cash decreased from a year ago by $1.1 million to $1.5 million at December 31st, 2007. Total inventories decreased by $4.2 million from the end of 2006 to $79.3 million. Finished goods inventory increased by $800,000 from $44.2 million to $45 million with a $1.8 million increase in housing finished goods offset by a $1 million reduction in finished goods at the RV group. This increase in finished goods was planned with a buildup of inventory associated with Fort Carson project. Shipments of the Fort Carson inventory began in January 2008, and unlike 2006, the RV Finished Goods inventory is not open inventory. Rather the majority of this inventory is committed to specific dealers.

This is a very positive difference from last year. Long-term debt has decreased 22% during the year and stands at a very low $3 million as of December 31st, 2007. Short-term borrowing increased during the end of last year by $10.8 million to $20.1 million as of December 31st, 2007, and shareholder equity stands at $121.1 million resulting in a book value per share of $7.67.

As I discussed in detail in our last conference call, Coachmen has adequate liquidity and access to cash to carry us through these current difficult market circumstances. Despite the increase in short-term borrowing, we have adequate availability under our long-term credit agreement, which does not expire until 2011. In addition, we expect additional cash inflows in 2008 resulting from a number of recently completed and pending actions.

First, we have completed the sublease for a significant portion of our service center in Chino, California, and we began receiving cash inflows from that action in January 2008. During the fourth quarter, we completed the sale of the former CLI paint facility for $2.9 million consisting in cash of $300,000 and a one-year secured note of $2.6 million. Based on the equitable accounting rules, this sale resulted in a pre-tax gain of $400,000 on the equipment and a deferred gain of $1.1 million on the property.

This deferred gain will be realized in 2008 upon the receipt of the cash. We also have a number of other properties in various stages of being sold including a vacant production facility indicator in Indiana. The final pieces of our former Georgie Boy Production facilities in Edwardsburg, Michigan, vacant land in Tennessee, and the Ohio housing plant, which was closed in the fourth quarter.

In addition, we are in the process of moving our corporate headquarters from Elkhart to the Middlbury RV complex, after which our former headquarters building will be available for sale. Combined reflective properties will generate proceeds of approximately $10 million. In addition, we are now realizing many of the operational improvements from the actions taken in 2007, which will further enhance cash availability. Mike and Rick will further expand on these improvements in their remarks.

In summary, during the quarter we managed our assets and cash flows and we continued to maintain control over inventory levels in the face of particularly difficult market conditions for both business segments. We saw the results of our efforts at reducing operating costs, which mitigated our losses despite the significant drop in revenues.

We have a number of idle assets which will be sold to increase our cash availability and our plant consolidations and restructuring efforts are now largely completed, which puts us in a position to achieve our ultimate goals at the bottom line in 2008. Now, for details regarding our RV segment I’ll turn the call over to Mike Terlep, President of the RV Group. Mike?

Mike Terlep

Thank you Colleen and good morning. The recreational vehicle group generated sales of $54.5 billion during the fourth quarter, down 34.5% from $83.3 million last year. Gross profit from the fourth quarter was negative $2.7 million. Although unacceptable, the negative $2.7 million in gross profit in the fourth quarter of 2007 compares favorably to the $2.9 million gross profit loss in the further quarter of 2006, especially in light of 34.5% lower sales in 2007.

Total operating expenses were reduced by 10.7% to $6.8 million from $7.6 million last year. As a percent of sales, operating expenses were flat despite the sharp decline in sales. Although the RV Group booked a pre-tax loss of $9.4 million, this compares favorably to the pre-tax loss of $10.4 million in the fourth quarter of 2006, an 8.9% pre-tax improvement on 34.5% lower revenues. For the full year, the RV Group sales fell 10.6% to $361.7 million compared to $404.7 million last year. The detailed market information by product categories regarding the industry as well as for the RV Group is as follows.

Overall unit shipments for the industry were down 9.5% for the calendar year. Through the industry, all our total product categories were down at wholesale by 11%. Travel trailers were down 11.5%, fifth wheels were down 8.2%, and camping trailers were down 15.3%. For the industry, Class A’s and Class B’s were down 1.1% with Class A’s relatively flat and Class C’s down 4%.

