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, 2001
         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)

      32 Wilson Boulevard 100,
         Addison, Alabama                                    35540
(Address of principal executive offices)                    Zip Code

     Registrant's telephone number, including area code: (256) 747-9800
        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 (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No

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. X

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 19, 2002, was $56,024,518.

                 Indicate   the number of shares outstanding of
                     each of the Registrant's classes of
                      common stock, as of March 19, 2002.
                                 17,663,644

                          Common, $0.10 par value
                    Documents Incorporated by Reference
              Part III of this report incorporates by reference
             certain portions of the Registrant's Proxy Statement
               for its Annual Meeting of Stockholders to be held
                               May 21, 2002.
<PAGE>

                            CAVALIER HOMES, INC.
                         ANNUAL REPORT ON FORM 10-K
                    FOR THE YEAR ENDED DECEMBER 31, 2001

                                 PART I

ITEM 1.       BUSINESS

General
Cavalier  Homes,  Inc.  (the  "Company"),  incorporated  in 1984,  is a Delaware
corporation  with its  executive  offices  located at 32 Wilson  Boulevard  100,
Addison,  Alabama 35540.  Effective  December 31, 1997, the Company  completed a
merger (the "Merger")  involving  Belmont Homes, Inc.  ("Belmont"),  pursuant to
which the Company  issued  7,555,121  shares of its common stock in exchange for
Belmont's  common  stock and Belmont  became a wholly  owned  subsidiary  of the
Company.  The  information  herein is  presented  on a  combined  basis.  Unless
otherwise  indicated by the context,  references in this report to the "Company"
or to  "Cavalier"  include the  Company,  its  subsidiaries,  divisions of these
subsidiaries and their respective predecessors, if any.

Cavalier  is  engaged  in  the  production,  sale,  financing  and  insuring  of
manufactured  homes.  The  Company has chosen to build its  distribution  system
around independent dealers,  including independent exclusive dealers,  which the
Company believes gives it many of the same efficiencies and market presence that
captive  retail  centers  provide to other  companies.  At  December  31,  2001,
Cavalier  had a total of 242 dealer  locations  participating  in its  Exclusive
Dealer Program,  including five Company-owned retail locations. In addition, the
Company  markets  its  homes  through  approximately  600  active  non-exclusive
independent dealer locations in approximately 30 states.

The  Company  designs  and  manufactures  a wide  range of homes with a focus on
serving  the low- to  medium-priced  manufactured  housing  market  in the South
Central and South Atlantic regions of the United States. The Company's homes are
sold under multiple brand names,  include  appliances,  may be furnished and are
comprised  of one or more floor  sections.  At December  31,  2001,  the Company
operated 14 home manufacturing facilities, one plant that manufactures laminated
wallboard and a cabinet manufacturing  operation.  Cavalier also participates in
joint ventures with other manufactured housing companies for lumber distribution
and the manufacture of roof trusses and cabinet doors.

Through its financial services segment,  the Company purchases qualifying retail
installment  sales contracts  primarily for manufactured  homes sold through its
dealer network and sells various  commissioned  insurance products to the retail
home buyer.  Beginning in 1998,  the business  focus of CIS Financial  Services,
Inc. ("CIS"),  formerly Cavalier Acceptance  Corporation,  the Company's finance
subsidiary, changed from building, holding and servicing a portfolio of loans to
purchasing  loans  from its  dealers  that  are  subsequently  re-sold  to other
financial institutions, without recourse (provided that the transferred loan was
properly originated by the dealer and purchased by CIS). CIS does not retain the
servicing function and does not earn interest income on those re-sold loans.

Revenue,  operating profit (loss),  identifiable assets and other financial data
of the Company's  industry  segments for the three years ended December 31, 2001
are contained in Note 11 of Notes to Consolidated  Financial  Statements in Part
II.

Home Manufacturing Operations
At December 31,  2001,  the Company,  through  three wholly owned  subsidiaries,
owned or leased 14 manufacturing facilities (excluding idled facilities) engaged
in the production of manufactured homes. Due to deteriorating market conditions,
since the fall of 1999, Cavalier has idled ten home manufacturing plants, one of
which was  re-opened  during the fourth  quarter of 2000,  and  disposed  of the
operations  of one other.  Another  plant was  destroyed by fire in June 2000 (a
previously idled facility was re-opened to replace that capacity). Consequently,
Cavalier,  at  December  31,  2001,  operated  a total of 14 home  manufacturing
facilities,  reflecting  an  approximate  one-third  reduction in  manufacturing
capacity  since  1999.  See  "Item  2.  Properties".   The  Company's  operating
facilities  normally  function on a  single-shift,  five-day week basis with the
approximate  annual capacity to produce 36,000 floors.
<PAGE>
The  management  of each of the Company's  home  manufacturing  units  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  home  manufacturing  operations,  and  typically  participate  in  an
incentive   compensation   system  based  upon  their   respective   operation's
profitability.

The following  table sets forth certain sales  information  for 2001,  2000, and
1999:
<TABLE>
<CAPTION>
                                                        For the Year Ended December 31,
                             ---------------------------------------------------------------------------------------
                                       2001                           2000                           1999
                             --------------------------     -------------------------      -------------------------
<S>                          <C>           <C>              <C>           <C>              <C>           <C>

Number of homes sold:

   Single-section homes            4,013           32%           4,406           38%           10,546           47%
   Multi-section homes             8,656           68%           7,072           62%           11,831           53%
                             ------------  ------------     -----------   -----------      -----------   -----------
      Total homes                 12,669          100%          11,478          100%           22,377          100%
                             ============  ============     ===========   ===========      ===========   ===========
Number of floors sold             21,324                        18,590                         34,294
                             ============                   ===========                    ===========
</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  workstations  where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing,  cabinets,  ceilings and wall  systems,  are  assembled at off-line
workstations.   The   completed   home  is  sold   ready   for   connection   to
customer-supplied utilities.

The principal raw materials purchased by the Company are steel, lumber,  panels,
sheetrock, vinyl siding, roofing materials, insulating materials, and electrical
supplies.  The Company purchases axles,  wheels,  tires,  appliances,  laminated
wallboard,  roof  trusses,  plumbing  fixtures,  floor  covering,  and  windows.
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  generally  available  from other  sources.  However,
during  1999,  the Company  experienced  tightened  supply from its  traditional
vendors of  certain  types of raw  materials,  including  sheetrock,  lumber and
insulation,  required for the production of its manufactured  homes. The Company
obtained these and similar products from other vendors, which resulted in higher
than normal costs, some of which the Company was unable to recover through price
increases.

The Company's component manufacturing  subsidiaries provide laminated wallboards
and  cabinets  for  most  of  its  home   manufacturing   facilities  and  other
manufacturers.   Additionally,  certain  of  the  Company's  home  manufacturing
facilities currently purchase lumber, roof trusses, and cabinet doors 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
practical  limit  to the  distance  between  a  manufacturing  facility  and its
dealers. 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 are responsible
for placing the home on site,  combining of multi-section  homes, making utility
connections   and  providing  and  installing   certain   accessory   items  and
appurtenances, such as decks, air conditioning, 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
approximately 560 to 1,280 square feet. The multi-section  models consist of two
<PAGE>
or more floor sections that are joined at the home site,  vary in length from 40
to 80 feet and contain approximately 1,120 to 2,560 square feet.

The Company currently produces around 250 different models of manufactured homes
with a variety of decors that are  marketed  under  multiple  brand  names.  The
Company reviewed its product offerings and eliminated many redundant products by
geographic   location  to  streamline   manufacturing   processes  during  2001,
dramatically  reducing the  quantity of models  offered.  * The homes  typically
include a living  room,  dining  area,  kitchen,  two to four  bedrooms  and two
bathrooms.  Each  home  contains  a range  and  oven,  refrigerator,  microwave,
dishwasher,  water heater and central  heating.  Customers  also may choose from
available  options  including gas appliances,  kitchen  cabinets,  various decor
packages,  recessed frames for use with permanent  foundations and wind load and
thermal options for use in certain geographic areas.

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.

Independent Dealer Network, Sales and Marketing
As of December  31, 2001,  the Company had 242  participating  dealer  locations
selling the Company's homes under its Exclusive  Dealer Program,  which included
five Company-owned retail locations.  In addition, the Company markets its homes
through  approximately 600 active non-exclusive  independent dealer locations in
approximately 30 states.

Since 1991, the Company has been  developing its  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 Company's number of independent  exclusive
dealers and percentage of total Company sales  represented by them is summarized
in the following table:

       For the Year Ended December 31,                     2001   2000    1999
---------------------------------------------             ------ ------  ------

Number of independent exclusive dealer locations           237    193     274

Percentage of manufactured home sales                      51%    49%     55%

Through its finance  subsidiary,  CIS, the Company  purchases  qualifying retail
installment  sales contracts  primarily for manufactured  homes sold through the
Company's dealer network.

Approximately 84% of the Company's sales in 2001 were to dealers operating sales
centers in the Company's  core states as follows:  Texas - 13%,  Arkansas - 11%,
Louisiana - 10%, North Carolina - 10%, Alabama - 9%, Georgia - 8%, Mississippi -
8%, South Carolina - 6%, Missouri - 4%, Tennessee - 3% and New Mexico-2%.

Generally, the Company has written agreements with its independent dealers which
may be terminated at any time by either party,  with or without  cause,  after a
short notice  period.  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 2001, the Company's  largest dealer accounted for  approximately
2.2% of sales.

The Company believes that its independent  dealer network enables 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

* See Safe Harbor Statement on page 32.
<PAGE>
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. *

Each of the  Company's  manufacturing  units  typically  employs a general sales
manager  and its  own  respective  sales  representatives  who  are  compensated
primarily 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 exclusive dealers. The Company markets its homes through
product  promotions,  participation  in  regional  manufactured  housing  shows,
advertisements in local media and trade  publications.  As of December 31, 2001,
the Company  maintained a sales force of 63 full-time  salesmen and 11 full-time
general sales managers.

Retail Financing Activities
A significant  factor affecting sales of manufactured  homes is the availability
and terms of  financing.  CIS  purchases  qualifying  retail  installment  sales
contracts for  manufactured  homes sold primarily  through the Company's  dealer
network.

CIS seeks to provide  competitive  financing terms to customers of the Company's
dealers. CIS currently offers various conventional loan programs which require a
down-payment  ranging from 5% 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
180 to 360  months,  depending  upon the type of home and amount  financed,  the
amount of the down payment and the customer's creditworthiness.  CIS'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, 2001,  all of CIS's  outstanding  loans were  secured.  Loans
purchased by CIS normally  provide a fixed rate of interest  with equal  monthly
payments and are  non-recourse to the dealer.  The interest rates  applicable to
CIS's loan  portfolio as of such date  generally  ranged from 9% to 14%, and the
approximate  weighted  average  annual  percentage  interest  rate  was  11.60%.
Currently,  CIS  operates  in  most of the  states  in  which  the  Company  has
independent exclusive dealers.

For those retail  customers  who meet CIS's  lending  standards,  CIS strives to
provide prompt credit  approvals and funding of loans.  CIS continually  reviews
its  policies  and  procedures  to  facilitate  prompt  decision-making  on loan
applications.  In the  event  an  installment  sale  contract  becomes  30  days
delinquent, CIS normally contacts the customer promptly in an effort to cure the
delinquency.  Once  a  customer  has  failed  to  cure  a  default,  CIS  begins
repossession procedures. After repossession, CIS normally has the home delivered
to a dealer's  sales  center  where CIS attempts to resell the home or contracts
with an  independent  party to resell the home. To a limited  extent,  CIS sells
repossessed homes at wholesale.

