U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934
     For the fiscal year ended December 31, 1996
     OR
[ }  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition
     period from  ____________  to  ____________

                          Commission file number 1-9792
                              CAVALIER HOMES, INC.
             (Exact name of Registrant as specified in Its Charter)

Delaware                                                       63-0949734
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                          Identification Number)

       Highway 41 N. and Cavalier Road,
           Addison, Alabama                                       35540
    (Address of principal executive offices)                    Zip Code

       Registrant's telephone number, including area code: (205) 747-1575
           Securities registered pursuant to Section 12(b) of the Act:


                                                                 Name of
                                                             Each Exchange
    Title of Each class                                   on Which Registered
Common Stock, par value $.10                            New York Stock Exchange

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

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant,  computed by reference to the closing price of such stock on the New
York Stock Exchange as of March 20, 1997, was $149,600,075.

                Indicate the number of shares outstanding of each
                      of the Registrant's classes of common
                          stock, as of March 20, 1997.
                                   12,212,251
                             Common, $0.10 par value
                       Documents Incorporated by Reference

            PartIII of this report incorporates by reference certain
              portions of the Registrant's Proxy Statement for its
             Annual Meeting of Stockholders to be held May 14, 1997.


<PAGE>


                              CAVALIER HOMES, INC.
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1996

                                     PART I

ITEM 1.  BUSINESS

General

Cavalier  Homes,  Inc. is a Delaware  corporation,  with its  executive  offices
located at Highway 41 North and  Cavalier  Road,  Addison,  Alabama  35540.  The
Company also maintains  administrative  offices at 719 Scott Avenue,  Suite 600,
Wichita  Falls,  Texas  76301.   Unless  otherwise  indicated  by  the  context,
references in this report to the "Company" or to "Cavalier" include the Company,
its   subsidiaries,   divisions  of  its   subsidiaries   and  their  respective
predecessors, if any.

The Company designs and  manufactures a wide range of high quality  manufactured
homes and markets its homes  primarily in the  southeast,  southwest and midwest
regions of the United States,  with a focus on serving the low- to medium-priced
manufactured  housing market.  During 1996,  approximately  80% of the Company's
revenues  were  generated  from  sales in its core  markets  of  Alabama,  North
Carolina, Texas, South Carolina, Mississippi,  Louisiana, Georgia and Tennessee.
At December  31,  1996,  the Company  operated  thirteen  facilities.  Seven are
located in Alabama, two in North Carolina,  two in Texas and one each in Georgia
and Pennsylvania.

The Company's homes are sold under  thirty-three brand names. As of December 31,
1996, the Company's homes were sold by over 500 independent  dealers  (including
115 independent  exclusive dealers) operating over 600 retail sales centers. The
Company's  homes are normally fully  furnished,  including  appliances,  and are
comprised of one or more floor sections.

Through its financial  services segment,  the Company offers retail  installment
sale  financing  to  retail  customers  of its  exclusive  dealers  and  various
insurance  products  to certain  retail and  wholesale  purchasers  of its homes
including both personal and commercial lines of insurance.

Home Manufacturing Operations

At December 31,  1996,  the Company,  through  eight wholly owned  subsidiaries,
operated  thirteen  manufacturing   facilities  engaged  in  the  production  of
manufactured  homes.   Immediately  following  the  end  of  1996,  the  Company
reorganized these operating  subsidiaries and merged them into and combined them
with two new  operating  subsidiaries,  Cavalier  Industries,  Inc.  ("CII"),  a
Delaware corporation,  (formerly Brigadier Homes of North Carolina,  Inc., Astro
Mfg. Co., Inc.,  Mansion  Homes,  Inc. and Homestead  Homes,  Inc.) and Cavalier
Manufacturing, Inc. ("CMI"), a Delaware corporation, (formerly Cavalier Homes of
Alabama,  Inc.,  Buccaneer Homes of Alabama,  Inc.,  Riverchase  Homes, Inc. and
Cavalier Town & Country of Texas, Inc.). The former operating  subsidiaries will
continue their  operations as divisions of CII and CMI. The divisions of CII are
Brigadier  Homes of North Carolina (one  facility),  Astro Homes (one facility),
Mansion Homes (one facility) and Homestead Homes (one  facility).  The divisions
of CMI are Cavalier Homes of Alabama (three facilities),  Buccaneer Homes (three
facilities),  Riverchase  Homes  (one  facility)  and Town & Country  Homes (two
facilities).  The  management of each of the Company's  manufacturing  divisions
typically  consists of a president or general manager,  a production  manager, a
general sales manager, a controller, a service manager, a purchasing manager and
a quality control manager.  These mid-level  management  personnel  manage,  the
Company's  manufacturing  divisions  and typically  participate  in an incentive
compensation system based upon their respective profitability.

The  Company  has  experienced  significant  growth  during the past five years,
expanding from four production  facilities in 1992 to thirteen facilities at the
end of 1996.  The  Company's  facilities  normally  operate  on a  single-shift,
five-day week basis.  The approximate  current annual capacity of the respective
divisions is shown below:
                                                                   Approximate
                                               Number of        Annual Capacity
     Manufacturing Division                     Facilities         in Floors

Cavalier Homes of Alabama                            3                6,000
--------
  +  Certain  items in the report that follows are marked with an asterisk  (*),
     indicating  that they are subject to the "Safe Harbor"  Statement under the
     Private  Securities  Litigation Reform Act of 1995 found on page 38 of this
     report.

<PAGE>


Buccaneer Homes                                      3                5,500
Town & Country Homes                                 2                3,500
Riverchase Homes                                     1                1,500
Mansion Homes                                        1                1,500
Brigadier Homes of North Carolina                    1                3,000
Homestead Homes                                      1                2,500
Astro Homes                                          1                1,500
                                                 -----            ----------
                                                    13               25,000
                                                =======          ===========

Additionally,  the following table sets forth certain production information for
1996, 1995 and 1994:

<TABLE>
<S>                      <C>                 <C>             <C>                <C>              <C>                <C>

                                                            For the Year Ended December 31,
                         ----------------------------------------------------------------------------------------------------------
                                          1996                               1995                                     1994
                         ----------------------------------- ----------------------------------- ----------------------------------
Number of Homes Sold:

   Single-Section Homes          8,505              58%              7,123              60%              6,309             63%
   Multi-Section Homes           6,044              42%              4,705              40%              3,733             37%
                         ------------------ ---------------- ------------------ ---------------- ----------------- ----------------

      Total Homes               14,549             100%             11,828             100%             10,042            100%

Number of Floors Sold           20,608                              16,543                              13,799

</TABLE>


Construction of a home begins by welding steel frame members together. The frame
is then moved  through the plant,  stopping at a number of work  stations  where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line work
stations.  The completed  home is usually sold fully  furnished and is ready for
connection to customer-supplied water, sewage and electrical systems.

The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, aluminum, galvanized pipe, insulating materials,  electrical supplies
and plastics.  The Company purchases axles,  wheels,  tires, kitchen appliances,
laminated wallboard, roof trusses, plumbing fixtures,  furniture,  carpet, vinyl
floor  covering,  windows  and  decorator  accessories.  Currently,  the Company
maintains  approximately  two to three weeks'  inventory of raw  materials.  The
Company is not  dependent on any single  source of supply and believes  that the
materials and parts necessary for the construction and assembly of its homes are
readily available from other sources.

Certain of the Company's  manufacturing  facilities currently purchase laminated
wallboards,  exterior  doors,  cabinet  doors,  roof  trusses and certain  other
products from joint ventures in which the Company owns an interest.  The Company
believes  prices  obtained by the Company  for these  products  from these joint
ventures are competitive with the Company's other sources of supply.

Because the cost of transporting a manufactured home is significant,  there is a
limit to the distance  between a  manufacturing  facility and the dealers it can
service. The Company believes that the location of its manufacturing  facilities
in multiple states allows it to serve more dealers in more markets.  The Company
generally arranges,  at the dealer's expense, for the transportation of finished
homes  to  dealers  using  independent  trucking  companies.  Dealers  or  other
independent  installers  are  responsible  for placing the home on site,  making
utility  connections  and providing and installing  certain  accessory items and
appurtenances, such as decks, carports and foundations.

Products

The Company's homes include both  single-section and multi-section  models, with
the  substantial  majority of such  products  being "HUD Code  Homes"  which are
manufactured  homes that meet the  specifications  of the National  Manufactured
Home  Construction  and Safety Act of 1974, as amended,  and administered by the
U.S. Department of Housing and Urban Development  ("HUD").  Single-section homes
are 14 to 16 feet wide,  vary in length from 40 to 80 feet and  contain  between
560 and 1,280 square feet. The multi-section models consist of two or more floor
sections that are joined at the home site, vary in length from 40 to 80 feet and
contain between 880 and 2,128 square feet.

The Company currently  produces over 300 different models of manufactured  homes
with a variety  of decors  that are  marketed  under 33 brand  names.  The homes
typically include a living room, dining area, kitchen,  one to four bedrooms and
one  or  more   bathrooms.   Each  home  contains  a  cooking  range  and  oven,
refrigerator,  hot water heater and central heating. Depending on the customer's
preferences, most homes are sold fully furnished. Customers may also choose many
available

<PAGE>


options including  fireplaces,  ceiling fans,  dishwashers,  garbage  disposals,
microwave ovens,  stereos, bay windows,  composition shingle roofs, vinyl siding
and sliding glass patio doors.

During 1995,  the Company began  manufacturing  a series of homes intended to be
located in subdivisions  or residential  communities and marketed by real estate
developers.  These  "Developer"  homes  differ  from the  Company's  traditional
manufactured  homes as they  have  sheetrock  walls  that  have  been  taped and
textured and residential style  roof-lines.  These upscale homes can be set on a
permanent  foundation  and  may  include  garages,   porches,  decks  and  other
site-built amenities not found in traditional manufactured homes.

Modular homes are homes designed to meet building codes  administered  by states
and local authorities,  as opposed to the national HUD guidelines.  Three of the
Company's  manufacturing  facilities  currently  manufacture a limited number of
modular homes meeting applicable regulatory standards.

The Company's  product  development  and engineering  personnel  design homes in
consultation with operating management,  sales representatives and dealers. They
also evaluate new materials and construction  techniques and use  computer-aided
and other design methods in a continuous program of product development,  design
and enhancement.  The Company's  product  development  activities do not require
significant capital investments or expenditures.

Independent Dealer Network, Sales and Marketing

As of  December  31,  1996,  the  Company's  homes  were sold  through  over 500
independent dealers (including 115 independent exclusive dealers) operating over
600 retail sales centers located in over thirty states. Approximately 80% of the
Company's sales in 1996 were to dealers operating sales centers in the Company's
core markets as follows: Alabama - 18%, North Carolina - 13%, Texas - 13%, South
Carolina - 11%,  Mississippi - 8%,  Louisiana - 7%, Georgia - 6% and Tennessee -
4%.

The  Company  has  written  agreements  with  most  of its  independent  dealers
requiring each dealer to maintain  qualified service staff to perform day-to-day
repair  work on the  Company's  homes sold by the dealer  and  requiring  prompt
payment by the dealer for homes purchased. These agreements may be terminated at
any time by either party,  with or without  cause,  after a short notice period,
generally 30 days. The Company does not have any control over the operations of,
or financial interests in, any of its independent dealers,  including any of its
independent  exclusive  dealers.  The  Company  is not  dependent  on any single
dealer,  and in 1996, the Company's  largest dealer accounted for  approximately
2.9% of sales.

The Company believes that its independent  dealer network enables the Company to
achieve broader  distribution  of its products than if the Company  operated its
own  retail  sales  centers  and allows  the  Company  to avoid the  substantial
investment in  management,  capital and overhead  associated  with company owned
sales  centers.  To enable  dealers to maximize  retail market  penetration  and
enhance customer  service,  typically only one dealer within a given market area
distributes a particular  product line of the Company.  The Company believes its
strategy of selling its homes through  independent  dealers helps to ensure that
the Company's homes are competitive  with those of other  manufacturers in terms
of consumer  acceptability,  product design, quality and price.  Accordingly,  a
component of the Company's  business  strategy is to continually  strengthen its
dealer  relations.  The Company  believes  its  relations  with its  independent
dealers, including its independent exclusive dealers, are good. *

Since 1991,  the Company has been  developing an  independent  exclusive  dealer
network. The Company's  independent exclusive dealers market and sell only homes
manufactured  by the  Company,  while the  Company's  independent  non-exclusive
dealers  typically will choose to offer the products of other  manufacturers  in
addition  to those  of the  Company.  The  growth  in the  Company's  number  of
exclusive  dealers and percentage of total Company sales  represented by them is
summarized in the following table:

<TABLE>
<S>                                               <C>                <C>                <C>
                                                            For the Year Ended December 31,
                                                  -----------------------------------------------------
                                                       1996               1995               1994
                                                  ---------------    ---------------    ---------------

Number of Exclusive Dealers                                  115                 93                 73

Percentage of Total Company Sales                            44%                39%                37%

</TABLE>



The Company makes installment sale financing through CAC available to the retail
customers  of its  exclusive  dealers  and  provides  these  dealers  with other
services and support.

--------
*  See Safe Harbor Statement on page 38.


<PAGE>


Each of the Company's  manufacturing divisions typically employs a general sales
manager and its own respective  sales  representatives  who are compensated on a
commission  basis. The plant-level  sales  representatives  are charged with the
day-to-day  servicing  of  the  needs  of  the  Company's  independent  dealers,
including  its  independent  exclusive  dealers.  The Company  markets its homes
through product promotions, participation in regional manufactured housing shows
and  advertisements  in local  media.  As of  December  31,  1996,  the  Company
maintained a sales force of 49 full-time  salesmen and 7 full-time general sales
managers.