Coachmen wholesale unit shipments outpaced the industry for the year in Class C’s, fifth wheels, and camping trailers, while we lagged behind the industry in Class A’s and travel trailers. At retail, industry numbers are available only through November of 2007. Here to date, towables retail registrations for the industry are up 1.4%, with travel trailers up 6%, fifth wheels down 4.3%, and camping trailers down 9.8%. Here to date, retail registrations through November total motorized products for the industry are down 5.5%. The diesel Class A is down 5.1%, gas Class A is down 7.8%, and Class C is down 4.2%.

Our retail market share, as recorded by Statistical Surveys, Inc., through November of 2007 has improved in Class C motor homes up 15.7%. Our retail market share has improved in travel trailers up 23.1% and our retail market share has improved in fifth wheels up 3.2%. Our retail market shares are down by 20% Class A's and 5.8% in camping trailers.

Gross profit for the year decreased slightly to a small loss of $0.1million versus a slight gross profit of $0.3 million in 2006, on 10.6% lower revenues. RV operating expenses increased to $33.8 million from $25.7 million last year; however, this was primarily due to the impact of several non-recurring items specifically, in 2006, we had a legal recovery of approximately $3.6 million, which served to reduce operating expenses by approximately $3.6 million.

In addition, in 2007, we had a goodwill impairment of $3.9 million in consulting fees associated with our strategic sourcing efforts of about $0.8 million, all which served to inflate operating expenses by another $4.7 million.

RV Group pre-tax loss increased to $33.9 million for the full year compared to a loss of $25.4 million one year ago. After adjusting to the prior-mentioned $8.3 million of non-recurring items adversely affecting the '07 to '06 comparison, the pre-tax tax performance was relatively flat on 10.6% lower sales. This is reflective of the operating improvements accomplished in 2007.

The RV Group total finished goods now stands at $34 million, which is a reduction of $1 million from one year ago. As Colleen mentioned earlier, one key improvement in finished goods from one year ago is that most of our current finished goods is to satisfy dealer over-orders as opposed to being billed as open inventory.

Although the bottom line does not yet show the results we want and need, we have accomplished meaningful gains and margin improvement, increased capacity utilization as a result of consolidation activities, and overhead reductions from the cost cutting that we diligently managed throughout 2007. The road to return the RV Group to profitability requires significant improvement in margins through better products, strategic sourcing, improved quality, and higher capacity utilization of our operating facilities.

So where are we on these key ingredients? Better products at better margins. Despite the sales weaknesses we experienced in the fourth quarter, based on the favorable response to our new models introduced at the Louisville show and our current backlogs and sales activity, we are optimistic that our sales will rebound in the first quarter, and in fact January results are proving this out.

Several of our new models featured and enthusiastically received at the Louisville show are just now starting to roll off our production line with the balance of these new models to be produced throughout the first quarter. In addition, we are now starting to see a positive influence from (inaudible) incentive programs we launched to simulate the retail market and assist our dealers; more on this later.

Our new product offerings captured four of the twelve must-see products identified out of over a thousand units on display at the Louisville show. Our new products ranged from an all new and innovative front kitchen [virtuoso] product offering to an all new and very creative entry level Class A style and fore plan in our pursuit in our other product line. To all new touring Class C built on the Daimler Chrysler spreader chassis called the Prism, to a total redesign and step out of the leprechaun Class C, to innovative new fore plans in our fifth wheel product lines, and a re-engineered Spirit of America entry level travel trailer line that is now fully laminated with an aluminium cage construction providing high line features and a reduced weight all at an entry level price point.

And of course we continued to step out with our adrenaline sports utility trailer product which was up in shipments by 426% in 2007 versus 2006. Because of the acceptance of our new products offerings the margins on our new 2008 and 2009 product offerings continues to improve and are now in line with industry standards or benchmarks. Our strategic sourcing team has done a stellar job. Largely contributing to our improved margins are the pay-backs from our strategic sourcing efforts. We've been successful in reducing our SKU's by 29% through standardization and accomplishing supplier consolidation of 29%, both of which assist us in managing our spend much more efficiently.

Despite inflationary pressures and certain key components and materials, we've been successful in generating meaningful material cost reductions over the last 6 months and we'll carry forward throughout 2008. The quality of our product is radically improved and now leads the industry. Our quality in metrics reflects an improvement of 31% for the year since the implementation of our new quality program.

This, along with the tighter controls around our warranty administration, has resulted in steadily reduced warranty expense over the last year. Total warranty expense in 2007 was $15.5 million compared to $19.1 million in 2006.