The Company  maintains a reserve for estimated credit losses on installment sale
contracts  owned by CIS to provide  for  future  losses  based on the  Company's
historical  loss   experience,   current   economic   conditions  and  portfolio
performance. Amounts provided for credit losses were $0.5, $0.7 and $2.2 million
in 2001, 2000, and 1999,  respectively.  Additionally,  as a result of defaults,
early  payoffs and  repossessions,  $0.8,  $1.2 and $1.3  million  were  charged
against  the  reserve in 2001,  2000,  and 1999,  respectively.  The reserve for
credit  losses at December 31, 2001 was $0.8 million as compared to $1.2 million
at December 31, 2000, and $1.7 million at December 31, 1999.

In 2001, 2000 and 1999, CIS repossessed 17, 16 and 62 homes,  respectively.  The
Company's  inventory of repossessed  homes was 13 homes at December 31, 2001, as
compared to six homes at December  31, 2000 and 28 homes at December  31,  1999.
The Company's net losses resulting from  repossessions on CIS purchased loans as
a  percentage  of the average  principal  amount of such loans  outstanding  for
fiscal 2001, 2000 and 1999 was 8.40%, 14.24% and 7.83%, respectively.

* See Safe Harbor Statement on page 32.
<PAGE>
At December  31, 2001 and December  31,  2000,  delinquencies,  except for loans
identified as presenting  uncertainty with respect to collectibility,  expressed
as a percentage  of the total number of  installment  sale  contracts  which CIS
owned were as follows:
<TABLE>
<CAPTION>
                                                                Delinquency Percentage
                     Total Number       ------------------------------------------------------------------------
December 31,         of Contracts           30 Days             60 Days            90 Days            Total
                   -----------------    ---------------    ----------------   ----------------  ----------------
<S>                      <C>                     <C>                 <C>                <C>               <C>

       2001              130                     3.08%               0.00%              0.00%             3.08%

       2000              220                     1.82%               0.45%              0.00%             2.27%
</TABLE>

At December  31, 2001 and December  31,  2000,  delinquencies,  except for loans
identified as presenting  uncertainty with respect to collectibility,  expressed
as a percentage of the total  outstanding  principal balance of installment sale
contracts which CIS owned were as follows:
<TABLE>
<CAPTION>
                                                                Delinquency Percentage
                      Total Value       ------------------------------------------------------------------------
December 31,         of Contracts           30 Days             60 Days            90 Days            Total
                   -----------------    ---------------    ----------------   ----------------  ----------------
<S>                   <C>                        <C>                 <C>                <C>               <C>
       2001           $4,991,000                 2.13%               0.00%              0.00%             2.13%

       2000           $7,887,000                 1.47%               0.49%              0.00%             1.96%
</TABLE>

The loan portfolio  contains  loans  identified as presenting  uncertainty  with
respect to collectibility.  These loans totaled $0.7 million and $0.4 million at
December 31, 2001 and 2000,  respectively.  The Company  maintains a reserve for
estimated  credit losses on installment  sale contracts  owned by CIS to provide
for future losses based on the Company's  historical  loss  experience,  current
economic conditions and portfolio performance.  The reserve for credit losses at
December  31, 2001 was $0.8  million as compared to $1.2 million at December 31,
2000.

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 CIS are set forth in the following table:
<TABLE>
<CAPTION>
                                                             December 31,
                                        ------------------------------------------------------
                                             2001               2000               1999
                                        ---------------    ----------------   ----------------
<S>                                     <C>                <C>                <C>
Total loans receivable                  $    4,991,000     $     7,887,000    $     9,450,000
Allowance for credit losses             $      829,000     $     1,180,000    $     1,656,000
Number of loans outstanding                        130                 220                290
Net loss ratio on average
   outstanding principal balance                 8.40%              14.24%              7.83%
Weighted average annual
   percentage rate                               11.6%               11.7%              11.2%
</TABLE>

During  1998,  the  business  focus of CIS changed  from  building,  holding and
servicing a portfolio  of loans to  purchasing  loans from its dealers  that are
subsequently  resold to other financial  institutions  without CIS retaining the
servicing  function.  Although  the  level of  CIS's  future  activities  cannot
presently be determined,  the Company  expects to utilize  internally  generated
working  capital  and  amounts  generated  from sales of loans  under the retail
finance agreements  discussed in the following paragraph to fund the purchase of
retail installment sale contracts on homes sold by the Company's dealers and may
use borrowings to develop a portfolio of such installment sale contracts.  * The
Company  believes  that its  relationships  with its  dealers  will  assist  the
development of this business strategy. *

* See Safe Harbor Statement on page 32.
<PAGE>
Since its  inception,  CIS has been  restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds  borrowed  under its credit line with its primary  lender.  In
February 1998,  CIS entered into an agreement with another lender  providing for
the periodic resale of a portion of CIS's loans that meet  established  criteria
and without recourse (provided that the transferred loan was properly originated
by the dealer and purchased by CIS).  In March 1998 and in June 1999,  CIS sold,
under this retail  finance  agreement,  a  substantial  portion of its  existing
portfolio of loans on those dates.  In April 2000 and December 2001, the Company
received proceeds of approximately $1.4 million and $4.5 million,  respectively,
from  the  sale of loans  that  were  previously  held in its  installment  loan
portfolio. From time to time, the Company evaluates the potential to sell all or
a portion of its  remaining  installment  loan  portfolio,  in  addition  to the
periodic sale of installment  contracts  purchased by CIS in the future. * While
the original retail finance  agreement is no longer in effect,  CIS is currently
continuing to re-sell loans to lenders under various retail  finance  contracts.
The Company  believes the periodic  sale of  installment  contracts  under these
retail finance agreements will reduce  requirements for both working capital and
borrowings,  increase the Company's liquidity,  reduce the Company's exposure to
interest rate fluctuations and enhance the ability of CIS to increase its volume
of loan purchases.  * There can be no assurance,  however, that additional sales
will be made under these agreements, or that CIS and the Company will be able to
realize the expected benefits from such agreements. *

Retail Insurance Activities
Through  its wholly  owned  insurance  agency,  the Company  sells  commissioned
insurance products primarily to retail purchasers of the Company's homes.

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 date and price. A portion of purchases
by  dealers  are  pre-sold  to  retail  customers  and are paid  through  retail
financing commitments.

The risk of loss under  repurchase  agreements  is lessened 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
2.2% of sales in 2001, (ii) the price the Company is obligated to pay under such
repurchase agreements declines based on predetermined amounts over the period of
the agreement  (generally 18 months) and (iii) the Company historically has been
able to resell homes  repurchased  from  lenders.  As of December 31, 2001,  the
maximum  amount  for  which  the  Company  is  contingently  liable  under  such
agreements  was  approximately  $135  million.  The  Company  has a reserve  for
repurchase  commitments of $3.2 million as of December 3l, 2001,  based on prior
experience and market conditions.

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,  are important elements in the market acceptance of manufactured homes.
The Company maintains a quality control inspection program at various production
stages. The Company's manufacturing  facilities and the plans and specifications
of its  manufactured  homes have been approved by a  HUD-designated  agency.  An
independent,   HUD-approved   third-party   regularly   checks   the   Company's
manufactured homes for compliance during construction.

* See Safe Harbor Statement on page 32.
<PAGE>
The  Company  provides  the initial  retail  homebuyer  with a one-year  limited
warranty  against  manufacturing  defects in the home's  construction.  Warranty
services after the sale are performed,  at the expense of the Company,  by plant
personnel,  dealers  or  local  independent  contractors.  Additionally,  direct
warranties often are provided by the  manufacturers  of specific  components and
appliances.

The Company  generally  employs a full-time  service manager at each of its home
manufacturing   units  and  233   full-time   service   personnel   to   provide
administrative and on-site service and to 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.  At December 31, 2001, the Company had established a reserve for future
warranty claims of $11.7 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  quality,  depth of field
inventory,  delivery capabilities,  warranty repair service,  dealer promotions,
merchandising and terms of dealer  (wholesale) 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's business strategy  currently  includes the continued  operation of
financial services provided through CIS. The Company believes that operations of
CIS 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 CIS,  there can be no assurance that CIS will be able to expand
its operations or that it will have a positive  impact on the Company's  ability
to compete.

Regulation
The  Company's  businesses  are 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  Company  cannot  presently
determine what, if any, legislation may be adopted by Congress or state or local
governing  bodies, or the effect any such legislation may have on the Company or
the manufactured housing industry. *

The Company's  manufacturing  facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated  agency.  Furthermore,
an  independent,   HUD-approved   third-party  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,  wind loads
and energy  conservation.  The Company's operations were not materially affected
by the regulations; however, HUD and other state and local governing bodies have
these and other  regulatory  matters under  continuous  review,  and the Company

* See Safe Harbor Statement on page 32.
<PAGE>
cannot predict what effect (if any) additional regulations promulgated by HUD or
other  state  or  local  regulatory  bodies  would  have on the  Company  or the
manufactured housing industry.

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.   Regulations  of  the  Federal  Trade   Commission  also  require
disclosure of a manufactured  home's  insulation  specifications.  Manufactured,
modular and site-built homes may be built with compressed  board,  wood 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. *

The transportation of manufactured homes on highways is subject to regulation by
various federal, state and local authorities. Such regulation may prescribe size
and road use  limitations  and impose lower than normal speed limits and various
other requirements.

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
stricter  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 CIS. 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. The Equal Credit Opportunity Act and Regulation B promulgated
thereunder prohibit 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 CIS
also may become subject to the reporting and disclosure requirements of the Home
Mortgage  Disclosure  Act. In addition to the  extensive  federal  regulation of
consumer  credit  matters,   many  states  also  have  adopted  consumer  credit
protection  requirements that may impose  significant  requirements for consumer
credit lenders. For example,  many states require that a consumer credit finance

* See Safe Harbor Statement on page 32.
<PAGE>
company such as CIS 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 CIS to comply  with the  requirements  of federal or
state law  pertaining to consumer  credit could result in the  invalidity of the
particular  contract for the affected consumer,  civil liability to the affected
customers,  criminal liability and other adverse results.  The sale of insurance
products  by the  Company  is  subject  to  various  state  insurance  laws  and
regulations  which  govern  allowable  charges  and  other  insurance  practices
Additionally,  effective January 1, 2002, the State of Texas enacted a law that,
among other things,  classifies and taxes  manufactured  homes as real property,
and not personal  property,  under certain  conditions as set forth in the Texas
law. The  classification  as real property could change the rates and methods of
taxation  assessed against such homes in Texas. The law also may affect the form
and  structure  of  permanent  financing  extended  to Texas  manufactured  home
consumers because such financing  historically has treated manufactured homes as
personalty rather than as real estate.