Retail Financing Activities

A significant  factor affecting sales of manufactured  homes is the availability
and terms of  financing.  The Company  engages in the business of making  retail
installment  finance  loans to customers of its  independent  exclusive  dealers
through its finance  subsidiary,  CAC. In addition,  the  Company's  goal is for
CAC's  activities  to provide the Company with a source of  consistent  earnings
which may, to a certain extent, be insulated from fluctuating  manufactured home
sales volumes. *

CAC seeks to provide  highly  competitive  financing  terms to  customers of the
Company's   independent   exclusive   dealers.   CAC  currently  offers  various
conventional  loan programs which require a down-payment  ranging from 0% to 20%
of  the  purchase  price,  in  cash,   trade-in  value  of  a   previously-owned
manufactured  home and/or appraised value of equity in any real property pledged
as collateral.  Repayment terms generally range from 84 to 240 months, depending
upon the type of home and amount  financed,  the amount of the down  payment and
the  customer's  creditworthiness.  CAC's loans are secured by a purchase  money
security interest in the manufactured home and, in certain instances, a mortgage
on real property pledged as additional collateral.  As of December 31, 1996, all
of CAC's outstanding  loans were secured.  Loans purchased and originated by CAC
normally  provide a fixed rate of interest with equal  monthly  payments and are
non-recourse to the dealer.  All of CAC's loans outstanding at December 31, 1996
provided  for a  predetermined  fixed  rate  of  interest.  The  interest  rates
applicable to CAC's loans as of such date generally ranged from 9.25% to 14.00%,
and the approximate  weighted average annual percentage interest rate was 10.9%.
Currently,  CAC  operates  in each of the 15  states in which  the  Company  has
independent exclusive dealers.

For those retail customers who meet CAC's lending standards, CAC provides prompt
credit approvals and funding of loans. CAC has established a standardized credit
scoring system to facilitate such prompt  decision-making  on loan applications.
The most  important  criteria in the scoring  system are the income,  employment
stability and credit  worthiness of the borrower.  The system requires a minimum
score before CAC will consider funding the installment sale contract.

In the event an  installment  sale  contract  becomes  delinquent,  CAC normally
contacts the customer  within 10 to 25 days  thereafter in an effort to cure the
delinquency. CAC generally repossesses the home after payments have become 60 to
90 days delinquent. After repossession,  CAC normally transports the home to one
of the Company's  independent dealer's sales center where CAC attempts to resell
the home or  contracts  with an  independent  party to remarket  the home.  To a
limited extent, CAC sells repossessed homes at wholesale.

The Company  maintains a reserve for estimated credit losses on installment sale
contracts  owned by CAC to provide  for  future  losses  based on the  Company's
historical  loss   experience,   current   economic   conditions  and  portfolio
performance.  * Amounts  credited to the reserve  were  $778,000,  $311,000  and
$265,000  in 1996,  1995 and 1994,  respectively.  Additionally,  as a result of
defaults  and  repossessions  the  reserve was charged  $388,000,  $110,000  and
$19,000 in 1996, 1995 and 1994,  respectively.  The reserve for credit losses at
December  31, 1996 was  $941,000,  as compared to $551,000 at December 31, 1995,
and $350,000 at December 31, 1994.

In fiscal 1996, 1995 and 1994, CAC repossessed 41, 13 and 3 homes, respectively.
The Company's  inventory of repossessed  homes was 6 homes at December 31, 1996,
as compared to 6 homes at December 31,  1995,  and 2 homes at December 31, 1994.
The Company's net losses resulting from repossessions on CAC originated loans as
a  percentage  of the average  principal  amount of such loans  outstanding  for
fiscal 1996, 1995 and 1994 was 1.40%, .76% and .29%, respectively.

At  December  31, 1996 and  December  31,  1995,  delinquencies  expressed  as a
percentage of the total number of  installment  sale  contracts  which CAC owned
were as follows:
<TABLE>
<S>                                              <C>              <C>               <C>               <C>

                                                                       Delinquency Percentage
                   Total Number                                           December 31,1996
                                                ----------------------------------------------------------------------
                   of Contracts                     30 Days           60 Days           90 Days            Total
----------------------------------------------  ----------------  ----------------  ----------------  ----------------

                      1,292                               1.16%             0.08%             0.00%             1.24%

                                                             15                 1                 0                16
</TABLE>


--------
*  See Safe Harbor Statement on page 38.

<PAGE>

<TABLE>
<S>                                              <C>              <C>               <C>               <C>

                                                                       Delinquency Percentage
                   Total Number                                           December 31,1995
                                                ----------------------------------------------------------------------
                   of Contracts                     30 Days           60 Days           90 Days            Total
----------------------------------------------  ----------------  ----------------  ----------------  ----------------

                       758                                0.26%             0.40%             0.00%             0.66%

                                                              2                 3                 0                 5
</TABLE>


At  December  31, 1996 and  December  31,  1995,  delinquencies  expressed  as a
percentage  of the total  outstanding  principal  balance  of  installment  sale
contracts which CAC owned were as follows:
<TABLE>
<S>                                              <C>              <C>               <C>               <C>
                                                                       Delinquency Percentage
                   Total Value                                            December 31,1996
                                                ----------------------------------------------------------------------
                   of Contracts                     30 Days           60 Days           90 Days            Total
----------------------------------------------  ----------------  ----------------  ----------------  ----------------

                   $ 36,425,000                           1.13%             0.09%             0.00%             1.22%

</TABLE>

<TABLE>
<S>                                              <C>              <C>               <C>               <C>

                                                                       Delinquency Percentage
                   Total Value                                            December 31,1995
                                                ----------------------------------------------------------------------
                   of Contracts                     30 Days           60 Days           90 Days            Total
----------------------------------------------  ----------------  ----------------  ----------------  ----------------

                   $ 19,209,000                           0.25%             0.35%             0.00%             0.60%

</TABLE>


There can be no  assurance  that the  Company's  future  results with respect to
delinquencies and  repossessions  will be consistent with its past experience as
reflected above.

Certain operating data relating to CAC are set forth in the following table:

<TABLE>
<S>                                           <C>               <C>               <C>

                                                                   December 31,
                                                ----------------------------------------------------
                                                     1996              1995              1994
                                                ----------------  ----------------  ----------------
Total loans receivable                        $      36,425,000 $      19,209,000 $       9,825,000
Allowance for credit losses                   $         941,000 $         551,000 $         350,000
Number of loans outstanding                               1,292               758               415
Number of delinquencies                                      16                 5                 2
Net loss ratio on average
   outstanding principal balance                          1.40%             0.76%             0.29%
Weighted average annual
   percentage rate                                        10.9%             11.3%             11.4%

</TABLE>

CAC presently has 4 part-time and 24 full-time employees.

Although the level of CAC's future  activities  cannot  presently be determined,
the  Company  expects  to  utilize  internally  generated  working  capital  and
borrowings under the Company's revolving, warehouse and term loan agreement with
its primary lender (described below under the heading  "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations - Liquidity and
Capital  Resources") to fund retail  installment sale contracts on homes sold by
the Company's  independent  exclusive dealers and to develop a portfolio of such
installment sale contracts.  * The Company believes that its relationships  with
its exclusive  dealers will assist the  development  of this  portfolio.* During
1995,  the Company  instituted  the  Dealership  Stock  Option Plan which grants
options to  purchase  the  Company's  common  stock to  exclusive  dealers  that
originate installment sales contracts with CAC. The Company believes this dealer
stock option program will further enhance the growth of CAC. * (For  information
relating  to the  Dealership  Stock  Option Plan of the  Company,  see note 7 of
"Notes to Consolidated Financial Statements" which are included herein.)

CAC currently acts principally as a permanent  lender on its conventional  loans
and holds such loans as long-term  receivables.  The Company  believes  that the
term loan component of its warehouse and term loan agreement will facilitate the
Company's  attempts to match  liabilities  and assets of CAC both as to term and
rate, which should reduce exposure from interest rate  fluctuations;  * however,
there can be no assurance  that  volatility or a significant  change in interest
rates will not materially affect the Company's  business,  results of operations
or financial condition. Substantially all the installment sale contracts held by
CAC are pledged as collateral to secure the obligations of the Company under its
warehouse and term loan agreement.  In the future, CAC may "pool" certain of the
installment  sale contracts in its portfolio for sale to  institutional or other
investors, either on a full-, partial- or non-recourse basis. *

--------
*  See Safe Harbor Statement on page 38.


<PAGE>

CAC's  ability  to  finance  installment  sale  contracts  is  dependent  on the
availability of funds to the Company. The Company believes that borrowings under
the warehouse and term loan agreement and available  working  capital  generated
from operations will provide CAC with adequate sources of capital to finance its
anticipated  purchases and  originations  of  installment  sale contracts on the
Company's  homes in 1997. * However,  if the Company  cannot  obtain  sufficient
sources  of capital  in the  future,  the  Company  would  have to  curtail  its
financing  activities  until  other  sources  could be  obtained.  (For  further
discussion,  see  "Liquidity  and Capital  Resources"  in Item 7.,  Management's
Discussion and Analysis of Financial Condition and Results of Operations.)

Retail Insurance Activities

During 1994, the Company formed Cavalier  Insurance Agency,  Inc.  ("CIA"),  and
during 1996 acquired Blake Insurance  Agency,  Inc.  ("Blake"),  to sell various
insurance  products to retail  purchasers  of the  Company's  homes,  including,
physical damage and extended home warranties. CIA and Blake also sell commercial
lines of insurance products, including general liability and property insurance,
to the Company's independent exclusive dealers and others. At December 31, 1996,
CIA and Blake had 9 full-time employees and 1 part-time employee.

Wholesale Dealer Financing and Repurchase Obligations

In accordance with manufactured housing industry practice,  substantially all of
the Company's  dealers  finance their  purchases of  manufactured  homes through
wholesale  "floor  plan"  financing  arrangements.  Under a typical  floor  plan
financing  arrangement,  a financial institution provides the dealer with a loan
for the purchase price of the home and maintains a security interest in the home
as collateral.  The financial institution which provides financing to the dealer
customarily  requires the Company to enter into a separate repurchase  agreement
with the  financial  institution  under  which the  Company is  obligated,  upon
default by the dealer,  to repurchase  the financed  homes at a declining  price
based upon the Company's original invoice price plus, in specific cases, certain
administrative  expenses.  A portion of  purchases  by dealers  are  pre-sold to
retail customers and are paid through retail financing commitments.

The risk of loss under such repurchase  agreements is mitigated by the fact that
(i) sales of the Company's manufactured homes are spread over a relatively large
number of independent  dealers, the largest of which accounted for approximately
2.9% of the Company's net sales in 1996, (ii) the repurchase  obligation expires
on individual homes after a reasonable period of time (generally 12 to 18 months
from invoice date) and also declines  during such period based on  predetermined
amounts  and (iii) the  Company is in many cases able to sell homes  repurchased
from  credit  sources  in the  ordinary  course of  business  without  incurring
significant losses. As of December 31, 1996, the Company's  contingent liability
under these  repurchase  and other  similar  recourse  agreements  was an amount
estimated to be approximately $80 million. The Company has provided an allowance
for possible  repurchase  losses of $800,000 as of December  3l, 1996,  based on
prior experience and current market conditions.  Management currently expects no
material loss in excess of the allowance. *

Quality Control, Warranties and Service

The  Company  believes  the quality in  materials  and  workmanship,  continuous
refinement in design and production procedures as well as price and other market
factors, is an important element in the market acceptance of manufactured homes.
The  Company  maintains a rigorous  quality  control  inspection  program at all
production  stages.  The Company's  manufacturing  facilities  and the plans and
specifications of its manufactured  homes have been approved by a HUD-designated
inspection  agency. An independent,  HUD-approved  third-party  inspector checks
each of the Company's manufactured homes for compliance during construction.

The  Company  provides  the  initial  home buyer with a  HUD-mandated,  one-year
limited  warranty  against  manufacturing  defects in the  home's  construction.
Warranty  services after sale are performed,  at the expense of the Company,  by
local  plant  personnel,  by  independent  dealers or, in certain  cases,  local
independent  contractors.  In addition to the  warranty by the  Company,  direct
warranties often are provided by the  manufacturers  of specific  components and
appliances.

The Company  maintains a full-time  service manager at most of its manufacturing
facilities.  In  addition,  the Company has 97  full-time  service  personnel to
provide  on-site   service  and  correct   production   deficiencies   that  are
attributable  to the  manufacturing  process.  Warranty  service  constitutes  a
significant  cost to the  Company,  and  management  of the  Company  has placed
emphasis on diagnosing  potential  problem  areas to help minimize  costly field
repairs. The Company also has focused

--------
*  See Safe Harbor Statement on page 38.

<PAGE>


on reducing  response time to customer service  requests.  At December 31, 1996,
the Company had established a reserve for future warranty claims of $7.0 million
relating  to homes  sold,  based  upon  management's  assessment  of  historical
experience factors and current industry trends. *

Competition

The manufactured  housing industry is highly  competitive,  characterized by low
barriers to entry and severe price  competition.  Competition is based on price,
product features and quality, reputation for service and quality, depth of field
inventory,  delivery capabilities,  warranty repair service,  dealer promotions,
merchandising  and terms of dealer and retail  consumer  financing.  The Company
also competes with other manufacturers,  some of which maintain their own retail
sales  centers,  for quality  independent  dealers.  In addition,  the Company's
manufactured  homes  compete  with other  forms of low-cost  housing,  including
site-built,   prefabricated,   modular   homes,   apartments,   townhouses   and
condominiums.  The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly  affected by
their  ability  to obtain  satisfactory  financing.  The  Company  faces  direct
competition  from  numerous   manufacturers,   many  of  which  possess  greater
financial, manufacturing, distribution and marketing resources.

The Company  intends to  increase  substantially  the level of retail  financing
provided  through  CAC. * The  Company  believes  that  increasing  the level of
financing by CAC will have a positive  impact on the  Company's  efforts to sell
its products and enhance its competitive ability within the industry. * However,
due to strong  competition  in the retail  finance  segment of the industry from
companies much larger than CAC,  combined with the limited  operating history of
CAC,  there can be no assurance  that CAC will be able to increase its financing
or that providing  this  financing will have a positive  impact on the Company's
ability to compete.

Regulation

The Company's business is subject to a number of federal,  state and local laws,
regulations and codes.  Construction of manufactured  housing is governed by the
National  Manufactured  Home  Construction  and Safety Standards Act of 1974, as
amended,  and  regulations  issued  thereunder  by HUD,  which have  established
comprehensive  national  construction  standards.  The HUD regulations cover all
aspects of manufactured home construction,  including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state  and  local  regulations  on such  matters.  The  National  Commission  on
Manufactured  Housing has held hearings to develop  recommendations  relating to
the regulation of the manufactured housing industry.  This commission has issued
an  interim  report to  Congress  which  contains  a number  of  recommendations
relating  to  various  aspects of  manufactured  housing  regulation,  including
inspection,  warranty and enforcement.  The Company cannot  presently  determine
what,  if any,  legislation  may be adopted by  Congress  or the effect any such
legislation may have on the Company or the  manufactured  housing  industry as a
whole.