More impressive is that total warranty expense in the second 6 months of 2007 was $5.5 million compared to $10 million in the first 6 months of 2007. As the percent of sales, our warranty dropped each consecutive quarter throughout 2007. Q1 was 5.1%, Q2 was 4.2%, Q3 was 3.9%, and Q4 was 3.6%.

Finally, one of the key drivers to our operating losses has been the unfavorable operating leverage due to sales and production volumes. To address this, we communicated during last quarter's conference call that we were in the process of executing a large scale consolidation of our assembly and support plants, consolidating all Class A production into one plant and all travel trailer production for our Indiana facilities into one plant.

In addition, we consolidated two of our support plants on our North Middlebury complex to our primary Middlebury complex and moved our paint operation from Elkhart to Middlebury.

The Elkhart paint facility has been sold and we have significantly downsized our West Coast service center and subleased the 65,000 sq. ft. plant we were operating service from. These actions have improved our overall capacity utilization to approximately 70% from the prior utilization of less than 50%. We are pleased to report that our consolidation action plan has been fully executed and we are tracking ahead of plan in overall cost savings of $7 million annually.

In 2007, we successfully reduced our break-even from over three quarters of $1 billion to approximately $350 million. Of course, in order to accomplish X profit, we must generate reasonable sales volumes. To do so, we've chosen retail market stimulation rather than wholesale discounting. While retail incentives may take a month or two longer to realize wholesale improvement, it avoids long-term product evaluation.

An example is the attractive retail finance rate program we rolled out to our dealers featuring reduced retail fixed term rates to assist dealers from replacing aged inventory with fresh inventory and provide products through the supply chain.

In addition to our operational accomplishments, we have launched an aggressive marketing program to leverage our brand equity. This program is focused on growing our distribution base by offering an enhanced value package for our dealers. And we have reinvented our owners’ club in order to leverage our customer base and attract more prospective customers to our family of products.

While our 2007 bottom-line results were disappointing, we have taken serious, decisive, and necessary action to return our company to profitability. In our last call, I said that the RV ship has turned. In 2008, we will show you. Now for details about housing segment, I’ll the call over to Rick Bedell, President of our Housing Group. Rick?

Rick Bedell

Thank you Mike and good morning everyone. In 2007, the Housing Group faced the weakest market conditions in more than 25 years. For the fourth quarter, according to the U.S. Census Bureau in December, total single family housing starts fell 36% from a year ago. Our housing sales fell 30.9% to $22.5 million from $32.5 million last year. Our housing gross profit fell to $0.2 million from $2.6 million in 2006. As a result of the lower operating leverage resulting from the lower revenue levels and due to the ramp up of our Iowa and Colorado plants for the Fort Carson project and the low utilization of the Ohio facility, which was closed in December.

Housing SG&A expenses were essentially flat at $4.3 million versus $4.2 million in 2006. Housing pre-tax loss was $5.2 million for the fourth quarter of 2007. All of these results were impacted in part by the daily of Fort Carson for which we incurred expenses in 2007, but will not recognize revenues until 2008.

For the full year, again according to the U.S. Census Bureau for the full year, total single family housing starts fell 28.6%. Our housing sales fell 25.4% to $119.2 million from $159.7 million last year. Housing gross profit decreased to $12.8 million versus $19.9 million in 2006, while gross margin percentage decreased to 10.8% from 12.5% over the same period. This was primarily due to suboptimal utilization of all of our plants, but in particular Ohio, which was consolidated into the Indiana facility.

Housing SG&A expenses increased to $16.3 million from $15.8 million last year. As a result of a lower gross profit and higher operating expenses, the Housing Group incurred a pre-tax loss of $7.4 million compared with a pre-tax profit of $2.7 million a year ago.

As I previously stated, we in the midst of the worst market conditions in memory and we are faced with the choice of waiting for the market to improve, which is no option at all, or taking the steps necessary to ensure the success of our Housing Group regardless of the market. We are taking steps to do just that.

Our strategic sourcing efforts will save over $1 million at 2007 purchasing levels. Increasing our volume will only increase the incremental savings. We have streamlined our product offerings from nearly 300 floor plants to just over 90, making it easier for our customers to choose their new home design and will reduce the costs associated with maintaining the additional plants.