Employees
As of December 31,  2001,  the Company had 3,403  employees,  of whom 2,746 were
engaged in home  manufacturing  and supply  distribution,  104 in sales,  233 in
warranty  and  service,  248 in general  administration,  1 in  delivery,  51 in
finance and insurance services and 20 in retail locations. At year-end, only one
home  manufacturing  operation's  employees  (101  employees)  were covered by a
collective  bargaining  agreement.  Management  considers its relations with its
employees to be good. *

Risk Factors
If you are interested in making an investment in Cavalier,  you should carefully
consider the following  risk factors  concerning  Cavalier and its business,  in
addition to the other information contained in this Report on Form 10-K:

Cyclical and Seasonal Nature of the Manufactured Housing Industry
The  manufactured  housing  industry is highly  cyclical  and  seasonal  and has
experienced wide  fluctuations in aggregate sales in the past,  resulting in the
failure of many manufacturing  concerns.  Many of the same national and regional
economic and demographic  factors that affect the broader housing  industry also
affect the market for manufactured homes. Historically, most sectors of the home
building  industry,  including  the  manufactured  housing  industry,  have been
affected by the following, among other things:

o        changes in general economic conditions;
o        inflation;
o        levels of consumer confidence;
o        employment and income levels;
o        housing supply and demand;
o        availability of alternative forms of housing;
o        availability of wholesale (dealer) financing;
o        availability of retail (consumer) financing; and
o        the level and stability of interest rates.

The  Manufactured  Housing  Institute  ("MHI")  reported that from 1983 to 1991,
aggregate  domestic  shipments of manufactured  homes declined 42%. According to
industry  statistics,  after a  ten-year  low in floor  shipments  in 1991,  the
industry  recovered  significantly.  Between  1992  and  1998,  floor  shipments
increased  each year, as set forth in the table below,  although the growth rate
gradually  slowed  and  began to  decline  in 1999,  and  continued  to  decline
significantly in 2000 and 2001.

Percentage Increase (Decrease) in Floor Shipments Through 2001
o        1992............................21%
o        1993............................22%

* See Safe Harbor Statement on page 32.
<PAGE>
o        1994............................23%
o        1995............................12%
o        1996............................10%
o        1997............................ 1%
o        1998............................ 8%
o        1999............................(4.3)%
o        2000...........................(25.9)%
o        2001...........................(20.7)%

During much of the 1990s, the manufactured housing industry also has experienced
increases in both the number of retail dealers and manufacturing capacity, which
we believe ultimately created slower retail turnover,  higher dealer inventories
and increased price competition.  * These conditions  significantly affected the
industry in 2001.  According to MHI, floor shipments declined 20.7% in 2001 from
2000,  although  floor  shipments  increased 3.9% in the fourth quarter of 2001.
While MHI reported an increase in floor shipments in the fourth quarter of 2001,
Cavalier cannot assure investors that there will not be additional  decreases in
floor  shipments in the future.  * In addition,  a number of retail dealers have
failed and  repossessions of manufactured  homes have  significantly  increased.
Some  manufactured  housing wholesale and retail lenders also have stopped doing
business in the industry,  and some of the  remaining  lenders have raised their
interest rates and tightened their credit  standards.  We think more dealers may
fail,  repossessions  may  continue  to increase  and more  lenders may exit the
market  in  the  future.  *  We  believe  these  conditions   reflect  that  the
manufactured  housing  industry  is in a down  cycle,  which has had a  material
adverse effect on Cavalier's  results of operations and financial  condition.  *
Sales in the  manufactured  housing  industry are also seasonal in nature,  with
sales of homes  traditionally being stronger in April through October and weaker
during the first and last part of the calendar year.  While  seasonality did not
significantly  impact Cavalier's  business from 1992 through 1996, when industry
shipments  were  steadily  increasing,  the  recent  tightening  of  competitive
conditions  seems to  signal a return  to the  industry's  traditional  seasonal
patterns.  We cannot predict how long the tightening of competitive and industry
conditions  will last,  or what the extent of their impact will be on the future
results of operations and financial condition of Cavalier.  Industry projections
for wholesale shipments in 2002 are flat.

Limitations on Ability to Pursue Business Strategy
Cavalier's current business strategies are to:

o        control costs in light of currently prevailing industry conditions;
o        attempt  to  generate  an   increase  in  sales  in  an    increasingly
         competitive environment;
o        return to profitability;
o        develop our exclusive and independent dealer network;
o        pursue the financing, insurance and  other activities of  CIS  and  the
         financial services segment; and
o        eliminate redundant products to streamline production in   an effort to
         reduce costs.

Downturns in shipments in the manufactured housing industry and a decline in the
demand for  Cavalier's  homes have had a material  adverse effect on us. We have
successfully  reversed the downturn in Cavalier  floor  shipments  and began the
return to  profitability  during the course of 2001, but Cavalier  cannot assure
investors that the increases in its floor shipments will continue. * Our ability
to execute our business  strategy depends on a number of factors,  including the
following:

o        general economic and industry conditions;
o        competition from other companies in the same business as us;
o        our  ability  to  attract, retain or  sell  to  additional  independent
         dealers, especially, exclusive dealers;
o        the availability of semi-skilled workers in  the  areas  in  which  our
         manufacturing facilities are located;
o        the  ability  of  CIS  and the Company's  insurance and component parts
         operations to be competitive;
o        the availability of capital and financing;

* See Safe Harbor Statement on page 32.
<PAGE>
o        the ability of our independent dealers and retail locations to  compete
         under current industry conditions;
o        the  availability  and  terms  of wholesale and retail   financing from
         lenders in the manufactured housing industry;
o        market acceptance of new product offerings; and
o        the effect of continuing operating losses on the financial position  of
         the Company.

There are other  factors in addition to those  listed  above,  many of which are
beyond our control.  Cavalier cannot assure investors that our business strategy
will be successful.  If our strategy is  unsuccessful,  this may have a material
adverse effect upon Cavalier's results of operations or financial condition. *

Limitations on Availability of Consumer and Dealer Financing
Third-party  lenders generally provide consumer  financing for manufactured home
purchases.  Our  sales  depend  in large  part on the  availability  and cost of
financing for manufactured home purchasers and dealers as well as our own retail
locations.  The availability and cost of such financing is further  dependent on
the  number  of  financial  institutions  participating  in  the  industry,  the
departure  of  financial   institutions   from  the   industry,   the  financial
institutions'  lending practices,  the strength of the credit markets generally,
governmental policies and other conditions, all of which are beyond our control.
A major  third-party  lender recently  announced plans to discontinue  wholesale
financing of  manufactured  homes,  which may have a material  adverse effect on
Cavalier's  ability to find  financing  for dealer  purchases.  *  Additionally,
several  lenders  which   traditionally   have  provided  retail   financing  to
manufactured  home  purchasers   recently  have  exited  the  manufactured  home
financing  market,  and the lenders which continue to provide  retail  financing
have tightened their credit standards. Reduced availability of such financing is
currently having an adverse effect on the manufactured  housing  industry.  * In
addition,  most  states  classify  manufactured  homes  for both  legal  and tax
purposes as personal  property rather than real estate.  As a result,  financing
for the  purchase  of  manufactured  homes  is  characterized  by  shorter  loan
maturities and higher interest  rates,  and in certain periods such financing is
more difficult to obtain than conventional home mortgages.  Unfavorable  changes
in these factors and the current adverse trend in the  availability and terms of
financing  in the  industry  may have a material  adverse  effect on  Cavalier's
results of operations or financial condition.

Changes in Industry Retail Inventories
Changes in the level of retail inventories in the manufactured housing industry,
either up or down,  can have a  significant  impact on the  Company's  operating
results.  For example,  due to the rapid  expansion  of the retail  distribution
network  in the  manufactured  housing  industry  that  occurred  in much of the
1990's,  there is currently an imbalance between industry retail inventories and
consumer demand for manufactured homes. The deterioration in the availability of
retail  financing,  along with competition  from repossessed  homes, has already
extended the inventory adjustment period beyond what was originally expected. If
these trends were to continue,  or if retail demand were to significantly weaken
further,  the  inventory  overhang  could result in even greater  intense  price
competition,  further pressure on profit margins within the industry, and have a
material  adverse  effect on  Cavalier.  The  Company's  inventory at all retail
locations,  including  Company-owned retail sales centers,  declined 34% in 2000
from 1999 and another 10% in 2001 from levels at the end of 2000. While Cavalier
believes that  inventories  of its homes are  approaching  levels which are more
consistent with retail demand,  due in part to the Company's emphasis on working
with its  dealers  to  reduce  retail  inventories,  we  cannot  give  investors
assurances to this effect. * In spite of these efforts,  significant unfavorable
developments or further deterioration within the industry would undoubtedly have
an adverse impact on Company operating results.

Dependence on Independent Dealers
Cavalier depends on independent  dealers for  substantially  all retail sales of
our  manufactured  homes.  Typically  only one dealer within a given market area
distributes  a  particular  product  line of ours.  Our  relationships  with our
dealers are cancelable on short notice by either party. The manufactured housing
industry recently has experienced a trend of increasing  competition for quality
independent  dealers.  In  addition,  a number of  dealers in the  industry  are
experiencing difficulty in the current market conditions,  as a number of retail
dealers have failed and more dealers may fail before the current  downturn ends.
* While we believe that our relations with our independent dealers are generally
good,  we cannot  assure our  investors  that we will be able to maintain  these

* See Safe Harbor Statement on page 32.
<PAGE>
relations,  that these  dealers  will  continue  to sell our  homes,  that these
dealers  will be  successful,  or that we  will be able to  attract  and  retain
quality independent dealers. *

Intense Competition
The production and sale of manufactured homes is a highly competitive  industry,
characterized by low barriers to entry and severe price competition. Competition
is based primarily on the following factors:

o        price;
o        product features and quality;
o        reputation for service quality;
o        depth of field inventory;
o        delivery capabilities;
o        warranty repair service;
o        dealer promotions;
o        merchandising; and
o        terms of wholesale (dealer) and retail (consumer) financing.

In addition, Cavalier competes with other manufacturers,  some of which maintain
their own retail sales centers, for independent dealers. Manufactured homes also
compete   with  other  forms  of   low-cost   housing,   including   site-built,
prefabricated and modular homes,  apartments,  townhouses and  condominiums.  We
face direct  competition  from  numerous  manufacturers,  many of which  possess
greater financial,  manufacturing,  distribution and marketing  resources.  As a
result of these competitive conditions, Cavalier may not be able to sustain past
levels of sales or profitability.

Contingent Repurchase and Guaranty Obligations
Manufactured  housing  companies  customarily  enter into  repurchase  and other
recourse  agreements  with lending  institutions  which have provided  wholesale
floor plan financing to dealers.  Substantially all of Cavalier's sales are made
to dealers located  primarily in the South Central and South Atlantic regions of
the United States pursuant to repurchase  agreements with lending  institutions.
These agreements generally provide that we will repurchase our products from the
lending  institutions  at a declining  price based upon the  Company's  original
invoice date and price. in the event such product is repossessed upon a dealer's
default.  The risk of loss under  repurchase  agreements is lessened by the fact
that (1) sales of our  manufactured  homes are spread  over a  relatively  large
number of independent  dealers;  (2) the price that Cavalier is obligated to pay
under  such  repurchase  agreements  generally  declines  over the period of the
agreement and also declines during such period based on  predetermined  amounts;
and (3) Cavalier has been able to resell homes  repurchased from lenders.  While
we have established a reserve for possible  repurchase  losses, we cannot assure
investors that we will not incur material  losses in excess of these reserves in
the future. *

Uncertainties Regarding Retail Financing Activities
Cavalier purchases retail installment finance loans that have been originated by
our dealers.  We maintain a reserve for estimated  credit losses on  installment
sale contracts owned by CIS to provide for future losses based on our historical
loss experience,  current economic conditions and portfolio  performance.  It is
difficult to predict with any certainty the  appropriate  reserves to establish,
and we cannot assure  investors that CIS will not experience  losses that exceed
Cavalier's  loss  reserves  and have a  material  adverse  effect on  Cavalier's
results of  operations  and  financial  condition.*  Volatility or a significant
change in  interest  rates might also  materially  affect  CIS's and  Cavalier's
business, results of operations or financial condition.