The Company's  manufacturing  facilities and the plans and specifications of its
manufactured  homes have been approved by a  HUD-designated  inspection  agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction.  Failure to
comply with the HUD  regulations  could  expose the Company to a wide variety of
sanctions, including closing the Company's manufacturing facilities. The Company
believes its manufactured homes meet or surpass all present HUD requirements. *

HUD has promulgated regulations with respect to structural design and wind loads
and energy  conservation.  The Company's operations were not materially affected
by the regulations;  however,  HUD has these matters under continuous review and
the  Company  cannot  predict  what  effect  (if  any)  additional   regulations
promulgated by HUD would have on the Company or the  manufactured  industry as a
whole.

Certain  components of manufactured  and modular homes are subject to regulation
by the U.S. Consumer Product Safety Commission  ("CPSC"),  which is empowered to
ban the use of  component  materials  believed to be  hazardous to health and to
require  the  repair  of  defective  components.  The  CPSC,  the  Environmental
Protection Agency and other governmental  agencies are evaluating the effects of
formaldehyde.  Manufactured,  modular  and  site-built  homes are all built with
particle board,  paneling and other products that contain  formaldehyde  resins.
Since  February  1985,  HUD  has  regulated  the  allowable   concentration   of
formaldehyde  in  certain  products  used in  manufactured  homes  and  required
manufacturers to warn purchasers concerning  formaldehyde  associated risks. The
Company currently uses materials in its manufactured homes that it believes meet
HUD  standards  for  formaldehyde   emissions  and  otherwise  comply  with  HUD
regulations in this regard. *

--------
*  See Safe Harbor Statement on page 38.

<PAGE>


The  Company's  manufactured  homes are  subject  to local  zoning  and  housing
regulations.  A number of states  require  manufactured  home  producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted  procedures  governing  the  installation  of  manufactured  homes.
Utility connections are subject to state and local regulation.

The Company is subject to the  Magnuson-Moss  Warranty  Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description  and  substance of the  Company's  warranties  are also subject to a
variety of state laws and regulations.

The  Company's  operations  are  subject  to  federal,  state and local laws and
regulations   relating  to  the   generation,   storage,   handling,   emission,
transportation  and  discharge of materials  into the  environment.  The Company
currently does not believe it will be required under existing environmental laws
and  enforcement  policies to expend amounts which will have a material  adverse
effect on its results of  operations  or  financial  condition.  * However,  the
requirements  of such laws and enforcement  policies have generally  become more
strict in recent  years.     Accordingly,  the  Company is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.

A variety of federal laws affect the financing of manufactured homes,  including
the financing  activities  conducted by CAC. The Consumer Credit  Protection Act
(Truth-in-Lending)  and Regulation Z promulgated  thereunder require substantial
disclosures  to be made in writing to a consumer with regard to various  aspects
of the  particular  transaction,  including  the  amount  financed,  the  annual
percentage  rate, the total finance  charge,  itemization of the amount financed
and  other  matters  and also  set  forth  certain  substantive  limitations  on
permissible  contract terms.  The Equal Credit  Opportunity Act and Regulation B
promulgated   thereunder  prohibit  credit  discrimination  against  any  credit
applicant  based on certain  prohibited  bases,  and also  require  that certain
specified  notices be sent to credit  applicants whose  applications are denied.
The Federal Trade  Commission has adopted or proposed  various trade  regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to  preserve  consumers'  claims  and  defenses.  The  Government  National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for  installment  manufactured  home sale  contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive  regulations  and  requirements  in order  for a  manufactured  home
installment  sale  contract to qualify for insurance  under the Federal  Housing
Authority ("FHA") program,  and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection.  In addition,  the
financing   activities  of  CAC  may  also  become  subject  to  the  disclosure
requirements  of the Home Mortgage  Disclosure Act. In addition to the extensive
federal  regulation of consumer  credit  matters,  many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer  credit lenders.  For example,  many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such  business  in that  state,  and many  states also set
forth a number of substantive  contractual limitations regarding provisions that
permissibly may be included in a consumer contract,  as well as limitations upon
the permissible  interest rates, fees and other charges that may be imposed upon
a consumer.  Failure by the Company or CAC to comply  with the  requirements  of
federal  or  state  law  pertaining  to  consumer  credit  could  result  in the
unenforceability  of the particular  contract for the affected  consumer,  civil
liability  to the  affected  customers,  criminal  liability  and other  adverse
results.

Employees

As of December 31,  1996,  the Company had 3,155  employees,  of whom 2,782 were
engaged in home manufacturing,  65 in sales, 97 in warranty and service,  173 in
general  administration,  28 in  retail  finance  services  and 10 in  insurance
services.  At year end, only Astro's  employees  engaged in  manufacturing  (142
employees)  were  covered  by  a  collective  bargaining  agreement.  Management
considers its relations with its employees to be good. *

ITEM 2.  PROPERTIES

The following table sets forth the location and  approximate  square footage for
each principal facility of the Company,  separated by segment as of December 31,
1996.  Except as indicated in footnotes  to the table,  all the  facilities  are
owned by the Company.

<TABLE>
<S>                                    <C>                                         <C>

                                                                                     Approximate
      Location                          Use (Number of Facilities)                  Square Footage
Manufacturing
     Cavalier Homes of Alabama
         Addison, Alabama               Manufacturing facilities (3)                      326,000     (1)
     Riverchase Homes
         Haleyville, Alabama            Manufacturing facility (1)                         78,000     (6)
     Buccaneer Homes
         Hamilton, Alabama              Manufacturing facilities (2)                      232,000     (6)
         Winfield, Alabama              Manufacturing facility (1)                         72,000     (2)
     Homestead Homes
         Cordele, Georgia               Manufacturing facility (1)                        110,000
     Brigadier Homes of North Carolina
         Nashville, North Carolina      Manufacturing facility (1)                        130,000
     Mansion Homes
         Robbins, North Carolina        Manufacturing facility (1)                         99,000     (3)
     Astro Homes
         Shippenville, Pennsylvania     Manufacturing facility (1)                        134,000
     Town & Country Homes
         Fort Worth, Texas              Manufacturing facility (1)                        101,000     (2)
         Mineral Wells, Texas           Manufacturing facility (1)                         81,000     (4)

Financial Services
         Hamilton, Alabama              Administrative Office                               5,000
         Haleyville, Alabama            Administrative Office                               1,000

General Corporate
         Addison, Alabama               Administrative Office                              16,000     (5)
         Wichita Falls, Texas           Administrative Office                               1,000     (3)

</TABLE>

     (1)  Lease expires on one facility in 1997 and one in 1998.
     (2)  Lease expires in 1999.
     (3)  Lease expires in 1998.
     (4)  Lease expires in 2006.
     (5)  Included in Cavalier of Alabama lease expiring in 1998.
     (6)  One  facility  in  Hamilton, Alabama and the  facility in  Haleyville,
          Alabama is  subject  to  an  encumbrance  arising  out  of  industrial
          development bond financing.

In general, the manufacturing  facilities are in good condition and are operated
at capacities which range from approximately 77% to 97%.

ITEM 3.  LEGAL PROCEEDINGS

The Company is a party to various legal proceedings  incidental to its business.
In the opinion of management,  the ultimate  liability,  if any, with respect to
these  proceedings is not presently  expected to materially affect the financial
position  or  results  of  operations  of the  Company;  however,  the  ultimate
resolution  of these  matters  could  result in  losses  in  excess  of  current
estimates.*

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK
              HOLDER MATTERS

The  Company's  common stock is traded on the New York Stock  Exchange  ("NYSE")
under the symbol "CAV".  The following table sets forth, for each of the periods
indicated,  the reported  high and low closing sale prices per share on the NYSE
for the  Company's  common stock and the cash  dividends  paid per share in such
periods.  The  amounts  have  been  adjusted,  as  appropriate,   to  reflect  a
five-for-four  stock split with respect to the Company's common stock,  effected
as a 25%

--------
*  See Safe Harbor Statement on page 38.

<PAGE>


stock dividend paid on August 15, 1995, a three-for-two stock split with respect
to the Company's common stock, effected as a 50% stock dividend paid on February
15, 1996 and a  five-for-four  stock split with respect to the Company's  common
stock,  effected as a 25% stock dividend paid on November 15, 1996. All adjusted
prices of the Company's common stock have been rounded to the nearest one-eighth
of one dollar.

<TABLE>
<S>                                               <C>                           <C>                            <C>

                                                                     Closing Sales Price
                                                  -----------------------------------------------------------
                                                             High                           Low                   Dividends
                                                  ----------------------------  -----------------------------  ----------------
Fiscal Year ended December 31, 1996
     Fourth Quarter                                         17   3/8                       10   1/2                      0.030
     Third Quarter                                          19   1/8                       12   7/8                      0.024
     Second Quarter                                         18   3/4                       12   1/8                      0.024
     First Quarter                                          12   3/8                        9   3/8                      0.024

Fiscal Year ended December 31, 1995
     Fourth Quarter                                         11   5/8                        8   3/4                      0.016
     Third Quarter                                           8   3/4                        5   1/8                      0.016
     Second Quarter                                          5   1/8                        4   5/8                      0.013
     First Quarter                                           5   3/8                        4   1/4                      0.013

</TABLE>

As of March 20, 1997, the Company had approximately  5,700 record and beneficial
holders of its common  stock,  based upon  information  in  securities  position
listings by registered  clearing agencies upon request of the Company's transfer
agent.

The Company intends to continue to pay regular quarterly  dividends.  * However,
the payment of dividends on the  Company's  Common  Stock is  determined  by the
Board  of  Directors  of the  Company  in  light of  conditions  then  existing,
including  the  earnings  of the  Company and its  subsidiaries,  their  funding
requirements and financial conditions,  certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive  covenants which,  among other things,  limit the aggregate dividend
payments and purchases of treasury  stock to 50% of the Company's  aggregate net
income for the two most recent fiscal years.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The following  table sets forth selected  consolidated  financial data regarding
the Company for the periods indicated. The statement of income data, the balance
sheet  data,  and other data of the  Company  for each of the five  years  ended
December 31, 1996, have been derived from the consolidated  financial statements
of the Company.  The Company's audited  financial  statements as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31,  1996,  including  the notes  thereto and the  related  report of Deloitte &
Touche LLP,  independent  auditors,  are included  elsewhere in this report. The
selected  consolidated  financial  data should be read in  conjunction  with the
Consolidated  Financial  Statements  (including the Notes thereto) and the other
financial information contained elsewhere in this report, and with the Company's
consolidated  financial  statements  and  the  notes  thereto  appearing  in the
Company's previously filed Annual Reports on Form 10-K.

--------
*  See Safe Harbor Statement on page 38.

<PAGE>
<TABLE>
<S>                                     <C>              <C>               <C>              <C>               <C>

                                                                    Year Ended December 31,
                                        ------------------------------------------------------------------------------------
                                          1996             1995              1994              1993             1992
                                        --------------   --------------    --------------   ---------------   --------------
                                                          (in thousands, except per share amounts)
Statement of Income Data

Revenues:
     Net sales                      $         345,415 $        272,486 $         206,442 $         155,595 $        106,405
     Financial services                         3,333            1,764               703               230               60
                                        --------------   --------------    --------------   ---------------   --------------

     Total revenues                           348,748          274,250           207,145           155,825          106,465

Cost of sales                                 284,024          227,646           176,041           133,423           91,863
Selling, general and administrative            42,869           31,974            22,975            17,049           11,258
                                        --------------   --------------    --------------   ---------------   --------------

Operating profit                               21,855           14,630             8,129             5,353            3,344
Life insurance proceeds                         1,750                -                 -                 -                -
Other income(expense) - net                       944              404               450               201             (20)
                                        --------------   --------------    --------------   ---------------   --------------

Income before taxes                 $          24,549 $         15,034 $           8,579 $           5,554 $          3,324
                                        ==============   ==============    ==============   ===============   ==============

Net income                          $          15,366 $          9,020 $           5,079 $           3,333 $          2,014
                                        ==============   ==============    ==============   ===============   ==============

Net income per share1               $            1.25 $            .79 $             .52 $             .41 $            .28
                                        ==============   ==============    ==============   ===============   ==============

Cash dividend per share1            $            .100 $           .056 $            .032 $            .029 $           .023
                                        ==============   ==============    ==============   ===============   ==============
Weighted average number of shares
     outstanding1                              12,258           11,486             9,835             8,092            7,279
                                        ==============   ==============    ==============   ===============   ==============
Other Data

Capital expenditures                $           7,871 $          8,035 $           6,330 $           2,933 $          1,124
                                        ==============   ==============    ==============   ===============   ==============

                                                                          December 31,
                                        ------------------------------------------------------------------------------------
                                          1996             1995              1994              1993             1992
                                        --------------   --------------    --------------   ---------------   --------------
Balance Sheet Data

Working capital                     $           8,473 $         11,121 $          12,576 $           5,483 $          5,328
Total assets                        $         115,574 $         82,626 $          63,763 $          31,182 $         19,966
Long-term debt                      $           4,918 $          4,314 $           3,207 $               - $              -
Stockholders' equity                $          68,805 $         46,071 $          36,460 $          16,632 $          9,835

</TABLE>

1 As adjusted for all stock splits paid through November 1996.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

General

The  principal  business of the Company  since its inception has been the design
and production of manufactured homes. In the first quarter of 1992, the Company,
through its wholly owned  subsidiary,  CAC,  commenced  retail  installment sale
financing  operations,  and by the  end of  1993  these  operations  had  become
significant enough to require segment reporting by the Company.

The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors that affect the housing market as a whole.
According  to the  Manufactured  Housing  Institute,  the  manufactured  housing
industry has posted gains in shipments for 1992,  1993,  1994,  1995 and 1996 of
24%, 21%, 20%, 12% and 7%, respectively. The greatest gains have occurred in the
southeastern United States, which have posted gains in shipments for 1992, 1993,
1994,  1995 and 1996 of 34%,  25%, 21%, 15% and 14%,  respectively.  The Company
conducts a substantial portion of its business in the southeastern United States
and attributes the strong shipment growth to a reduction of alternative housing,
increased  availability of retail financing,  increased consumer  confidence and
continuing strength in the national economy.

The Company has increased its  production  capacity to better take  advantage of
the growth in the industry,  increasing the number of  manufacturing  facilities
from four facilities at the end of 1992 to thirteen at the end of 1996.