We have revised our specifications and pricing strategies in order to remain competitive and increase our margins also allowing our builders to up-sell on specification upgrades. The consolidation of our Ohio and Indiana facilities, along with increased capacity utilization at our other facilities, is expected to contribute nearly $5 million to the bottom-line over 2007.

Our major projects and military construction efforts continue to grow and will again be positive contributors to our profits. Let me provide some detail on our efforts on major projects and military construction. Although we expected to begin delivery of the Fort Carson barracks buildings in December, due to delays on the project site, we were unable to do so. We began delivering modules in January and we will have approximately 120 units in the staging areas by the end of the month. We are planning on continuing delivery of modules at the rate of approximately 150 units per month through the month of May. This will significantly boost the Housing Group's results for the first and second quarters.

We continue to pursue military opportunities with our partners, The Warrior Group and Hensel Phelps, and we expect to make proposals in 2008 for over $100 million in contracts. We are still delivering homes to the Gulf Coast region and our major project sales group is working on several projects now that the Katrina Rebuilding Effort is finally gaining momentum.

Driven by consumer interest and high energy costs, the housing industry is at long last beginning to recognize the crying need for energy efficiency and the use of sustainable materials in the construction of new homes. We've taken a leadership position in this market transformation and next month we are launching our green catalog. This will enable our customers to choose for themselves what technologies and earth-friendly materials they would like included in their new homes within their old budget. One example is Icynene insulation.

During the last half of 2007, Coachmen and Icynene jointly developed a new injection technique that greatly reduces the labor involved in applying foam insulation. We believe that this new system will also increase the structural rigidity of our homes. Because this was a joint effort, this technology is exclusive and proprietary to the Housing Group within our market areas.

In addition, we are very excited about the construction of the Smart Home Green Plus Wired Exhibit for the museum of science and industry in Chicago. We are working on this project with Michelle Kaufmann Designs, a full-service design build architectural firm that specializes in sustainable, innovative, high quality, modular architecture. The firm's founder, Michelle Kaufmann, works under the belief that sustainable, well-designed buildings should be accessible to more people and she has simplified the process and chosen offsite modular technology as the means to create beautiful, Eco-friendly homes and buildings.

Our goals are to make it easier for people to build green and live a more sustainable lifestyle. The home, called the mkSolaire, will be prominently located on the grounds of the museum. The museum itself attracts over 1 million visitors per year. This entire endeavor should put modular construction in a new light for the general public and fits well with our commitment to sustainable construction.

During the fourth quarter of 2007, we began testing the first component of our new marketing program with good results. Based on those results during the first quarter of 2008, we will expand the program to several of our markets. The program will include billboard, television, and print media advertising. This has never been attempted by the Housing Group and we will proceed with all due caution, as we make the public aware of our capabilities and the benefits of purchasing a state-of-the-art home from Coachmen's Housing Group.

Part of our new marketing campaign is directed at attracting new top quality builders to our organization. Although our current builder network is second to none, we still have areas within our marketing reach that are underserved. Because the independent builders are such a vital product of our past and future success, it is crucial that we continually add new and highly qualified builders to fill the gaps in our market areas.

In summary, 2007 marked the most difficult year for the Housing Group in memory. The single family housing market in the United States showed its worst performance in the last quarter century and in our market areas this marked the second, and in some cases, the third consecutive year of market decline. Despite these difficult markets, the Housing Group has made the important decisions and taken the appropriate actions to mitigate these broad market conditions and get back on the path with profitable growth.

Let me now turn the call back over to Rick Lavers, Rick?

Rick Lavers

Thank you Colleen, Mike, and Rick. We have accomplished many, many things in 2008. First and foremost, we have changed our business model to maximize manufacturing flexibility, to reduce our material costs through SKU reductions, strategic sourcing, and use of standardized parts from a smaller number of key vendor partners to minimize inventory to the extent possible, building to order rather than building open inventory, we exploited our brand equity, we priced our product to the market. We conceived innovative and styled products with an advanced design team under a strict new product development process, and all with an overriding emphasis on quality.

We have drastically reduced our voluntary hourly turnover which contributes to improved plan efficiencies and fewer errors online. We are beginning to reap the benefits now in terms of increased quality by increased customer satisfaction and dramatically lower warranty costs.

Specific to the housing side, we have created new green and wired product options and earlier this month, as Rick detailed, announced that we will build the Michelle Kaufmann Design house for display on the grounds of the Museum of Science and Industry in Chicago.