Our  strategy  currently  includes  the  continued  operation  of the  financial
services segment of our business. We also may engage in other transactions, such
as selling  portions of our  installment  loan  portfolio,  that are designed to
facilitate the ability of CIS to purchase and/or  originate an increased  volume
of  loans  and  to  reduce  our  exposure  to  interest  rate  fluctuations  and
installment loan losses.  * Accordingly,  we may incur additional debt, or other

* See Safe Harbor Statement on page 32.
<PAGE>
forms  of  financing,  in order  to  continue  to fund  such  growth.  * CIS has
periodically resold installment loan contracts to other financial  institutions.
Cavalier sold a substantial  portion of its existing loan  portfolio in December
2001, in addition to its periodic sale of loans.  Cavalier believes the periodic
sale of  installment  contracts  under various retail  finance  agreements  will
reduce requirements for both working capital and borrowings, increase Cavalier's
liquidity,  reduce Cavalier's exposure to interest rate fluctuations and enhance
the  ability of CIS to  increase  its volume of loan  purchases.  * However,  we
cannot assure  investors that we will be able to make additional  sales. We also
cannot  offer  any  assurance  that  possible  additional   financing,   or  the
aforementioned  transactions  involving our installment loan portfolio,  will be
available on terms  acceptable to Cavalier.  If not, we may be forced to curtail
our financial services business and to alter our other strategies.

Potential Unavailability and Increases in Prices of Raw Materials
The  availability  and pricing of certain raw  materials,  particularly  lumber,
sheetrock,  panels and insulation may significantly  affect Cavalier's operating
costs.  Sudden  increases in demand for these  construction  materials caused by
natural  disasters  or other  market  forces can greatly  increase  the costs of
materials or limit the availability of such materials. Increases in costs cannot
always be reflected immediately in prices, especially in competitive times, and,
consequently,   may  adversely  impact  Cavalier's  profitability.   Further,  a
reduction in the  availability  of raw materials  also may affect our ability to
meet or maintain production requirements.

Cavalier obtains a substantial amount of its supply of laminated  wallboard from
a  wholly-owned  subsidiary,  and obtains a majority of its supply of  cabinetry
from another  wholly-owned  subsidiary.  We depend upon these subsidiaries for a
significant  portion  of  the  materials  used  to  construct  portions  of  our
manufactured  homes.  The inability of either of these  subsidiaries  to provide
laminated  wallboard  or  cabinetry  to the  Company,  whether due to  materials
shortages,  destruction of  manufacturing  facilities or other events  affecting
production of these component  parts, may affect our ability to meet or maintain
production requirements.

Operations May Be Limited by the Availability of Manufactured Housing Sites
Any  limitation  on  the  growth  of  the  number  of  sites  for  placement  of
manufactured homes or on the operation of manufactured housing communities could
adversely  affect  the  manufactured  housing  business.   Manufactured  housing
communities   and  individual  home  placements  are  subject  to  local  zoning
ordinances  and  other  local  regulations   relating  to  utility  service  and
construction of roadways.  In the past,  property owners often have resisted the
adoption of zoning ordinances  permitting the location of manufactured  homes in
residential  areas, which Cavalier believes has adversely affected the growth of
the industry.  We cannot assure investors that  manufactured  homes will receive
widespread acceptance or that localities will adopt zoning ordinances permitting
the location of manufactured  home areas. The inability of the manufactured home
industry to gain such  acceptance  and zoning  ordinances  could have a material
adverse effect on our financial condition or results of operations.

Reliance on Executive Officers
Cavalier's success depends highly upon the personal efforts and abilities of its
current executive officers. Specifically,  Cavalier relies on the efforts of its
Chairman of the Board,  Barry B.  Donnell,  its  President  and Chief  Executive
Officer, David A. Roberson,  its Chief Operating Officer,  Gregory A. Brown, and
its Vice President, Chief Financial Officer and Secretary-Treasurer,  Michael R.
Murphy.  The loss of the services of one or more of these individuals could have
a material  adverse  effect  upon our  business.  We do not have  employment  or
non-competition  agreements with any of our executive  officers.  Our ability to
continue to work through the  industry's  current  downturn will depend upon our
ability to attract and retain additional experienced management personnel.

Potential Adverse Effects of Regulation
Cavalier  is  subject  to a  variety  of  federal,  state  and  local  laws  and
regulations   affecting  the  production,   sale,   financing  and  insuring  of
manufactured  housing.  We suggest you read the section  above under the heading
"Regulation" for a description of many of these laws and regulations. Cavalier's
failure  to  comply  with such laws and  regulations  could  expose us to a wide
variety of sanctions,  including closing one or more  manufacturing  facilities.
Governmental  bodies have  regulatory  matters  affecting our  operations  under
continuous review and we cannot predict what effect (if any) additional laws and
regulations  promulgated  by HUD would  have on us or the  manufactured  housing

* See Safe Harbor Statement on page 32.
<PAGE>
industry.  Failure to comply with laws or regulations applicable to or affecting
Cavalier,  or the passage in the future of new and more stringent laws affecting
Cavalier, may adversely affect us.

Compliance with Environmental Laws
Federal,  state and  local  laws and  regulations  relating  to the  generation,
storage, handling, emission,  transportation and discharge of materials into the
environment  govern  Cavalier's  operations.  In  addition,  third  parties  and
governmental  agencies  in some  cases  have  the  power  under  such  laws  and
regulations to require remediation of environmental  conditions and, in the case
of  governmental  agencies  and  entities,  to impose fines and  penalties.  The
requirements  of such  laws  and  enforcement  policies  have  generally  become
stricter in recent years.  Accordingly,  we cannot assure investors that we will
not be required to incur response costs, remediation expenses,  fines, penalties
or other  similar  damages,  expenses or  liabilities,  or to incur  operational
shut-downs, business interruptions or similar losses, associated with compliance
with environmental laws and enforcement  policies that either individually or in
the aggregate would have a material  adverse effect on our results of operations
or financial condition.

Warranty Claims
Cavalier is subject to warranty  claims in the ordinary  course of its business.
Although we maintain reserves for such claims, which to date have been adequate,
there can be no assurance  that warranty  expense  levels will remain at current
levels or that such  reserves  will  continue to be adequate.  A large number of
warranty  claims  exceeding  our current  warranty  expense  levels could have a
material adverse effect on Cavalier's results of operations.

Litigation
We suggest that you read Item 3., Legal  Proceedings,  below, for description of
certain risk factors associated with litigation.

Volatility of Stock Price
The  Company's  common  stock is  traded on the NYSE.  The  market  price of the
Company's common stock may be subject to significant fluctuations in response to
variations in the Company's  operating  results and other factors  affecting the
Company specifically, the manufactured housing industry generally, and the stock
market generally.

<PAGE>
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,
2001:
<TABLE>
<CAPTION>
                                                                                   Approximate     Owned/    (a)
          Location                           Use (Number of Facilities)          Square Footage    Leased
<S>                                          <C>                                   <C>              <C>      <C>

Manufacturing & Distribution
     Adrian Homes
          Adrian, Georgia                    Manufacturing facility (1)            107,000          Owned    (b)
     Astro Homes
          Shippenville, Pennsylvania         Manufacturing facility (1)            120,000          Owned
     Bellcrest Homes
          Millen, Georgia                    Manufacturing facilities (2)          169,000          Owned
     Belmont Homes, Inc.
          Belmont Mississippi                Manufacturing facilities (2)          384,000          Owned
          Clarksdale, Mississippi            Manufacturing facility (1)            104,000          Owned
     Brigadier Homes of North Carolina
          Nashville, North Carolina          Manufacturing facility (1)            182,000          Owned
     Buccaneer Homes
          Hamiliton, Alabama                 Manufacturing facility (1)            195,000          Owned
          Winfield, Alabama                  Manufacturing facility (1)             94,000          Owned
          Winfield, Alabama                  Manufacturing facility (1)            129,000         Leased
     Cavalier Homes of Alabama
          Addison, Alabama                   Manufacturing facilities (4)          545,000          Owned
     Homestead Homes
          Cordele, Georgia                   Manufacturing facility (1)            110,000          Owned
     Mansion Homes
          Robbins, North Carolina            Manufacturing facility (1)             99,000         Leased    (c)
     Quality Housing Supply, LLC
          Hamiliton, Alabama                 Manufacturing facility (1)             60,000          Owned    (d)
     Ridge Crest, LLC
          Haleyville, Alabama                Manufacturing facilities (2)          101,000         Leased
     Riverchase Homes
          Haleyville, Alabama                Manufacturing facility (1)             82,000          Owned
     Spirit Homes, Inc.
          Conway, Arkansas                   Manufacturing facilities (2)          297,000          Owned
          Bigelow, Arkansas                  Manufacturing facility (1)             76,000          Owned
     Town & Country Homes
          Fort Worth, Texas                  Manufacturing facility (1)            101,000          Owned
          Graham, Texas                      Manufacturing facility (1)            103,000         Leased

Financial Services
          Hamilton, Alabama                  Administrative Office                   7,000          Owned

General Corporate & Other
          Addison, Alabama                   Administrative Office                  10,000          Owned
          Wichita Falls, Texas               Administrative Office                   1,000         Leased
          Decatur, Alabama                   Administrative Office                   5,000         Leased
</TABLE>
(a)  Certain  of  the  facilities  listed as owned are financed under industrial
     development bond issues, including the Adrian, Buccaneer, Cavalier Homes of
     Alabama (2), Riverchase and Quality  Housing  facilities. Not  included  in
     this table is the Georgia facility for which construction is not complete.

(b)  During  2000, the  Company leased  this facility to a third  party with  an
     option to purchase.

(c)  During 2001, the  Company  recorded  an  impairment charge related  to  the
         closure of this leased manufacturing facility.

(d)  In  March  2001, the  Company  exercised   the  purchase  option  on   this
     previously leased facility for $1,125,000.

In general, the manufacturing  facilities are in good condition and are operated
at capacities which range from  approximately 40% to 89%,  excluding eight idled
facilities in Addison and Winfield, Alabama, Bigelow, Arkansas, Adrian, Georgia,
and Belmont and Clarksdale, Mississippi.
<PAGE>

ITEM 3.       LEGAL PROCEEDINGS

The Company and its subsidiaries  are engaged in various legal  proceedings that
are incidental to and arise in the course of its business.  Certain of the cases
filed  against  the  Company  and its  subsidiaries  and  companies  engaged  in
businesses  similar to it allege,  among other  things,  breach of contract  and
warranty,  product  liability,  personal  injury and  fraudulent,  deceptive  or
collusive  practices in connection with their  businesses.  These kinds of suits
are typical of suits that have been filed in recent  years,  and they  sometimes
seek  certification  as  class  actions,  the  imposition  of large  amounts  of
compensatory and punitive damages and trials by jury. The outcome of many of the
cases in which the  Company is  involved  or may in the future  become  involved
cannot be predicted with any degree of reliability, and the potential exists for
unanticipated  material adverse judgments against the Company and its respective
subsidiaries.