Results of Operations

The following tables  summarize,  for the periods and dates  indicated,  certain
financial,  operating  and balance  sheet data  including,  as  applicable,  the
percentage of net sales or total revenue:


<PAGE>
<TABLE>
<S>                                   <C>               <C>       <C>               <C>       <C>               <C>

                                                                     For the Year Ended December 31,
                                          --------------------------------------------------------------------------------
STATEMENT OF INCOME SUMMARY                         1996                        1995                         1994
                                          -------------------------   ------------------------    ------------------------
                                                                        (dollars in thousands)
Net Sales                             $        345,415     100.0% $        272,486     100.0% $        206,442     100.0%
Cost of Sales                                  284,024      82.2%          227,646      83.5%          176,041      85.3%
                                          ------------- ----------    ------------- ----------    ------------- ----------

     Gross Profit on Sales            $         61,391      17.8% $         44,840      16.5% $         30,401      14.7%
                                          =============               =============               =============

Net Sales                             $        345,415            $        272,486            $        206,442
Financial Services                               3,333                       1,764                         703
                                          -------------               -------------               -------------

     Total Revenue                    $        348,748     100.0% $        274,250     100.0% $        207,145     100.0%
                                          =============               =============               =============

Selling, General and Administrative   $         42,869      12.3% $         31,974      11.7% $         22,975      11.1%
Operating Profit                      $         21,855       6.3% $         14,630       5.3% $          8,129       3.9%
Net Income                            $         15,366       4.4% $          9,020       3.3% $          5,079       2.5%

                                                                For the Year Ended December 31,
                                                  -------------------------------------------------------------
OPERATING DATA SUMMARY                                  1996                 1995                  1994
                                                  ------------------   ------------------    ------------------
                                                                     (dollars in thousands)

Installment Loan Originations                 $              19,932 $             10,721 $               7,309
Capital Expenditures                          $               7,871 $              8,035 $               6,330
Home Shipments                                               14,549               11,828                10,042
Floor Shipments                                              20,608               16,543                13,799
Independent Exclusive Dealers                                   115                   93                    73
Home Manufacturing Facilities                                    13                   11                     9

                                                                   Balances as of December 31,
                                                  -------------------------------------------------------------
BALANCE SHEET SUMMARY                                   1996                 1995                  1994
                                                  ------------------   ------------------    ------------------
                                                                     (dollars in thousands)

Cash and Cash Equivalents                     $              24,529 $             21,005 $              16,035
Working Capital                               $               8,473 $             11,121 $              12,576
Current Ratio                                              1.2 to 1             1.4 to 1              1.5 to 1
Long-Term Debt                                $               4,918 $              4,314 $               3,207
Ratio of Long-Term Debt to Equity                           1 to 14               1 to 9               1 to 11
Installment Loan Portfolio                    $              36,531 $             19,209 $               9,825

</TABLE>

Net Sales.  The Company's net sales for the three years ended December 31, 1996,
1995 and 1994  were  $345,  $272 and $206  million,  respectively.  The  Company
believes  the  growth in net  sales  was  primarily  the  result  of  continuing
improvement in the industry combined with new and aggressive  marketing programs
instituted by the Company  during the years  indicated,  including the Exclusive
Dealer Program and Dealership Stock Option Plan,  coupled with the growth in the
Company's  manufacturing capacity and a shift in the mix of products sold toward
multi-section homes.

Actual  shipments of homes during the three years ended December 31, 1996,  1995
and 1994 were  14,549,  11,828 and 10,042,  respectively.  During the three year
period  ended  December  31,  1996,  the  average  price of homes sold rose from
$20,600 in 1994, $23,000 in 1995 to $23,700 in 1996. The increase in the average
selling price was primarily due to changes in construction standards mandated by
the Department of Housing and Urban Development (during the latter part of 1994)
and price increases  instituted by the Company during all three years associated
with  rising  prices in raw  materials  and the  increasing  shift in the mix of
products  sold  to  multi-section  homes.  During  the  three-year  period,  the
percentage of multi-section homes sold was 42%, 40% and 37% of total homes sold,
in 1996, 1995 and 1994, respectively.

Gross Profit on Sales.  Gross  profit on sales is derived by  deducting  cost of
sales from net sales.  Gross profit for the three years ended December 31, 1996,
1995 and 1994 was $61.4, $44.8 and $30.4 million,  respectively. The increase in
gross profit was primarily attributable to increased sales volume,  efficiencies
achieved as a result of production  increases and price increases  instituted by
the Company.

Financial Services Revenue. Financial services revenue is derived primarily from
interest  on  installment  sale  contracts  held  by CAC and  sale of  insurance
products by the Company's wholly owned insurance subsidiary,  Cavalier Insurance
Agency,  Inc. ("CIA").  Financial  services revenue for the years ended December
31,  1996,  1995 and  1994  was  approximately  $3.3,  $1.8  and  $0.7  million,
respectively.   The  increase  in  financial   services  revenue  was  primarily
attributable  to the continued  growth in the Company's loan portfolio to $36.4,
$19.2 and $9.8 million at the end of 1996, 1995 and 1994, respectively.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses during the three years ended December 31,1996,1995 and 1994 were $42.9,
$32.0 and $23.0 million,   respectively.   The increase in  selling, general and

<PAGE>


administrative  expenses was  attributable to additional  expenses and personnel
costs  associated  with the Company's  continued  sales growth,  increase in the
number of manufacturing facilities operated by the Company,  increased operating
expenses  of  CAC  consistent  with  its  growth,  increased  sales  commissions
consistent  with the  increase  in sales and  additional  employee  compensation
expenses paid under the Company's performance compensation plans.

Operating  Profit.  Operating  profit is derived by deducting  cost of sales and
selling, general and administrative expense from total revenue. Operating profit
-  manufacturing  during the three years ended December 31, 1996,  1995 and 1994
was $21.9,  $15.4 and $8.9  million,  respectively.  The  increase in  operating
profit - manufacturing  was consistent with the increase in net sales during the
periods and increased  manufacturing  efficiency.  Operating  profit - financial
services during the three years ended December 31, 1996, 1995 and 1994 was $1.3,
$.6 and $.2 million,  respectively. The increase in operating profit - financial
services was primarily attributable to the growth in CAC's loan portfolio during
the periods to $36.4,  $19.2 and $9.8 million at the end of 1996, 1995 and 1994,
respectively.

Other Income(Expense):

     Interest  expense.  The  interest  expense  during  the three  years  ended
     December  31,  1996,  1995 and 1994 was  $560,000,  $508,000  and  $76,000,
     respectively. The increase in interest expense during the three-year period
     is primarily attributable to borrowings by the Company to fund CAC.

     Life  insurance   proceeds.   During  1996,   the  Company   experienced  a
     non-recurring  gain on life insurance  proceeds received as a result of the
     death of the Company's  President  and Chief  Executive  Officer,  Jerry F.
     Wilson.

     Other income,  net.  Other income during the three years ended December 31,
     1996, 1995 and 1994 was $1.5 million, $912,000 and $526,000,  respectively.
     Other  income is  comprised  of gain or loss on sales of  assets,  interest
     income  (unrelated to financial  services) and other investment  income and
     income  or loss on  investments  recorded  under  the  equity  method.  The
     increase  in  other  income  during  the  three-year  period  is  primarily
     attributable to an increase in earnings from investments recorded under the
     equity method.

Net Income.  Net income for three years ended December 31, 1996,  1995 and 1994,
was $15.4,  $9.0 and $5.1  million,  respectively.  The  increase  in net income
during the three years was primarily  attributable  to the increase in net sales
for the period, increased manufacturing efficiency and the increasing growth and
profitability of CAC. Additionally, during the year ended December 31, 1996, the
Company received $1.75 million of life insurance proceeds.

Financial  Services.  The Company offers retail  installment sales financing and
various  insurance  products through CAC and CIA. The following table summarizes
the operations of CAC and CIA:

<TABLE>
<S>                                          <C>                    <C>                  <C>

                                                                For the Year Ended December 31,
                                                  -------------------------------------------------------------
FINANCIAL SERVICES SUMMARY                              1996                 1995                  1994
                                                  ------------------   ------------------    ------------------
                                                                     (dollars in thousands)

Installment Loan Portfolio                    $              36,425 $             19,209 $               9,825
Installment Loan Originations                 $              19,932 $             10,721 $               7,309
Financial Services Revenues - CAC             $               2,991 $              1,682 $                 660
Financial Services Revenues - CIA             $                 342 $                 82 $                  43
Principal Collections                         $               2,716 $              1,337 $                 543
Number of Loans Outstanding                                   1,292                  758                   415
Weighted Average Interest Rate                                10.9%                11.3%                 11.4%

</TABLE>


CAC offers  retail  installment  sales  financing  for  manufactured  homes sold
through the Company's  independent  exclusive  dealer network.  During the three
years ended  December 31, 1996,  1995 and 1994,  CAC  purchased  and  originated
$19.9, $10.7 and $7.3 million, respectively, and had collected principal amounts
under such installment  contracts of $2.7, $1.3 and $0.5 million,  respectively.
At the end of 1996, 1995 and 1994, CAC had aggregated  balances in its portfolio
of installment loan obligations of $36.5, $19.2 and $9.8 million,  respectively,
and had  established  allowances  for credit  losses of  $941,000,  $551,000 and
$350,000, respectively. The Company expects to continue to expand the operations
of CAC and CIA during 1997 utilizing internally generated capital and borrowings
under a $23 million  revolving,  warehouse and term-loan  agreement (the "Credit
Facility",  for a further discussion of the Credit Facility,  see "Liquidity and
Capital Resources"). * See Safe Harbor Statement on page 38. The Company expects
that as the  operations of CAC and CIA expand,  they will have a greater  effect
upon the Company's consolidated results of operations and financial condition. *

--------
*  See Safe Harbor Statement on page 38.

<PAGE>



Liquidity and Capital Resources

As of December 31, 1996, 1995 and 1994, the Company had working capital of $8.5,
$11.1 and $12.6  million,  respectively.  The working  capital for 1996 and 1995
decreased,  despite strong earnings in both periods and borrowing by CAC of $1.0
million in 1996 and $2.0 million in 1995,  primarily due to loan originations by
CAC during 1996 and 1995 of $19.9 and $10.7 million,  respectively,  and capital
expenditures  by the Company  during the same periods of $7.9 and $8.0  million,
respectively.  The Company's capital  expenditures were financed  primarily with
internally  generated  working capital,  with the exception of 1994 during which
capital  expenditures  of $6.3  million were partly  financed  with $3.8 million
representing  a portion of the proceeds of an offering of the  Company's  Common
Stock.  During 1996 and 1995,  capital  expenditures  included normal  property,
plant and equipment additions and replacements as well as the opening in 1996 of
two additional  manufacturing  facilities  located in Mineral  Wells,  Texas and
Hamilton,  Alabama.  During 1995, the Company  opened an additional  facility in
Addison, Alabama.

The ratio of current  assets to current  liabilities  for the three  years ended
December  31,  1996,  1995  and  1994  was  1.2  to 1,  1.4  to 1 and  1.5 to 1,
respectively. Annualized inventory turnover for the same periods was 25.9, 23.6,
and 22.5, respectively.

The Company  entered into the Credit Facility in February 1994 and later amended
it in March of 1996. The facility presently consists of a $23 million revolving,
warehouse and term-loan  agreement with its primary lender.  The Credit Facility
contains a revolving  line of credit which  provides for  borrowings  (including
letters of credit) of up to 80% and 50% of the  Company's  eligible (as defined)
accounts  receivable  and  inventories,  respectively,  up  to a  maximum  of $5
million.  Interest is payable under the  revolving  line of credit at the bank's
prime rate.  The  warehouse  and  term-loan  agreements  contained in the Credit
Facility  provide for  borrowings  of up to 80% of the  Company's  eligible  (as
defined) installment sales contracts,  up to a maximum of $18 million.  Interest
on the term notes is fixed for a period of five years  from  issuance  at a rate
based on five-year  treasury  securities  averaged  over the preceding 13 weeks,
plus 2%, with a floating rate for the  remaining  two years  (subject to certain
limits) equal to the bank's prime rate plus .75%. The warehouse component of the
Credit  Facility  provides  for  borrowings  of up to $2 million  with  interest
payable at the bank's prime rate plus 1%. However, in no event can the aggregate
borrowings under the warehouse and term-loan agreement exceed $18 million.

The Company's  growth strategy  includes the continued  expansion of CAC and the
financial services segment of its business.  Accordingly,  it is likely that the
Company will incur  additional  debt,  or other forms of  leverage,  in order to
continue  to  fund  such  growth.  * The  Company  believes  existing  cash  and
investment  balances,  funds  available  under  the  Credit  Facility  and funds
provided by  operations  will be adequate to fund the Company's  operations  and
expansion  plans for the next  twelve  months.  *  However,  in order to provide
additional  funds  that  may be  necessary  for  the  continued  pursuit  of the
Company's growth strategies and for operations over the longer term, the Company
may incur,  from time to time,  additional short and long-term bank indebtedness
and  may  issue,  in  public  or  private  transactions,  its  equity  and  debt
securities,  the  availability  and terms of which will  depend  upon market and
other  conditions.  * There can be no assurance that such  additional  financing
will be available on terms acceptable to the Company.

Impact of Inflation

The Company  generally  has been able to increase  its selling  prices to offset
increased costs, including the costs of raw materials. Sudden increases in costs
as well as price  competition  can affect the ability of the Company to increase
its selling prices.  The Company  believes that the relatively  moderate rate of
inflation  over the past several years has not had a  significant  impact on its
sales or profitability,  but can give no assurance that this trend will continue
in the future. *

Impact of Accounting Statements

During the three years ended  December 31, 1996,  1995 and 1994, the Company has
adopted the provisions of various Statements of Financial  Accounting  Standards
("SFAS") promulgated by the Financial Accounting Standards Board ("FASB").  Such
statements  adopted included the provisions of SFAS No. 107 relating to the fair
value of  financial  instruments,  SFAS No. 114,  Accounting  by  Creditors  for
Impairment of a Loan,  SFAS No. 115,  Accounting for Certain  Investment in Debt
and Equity  Securities,  and SFAS No.  121,  Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  of. The  adopted
statements  have had  minimal  impact on the  Company's  consolidated  financial
statements and only result in increased disclosures.

--------
*  See Safe Harbor Statement on page 38.

<PAGE>


In October  1995,  the FASB  issued  SFAS No. 123,  Accounting  for  Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
fiscal years  beginning after December 15, 1995, and adoption of the recognition
and  measurement  provisions  for  nonemployee  transactions  entered into after
December 15, 1995.  The new standard  defines a fair value method of  accounting
for stock  options and other equity  instruments.  Under the fair value  method,
compensation  cost is  measured at the grant date based on the fair value of the
award.

Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions  under
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees,  ("APB  No.  25")  but  are  required  to  disclose  in a note to the
financial  statements  pro forma net  income  and  earnings  per share as if the
company had applied the new method of accounting.