We managed our balance sheet closely monitoring payables and receivables, limited capital expenditures without starving research and development, marshaled underutilized assets and reduced head count, as we continue to seek out more ways to reduce costs where we can. For example, this month we began the relocation of our corporate offices from Elkhart to our manufacturing complex in Middlebury. As we no longer have any manufacturing operations in Elkhart or Edwardsburg, Elkhart offices really no longer make sense.

This relocation will reduce our costs and use empty office space at the complex, eliminate the time inefficiencies of many daily 45-minute one-way trips by executives and managers between Elkhart and Middlebury. We will increase senior management interactions by having all of our senior RV housing and corporate offices housed in one location, and perhaps most importantly, we will place the corporate officers in the middle and where the action is, closer to the manufacturing operations that are at the heart of our business, in fact on our major RV manufacturing complex.

While I obviously cannot be satisfied in any way, shape, or form with the results of the fourth quarter or for 2007, at the same time, I am very proud of this management team and of our employees for everything that we have accomplished in 2007. Unfortunately, while we relentlessly drove up costs throughout 2007, at times it seemed that no matter how fast we improved our quality, how fast we reduced our costs, or how fast we increased our market share, the RV and the housing markets fell faster and further. But we now believe we have built a solid floor under the business throughout 2007, we recalculated and restructured the company.

Now is the time to put all the changes we made in 2007 into action and we fully intend to do just that. Change was the key word for 2007. Execution is the key word for 2008. We are committed to being profitable whatever it takes. Based on what we have done in the internal metrics we are tracking even in the face of the challenging markets of both of our business segments, I am confident in saying that 2008 will better than 2007 and not just marginally better, tremendously better. Right now, January sales are proven to be much better than December’s.

Behind the scenes during 2007, we have been diligently putting together several significant new initiatives that we are on the cusp of announcing, which are just not quite ready for prime time. These initiatives will bring additional revenue streams to the company. If we can successfully implement those initiatives and if we can continue the trends we have established of growing RV market share and increasing our military and major projects housing business, we can actually add top line growth in 2008 even in these deplorable market conditions. The key word is execution.

Before we go to questions, I would like to take a quick moment for a word for our employees, builders and dealers; some of them often listen to these calls. I know that many of you are concerned about your jobs and your businesses and the future of our company. With the closure of national RV and Travel Supreme, many of our local RV competitors are operating on 3-days weeks and the consolidation of our Ohio plant into Indiana as well as on our own RV facilities and all the talk about credit crises, real estate bubbles, and possible recession, as well as our own losses, frankly only a moron will not be concerned. I am sure rumors are rampant and I have heard some doozies over the last year. But this too will pass. This morning, I bought gas for $2.58 per gallon. Can you believe that? Last week, the FED dropped the FED funds rate by three-quarter points Congress and the White House are actually working together to pass a massive economic stimulus package on a fast track. Can you believe that?

We detailed last fall, why we have the capital resources to ride out the slump and Colleen provided further assurances this morning. As to our future, you know better than anyone how our products have improved in quality, but also features, design, and pricing. You know better than anyone all the many, many changes we have made in this company over the last 12 to 15 months, including personnel changes; look around you. You will recognize the strongest team we have had in years and that is no accident. You also know better than anyone how hard this management team is working. I promise you, we will continue to sweat blood to keep those production lines full and the key products moving off your lots and out of your shoulders, because when you succeed, we all succeed.

The Colorado and Iowa plants are full with military housing products we didn’t even make two years ago. Indiana will be healthy with the addition of work transferred from Ohio plus backstopping Iowa and Colorado and building another brand new product, the Michelle Kaufmann House at the Museum of Science and Industry, as well as fulfilling the needs of its own builder base.

Several of us will be traveling to The Carolinas and to the Gulf Coast next week trying to nail down some major project opportunities for our south-eastern plants. I'm not saying that our RV business is robust, but we are building five days a week and actually stepping up production rates in Middlebury for our new 2008 and 2009 models of C’s, A’s, and travel trailers in order to meet backlogs that extend into March.

SUT sales from our Georgies division are up over 420% from a year ago and Viking is developing a brand new product to supplement the camper trailer line.

Thank you for all your hard work. This team, top to bottom is now all pulling together in the same direction and we can do it. All pulling together in the same direction, we can do it. We are doing it and we will do it. We are going to be okay.

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