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

No  matters were  submitted  to the shareholders during the last quarter  of the
fiscal year.

                                 PART II

ITEM 5.       MARKET FOR   THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
              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.  All adjusted prices of the Company's common stock have been rounded to
the nearest one-eighth of one dollar.

                                           Closing Sales Price
                                        ------------------------
                                          High          Low        Dividends
                                        -----------   ---------- --------------
Year ended December 31, 2001
     Fourth Quarter                        $ 3.17        $2.00             $ -
     Third Quarter                           3.12         1.51               -
     Second Quarter                          3.50         2.12               -
     First Quarter                           2.50         0.94               -

Year ended December 31, 2000
     Fourth Quarter                        $ 1.63        $0.75             $ -
     Third Quarter                           1.88         1.38            0.01
     Second Quarter                          2.81         1.44            0.04
     First Quarter                           4.31         2.63            0.04


As of March 22, 2002, the Company had  approximately  400 shareholders of record
and 3,700  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.

In October 2000,  Cavalier's Board of Directors voted to discontinue the payment
of cash dividends which had been reduced from $0.04 per share to $0.01 per share
for third quarter of 2000.  While the Company does not expect to recommence cash
dividend payments in the foreseeable  future, the future payment of dividends on
the  Company's  common stock will be 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  consolidated  net income for the two
most recent fiscal years.

<PAGE>
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 operations  data,  the
balance  sheet  data,  and other data of the  Company for each of the five years
ended  December  31,  2001 have been  derived  from the  consolidated  financial
statements of the Company.  The  Company's  audited  financial  statements as of
December 31, 2001 and 2000, and for each of the years in the  three-year  period
ended  December 31, 2001,  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.
<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                ----------------------------------------------------------------------------
                                                   2001            2000            1999            1998            1997
                                                ------------   -------------   -------------   -------------   -------------
                                                                 (in thousands, except per share amounts)
<S>                                          <C>            <C>              <C>            <C>             <C>
Statement of Operations Data

Revenue:
     Home manufacturing net sales            $      348,235 $       306,239  $      582,274 $       623,281 $       578,587
     Financial services                               3,088           4,878           6,107           6,088           5,346
     Retail                                           6,968          16,842          20,914           7,167               -
     Other                                            5,580           5,153           5,173           2,699           2,112
                                                ------------   -------------   -------------   -------------   -------------

     Total revenue                                  363,871         333,112         614,468         639,235         586,045

Cost of sales                                       309,656         292,810         504,011         520,675         487,632
Selling, general and administrative                  66,690          85,430         102,938          88,809          73,973
Impairment and other related charges                  1,003           6,975           4,002               -               -
Non-recurring merger and related costs                    -               -               -               -           7,359
                                                ------------   -------------   -------------   -------------   -------------

Operating profit (loss)                             (13,478)        (52,103)          3,517          29,751          17,081
Life insurance proceeds                                   -               -               -               -           1,500
Other income (expense) - net                         (1,140)           (494)             36           1,531            (242)
                                                ------------   -------------   -------------   -------------   -------------

Income (loss) before income taxes (benefit)  $      (14,618)$       (52,597)          3,553 $        31,282 $        18,339
                                                ============   =============   =============   =============   =============

Net income (loss)                            $      (14,018)$       (33,468)$         2,150 $        18,655 $        10,247
                                                ============   =============   =============   =============   =============

Basic net income (loss) per share            $         (.80)$         (1.88)$           .12 $           .94 $           .52
                                                ============   =============   =============   =============   =============

Diluted net income (loss) per share          $         (.80)$         (1.88)$           .12 $           .93 $           .51
                                                ============   =============   =============   =============   =============

Cash dividend per share                      $            - $           .09 $           .16 $           .13 $           .07
                                                ============   =============   =============   =============   =============
Weighted average number of shares
     outstanding                                     17,580          17,800          18,126          19,905          19,835
                                                ============   =============   =============   =============   =============
Weighted average number of shares
     outstanding, assuming dilution                  17,580          17,800          18,204          20,144          20,028
                                                ============   =============   =============   =============   =============

Other Data

Capital expenditures                         $        3,496 $         3,807 $        24,546 $        14,655 $        10,186
                                                ============   =============   =============   =============   =============

Balance Sheet Data

Working capital                              $       18,183 $        27,213 $        33,065 $        41,707 $        28,484
Total assets                                 $      174,116 $       187,595 $       233,578 $       235,952 $       211,554
Long-term debt                               $       23,999 $        24,054 $        10,218 $         3,650 $        15,808
Stockholders' equity                         $       80,192 $        94,318 $       129,391 $       144,911 $       133,551

Certain amounts from prior periods have been reclassified to conform to the current presentation.
</TABLE>
<PAGE>
ITEM 7.       MANAGEMENT'S DISCUSSION AND  ANALYSIS  OF FINANCIAL  CONDITION AND
              RESULTS OF OPERATIONS

Industry and Company Outlook
Cavalier Homes,  Inc. and its subsidiaries are engaged in the production,  sale,
financing, and insuring of manufactured homes. The manufactured housing industry
is cyclical  and  seasonal and is  influenced  by many of the same  economic and
demographic  factors that affect the housing  market as a whole.  As a result of
the  growth in the  industry  during  much of the  1990s,  the  number of retail
dealerships,   manufacturing   capacity   and   wholesale   shipments   expanded
significantly,  which ultimately  created slower retail turnover,  higher retail
inventory levels and increased price  competition.  Inventory  oversupply at the
retail level continues to have a significant impact on wholesale shipments as it
did during  much of 1999 and all of 2000.  The  Manufactured  Housing  Institute
("MHI") reported that industry  wholesale floor shipments declined 20.7% in 2001
as  compared  to 2000,  following a 25.9%  decline  from 1999 to 2000,  although
shipments  increased  3.9% in the fourth  quarter of 2001. MHI also has reported
that industry wholesale floor shipments declined from 608,921 in 1998 to 342,321
in 2001, or 43.8%.  The industry also has been impacted by an increase in dealer
failures,  a reduction in available consumer credit and wholesale  financing for
manufactured  housing,  more  restrictive  credit  standards and increased  home
repossessions  which  re-enter  home  distribution   channels.  In  response  to
deteriorating  market  conditions,  manufacturers  have  closed or idled some of
their manufacturing  facilities and retail dealers have closed some locations. A
major  third-party  lender  recently  announced  plans to discontinue  wholesale
financing of manufactured homes, which may have a material adverse effect on the
Company's  ability to find  financing for dealer  purchases.  * The Company also
believes that the possibility  exists for additional retail dealer failures,  as
well as for the loss of  additional  lenders  from the  industry,  and a further
reduction in the availability of wholesale and retail financing. *

During 2001, the Company recorded impairment and other related charges of $1,003
($1,003 after tax or $0.06 per diluted share) in connection  with the closing of
one home manufacturing facility.  Since the fall of 1999, Cavalier has idled ten
home manufacturing  plants, one of which was re-opened during the fourth quarter
of 2000,  and  disposed  of the  operations  of one  other.  Another  plant  was
destroyed by fire in June 2000 (a  previously  idled  facility was  re-opened to
replace that capacity). Consequently, Cavalier, at December 31, 2001, operated a
total of 14 home manufacturing  facilities,  reflecting an approximate one-third
reduction in manufacturing  capacity since 1999.  Despite this  consolidation of
its  manufacturing  facilities,  the Company does not believe it has reduced the
breadth of its product offering. * On the retail side, the Company has closed or
disposed of 11 of its 16 retail  sales  centers.  In terms of  operating  costs,
Cavalier  has made  cost  reductions  in  virtually  all  areas of the  Company,
including its exclusive  dealer and  marketing  programs and its  administrative
personnel  and  associated  costs.  Altogether,  the  Company  has  reduced  its
production and  administrative  workforce by  approximately  2,300  employees or
about 40% since  December  31,  1998.  The  Company is  continuing  to  evaluate
capacity, cost and overhead issues, the need for further plant, retail and other
consolidations, reductions, idlings and closings and methods designed to address
the  Company's  decline in revenue in light of  developing  market and  business
conditions. * The Company can give no assurance as to which one or more of these
options,  if any, it may ultimately adopt, and, if adopted,  whether and to what
extent these actions will have an effect on the financial  condition and results
of operations of the Company.

After substantial  losses since the third quarter of 1999, the Company's results
for the latter part of 2001 showed  significant  improvement.  Although industry
conditions  remained  challenging,  the Company's floor shipments  increased 67%
during the fourth  quarter of 2001 as  compared  to the fourth  quarter of 2000,
following  a 45%  increase  in the third  quarter  over the prior  year and a 2%
increase in the second  quarter.  The Company also recorded  revenue growth over
the  comparable  prior year period during both the third and fourth  quarters of
2001. This trend enabled the Company to return to  profitability  for the fourth
quarter of 2001; however,  the typical seasonal slowdown that normally occurs in
the first quarter of the year combined with increased  promotional costs related
to a winter  promotion,  will likely  result in lower margins and a loss for the
first  quarter of 2002. * The Company is uncertain at this time as to the extent
and duration of the effects  resulting from the terrorist  attacks on the United
States which began on  September  11, 2001,  the general  economic  slowdown and
continuing adverse industry conditions will have on the Company's future revenue
and earnings. *

* See Safe Harbor Statement on page 32.
<PAGE>
Results of Operations (dollars in thousands)
The following table summarizes  certain  financial and operating data including,
as applicable, the percentage of total revenue:
<TABLE>
<CAPTION>
                                                                  For the Year Ended December 31,
                                             ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA                          2001                      2000                     1999
                                             -----------------------   ----------------------   ------------------------
<S>                                        <C>            <C>        <C>           <C>        <C>             <C>
Revenue:
  Home manufacturing net sales             $   348,235               $   306,239              $   582,274
  Financial services                             3,088                     4,878                    6,107
  Retail                                         6,968                    16,842                   20,914
  Other                                          5,580                     5,153                    5,173
                                             ----------                ----------               ----------

Total revenue                              $   363,871       100.0%  $   333,112      100.0%  $   614,468        100.0%
Cost of sales                                  309,656        85.1%      292,810       87.9%      504,011         82.0%
                                             ----------   ----------   ----------  ----------   ----------    ----------

     Gross profit                          $    54,215        14.9%  $    40,302       12.1%  $   110,457         18.0%
                                             ==========   ==========   ==========  ==========   ==========    ==========

Selling, general and administrative        $    66,690        18.3%  $    85,430       25.6%  $   102,938         16.8%
Impairment and other related charges       $     1,003         0.3%  $     6,975        2.1%  $     4,002          0.7%
                                             ----------   ----------   ----------  ----------   ----------    ----------
Operating income (loss)                    $   (13,478)       -3.7%  $   (52,103)     -15.6%  $     3,517          0.6%
                                             ----------   ----------   ----------  ----------   ----------    ----------
Other income (expense):
   Interest expense                        $    (1,935)       -0.5%  $    (2,736)      -0.8%  $    (1,643)        -0.3%
   Other, net                                      795         0.2%        2,242        0.7%        1,679          0.3%
                                             ----------                ----------               ----------
                                           $    (1,140)              $      (494)             $        36
                                             ==========                ==========               ==========
Net income (loss)                          $   (14,018)       -3.9%  $   (33,468)     -10.0%  $     2,150          0.3%
                                             ==========                ==========               ==========