The  accounting  requirements  of the new method are  effective for all employee
awards  granted after the beginning of the fiscal year of adoption.  The Company
has  determined  that it will  continue  to  account  for  employee  stock-based
transactions  under APB No.  25 and will not  elect to change to the fair  value
method. Adoption of the disclosure provisions of SFAS No. 123 in 1996 related to
such employee stock-based transactions will result in only increased disclosures
regarding  pro forma net income and  earnings  per share as if the  Company  had
applied the new method of accounting.

During 1995, the Company  approved the Dealership  Stock Option Plan of Cavalier
Homes,  Inc. (the "Dealer  Plan") which provides for certain stock option grants
to  eligible  independent  dealerships.  Such  grants  under the Dealer Plan are
considered nonemployee transactions. The Company has adopted the recognition and
measurement  provisions  of SFAS No. 123 for grants  subsequent  to December 15,
1995, under the Dealer Plan.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Selected Quarterly Financial Data (Unaudited)

The table contained on the following page sets forth certain unaudited quarterly
financial  data for the two years ended  December 31, 1996 and 1995. The Company
believes that the following  quarterly  financial data includes all  adjustments
necessary  for a  fair  presentation,  in  accordance  with  generally  accepted
accounting principles.  The following quarterly financial data should be read in
conjunction  with the other financial  information  contained  elsewhere in this
report.  The  operating  results  for any  interim  period  are not  necessarily
indicative of results for a complete year or for any future period.

<TABLE>
<S>                                 <C>                   <C>                  <C>                  <C>

                                             Fourth                Third                Second                First
                                             Quarter              Quarter               Quarter              Quarter
                                        ------------------   ------------------    ------------------   ------------------
                                                            (in thousands, except per share amounts)
1996
Revenues:
     Net sales                      $              90,817 $             88,976 $              90,838 $             74,784
     Financial services                             1,074                  867                   772                  620
                                        ------------------   ------------------    ------------------   ------------------

    Total revenues                                 91,891               89,843                91,610               75,404

Gross profit                                       17,549               16,617                16,967               13,591
Net income                                          5,361 *              3,609                 3,525                2,871
Net income per share1                                 .43 *                .29                   .29                  .24

1995
Revenues:
     Net sales                      $              73,018 $             70,900 $              70,755 $             57,813
     Financial services                               550                  484                   396                  334
                                        ------------------   ------------------    ------------------   ------------------

    Total revenues                                 73,568               71,384                71,151               58,147

Gross profit                                       12,872               12,765                11,662                9,305
Net income                                          2,611                2,479                 2,412                1,518
Net income per share1                                 .22                  .22                   .22                  .14

</TABLE>

The  sum  of  the quarterly  amounts  may not  equal  the  annual amounts due to
rounding.

*  Includes  non-recurring  gain of $1,750 or $.14 per share from life insurance
   proceeds.
1  Adjusted for the five-for-four stock split paid in August 1995, three-for-two
   stock split paid in February 1996 and the  five-for-four  stock split paid in
   November 1996.


<PAGE>


                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

             Index to Consolidated Financial Statements and Schedule

Independent Auditor's Report                                          17

Consolidated Balance Sheets                                           18

Consolidated Statements of Income                                     20

Consolidated Stockholders' Equity                                     21

Consolidated Statement of Cash Flows                                  22

Notes to Consolidated Financial Statements                            23

Schedule -

     II - Valuation and Qualifying Accounts                           33



Schedules  I, III,  IV and V have  been  omitted  because  they are  either  not
required or are inapplicable.






<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
   of Cavalier Homes, Inc.:

We have audited the accompanying  consolidated balance sheets of Cavalier Homes,
Inc.  and  subsidiaries  as of  December  31,  1996 and  1995,  and the  related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  1996.  Our audits  also
included the financial  statement  schedule listed in the index at Item 8. These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material   respects,   the  financial  position  of  Cavalier  Homes,  Inc.  and
subsidiaries  as of  December  31,  1996  and  1995,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted  accounting  principles.
Also, in our opinion,  such financial  statement  schedule,  when  considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects the information set forth therein.



DELOITTE & TOUCHE LLP

Birmingham, Alabama
February 28, 1997

<PAGE>



CAVALIER HOMES, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S>                                                                             <C>                 <C>

                                                                                   1996                1995
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                     $   24,529          $   21,005
  Marketable securities available for sale (Note 3)                                  1,097               3,583
  Accounts receivable, less allowance for losses of
    $800 (1996) and $750 (1995) (Notes 5 and 10)                                     3,046               1,893
  Notes and installment contracts receivable - current
    (Notes 4 and 5)                                                                  1,086                 694
  Inventories (Note 5)                                                              12,394               9,541
  Deferred income taxes (Note 8)                                                     4,663               3,648
  Other current assets                                                               2,475               1,954
                                                                                ----------           ---------
           Total current assets                                                     49,290              42,318
                                                                                ----------           ---------
PROPERTY, PLANT AND EQUIPMENT:
  Land                                                                                 847                 582
  Buildings and improvements                                                        15,803              10,775
  Machinery and equipment                                                           17,144              14,227
                                                                                ----------           ---------
                                                                                    33,794              25,584
  Less accumulated depreciation and amortization                                     9,034               6,690
                                                                                ----------           ---------
           Total property, plant and equipment, net                                 24,760              18,894
                                                                                ----------           ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
  allowance for credit losses of $941 (1996) and
  $551 (1995) (Notes 4 and 5)                                                       34,504              17,964

GOODWILL, less accumulated amortization
   of $588 (1996) and $310 (1995) (Note 2)                                           3,126               2,213

OTHER ASSETS                                                                         3,894               1,237
                                                                                ----------           ---------
TOTAL                                                                           $  115,574          $   82,626
                                                                                ==========           =========
See notes to consolidated financial statements.

</TABLE>



<PAGE>



CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S>                                                                             <C>                 <C>


                                                                                     1996                1995
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt (Note 5)                                    $      951          $      666
  Accounts payable                                                                   7,916               7,099
  Amounts payable under dealer incentive programs                                   10,937               6,998
  Accrued wages and related withholdings                                             1,652               1,220
  Accrued incentive compensation                                                     2,615               2,019
  Estimated warranties                                                               7,000               5,800
  Accrued insurance (Note 10)                                                        2,023               1,676
  Other accrued expenses                                                             7,722               5,720
                                                                                ----------           ---------
           Total current liabilities                                                40,816              31,198
                                                                                ----------           ---------
DEFERRED INCOME TAXES (Note 8)                                                       1,035               1,043
                                                                                ----------           ---------
LONG-TERM DEBT (Note 5)                                                              4,918               4,314
                                                                                ----------           ---------
COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY (Notes 5, 6 and 7):
  Series A Junior Participating Preferred Stock, $.01 par value;
    200,000 shares authorized, none issued
  Preferred stock, $.01 par value; 300,000 shares authorized,
    none issued
  Common stock, $.10 par value; authorized 15,000,000 shares,
    issued 12,169,128 shares (1996) and 11,242,439 shares (1995)                     1,217                 899
  Additional paid-in capital                                                        31,057              22,804
  Retained earnings                                                                 36,531              22,368
           Total stockholders' equity                                               68,805              46,071
                                                                                ----------           ---------
TOTAL                                                                           $  115,574          $   82,626
                                                                                ==========           =========

See notes to consolidated financial statements.


</TABLE>


<PAGE>



CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S>                                                                             <C>                 <C>                 <C>

                                                                                   1996                1995                1994

REVENUES:
  Net sales                                                                     $  345,415          $  272,486          $  206,442
  Financial services                                                                 3,333               1,764                 703
                                                                                ----------           ---------
                                                                                   348,748             274,250             207,145
                                                                                ----------           ---------
COST OF SALES (Note 10)                                                            284,024             227,646             176,041

SELLING, GENERAL AND
  ADMINISTRATIVE (Notes 7 and 9):
  Manufacturing                                                                     40,793              30,848              22,430
  Financial services                                                                 2,076               1,126                 545
                                                                                ----------           ---------
                                                                                   326,893             259,620             199,016
                                                                                ----------           ---------
OPERATING PROFIT                                                                    21,855              14,630               8,129
                                                                                ----------           ---------
OTHER INCOME (EXPENSE):
  Interest expense:
    Manufacturing                                                                      (68)                 (7)                 (1)
    Financial services                                                                (492)               (501)                (75)
  Life insurance proceeds                                                            1,750
  Other income, net                                                                  1,504                 912                 526
                                                                                ----------           ---------
                                                                                     2,694                 404                 450
                                                                                ----------           ---------
INCOME BEFORE INCOME TAXES                                                          24,549              15,034               8,579

INCOME TAXES (Note 8)                                                                9,183               6,014               3,500
                                                                                ----------           ---------
NET INCOME                                                                      $   15,366          $    9,020          $    5,079
                                                                                ==========           =========
NET INCOME PER SHARE (Note 6)                                                   $     1.25          $     0.79          $     0.52
                                                                                ==========           =========
WEIGHTED AVERAGE SHARES
  OUTSTANDING (Note 6)                                                          12,258,461          11,486,245           9,835,524
                                                                                ==========          ==========

See notes to consolidated financial statements.


</TABLE>


<PAGE>


CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S>                                                                  <C>              <C>           <C>             <C>


                                                                                                                        Treasury
                                                                                      Additional                        Stock - At
                                                                         Common        Paid-in            Retained        Average
                                                                         Stock         Capital            Earnings         Cost

BALANCE, JANUARY 1, 1994                                              $     360       $   7,486     $   9,228       $    (444)
  Sale of common stock, net of offering costs (Note 6)                      109          12,735
  Treasury stock reissued in connection with acquisition (Note 2)                         1,695                           394
  Stock options exercised (Note 7)                                            2              52
  Income tax benefits attributable to exercise of stock options
    (Note 7)                                                                                 86
  Cash dividends paid ($.03 per share)                                                                   (322)
  Net income                                                                                            5,079
                                                                      ----------      ---------      --------        --------
BALANCE, DECEMBER 31, 1994                                                  471          22,054        13,985             (50)
  Five-for-four stock split effected in the form of a dividend
    (Note 6)                                                                118            (118)
  Treasury stock reissued and common stock issued in connection with
    a purchase option                                                         1             413                            50
  Stock options exercised (Note 7)                                            9             689
  Income tax benefits attributable to exercise
    of stock options (Note 7)                                                               281
  Other                                                                                    (215)
  Three-for-two stock split effected in the form of a dividend
    (Note 6)                                                                300            (300)
  Cash dividends paid ($.06 per share)                                                                   (637)
  Net income                                                                              9,020
                                                                      ----------      ---------      --------        --------
BALANCE, DECEMBER 31, 1995                                                  899          22,804         22,368         $    -
  Stock options exercised (Note 7)                                           68           3,667                      ========
  Income tax benefits attributable to exercise of stock options
    (Note 7)                                                                              3,488
  Sale of common stock under Employee Stock Purchase Plan (Note 7)            2             238
  Common stock issued in connection with acquisitions                         5             887
  Accrued compensation                                                                      216
  Five-for-four stock split effected in the form of a dividend
    (Note 6)                                                                243            (243)
  Cash dividends paid ($.10 per share)                                                                 (1,203)
  Net income                                                                                           15,366
                                                                      ----------      ---------      --------
BALANCE, DECEMBER 31, 1996                                            $   1,217       $  31,057     $  36,531
                                                                      ==========      =========      ========

See notes to consolidated financial statements.

</TABLE>

<PAGE>



CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S>                                                                             <C>                <C>                 <C>
                                                                                   1996                1995               1994

OPERATING ACTIVITIES:
  Net income                                                                    $  15,366          $   9,020           $   5,079
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization                                                   3,763              2,509               1,746
    Provision for credit losses and repurchase commitments                            389                301                 286
    (Gain) loss on sale of property, plant and equipment                             (144)                23                (20)
    Equity in earnings of equity investments                                         (289)              (237)               (304)
    Compensation related to issuance of stock options                                 216
    Changes in assets and liabilities provided (used) cash,
      net of effects of acquisitions:
      Accounts receivable                                                            (489)               863               (409)
      Inventories                                                                  (3,547)               194             (2,372)
      Amounts payable under dealer incentive programs                               3,831              1,813                 779
      Accrued wages and related withholdings                                          346              (244)                  84
      Estimated warranties                                                            829              1,600                 750
      Other assets and liabilities                                                  3,565              2,899               4,128
                                                                                ---------           --------             -------
           Net cash provided by operating activities                               23,836             18,741               9,747
                                                                                ---------           --------             -------
INVESTING ACTIVITIES:
  Net cash paid in connection with acquisitions                                      (370)              (215)             (1,118)
  Proceeds from sale of property, plant and equipment                                 228                 63                  37
  Capital expenditures                                                             (7,871)            (8,035)             (6,330)
  Distribution from equity investment                                                 778
  Purchases of marketable securities                                                                  (1,004)             (6,076)
  Proceeds from maturity of marketable securities                                   2,479              3,210
  Investments in joint ventures                                                      (900)
  Purchases and originations of installment contracts                             (19,932)           (10,721)             (7,309)
  Principal collected on installment contracts                                      2,716              1,337                 543
  Other                                                                                                  138                  55
                                                                                ---------           --------             -------
           Net cash used in investing activities                                  (22,872)           (15,227)            (20,198)
                                                                                ---------           --------             -------
FINANCING ACTIVITIES:
  Net proceeds from sales of common stock                                             240                                 12,844
  Proceeds from long-term borrowings                                                1,004              2,000               3,700
  Payments on long-term debt                                                       (1,216)              (605)               (115)
  Proceeds from exercise of stock options                                           3,735                698                  54
  Cash dividends paid                                                              (1,203)              (637)               (322)
                                                                                ---------           --------             -------
           Net cash provided by financing activities                                2,560              1,456              16,161
                                                                                ---------           --------             -------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                           3,524              4,970               5,710

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                       21,005             16,035              10,325
                                                                                ---------           --------             -------
CASH AND CASH EQUIVALENTS, END OF YEAR                                          $  24,529          $  21,005           $  16,035
                                                                                =========           ========             =======
SUPPLEMENTAL SCHEDULE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES (Note 7):
  Contribution of assets as an equity investment                                $   2,396
                                                                                =========
  Reissuance of treasury stock in connection with acquisition                                                          $   1,874
                                                                                                                         =======
  Liabilities assumed in connection with acquisition                                                                   $   3,063
                                                                                                                         =======
See notes to consolidated financial statements.