OPERATING DATA
Home manufacturing sales:
Floor shipments                                 21,324                    18,590                   34,294
Home shipments
  Single section                                 4,013        31.7%        4,406       38.4%       10,546         47.1%
  Multi section                                  8,656        68.3%        7,072       61.6%       11,831         52.9%
                                             ----------   ----------   ----------  ----------   ----------    ----------

Total shipments                                 12,669       100.0%       11,478      100.0%       22,377        100.0%

Shipments to company owned retail locations       (151)       -1.2%         (200)      -1.7%         (645)        -2.9%
                                             ----------   ----------   ----------  ----------   ----------    ----------

Wholesale shipments to independent retailers    12,518        98.8%       11,278       98.3%       21,732         97.1%
                                             ==========   ==========   ==========  ==========   ==========    ==========

Retail sales:
  Single section                                    75        37.5%          335       49.3%          375         58.3%
  Multi section                                    125        62.5%          345       50.7%          268         41.7%
                                             ----------   ----------   ----------  ----------   ----------    ----------
Total sales                                        200       100.0%          680      100.0%          643        100.0%
                                             ==========   ==========   ==========  ==========   ==========    ==========
Cavalier produced homes sold                       170        85.0%          568       83.5%          490         76.2%
                                             ==========   ==========   ==========  ==========   ==========    ==========
Used homes sold                                     29        14.5%           99       14.6%          115         17.9%
                                             ==========   ==========   ==========  ==========   ==========    ==========
Other operating data:
Installment loan purchases                 $    35,768               $    59,569              $    47,063
Capital expenditures                       $     3,496               $     3,807              $    24,546
Home manufacturing facilities (operating)           14                        15                       19
Independent exclusive dealer locations             237                       193                      274
Company-owned retail locations                       5                         5                       16
</TABLE>

2001 Compared to 2000

Revenue
Total  revenue for 2001 was $363,871,  increasing  $30,759,  or 9.2%,  from 2000
revenue of $333,112.

Home  manufacturing net sales in 2001 increased  $41,996,  or 13.7%, to $348,235
net of intercompany  eliminations of $4,196.  Home  manufacturing  net sales for
2000 were $306,239,  net of intercompany  eliminations of $5,292. Home shipments
increased 10.4%, with floor shipments  increasing by 14.7%.  Multi-section  home
shipments, as a percentage of total shipments, increased from 61.6% of shipments
in 2000 to 68.3% of shipments in 2001 in response to increasing  consumer demand
for  multi-section  homes as compared  to single  section  homes.  The year 2001
average price of homes sold increased  $700,  from $27,100 in 2000 to $27,800 in
2001. Actual shipments of homes for 2001 were 12,669 versus 11,478 in 2000.

<PAGE>
Cavalier  attributes  the  increase  in sales  and  shipments  primarily  to its
aggressive marketing  strategies and its product offerings.  * Approximately 84%
of Cavalier's shipments was to its core market of 11 states, where the Company's
floor shipments increased 12.2% compared to 2000,  including a 65.0% increase in
the fourth quarter.

Although home manufacturing  revenue increased,  the Company's  inventory at all
retail locations,  including company-owned retail sales centers, declined 10% to
approximately  $171,000 at December 31, 2001 from  $191,000 at year end 2000. At
its peak in June 1999, dealer inventory approximated $314,000.

Revenue from the financial  services segment  decreased 36.7% to $3,088 for 2001
compared  to $4,878 in 2000,  due to  primarily  a lower  volume of  installment
contracts  sold.  For 2001,  CIS  Financial  Services,  Inc.  ("CIS")  purchased
contracts of $35,768 and resold installment contracts totaling $36,325. In 2000,
CIS purchased  contracts of $59,569 and resold  installment  contracts  totaling
$60,241.  CIS does  not  retain  the  servicing  function  and does not earn the
interest  income on these resold  loans.  CIS  purchased and sold fewer loans in
2001 as compared to 2000 primarily due to the industry conditions cited above.

Revenue from the retail segment was $6,968 for 2001 compared to $16,842 for 2000
primarily due to a reduced number of operating  retail sales  locations.  During
2000, the Company closed or sold 11 under-performing retail locations,  bringing
the number of company-owned stores to five at December 31, 2001.

Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing  businesses,  which primarily sell to the Company's home
manufacturing segment. Revenues from external customers increased 8.3% to $5,580
for 2001 compared to $5,153 during 2000.  The increase is primarily due to price
increases at one supply company.

Gross Profit
Gross profit is derived by  deducting  cost of sales from total  revenue.  Gross
profit was $54,215 or 14.9% of total revenue,  for 2001, versus $40,302 or 12.1%
of total  revenue,  in 2000.  Of the $13,913  increase,  the Company  attributes
approximately  $3,700 to volume  increase and $10,200 to cost  reductions due to
continued efficiencies gained from restructured product and work processes.

Selling, General and Administrative
Selling,  general and administrative  expenses during 2001 were $66,690 or 18.3%
of total  revenue,  versus $85,430 or 25.6% of total revenue in 2000, a decrease
of  $18,740.  The  overall  decrease  includes a $1,228  reduction  in  employee
benefits  cost,  a $1,161  reduction  in service  and  warranty  cost,  a $7,566
decrease in inventory  repurchase  charges,  a $2,334  reduction due to business
units sold during 2000, a $2,045 reduction due to scaled-back retail operations,
a $1,223 reduction in management information system costs and a $2,352 reduction
in advertising  and promotion  costs,  including  costs to support the exclusive
dealer program.

Impairment and Other Related Charges
During 2001, the Company recorded impairment and other related charges of $1,003
($1,003 after tax or $0.06 per diluted share) related to the closing of one home
manufacturing  plant.  Impairment  and other  related  charges  totaling  $6,975
($5,183  after tax or $0.29 per  diluted  share) were  recorded  in 2000.  These
charges were recorded in connection with the closing of four home  manufacturing
facilities  ($1,024),  Company-owned  retail locations  ($4,212),  the sale of a
portion of the Company's  insurance and premium  finance  business  ($1,497) - a
step related to the scaling back of the  Company's  retail  operations - and the
disposition of a portion of the Company's supply operations ($242).

Operating Profit (Loss)
Operating profit (loss) is derived by deducting cost of sales, selling,  general
and administrative  expenses and impairment and other related charges from total
revenue.  Operating loss for 2001 was $13,478,  compared to an operating loss of
$52,103  in  2000.  Home  manufacturing   operating  loss,  before  intercompany

* See Safe Harbor Statement on page 32.
<PAGE>
eliminations,  was $7,915 in 2001 as compared to a loss of $33,211 in 2000.  The
improvement was primarily due to the increase in revenue and gross profit and to
reduced  selling,  general  and  administrative  expenses.  The year  2000  also
included  an  operating  loss and  inventory  and  equipment  valuation  charges
relating to the closing of the Adrian,  Georgia plant  totaling  $3,450  ($2,173
after tax or $0.12 per diluted share).  On October 2, 2000, the Company sold the
inventory,  tools, and supplies of the Adrian plant and leased the facility to a
third party with an option to  purchase.  Financial  services  operating  profit
increased  to $211 in 2001 as  compared to an  operating  loss of $1,251 in 2000
primarily  due to the decrease in  impairment  and other  related  charges noted
above. The retail  segment's  operating loss decreased $9,427 from $9,514 to $87
primarily  due  to  the  closing  or  disposition  of  eleven  under  performing
Company-owned  retail  locations in 2000.  The other segment  operating  profit,
before  intercompany  eliminations,  increase  of  $3,756  is due  mainly to the
improved  margins at one supply  subsidiary  and an addition  of another  supply
subsidiary in 2001. General corporate  operating loss, which is not identifiable
to a specific segment, decreased $255.

Other Income (Expense)
Interest  expense  decreased  $801 primarily due to a reduction in notes payable
under  retail  floor  plan  agreements  and  lower  interest  rates  on  amounts
outstanding under the Company's line of credit.

Other,  net is comprised  primarily of interest  income  (unrelated to financial
services),  gains or losses on sales of assets,  equity  earnings in investments
accounted for on the equity basis of  accounting  and  applicable  allocation of
minority  interest.  Other,  net  decreased  $1,447  primarily due to $509 lower
interest  income on  operating  bank  balances,  $556 lower gains on the sale of
property,  plant and equipment and $336 higher losses from supply-related equity
partnerships.

Net Income (Loss) before Income Tax Benefit
The Company's 2001 pre-tax loss was $14,618, reflecting a 72.2% improvement over
the  pre-tax  loss of $52,597 in 2000.  The  prior-year  pre-tax  loss  included
impairment and other related charges of $6,975,  charges for anticipated  dealer
failures of $9,414,  inventory valuation charges of $2,971, charges related to a
plant  disposition  of $3,450,  and a fire  insurance gain of $920. In 2001, the
Company recorded charges of $1,848 for anticipated dealer failure and $1,003 for
impairment and other related charges.

Net Income (Loss)
The Company  recorded an income tax benefit of $600 in the first quarter of 2001
relating to future income tax refunds and certain  carryforward  items,  but did
not record any additional  benefit for net operating losses for the remainder of
the year,  because  management  believes it is no longer  appropriate  to record
income tax  benefits  on current  losses in excess of  anticipated  refunds  and
certain  carryforward  items under the provisions of SFAS No.109  Accounting for
Income Taxes. * Before impairment and other related charges discussed above, the
Company's net loss for 2001 was $13,015 or $0.74 per diluted share compared with
net loss before  impairment  and other  related  charges of $28,285 or $1.59 per
diluted share in 2000.  The Company's net loss for 2001,  after  impairment  and
other related charges,  was $14,018 or $0.80 per diluted share, as compared to a
net loss of $33,468 or $1.88 per  diluted  share in 2000,  primarily  due to the
factors noted above.

2000 Compared to 1999

Revenue
Total revenue for 2000 was  $333,112,  down 45.8% from 1999 revenue of $614,468.
The Company's revenues and profits were adversely affected by challenging market
conditions,  including, among other things, intense competition, reduced lending
availability and tightened credit  standards,  higher interest rates,  inventory
over-supply  at the retail level,  increased home  repossessions  which re-enter
home  distribution  channels,  the ongoing  contraction of dealer  locations and
homes  repurchased  from  dealers  which are  subsequently  re-sold  through the
Company's dealer network.

Home  manufacturing  net sales in 2000 accounted for the majority of the decline
against 1999,  falling  47.4% to $306,239 net of  intercompany  eliminations  of
$5,292. Home manufacturing net sales for 1999 were $582,274, net of intercompany

* See Safe Harbor Statement on page 32.
<PAGE>
eliminations of $17,373.  Home shipments  decreased 48.7%,  with floor shipments
decreasing  by 45.8%.  Multi-section  home  shipments,  as a percentage of total
shipments,  increased  from 52.9% of  shipments in 1999 to 61.6% of shipments in
2000 in  response  to  increasing  consumer  demand for  multi-section  homes as
compared  to  single  section  homes.   Despite  the  increased   percentage  of
multi-section  homes sold,  the year 2000 average  price of homes sold  remained
consistent  with  1999's  average  price  due  to  industry  conditions.  Actual
shipments of homes for 2000 were 11,478 versus 22,377 in 1999.

Cavalier  attributes  the  decrease  in sales  and  shipments  primarily  to the
unfavorable industry conditions described above. Approximately 86% of Cavalier's
shipments  was to its core market of 11 states,  where the  Company's  shipments
declined  50%  compared  to 1999.  The Company has pursued a strategy of working
closely with its dealers to assist them in reducing  retail  inventories,  which
also reduces the Company's risk  associated  with dealer  failures.  The Company
believes   this   inventory   reduction   strategy   has   contributed   to  its
disproportionate  decline  in  manufacturing  sales  volume in  relation  to the
industry's decline. * The Company's inventory at all retail locations, including
company-owned  retail sales centers,  declined 34% to approximately  $191,000 at
December  31,  2000 from  $289,000  at year end 1999.  At its peak in June 1999,
dealer inventory approximated $314,000. Additionally,  industry sales in several
states  in  Cavalier's  core  market  have  declined  at a higher  rate than the
industry  overall,  which  the  Company  believes  also has had an impact on its
sales. *

Revenue from the financial  services segment  decreased 20.1% to $4,878 for 2000
compared to $6,107 in 1999,  primarily due to  competitive  pressure on the rate
earned on resold  installment  contracts.  For 2000, CIS purchased  contracts of
$59,569  and  resold  installment  contracts  totaling  $60,241.  In  1999,  CIS
purchased  contracts  of  $47,063  and  resold  installment  contracts  totaling
$60,558, including $16,000 previously held in its portfolio. CIS does not retain
the  servicing  function and does not earn the  interest  income on these resold
loans.

Revenue  from the retail  segment was  $16,842 for 2000  compared to $20,914 for
1999.  During 2000,  the Company closed or sold eleven  under-performing  retail
locations,  and has recorded  impairment and other related charges and inventory
valuation  charges as  discussed  below,  bringing  the number of  company-owned
retail locations to five at December 31, 2000.

Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing  businesses,  which primarily sell to the Company's home
manufacturing  segment.  Revenues from external customers remained consistent at
$5,153 for 2000 compared to $5,173 during 1999.

Gross Profit
Gross profit is derived by  deducting  cost of sales from total  revenue.  Gross
profit was $40,302 or 12.1% of total revenue, for 2000, versus $110,457 or 18.0%
of total  revenue,  in 1999.  Of the $70,155  decrease,  the Company  attributes
approximately  $50,600 to volume  decrease  and $19,600 to margin  erosion.  The
margin erosion includes additional sales discounts at the manufacturing level in
response  to  intense  price  competition,  to help  encourage  sell-through  of
inventory,  inefficiencies  related to low volume  and plant  closings,  $400 of
supply company inventory valuation charges and $2,500 retail inventory valuation
charges.

Selling, General and Administrative
Selling,  general and administrative  expenses during 2000 were $85,430 or 25.6%
of total revenue,  versus $102,938 or 16.8% of total revenue in 1999, a decrease
of $17,508.  The overall  decrease is  primarily  due to a $10,003  reduction in
salaries,  wages and  incentive  compensation,  a $4,091  reduction  in employee
benefits cost (primarily  health  insurance),  a $5,424 reduction in advertising
and promotion  costs,  including costs to support the exclusive  dealer program,
and a $1,329 decrease in costs  associated  with the retail segment,  which were
offset by a $6,326 increase in inventory repurchase charges.

* See Safe Harbor Statement on page 32.
<PAGE>
Impairment and Other Related Charges
Due to  deteriorating  market  conditions,  impairment and other related charges
totaling  $6,975  ($5,183 after tax or $0.29 per diluted share) were recorded in
2000.  These charges were  recorded in connection  with the closing of four home
manufacturing facilities ($1,024),  Company-owned retail locations ($4,212), the
sale of a portion  of the  Company's  insurance  and  premium  finance  business
($1,497) - a step related to the scaling back of the Company's retail operations
- and the disposition of a portion of the Company's  supply  operations  ($242).
One previously closed home  manufacturing  facility was re-opened to replace the
production  capacity of another facility that was destroyed by fire in June 2000
and a second facility was re-opened in the fourth quarter of 2000.  During 1999,
the Company  recorded  impairment  and other related  charges of $4,002  ($2,458
after  tax or $0.14  per  diluted  share)  related  to the  idling  of five home
manufacturing plants.

Operating Profit (Loss)
Operating profit (loss) is derived by deducting cost of sales, selling,  general
and administrative  expenses and impairment and other related charges from total
revenue. Operating loss for 2000 was $52,103, compared to an operating profit of
$3,517  in  1999.  Home  manufacturing   operating  loss,  before   intercompany
eliminations,  was  $33,211 in 2000 as  compared to a profit of $16,544 in 1999.
The decline  primarily  was due to the  decrease  in sales,  an increase in home
repurchase  costs,  impairment  and other  related  charges and the industry and
business  conditions  cited above. The year 2000 also included an operating loss
and  inventory and equipment  valuation  charges  relating to the closing of the
Adrian,  Georgia plant  totaling  $3,450  ($2,173 after tax or $0.12 per diluted
share).  In 1999,  the Adrian plant  sustained  an operating  loss of $709 ($429
after tax or $0.02 per diluted share).  On October 2, 2000, the Company sold the
inventory,  tools, and supplies of the Adrian plant and leased the facility to a
third  party  with an option to  purchase.  Financial  services  operating  loss
increased $1,032 from 1999 primarily due to the decrease in sales and impairment
and other  related  charges noted above.  The retail  segment's  operating  loss
increased  $7,580 due to costs of inventory  valuation  charges,  impairment and
other related charges, low sales volume and the competitive conditions currently
prevalent  in the  marketplace.  The  other  segment  operating  profit,  before
intercompany  eliminations,  decrease  of $2,497 is due mainly to the  inventory
valuation and  impairment and other related  charges  discussed  above.  General
corporate  operating  loss,  which is not  identifiable  to a specific  segment,
decreased $2,456 primarily due to a reduction in incentive compensation.

Other Income (Expense)
Interest  expense  increased $1,093 primarily due to the increase during part of
the  year  in  notes  payable  under  retail  floor  plan  agreements,   amounts
outstanding  under  industrial  development  revenue bond issues and  borrowings
under the Company's credit facility.

Other,  net is comprised  primarily of interest  income  (unrelated to financial
services),  gains or losses on sales of assets,  equity  earnings in investments
accounted for on the equity basis of  accounting  and  applicable  allocation of
minority  interest.  Other, net increased $563 primarily due to a fire insurance
gain  of  $920,   partially   offset  by  losses  from   supply-related   equity
partnerships.

Net Income (Loss)
Before  impairment and other related charges  discussed above, the Company's net
loss for 2000 was $28,285 or $1.59 per diluted  share  compared  with net income
before impairment and other related charges of $4,608 or $0.26 per diluted share
in 1999.  The Company's net loss for 2000,  after  impairment  and other related
charges,  was $33,468 or $1.88 per diluted  share,  as compared to net income of
$2,150 or $0.12 per diluted  share in 1999,  primarily  due to the factors noted
above.

<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
                                                        Balances as of December 31,
                                                    -----------------------------------
(dollars in thousands)                                 2001        2000         1999
                                                    ----------  ----------   ----------
<S>                                               <C>         <C>          <C>

Cash, cash equivalents & certificates of deposit  $    43,256 $    35,394  $    39,635
Working capital                                   $    18,183 $    27,213  $    33,065
Current ratio                                        1.3 to 1    1.4 to 1     1.4 to 1
Long-term debt                                    $    23,999 $    24,054  $    10,218
Ratio of long-term debt to equity                      1 to 3      1 to 4      1 to 13
Installment loan portfolio                        $     4,991 $     7,887  $     9,450
</TABLE>

Operating  activities  during  2001  provided  net cash of $7,303.  The  Company
received a federal income tax refund in April 2001 of $16,725.  Effective  March
9, 2002, the Jobs Creation and Workers'  Assistance Act was passed which enabled
companies to carry back net operating  losses five years instead of two years as
under the previous rules.  The Company  estimates it will receive  approximately
$4,600 in tax refunds as a result of this change,  which will be recorded in the
first quarter of 2002. *

The Company's  capital  expenditures were $3,496 for 2001, as compared to $3,807
for 2000.  Capital  expenditures  during these periods included normal property,
plant and equipment  additions and  replacements  and the exercise of a purchase
option for a previously  leased  facility  for $1,125 in 2001.  The proceeds for
this  purchase  came from an  industrial  development  revenue bond issue.  This
increase in long-term debt reduced by normal  principal  payments  resulted in a
decrease in long-term debt of $55.

The Company purchased 312,200 shares of treasury stock during 2001 for $608. The
Company has  authorization to acquire up to 831,200  additional shares under the
current program.

In  addition  to its normal  purchasing  and  selling of loans to other  finance
companies,  during 2001 and 2000, the Company received proceeds of approximately
$4,500 and  $1,400,  respectively,  from the sale of loans that were  previously
held in its installment loan portfolio.

On May 4, 2001, the Company  amended its revolving and term-loan  agreement (the
"Credit  Facility")  with its  primary  lender.  The  maturity  date  under  the
revolving  line of credit  available  under the Credit  Facility is set at April
2003.  The  Credit  Facility  currently  consists  of a  $35,000  revolving  and
term-loan  agreement  and contains a revolving  line of credit that provides for
borrowings  (including letters of credit) up to a maximum of $35,000. At certain
levels of tangible net worth, defined as the total of the Company's tangible net
worth and treasury stock purchases for 2000 and 2001, the amount available under
the Credit  Facility  and  applicable  interest  rate  changes  are noted in the
following  table.

                                                    Applicable interest rate
    Tangible net worth       Credit Facility  ----------------------------------
         ("TNW")               Available          Bank's Prime          LIBOR
------------------------  ------------------  -------------------   ------------
Above $85,000              $35,000            less 0.50%            plus 2.00%
$85,000 - $77,000          35% of TNW         less 0.50%            plus 2.00%
$77,000 - $65,000          35% of TNW         prime                 plus 2.50%
$65,000 - $58,000          30% of TNW         plus 0.25%            plus 2.75%


However,  in no  event  may  the  aggregate  outstanding  borrowings  under  the
revolving line of credit and term-loan  agreement exceed $35,000 (or such lesser
amount as may be available). At December 31, 2001, $15,000 was outstanding under
the  revolving  line of credit,  against a total  borrowing  capacity of $20,087
based on the  Company's  tangible net worth.  At December 31, 2000,  $15,000 was
outstanding  under the  revolving  line of  credit,  against  a total  borrowing
capacity  of $27,354  based on the  Company's  tangible  net  worth.  The Credit
Facility  provides  the option for  amounts  drawn down for CIS's  benefit to be
converted  to a  term  loan  with  respect  to  borrowings  of up to  80% of the

* See Safe Harbor Statement on page 32.
<PAGE>
Company's eligible (as defined) installment sales contracts,  up to a maximum of
$35,000 (or such lesser  amount as may be  available).  Interest  under the 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 1.95%, with a floating rate for the remaining two years
(subject to certain limits) equal to the bank's prime rate plus 0.75%.