</TABLE>

<PAGE>


CAVALIER HOMES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)



1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Principles  of  Consolidation  -  The  consolidated  financial  statements
      include  the  accounts  of  Cavalier  Homes,  Inc.  and  its  wholly-owned
      subsidiaries, (hereinafter collectively referred to as the "Company"). The
      Company's 50% or less  ownership  interests in various joint  ventures are
      accounted  for using the equity method and are included in other assets in
      the  accompanying  consolidated  balance  sheets.   Intercompany  profits,
      transactions and balances have been eliminated in consolidation.
*

      Nature of Operations - The Company  designs and  manufactures a wide range
      of  high  quality  manufactured  homes  which  are  sold to a  network  of
      independent  dealers  located  primarily in the  southeast,  southwest and
      midwest regions of the United States.  In addition,  through its financial
      services segment, the Company offers retail installment sale financing and
      related  insurance  products  for  manufactured  homes  sold  through  the
      Company's independent exclusive dealer network.


      Accounting   Estimates  -  The  preparation  of  financial  statements  in
      conformity  with  generally  accepted   accounting   principles   requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of  contingencies  at the
      date of the financial  statements and the reported  amounts of revenue and
      expenses  during the reporting  periods.  Actual results could differ from
      those estimates.

      Fair Value of Financial  Instruments - The carrying value of the Company's
      cash  equivalents,  accounts  receivable,  accounts  payable  and  accrued
      expenses  approximates  fair value because of the  short-term  maturity of
      those  instruments.  Additional  information  concerning the fair value of
      other financial instruments is disclosed in Notes 4 and 5.

      Cash  Equivalents - The Company  considers  all highly liquid  investments
      with original maturities of less than 90 days to be cash equivalents.

      Inventories  -  Inventories  consist  primarily of raw  materials  and are
      stated at the lower of cost (first-in, first-out method) or market. During
      1996, 1995 and 1994, the Company  purchased raw materials of approximately
      $22,200,  $7,900 and $7,360  respectively,  from  certain  joint  ventures
      referred to above.

      Property, Plant and Equipment - Property, plant and equipment is stated at
      cost and  depreciated  primarily  over the  estimated  useful lives of the
      related assets using the straight-line method. Maintenance and repairs are
      expensed as incurred.

      Goodwill - Goodwill is  amortized  over 15 years  using the  straight-line
      method.   The   Company    periodically   reviews   goodwill   to   assess
      recoverability,  and impairments  would be recognized in operating results
      if a permanent diminution in value were to occur.

      Revenue  Recognition - Sales of manufactured homes to independent  dealers
      are  recorded as of the date the home is shipped to the dealer.  All sales
      are final and without  recourse  except for the  contingency  described in
      Note 10. Interest income on installment contracts receivable is recognized
      using the interest method.

      Product  Warranties  - The Company  provides a one-year  limited  warranty
      covering  defects in material or workmanship in home  structure,  plumbing
      and  electrical  systems.  A liability  is provided for  estimated  future
      warranty costs relating to homes sold, based upon management's  assessment
      of historical experience factors and current industry trends.



<PAGE>



      Allowance for Losses on  Installment  Contracts - The Company has provided
      an allowance for estimated  future losses  resulting from retail financing
      activities of Cavalier Acceptance Corporation ("CAC") primarily based upon
      management's  assessment of  historical  experience  and current  industry
      trends.


      Insurance - The Company's  workmen's  compensation,  product liability and
      general  liability  insurance  coverages are provided under incurred loss,
      retrospectively rated premium plans. Under these plans, the Company incurs
      insurance  expense  based upon various  rates  applied to current  payroll
      costs and sales.  Annually,  such  insurance  expense is  adjusted  by the
      carrier for loss experience factors subject to minimum and maximum premium
      calculations.   Refunds  or  additional   premiums  are   estimated   when
      sufficiently  reliable data is available in accordance  with the consensus
      reached in  Emerging  Issues Task Force Issue No.  93-14,  Accounting  for
      Multiple-Year  Retrospectively  Rated  Insurance  Contracts  by  Insurance
      Enterprises and Other Enterprises.

      Net  Income  Per Share - Net  income  per  share is based on the  weighted
      average  number of shares  outstanding  during each period  including  the
      dilutive effect of stock options.

2.    ACQUISITIONS


      On October 28, 1994,  the Company  acquired all of the  outstanding  stock
      of Astro Mfg.  Co., Inc. for cash and common  stock totaling $5,173.  This
      acquisition was accounted for using the purchase method.




      The following  unaudited pro forma consolidated  results of operations for
      the year  ended  December  31,  1994  has  been  prepared  as  though  the
      acquisition  occurred as of January 1, 1994.  The pro forma  results  have
      been  prepared  for  comparative  purposes  only and do not  purport to be
      indicative of the results of operations  that would have been achieved had
      the acquisition taken place as of January 1, 1994 or in the future.


Net sales                                                             $ 217,213
Net income                                                                5,056
Net income per share                                                        .51



3.    MARKETABLE SECURITIES

      Marketable  securities  have been classified in the  consolidated  balance
      sheets at December 31, 1996 and 1995 according to management's  intent. As
      permitted by A Guide to  Implementation of Statement 115 on Accounting for
      Certain  Investments in Debt and Equity Securities issued by the Financial
      Accounting  Standards  Board in November 1995, the Company  reassessed the
      appropriateness of the  classifications of all its marketable  securities.
      Accordingly,  at December 31, 1995 the Company  transferred  approximately
      $2,500  of  marketable  securities  classified  as  held  to  maturity  to
      available for sale. At December 31, 1996 and 1995, the carrying amounts of
      marketable  securities,  which  approximate  their  fair  values,  were as
      follows:


Marketable securities available for sale:
  Closed-end funds                         $       1,097          $       1,097
  Corporate bonds                                                         1,482
  United States Treasury Notes                                            1,000
  Common stocks                                                               4

                                           $       1,097          $       3,583

<PAGE>




4.    INSTALLMENT CONTRACTS RECEIVABLE


      CAC does not  exclusively  finance sales for any dealer;  all dealers have
      other  financing  sources  available to offer to their  retail  customers.
      Standard loan programs  require minimum down payments,  ranging from 0% to
      20% of the purchase price of the home, on all installment  contracts based
      on the  creditworthiness  of the borrower.  In addition,  CAC requires the
      borrower to maintain adequate insurance on the home throughout the life of
      the  contract.  Contracts  are  secured  by the home  which is  subject to
      repossession by CAC upon default by the borrower.


      CAC's  portfolio  consists of fixed rate  contracts  with  interest  rates
      generally  ranging from 9.25% to 14.0% at December 31, 1996 and 1995.  The
      average  original  term of the  portfolio  was  approximately  208 and 187
      months at December 31, 1996 and 1995, respectively.

      Estimated principal payments under installment contracts receivable are as
      follows:

              Year Ending December 31,
                         1997                                         $   980
                         1998                                           1,088
                         1999                                           1,213
                         2000                                           1,351
                         2001                                           1,506
                      Thereafter                                       30,287

                        Total                                        $ 36,425


      At December 31, 1996 and 1995,  the  estimated  fair value of  installment
      contracts  receivable  was $36,205 and $20,320,  respectively.  These fair
      values were  estimated  using  discounted  cash flows and  interest  rates
      offered by CAC on similar contracts at that time.

      Activity  in the  allowance  for losses on  installment  contracts  was as
      follows:

                                       1996             1995             1994

Balance, beginning of year         $    551         $    350          $    104
Provision for losses                    778              311               265
Charge-offs, net                       (388)            (110)              (19)

Balance, end of year               $    941         $    551          $    350


5.    CREDIT ARRANGEMENTS

      The Company has a $23,000  revolving,  warehouse and  term-loan  agreement
      (the  "Credit  Facility")  with its primary  bank,  whose  president  is a
      director of the Company.  The Credit Facility contains a revolving line of
      credit which provides for borrowings  (including  letters of credit) of up
      to 80% and 50% of the Company's eligible (as defined) accounts  receivable
      and  inventories,  respectively,  up to a maximum of $5,000.  Interest  is
      payable under the revolving line of credit at the bank's prime rate (8.25%
      and 8.50% at December 31, 1996 and 1995, respectively).

      The  warehouse and term-loan  agreement  contained in the Credit  Facility
      provide for borrowings of up to 80% of the Company's eligible (as defined)
      installment sale contracts,  up to a maximum of $18,000.  Interest on term
      notes is fixed for a period of five years from issuance at a rate based on
      the weekly average yield on five-year  treasury  securities  averaged over
      the preceding 13 weeks, plus 2%, and floats for the remaining two years

<PAGE>


      at a rate (subject to certain  limits) equal to the bank's prime rate plus
      .75%.  The  warehouse  component  of  the  Credit  Facility  provides  for
      borrowings of up to $2,000 with interest  payable at the bank's prime rate
      plus 1%.  However,  in no event may the aggregate  outstanding  borrowings
      under the warehouse and term-loan agreement exceed $18,000.

      The Credit Facility contains certain  restrictive  covenants,  which limit
      the aggregate of dividend  payments and purchases of treasury stock to 50%
      of  consolidated  net  income  for  the two  most  recent  years.  Amounts
      outstanding  under  the  Credit  Facility  are  secured  by  the  accounts
      receivable and inventories of the Company,  loans purchased and originated
      by CAC and the  capital  stock of  certain of the  Company's  consolidated
      subsidiaries.  The bank's commitment under the Credit Facility will expire
      in April of 1998.

      At December 31, 1996 and 1995,  the Company's  long-term  debt consists of
      various  fixed and  variable  rate term loans  bearing  interest  at rates
      ranging from 6.19% to 10.15% and 9.40% to 10.15%, respectively.

      Principal repayment requirements on long-term debt are as follows:


               Year Ending
               December 31,

                   1997                                            $    951
                   1998                                               1,054
                   1999                                               1,156
                   2000                                               1,043
                   2001                                                 663
                Thereafter                                            1,002

                  Total                                               5,869
        Less current portion                                            951

        Long-term debt                                             $  4,918

      The estimated fair value of outstanding borrowings is $5,715 and $5,224 at
      December 31, 1996 and 1995, respectively.  These estimates were determined
      using rates at which the Company  believes it could have obtained  similar
      borrowings at that time.


      Cash paid for interest  during the years ended December 31, 1996, 1995 and
1994 was $566, $494 and $62, respectively.

6.    STOCKHOLDERS' EQUITY

      In 1994,  the Company  sold  1,090,000  shares of common  stock  through a
      secondary public offering. Net proceeds from the offering were $12,844.

      During the years ended December 31, 1996 and 1995, the Company's  Board of
      Directors  declared the  following  stock splits of the  Company's  common
      stock.  All applicable share and per share data have been restated to give
      effect to all stock splits.

  Declaration            Stock            Record             Distribution
      Date               Split             Date                  Date

July 17, 1995           5 for 4       July 31, 1995         August 15, 1995
January 22, 1996        3 for 2       January 31, 1996      February 15, 1996
October 16, 1996        5 for 4       October 31, 1996      November 15, 1996


<PAGE>


      The  Company  has  adopted  a  Stockholder  Rights  Plan.  The  terms  and
      conditions of the plan are set forth in a Rights  Agreement  dated October
      23, 1996 between the Company and its Rights  Agent.  Pursuant to the plan,
      the Board of Directors of the Company declared a dividend of one Right (as
      defined  in  the  Rights  Agreement)  for  each  share  of  the  Company's
      outstanding  common stock to  stockholders  of record on November 6, 1996.
      The Rights, when exercisable, entitle the holder to purchase a unit of one
      one-hundredth share of Series A Junior Participating  Preferred Stock, par
      value $.01,  at a purchase  price of $80 per share.  Upon  certain  events
      relating to the acquisition of, or right to acquire,  beneficial ownership
      of 20% or more of the Company's outstanding common stock by a third party,
      or a change in control of the  Company,  the Rights  entitle the holder to
      acquire, after the Rights are no longer redeemable by the Company,  shares
      of common stock of the Company  (or, in certain  cases,  securities  of an
      acquiring  person)  for each Right  held at a  significant  discount.  The
      Rights will expire on November  6, 2006,  unless  redeemed  earlier by the
      Company at $.01 per Right under certain circumstances.

7.    STOCK PLANS

          Dealership Stock Option Plan -

            During  1995,  the  Company's   Board  of  Directors   approved  the
           Dealership  Stock Option Plan of Cavalier  Homes,  Inc.  (the "Dealer
           Plan") under which an aggregate  of 562,500  shares of the  Company's
           common  stock may be issued to the eligible  independent  dealerships
           (as  defined in the Dealer  Plan) at a price equal to the fair market
           value of the Company's  common stock as of a date during the calendar
           quarter determined by the plan administrator for which such option is
           to be granted.  Options granted under the Dealer Plan are immediately
           exercisable  and  expire  three  years from the grant  date.  Options
           exercisable  and shares  available  for future grants were 65,939 and
           472,410,  respectively.  All  outstanding  options are exercisable at
           prices  ranging from $8.73 to $14.80.  Since these  options have been
           granted to persons  other than  employees,  the  Company  adopted the
           recognition  and  measurement  provisions  of  Statement of Financial
           Accounting Standards No. 123, Accounting for Stock-Based Compensation
           ("SFAS 123") for Dealer Plan options granted after December 15, 1995.

            Employee and Director Plans:


            The  Company  adopted  and the  shareholders  approved  the 1996 Key
           Employee  Stock  Incentive  Plan (the "1996 Plan") which provides for
           both  incentive  stock  options  and  non-qualified   stock  options.
           Additionally,  the 1996 Plan provides for stock  appreciation  rights
           and awards of both restricted stock and performance  shares.  Options
           are  granted  at prices  and  terms  determined  by the  compensation
           committee of the Board of Directors.  Initially the aggregate  number
           of shares available under the 1996 Plan is 753,125,  (including 3,125
           shares canceled from the 1993 Non-qualified Plan) however, on January
           1 of each  year an  additional  1.5% of the then  outstanding  common
           stock  becomes  available for grant.  Options  granted under the 1996
           Plan generally expire ten years from date of grant.


           During  1996,  the  Company  further  amended  the 1993  Amended  and
          Restated Non-employee Director Plan (the "1993 Non-employee  Directors
          Plan") to provide  for the  issuance  of stock  options at fair market
          value on the date of grant, to non-employee  directors,  to acquire up
          to 625,000 shares of common stock.  Options are generally granted upon
          a  directors  initial  election to the Board and  automatically  on an
          annual basis thereafter. Options granted under this plan are generally
          exercisable  after  six  months  from the  date of  grant  and must be
          exercised  within  ten years  from such  date,  except  under  certain
          conditions.

            During 1996, the Company adopted the Cavalier Homes,  Inc.  Employee
           Stock Purchase Plan under which an aggregate of 625,000 shares of the
           Company's  common  stock  may be  issued to  eligible  employees  (as
           defined  in the  Plan) at a price  equal to the  lesser of 85% of the
           market  price of the stock as of the first day  (January 1 or July 1)
           or last day  (June 30 or  December  31) of the  Payment  Periods  (as
           defined). Employees may elect to have a portion of their compensation
           withheld, subject to certain limits, to purchase the Company's common
           stock.



<PAGE>


            The  Company  also  adopted  the  Cavalier  Homes,   Inc.   Dividend
           Reinvestment  and Stock  Purchase  Plan under  which the  Company may
           issue an aggregate of 200,000 shares of the Company's common stock to
           eligible  participants (as defined in the Plan).  Participants in the
           Plan may purchase  additional shares of the Company's common stock by
           reinvesting the cash  distributions on all, or part, of their shares,
           or by  investing  both their cash  distributions  and  optional  cash
           payments.  The purchase  price of the stock will be the higher of 95%
           of the average daily high and low sale prices of the Company's common
           stock on the four trading days including and preceding the Investment
           Date (as  defined  in the  Plan) or 95% of the  average  high and low
           sales prices on the  Investment  Date. No shares were sold under this
           plan during 1996.

      The Company applied Accounting Principles Board Opinion No. 25, Accounting
      for Stock Issued to Employees,  and related  interpretations in accounting
      for its employee and director plans. Accordingly,  no compensation expense
      has been  recognized  for these plans except where the exercise  price was
      less than the fair value on the date of grant. Had compensation  cost been
      determined  based on the fair  value at the grant  date for  awards  under
      these plans consistent with the methodology prescribed under SFAS 123, the
      Company's  net income and net income per share would  approximate  the pro
      forma amounts below:

                                               1996                    1995

Net income:
  As reported                            $      15,366           $       9,020
  Pro forma                              $      13,017           $       8,923

Net income per share:
  As reported                            $        1.25           $        0.79
  Pro forma                              $        1.06           $        0.78



      The fair value of options  granted for 1996 and 1995 were estimated at the
      date of grant  using  the  Black-Scholes  option  pricing  model  with the
      following weighted average assumptions:

                                               1996                    1995

Dividend yield                                0.85 %                  2.05 %
Expected volatility                         0.3985 %                0.4182 %
Risk free interest rate                       6.20 %                  6.81 %
Expected lives                          2.76 years              2.76 years

      SFAS 123 does not apply to awards  prior to 1995.  The effects of applying
      SFAS 123 in this pro  forma  disclosure  may not be  indicative  of future
      amounts, and additional awards in future years are anticipated.

      With respect to options exercised,  the income tax benefits resulting from
      compensation  expense  allowable  under federal income tax  regulations in
      excess of the expense reflected in the Company's financial statements have
      been credited to additional paid-in-capital. These benefits, which totaled
      $3,488 (1996), $281 (1995), and $86 (1994),  represent a noncash financing
      transaction for purposes of the consolidated statements of cash flows.

      Information   regarding  all  of  the  Company's  stock  option  plans  is
     summarized below:



<PAGE>

<TABLE>
<S>                                               <C>         <C>               <C>
                                                                                   Weighted
                                                                    Weighted        Average
                                                                    Average       Fair Value
                                                   Shares        Exercise Price  At Grant Date

Shares under option:
  Outstanding at January 1, 1994                  1,138,309   $        3.95
    Granted -
      Price = Fair Value                            460,478            4.77
    Exercised                                       (44,529)           1.23
    Cancelled                                      (347,404)           4.78

  Outstanding at December 31, 1994                1,206,854            4.17
    Granted:
      Price = Fair Value                            123,049            5.86     $        1.77
      Price less than Fair Value                     22,299            8.73              2.77
    Exercised                                      (174,804)           3.99
    Cancelled                                       (43,941)           7.09

  Outstanding at December 31, 1995                1,133,457            4.35
    Granted:
      Price = Fair Value                          1,321,633           14.68              4.52
      Price less than Fair Value                     28,833           13.70              3.75
    Exercised                                      (844,883)           4.42
    Cancelled                                      (483,431)          15.90

  Outstanding at December 31, 1996                1,155,609    $       11.51

  Options exercisable as of December 31, 1996       631,707    $       10.07

</TABLE>

      Stock  options  available   for  future  grants  at December 31, 1996 were
      1,670,793  under all of the  Company's  various stock option plans.


      The  following  table  summarizes  information  concerning  stock  options
      outstanding at December 31, 1996:

<TABLE>
<S>                                   <C>              <C>                <C>                    <C>               <C>
                                                  Options Outstanding                               Options Exercisabale
                              ------------------------------------------------------------ ----------------------------------------
                                                          Weighted
                                      Number              Average            Weighted              Number             Weighted
                                     Outstanding          Remaining            Average            Exercisable           Average
   Range of                            As of            Contractual          Exercise               As of             Exercise
Exercise Prices                       12/31/96              Life                Price              12/31/96              Price

$ 0.55 - $10.00                              351,233         7.57          $     5.30              327,326          $     5.40
$11.50 - $13.60                              558,393         9.20               13.35               84,648               11.94
$14.50 - $16.60                              245,983         8.50               16.22              219,733               16.31

$ 0.55 - $16.60                            1,155,609         8.55          $    11.51              631,707          $    10.07

</TABLE>

8.    INCOME TAXES

      Provision for income taxes consist of:



<PAGE>


                                1996                1995                1994
Current:
  Federal                  $    8,416          $    5,994          $    3,313
  State                         1,482                 855                 581

                                9,898               6,849               3,894

Deferred:
  Federal                        (610)               (734)               (333)
  State                          (105)               (101)                (61)

                                 (715)               (835)               (394)

     Total                  $    9,183          $    6,014          $    3,500


      Total income tax expense for 1996,  1995,  and 1994 is different  from the
      amount that would be computed by applying the expected  federal income tax
      rate of 35% to income before income taxes. The reasons for this difference
      are as follows:


                                             1996                    1995
                                                  Assets (Liabilities)
Current differences:
  Warranty expense                        $       2,137           $       1,731
  Inventory capitalized                             251                     176
  Allowance for losses on receivables               652                     488
  Accrued expenses                                1,473                     979
  Other                                             150                     274

                                          $       4,663           $       3,648

Noncurrent differences:
  Depreciation and basis differential
     of acquired assets                   $      (1,414)          $      (1,109)
  Other                                             379                      66

                                          $      (1,035)          $      (1,043)

      Deferred tax assets and  liabilities  are based on the expected future tax
      consequences  of temporary  differences  between the book and tax bases of
      assets  and   liabilities.   The  approximate  tax  effects  of  temporary
      differences at December 31, 1996 and 1995 were as follows:


<TABLE>
<S>                                                                             <C>                 <C>                 <C>
                                                                                   1996                1995                1994

Income tax at expected federal income tax rate                                  $    8,592          $    5,262          $    3,003
State income taxes, net of federal tax effect                                        1,123                 752                 343
Non-taxable life insurance proceeds                                                   (655)
Non-deductible operating expenses                                                      107                 171                 110
Effect of graduated tax rates                                                                             (121)                (86)
Other                                                                                   16                 (50)                130

                                                                                $    9,183          $    6,014          $    3,500

</TABLE>

      Cash paid for income taxes for the years ended  December  31,  1996,  1995
      and 1994 was  $5,858,  $5,905 and  $3,519, respectively.

9.    EMPLOYEE BENEFIT PLAN

      The Company  sponsors an Employee  401(k)  Retirement  Plan  covering  all
      employees who meet participation requirements.  Employee contributions are
      limited to a percentage of their basic compensation as defined in the

<PAGE>


      Plan. The amount of the Company's  matching  contribution is discretionary
      as determined by the Board of Directors. Company contributions amounted to
      $285,  $229 and $175 for the years ended December 31, 1996, 1995 and 1994,
      respectively.

10.   COMMITMENTS AND CONTINGENCIES

      Operating Leases:

      Three of the Company's manufacturing  facilities are leased under separate
      operating  lease  agreements (the "Related  Leases") with  partnerships or
      companies whose owners are certain officers,  directors or stockholders of
      the Company.  The Related Leases require monthly  payments ranging from $9
      to $20 and provide for lease terms ending from April 1997 to April 1999 as
      well as renewal option periods.  The Related Leases also contain  purchase
      options  whereby the Company can  purchase  the  respective  manufacturing
      facility  for amounts  ranging  from $875 to $2,100 at any time during the
      lease terms.

      The  Company  also  leases  three  other  manufacturing  facilities  under
      operating leases with unrelated  parties.  These leases currently  require
      monthly payments ranging from $3 to $14 and provide for lease terms ending
      from March 1999 to October  2006 as well as renewal  option  periods.  The
      Company has the option  under one of these  leases to (i) cancel the lease
      at any time after  October  2001 with a one year notice and (ii)  purchase
      the manufacturing facility for $995 at any time during the lease term. The
      Company  also has the option under one of these leases to cancel the lease
      after the first five years with 180 days notice.

      Future minimum rents payable under  operating  leases that have initial or
      remaining  noncancelable  lease terms in excess of one year as of December
      31, 1996 are as follows:


            Year Ending
            December 31,

                1997                                        $         557
                1998                                                  512
                1999                                                  196
                2000                                                  119
                2001                                                  119
             Thereafter                                               553

               Total                                        $       2,056


      Total  rent  expense  was  $1,130,  $1,044  and  $832 for the  years ended
      December 31, 1996, 1995  and  1994, respectively,  including rents paid to
      related parties of $653 (1996), $723 (1995) and $662 (1994).

      Contingent Liabilities and Other:

      a.    It is customary practice for companies in the  manufactured  housing
            industry to enter into repurchase and other recourse agreements with
            lending  institutions  which  have  provided   wholesale floor  plan
            financing to dealers. Substantially  all of the Company's  sales are
            made  to dealers located  primarily in the southeast,  southwest and
            midwest  regions of  the  United   States   pursuant  to  repurchase
            agreements  with  lending  institutions. These agreements  generally
            provide  for  repurchase of the Company's  products from the lending
            institutions  for the balance due them in the event of  repossession
            upon  a  dealer's  default.  Although the Company  was  contingently
            liable for an amount  estimated to be $80,000 under these agreements
            as of December 31, 1996, such  contingency  is reduced by the resale
            value of the homes which are required to be repurchased. The Company
            has an allowance for losses of  $800  (1996) and $750  (1995)  based
            on prior  experience  and  current  market  conditions.   Management
            expects no material loss in excess of the allowance.



<PAGE>


      b.    Under  the  insurance  plans  described  in Note 1, the  Company  is
            contingently  liable at December  31, 1996 for future  retrospective
            premium  adjustments up to a maximum of approximately  $7,300 in the
            event that additional losses are reported related to prior years.


      c.    The Company is a party to various  legal  proceedings  incidental to
            its business. In the opinion of management,  the ultimate liability,
            if any, with respect to these proceedings is not presently  expected
            to materially affect the financial position or results of operations
            of the Company;  however,  the ultimate  resolution of these matters
            could result in losses in excess of current estimates.

      d.    During 1994, the Company  entered into  split-dollar  life insurance
            agreements  with two of its  executive  officers  which  provide for
            payment of the  related  insurance  premiums by the Company and also
            for  reimbursement  to the Company of such  premiums upon payment of
            death benefits under the policies.

11.   INDUSTRY SEGMENT INFORMATION

      The Company's primary activities are the design,  production and wholesale
      sale of manufactured homes to a system of independent dealers. The Company
      also  offers   retail   financing  of  its  homes  through  its  exclusive
      independent dealer network.  For purposes of segment reporting,  corporate
      assets consist primarily of cash, certain property and equipment and other
      investments.  Operating  profit is considered to be income before  general
      corporate expenses, interest and income taxes.

      Financial  information  for these  segments is summarized in the following
table:

<TABLE>
<S>                                   <C>                      <C>                     <C>                       <C>

                                                                                            General
                                                                 Financial                 Corporate
                                      Manufacturing              Services                (Unallocated)                Total

Year ended December 31, 1996:

  Revenues                            $     345,415            $       3,333                                      $     348,748
  Operating profit                           21,910                    1,257            $      (1,312)                   21,855

  Identifiable assets                        69,161                   38,175                     8,238                  115,574
  Depreciation and amortization               3,591                      129                        43                    3,763
  Capital expenditures                        7,434                      196                       241                    7,871

Year ended December 31, 1995:

  Revenues                            $     272,486            $       1,764                                      $     274,250
  Operating profit                           15,394                      638            $      (1,402)                   14,630

  Identifiable assets                        56,804                   22,388                     3,434                   82,626
  Depreciation and amortization               2,443                       59                         7                    2,509
  Capital expenditures                        7,762                      260                        13                    8,035

Year ended December 31, 1994:

  Revenues                            $     206,442            $         703                                      $     207,145
  Operating profit                            8,928                      158            $        (957)                    8,129

  Identifiable assets                        45,748                   14,179                     3,836                   63,763
  Depreciation and amortization               1,722                       14                        10                    1,746
  Capital expenditures                        6,330                                                                       6,330

</TABLE>

                                    * * * * *


<PAGE>

                      CAVALIER HOMES, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 1996, 1995 and 1994

<TABLE>
<S>                                     <C>               <C>               <C>             <C>              <C>
                                                              Additions
                                           Balance at        Charged to        Charged                          Balance at
                                           Beginning of       Costs and         to Other                           End of
                                             Period           Expenses         Accounts        Deductions         Period
                                          --------------  ----------------  --------------- ----------------   --------------
Allowance for losses on Accounts
   Receivable:
       Year Ended December 31, 1996     $        750,000           224,883           50,846        (225,729) $        800,000
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1995     $        650,000           152,554                -         (52,554) $        750,000
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1994     $        560,000            62,860           50,000         (22,860) $        650,000
                                          ==============  ================  =============== ================   ==============

 Allowance for credit losses:
       Year Ended December 31, 1996     $        551,188           778,226                         (388,043) $        941,371
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1995     $        350,000           311,190                -        (110,002) $        551,188
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1994     $        103,930           265,048                -         (18,978) $        350,000
                                          ==============  ================  =============== ================   ==============

Accumulated amortization of goodwill:
       Year Ended December 31, 1996     $        309,729           278,663                                   $        588,392
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1995     $        140,476           169,253                                   $        309,729
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1994     $         47,405            93,071                                   $        140,476
                                          ==============  ================  =============== ================   ==============

Accumulated amortization of non-compete
   agreement:
       Year Ended December 31, 1996     $        188,904            32,346                                   $        221,250
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1995     $        122,232            66,672                                   $        188,904
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1994     $         55,560            66,672                                   $        122,232
                                          ==============  ================  =============== ================   ==============

Warranty reserve:
       Year Ended December 31, 1996     $      5,800,000        13,874,316          370,545     (13,044,861) $      7,000,000
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1995     $      4,200,000        11,385,825                -      (9,785,825) $      5,800,000
                                          ==============  ================  =============== ================   ==============

       Year Ended December 31, 1994     $      3,100,000         7,740,813          350,000      (6,990,813) $      4,200,000
                                          ==============  ================  =============== ================   ==============

</TABLE>

<PAGE>



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

For a description  of the directors and executive  officers of the Company,  see
"Election of Directors,"  "Executive  Officers and Principal  Stockholders," and
"Compliance  with Section  16(a) of the  Exchange  Act" of the  Company's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held on May 14, 1997,
which are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

For a description  of the  Company's  executive  compensation,  see "Election of
Directors,"   "Executive  Officers  and  Principal   Stockholders,"   "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"),  "Compensation  Committee Interlocks
and Insider Participation," and "Certain Relationships and Related Transactions"
of the Company's  Proxy  Statement for the Annual Meeting of  Stockholders to be
held on May 14, 1997, which are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

For a description of the security ownership of management and certain beneficial
owners,  see "Executive  Officers and Principal  Stockholders"  of the Company's
Proxy  Statement for the Annual  Meeting of  Stockholders  to be held on May 14,
1997, which are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For a  description  of certain  relationships  and related  transactions  of the
Company, see "Compensation  Committee Interlocks and Insider Participation," and
"Certain   Relationships  And  Related  Transactions"  of  the  Company's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held on May 14, 1997,
which are incorporated herein by reference.



<PAGE>


                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS  ON
                           FORM 8-K

(a) 1. The financial  statements  contained in this report and the page on which
they may be found are as follows:

         Financial Statement Description                     Form 10-K Page No.

         Independent Auditors' Report                                  17
         Consolidated Balance Sheets as of
            December 31, 1996 and 1995                                 18
         Consolidated Statements of Income
            for the years ended December 31, 1996,
            1995 and 1994                                              20
         Consolidated Statements of Stockholders'
            Equity for the years ended
            December 31, 1996, 1995 and 1994                           21
         Consolidated Statements of Cash Flows
            for the years ended December 31,
            1996, 1995 and 1994                                        22
         Notes to Consolidated Financial Statements                    23

     2. The financial  statement schedules required to be filed with this report
and the pages on which they may be found are as follows:

          Schedule Description                               Form 10-K Page No.

          II Valuation and Qualifying Accounts                         33

     3. The exhibits required to be filed with this report are listed below. The
Company will furnish upon request any of the exhibits listed upon the receipt of
$15.00  per  exhibit,  plus $.50 per page,  to cover the cost to the  Company of
providing the exhibit.

(3)      Articles of Incorporation and By-laws.

* (a) The Amended and  Restated  Certificate  of  Incorporation  of the Company,
filed as Exhibit 3(a) to the  Company's  Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.

* (b) The Certificate of Designation of Series A Junior Participating  Preferred
Stock of Cavalier Homes, Inc. as filed with the Office of the Delaware Secretary
of  State on  October  24,  1996 and  filed as  Exhibit  A to  Exhibit  4 to the
Company's  Registration  Statement  on form 8-A filed on October  30,  1996,  is
incorporated herein by reference.

* (c) The  By-laws of the  Company,  as  amended,  filed as  Exhibit  (b) to the
Company's  Annual Report on Form 10-K for the year ended  December 31, 1993, are
incorporated herein by reference.

 (4)

* (a) Articles  four,  six,  seven,  nine and ten of the  Company's  Amended and
Restated  Certificate  of  Incorporation,  as amended,  included in Exhibit 3(a)
above.

* (b) Article II, Sections 1 through 11; Articles III, Sections 1 and 2; Article
IV, Sections 1 and 2; Article VI, Sections 1 through 6; Article VIII, Sections 1
through 3; Article IX, Section 1 of the Company's  By-laws,  included in Exhibit
3(c) above.

*  (c) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services,  LLC,  filed as Exhibit 4 to the Company's  Current Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.

 (10)    Material contracts

*  (a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services,  LLC,  file as Exhibit 4 to the Company's  Current  Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.



<PAGE>


         (b)  Lease Agreement dated October 16, 1996,  between  Virginia Cary L.
McDonald and Star Industries,  Inc. regarding  the  lease  of  the manufacturing
facility located in Robbins, North Carolina.

         (c)  Assignment and Assumption Agreement between Star Industries,  Inc.
and Cavalier Industries,  Inc. regarding the lease of the manufacturing facility
located in Robbins, North Carolina.

*        (d)  Cavalier  Homes,  Inc.  Dividend  Reinvestment  and Stock Purchase
Plan,  filed as Appendix A  to  the Company's Registration Statement on Form S-3
(Registration No. 333-18213), is incorporated herein by reference.

* ** (e) Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as an
Appendix to the Company's  definitive  Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.

* ** (f) Cavalier Homes, Inc. Employee Stock Purchase Plan, filed as an Appendix
to  the  Company's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Stockholders held May 15, 1996, is incorporated herein by reference.

* ** (g) Cavalier Homes,  Inc. Key Employee Stock  Incentive  Plan,  filed as an
Appendix to the Company's  definitive  Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.

* ** (h) Amendments to the Cavalier  Homes,  Inc.  Nonemployee  Directors  Stock
Option Plan,  filed as an Appendix to the Company's  definitive  Proxy Statement
for the Annual Meeting of Stockholders held May 15, 1996, is incorporated herein
by reference.

 **  (i)  Amendment to Cavalier Homes,  Inc.  Amended and  Restated  Nonemployee
Directors Plan.

*    (j)  Option  and  Stock  Exchange   Agreement  by  and  among    Wheelhouse
Structures,  Inc.,  Shareholders  of Wheel House  Structures,  Inc. and Cavalier
Homes,  Inc. dated as of August 28, 1995, filed as Exhibit 2(a) to the Company's
Registration Statement  on Form S-3 (Registration No. 333-00607), as amended, is
incorporated herein by reference.

*    (k)  Dealership   Stock   Option  Plan  of Cavalier  Homes,  Inc.  filed as
Exhibit 4(c) to the Company's Registration Statement on Form S-3 dated September
11, 1995 (Registration No. 33-62487), is incorporated herein by reference.

* (l) Lease Agreement between City of Mineral Wells, Texas and Cavalier Homes of
Texas dated  February 27, 1996,  filed as Exhibit 10(c) to the Company's  Annual
Report on Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.

* (m)  Stock Purchase Agreement,  as amended, by and among Astro Mfg. Co., Inc.,
Shareholders of Astro Mfg. Co., Inc.and Cavalier Homes, Inc. dated as of October
14,  1994, filed as Exhibit 2(a) to the Company's  Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, is incorporated herein by reference.

* (n) Holdback  agreement  between  Cavalier Homes,  Inc. and Raymond A. Peltcs,
dated October 28, 1994, filed as Exhibit 2(b) to the Company's  Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, is incorporated herein by
reference.

* (o) Revolving,  Warehouse and Term Loan Agreement  among the Company and First
Commercial Bank dated February 17, 1994, filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated
herein by reference.

* (p) Amendments to the Revolving,  Warehouse and Term Loan Agreement  among the
Company and First  Commercial Bank dated March 14, 1996,  filed as Exhibit 10(d)
to the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1995, are incorporated herein by reference.

         (q) Assumption  Agreement dated as of January 2, 1997, by and among the
Company, First Commercial Bank and certain subsidiaries of the Company.

* (r) Lease Agreement  between  Leonard  Properties and Cavalier Homes of Texas,
Inc.  dated  February 17, 1994,  and amendment  No. 1 thereto,  filed as Exhibit
10(f) to the Company's  Annual Report on Form 10-K,  for the year ended December
31,  1993,  and  10(a) to the  Company's  Quarterly  Report on Form 10-Q for the
quarter ended April 1, 1994, respectively, are incorporated herein by reference.



<PAGE>


* ** (s) Cavalier  Homes,  Inc.  1993 Amended and  Restated  Nonqualified  Stock
Option Plan,  filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by reference.

* ** (t) Cavalier Homes, Inc. 1988  Nonqualified  Stock Option Plan, as amended,
filed as Exhibit 10(a) to the Company's  Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.

     (u) Lease between  Cavalier  Homes of Alabama,  Inc. and Robert L. Burdick,
John W Lowe, and Jerry F. Wilson (now Estate of Jerry F. Wilson),  as tenants in
common, dated July 30, 1996.

     (v) Assignment and Assumption  Agreement between Cavalier Homes of Alabama,
Inc. and Cavalier  Homes,  Inc.  regarding the lease between  Cavalier  Homes of
Alabama, Inc. and Robert L. Burdick, John W Lowe and Jerry F. Wilson (now Estate
of Jerry F. Wilson).

*  (w)  Commercial  Sub-Lease  between  Winston  County  Industrial  Development
Association and Cavalier Homes of Alabama,  Inc.,  dated March 5, 1993, filed as
Exhibit 10(d) to the Company's  Registration Statement on Form S-2 (Registration
No.33-59452), is incorporated herein by reference.

     (x) Assignment and Assumption  Agreement between Cavalier Homes of Alabama,
Inc. and  Cavalier  Homes,  Inc.  regarding  the  Commercial  Sub-Lease  between
Cavalier  Homes of Alabama,  Inc.  and  Winston  County  Industrial  Development
Association.

*    (y)   Sub-lease  Agreement   with  Option   to  Purchase  between  Winfield
Industrial  Development  Association,  Inc and Buccaneer Homes of Alabama,  Inc.
dated May 9, 1994,  filed as Exhibit  10(k) to Amendment  No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644),  is incorporated
herein by reference.

*    (z)  Lease   Agreement  with  Option  to  Purchase  between  Marion  County
Industrial Development  Association,  Inc and Quality Housing Supply, Inc. dated
May 9,  1994,  filed as  Exhibit  10(l)  to  Amendment  No.  1 to the  Company's
Registration Statement on Form S-2 (Registration No. 33-78644),  is incorporated
herein by reference.

         (aa) Lease Agreement dated March 1, 1997,  between the City of Winfield
and Buccaneer Homes, a division of Cavalier Manufacturing, Inc.

         (bb) Lease  Agreement  dated  March 1,  1995,  between  the  Industrial
Development Board of the City of Haleyville, Alabama and Wheel House Properties,
Inc., as assigned to and assumed by Star  Industries,  Inc. on January 11, 1996,
and as further  assigned  to and  assumed by  Cavalier  Manufacturing,  Inc.  in
December 1996.

(11) Statement re Computation of Per Share Earnings.

(21) Subsidiaries of the Registrant.

(23) Consent of Deloitte & Touche LLP.

(27) Financial Data Schedule. (Filed as an EDGAR exhibit only.)

*    Incorporated by reference herein.
**   Management contract or compensatory plan or arrangement.

     (b) Reports on Form 8-K.
         None.


<PAGE>


              "Safe Harbor" Statement under the Private Securities
                         Litigation Reform Act of 1995:

With the exception of historical factual information, the matters and statements
discussed,  made or incorporated by reference in this Annual Report on Form 10-K
(including  statements  regarding  trends in the  industry  and the business and
growth and financing  strategies of the  Company),  as well as those  statements
specifically  designated  with  an  asterisk  (*),  constitute   forward-looking
statements, contain the words "believes," "anticipates," "expects," and words of
similar import, are based upon current expectations and are made pursuant to the
safe harbor provisions of the Private Securities  Litigation Reform Act of 1995.
Such forward-looking statements and words involve known and unknown assumptions,
risks,  uncertainties  and other  factors  which may cause the  actual  results,
performance or achievements  of the Company to be materially  different from any
future  results,  performance,  or  achievements  expressed  or  implied by such
forward-looking statements or words. Such assumptions,  risks, uncertainties and
factors include those associated with general economic and business  conditions;
manufactured housing and retail consumer financing industry trends,  cyclicality
and  seasonality;  availability  of consumer and dealer  financing;  changes and
volatility  in interest  rates;  the  sufficiency  of reserves  established  for
installment  contract  receivables;   warranty,   product  liability  and  other
litigation  arising in the course of the Company's  manufacturing  and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel;  demographic changes;  competition;  raw material and labor costs
and  availability;  import  protection and  regulation;  relationships  with and
dependence  on  customers,  distributors  or  dealers;  changes in the  business
strategy  or  development  plans of the  Company;  the  availability,  terms and
deployment  of  capital;  changes in or the  failure to comply  with  government
regulations;  and the inability or failure to identify or consummate  successful
acquisitions  or to assimilate  the operations of any acquired  businesses  with
those of the Company.  The Company expressly  disclaims any obligation to update
any forward-looking  statements as a result of developments  occurring after the
filing of this report.


<PAGE>



SIGNATURES


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



                                             CAVALIER HOMES, INC.
                                             Registrant



                                             By:/s/ DAVID A. ROBERSON
                                             Its President
                                             Date: March 31, 1996


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

         Signature                  Title                            Date

/s/ DAVID A. ROBERSON         Director and Principal            March 31, 1996
----------------------------  Executive Officer


/s/ MICHAEL R. MURPHY         Diretor and Principal             March 31, 1996
----------------------------  Financial and Accounting
                              Officer

/s/ BARRY DONNELL             Chairman of the Board             March 31, 1996
----------------------------  and Director


/s/ THOMAS A. BROUGHTON, III  Director                          March 31, 1996
----------------------------


/s/ JOHN W LOWE               Director                          March 31, 1996
----------------------------


/s/ LEE ROY JORDAN            Director                          March 31, 1996
----------------------------


/s/ GERALD R. MOORE           Director                          March 31, 1996
----------------------------


<PAGE>



                                      INDEX

                                                                    Page in
                                                                  Sequentially
Exhibit                                                             Numbered
Number                                                               Filing

(10)     Material Contracts

(11)     Statement Re Computation of Per Share Earnings

(21)     Subsidiaries of the Registrant

(23)     Consent of Deloitte & Touche LLP

(27)     Financial Data Schedule (Filed as an EDGAR exhibit only)