The Credit Facility,  as amended,  contains certain restrictive  covenants which
limit, among other things, the Company's ability without the lender's consent to
(i) make  dividend  payments  and  purchases  of treasury  stock in an aggregate
amount  which  exceeds  50% of  consolidated  net income for the two most recent
years,  (ii) mortgage or pledge assets which exceed,  in the aggregate,  $1,000,
(iii) incur additional indebtedness,  including lease obligations,  which exceed
in the aggregate $18,000, excluding floor plan notes payable which cannot exceed
$6,000  and (iv) make  annual  capital  expenditures  in excess of  $10,000.  In
addition, the Credit Facility contains certain financial covenants requiring the
Company to  maintain  on a  consolidated  basis  certain  defined  levels of net
working  capital (at least  $15,000),  debt to tangible  net worth ratio (not to
exceed 2 to 1) and cash  flow to debt  service  ratio  (not less than 1.75 to 1)
commencing  with the year  ending  December  31,  2002  and  thereafter,  and to
maintain  a  current  ratio  of at least  1.17 to 1 and the sum of  consolidated
tangible net worth plus treasury stock purchases,  in 2000 and 2001, of at least
$58,000.  The Credit Facility also requires CIS to comply with certain specified
restrictions and financial covenants.

Since its  inception,  CIS has been  restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary  lender.  From
time to time,  the Company  evaluates  the potential to sell all or a portion of
its remaining  installment  loan portfolio,  in addition to the periodic sale of
installment  contracts  purchased  by  CIS  in the  future.  * CIS is  currently
re-selling  loans to other lenders under various retail finance  contracts.  The
Company  believes the periodic sale of installment  contracts under these retail
finance  agreements  will  reduce  requirements  for both  working  capital  and
borrowings,  increase the Company's liquidity,  reduce the Company's exposure to
interest rate fluctuations and enhance the ability of CIS to increase its volume
of loan purchases.  * There can be no assurance,  however, that additional sales
will be made under these agreements, or that CIS and the Company will be able to
realize the expected benefits from such agreements. *

The Company  currently  believes  existing  cash and funds  available  under the
credit  facility,  together with cash provided by operations will be adequate to
fund the Company's  operations and plans for the next twelve months.  * However,
there can be no  assurances  to this effect.  If it is not, or if the Company is
unable to remain in compliance with its covenants under its Credit Facility, the
Company  would seek to maintain or enhance its  liquidity  position  and capital
resources through further modifications to or waivers under the Credit Facility,
incurrence  of  additional  short or  long-term  indebtedness  or other forms of
financing, asset sales, restructuring of debt, and/or the sale of equity or debt
securities  in public or private  transactions,  the  availability  and terms of
which will depend on various  factors and market and other  conditions,  some of
which are beyond the control of the Company. *

Projected  cash to be  provided  by  operations  in the  coming  year is largely
dependent on sales  volume.  The  Company's  manufactured  homes are sold mainly
through independent dealers who generally rely on third-party lenders to provide
floor plan  financing  for homes  purchased.  In addition,  third-party  lenders
generally provide consumer financing for manufactured home purchases.  Our sales
depend in large part on the  availability and cost of financing for manufactured
home  purchasers  and  dealers  as  well  as  our  own  retail  locations.   The
availability  and cost of such  financing is further  dependent on the number of
financial institutions participating in the industry, the departure of financial
institutions from the industry,  the financial  institutions' lending practices,
the strength of the credit markets  generally,  governmental  policies and other
conditions,  all of which are beyond our  control.  A major  third-party  lender
recently  announced  plans to discontinue  wholesale  financing of  manufactured
homes,  which may have a material  adverse effect on Cavalier's  ability to find
financing for dealer  purchases.  * Reduced  availability  of such  financing is
currently having an adverse effect on the manufactured  housing  industry.  * In
addition,  most  states  classify  manufactured  homes  for both  legal  and tax
purposes as personal  property rather than real estate.  As a result,  financing
for the  purchase  of  manufactured  homes  is  characterized  by  shorter  loan
maturities and higher interest  rates,  and in certain periods such financing is

* See Safe Harbor Statement on page 32.
<PAGE>
more difficult to obtain than conventional home mortgages.  Unfavorable  changes
in these factors and the current adverse trend in the  availability and terms of
financing  in the  industry  may have a material  adverse  effect on  Cavalier's
results of operations or financial condition. Additionally, effective January 1,
2002, the State of Texas enacted a law that, among other things,  classifies and
taxes  manufactured  homes as real property,  and not personal  property,  under
certain  conditions  as set forth in the Texas law. The  classification  as real
property  could change the rates and methods of taxation  assessed  against such
homes in Texas.  The law also may affect  the form and  structure  of  permanent
financing  extended to Texas  manufactured home consumers because such financing
historically has treated  manufactured  homes as personalty  rather than as real
estate.

Contractual Obligations and Commitments (dollars in thousands)
The  following  table  summarizes  contractual  obligations  of the  Company  at
December 31, 2001,  including short and long-term  debt,  commitments for future
payments under  non-cancelable  operating  lease  agreements and other long-term
obligations.  For additional information related to these obligations, see Notes
5 and 10 to the Consolidated Financial Statements. This table excludes long-term
obligations for which there is no definite commitment period.
<TABLE>
<CAPTION>
                                                                                  Payments Due by Period
                                                         ----------------------------------------------------------------------
                                                            Total        Less than 1 yea1 -3 years    4 - 5 years   After 5 years
                                                         -------------   --------------------------   ------------   ----------
<S>                                                      <C>             <C>            <C>           <C>            <C>

Notes payable under retail floor plan agreements             $  2,364       $ 2,364       $      -        $     -      $     -
Revolving credit facility                                      15,000             -         15,000              -            -
Industrial development revenue bond issues                     10,293         1,294          2,885          2,449        3,665
                                                         -------------   -----------    -----------   ------------   ----------
Total contractual cash obligations                           $ 27,657       $ 3,658       $ 17,885        $ 2,449      $ 3,665
                                                         =============   ===========    ===========   ============   ==========
</TABLE>

The following table summarizes contingent commitments of the Company at December
31, 2001, including contingent  repurchase  obligations,  guarantees of debt for
equity  method  investees  and  letters of credit.  For  additional  information
related  to  these  contingent  obligations,  see  Note  10 to the  Consolidated
Financial   Statements  and  Critical  Accounting  Policies  below.   Contingent
insurance plans' retrospective  premium adjustments are excluded from this table
as there is no definite  expiration  period (see  Critical  Accounting  Policies
below).
<TABLE>
<CAPTION>
                                                                        Amount of Commitment Expiration per Period
                                                         ----------------------------------------------------------------------
                                                            Total        Less than 1 yea1 -3 years    4 - 5 years   After 5 years
                                                         -------------   --------------------------   ------------   ----------
<S>                                                      <C>             <C>            <C>           <C>            <C>
Repurchase obligations      (1)                             $ 135,000      $ 36,000       $ 99,000            $ -          $ -
Guarantees                  (2)                                 1,861           461            423            228          749
Letters of credit           (3)                                 2,878         2,490            388              -            -
                                                         -------------   -----------    -----------   ------------   ----------
Total commitments                                           $ 139,739      $ 38,951       $ 99,811          $ 228        $ 749
                                                         =============   ===========    ===========   ============   ==========
</TABLE>
(1)        For a complete description of the   contingent repurchase obligation,
           see Critical Accounting Policies-Reserve  for Repurchase Commitments.
           Although the commitments outstanding   at December 31,  2001  have  a
           finite life,  these  commitments   are  continually  replaced  as the
           Company continues to sell its manufactured  homes  to  dealers  under
           repurchase and other recourse agreements   with lending  institutions
           which have provided wholesale floor  plan  financing to  dealers. The
           cost of these contingent repurchase obligations to the    Company was
           $1,848 (2001), $9,414 (2000), and $3,088 (1999).

(2)        The Company and  certain  of  its  equity  partners  have  guaranteed
           certain debt for companies in which the Company owns various   equity
           interests. The guarantees are limited to various percentages   of the
           outstanding debt up to a maximum guaranty of $2,805. At  December 31,
           2001, $5,663 was outstanding under the various guarantees, of   which
           the Company had guaranteed $1,861. One of the companies has a   lease
           purchase agreement with a third party to  sell a facility financed by

<PAGE>
           debt that the Company   has   guaranteed. The   Company  expects  the
           proceeds from the exercise of the purchase   option to be used to pay
           off the debt and to be released  from the  guaranty  upon  payoff  in
           2003.

(3)        The Company has provided letters of credit to providers of certain of
           its insurance policies. While the current  letters of  credit  have a
           finite life, they  are  subject to renewal at different amounts based
           on the  requirements  of  the  insurance  carriers. The  Company  has
           recorded insurance  expense  based  on anticipated losses  related to
           these policies.

Critical Accounting Policies
Cavalier  follows  certain  significant  accounting  policies when preparing our
consolidated  financial  statements as summarized in Note 1 to the  Consolidated
Financial   Statements.   The  preparation  of  these  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  requires us to make estimates and  assumptions  that affect the amounts
reported in the financial  statements and notes. We evaluate these estimates and
assumptions on an ongoing basis and use historical  experience factors,  current
economic conditions and various other assumptions that we believe are reasonable
under the  circumstances.  The  results  of these  estimates  form the basis for
making  judgments about the carrying values of assets and liabilities as well as
identifying   the  accounting   treatment   with  respect  to  commitments   and
contingencies.  Actual results could differ from these estimates under different
assumptions  or conditions.  The following is a list of the accounting  policies
that we believe are most  important to the portrayal of our financial  condition
and results of operations that require our most difficult, complex or subjective
judgments as a result of the need to make estimates  about the effect of matters
that are inherently uncertain.

Product Warranties
Cavalier  provides the retail home buyer a one-year  limited  warranty  covering
defects in material or  workmanship in home  structure,  plumbing and electrical
systems.  We record a liability for estimated  future warranty costs relating to
homes sold,  based upon our  assessment  of  historical  experience  factors and
current  industry  trends.  Factors  we use in the  estimation  of the  warranty
liability  include  historical sales amounts and warranty costs related to homes
sold and any  outstanding  service work orders.  We have a reserve for estimated
warranties of $11,700 (2001) and $11,800 (2000).  Although we maintain  reserves
for such claims, based on our assessments as described above, which to date have
been  adequate,  there can be no assurance  that  warranty  expense  levels will
remain at current  levels or that such reserves will continue to be adequate.  A
large number of warranty claims  exceeding our current  warranty  expense levels
could have a material adverse effect on Cavalier's results of operations.

Insurance
Cavalier's workmen's compensation (prior to February 1, 1999, and after April 1,
2001),  product  liability  and  general  liability  (prior  to April  1,  2001)
insurance  coverages were provided under  incurred loss,  retrospectively  rated
premium plans.  Under these plans, we incur 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 and recorded  when  sufficiently  reliable data is available.  We were
contingently  liable at  December  31,  2001 for  future  retrospective  premium
adjustments  up  to a  maximum  of  approximately  $19,675  in  the  event  that
additional  losses are reported related to prior years. We recorded an estimated
liability of  approximately  $3,861  (2001) and $4,103  (2000)  related to these
contingent  claims.  Claims  exceeding our current  expense  levels could have a
material adverse effect on Cavalier's results of operations.

Reserve for Repurchase Commitments
Manufactured  housing  companies  customarily  enter into  repurchase  and other
recourse  agreements  with lending  institutions  which have provided  wholesale
floor plan financing to dealers.  Substantially all of Cavalier's sales are made
to dealers located  primarily in the South Central and South Atlantic regions of
the United States pursuant to repurchase  agreements with lending  institutions.
These agreements generally provide that we will repurchase our new products from
the  lending  institutions  in the event  such  product  is  repossessed  upon a
dealer's  default.  The risk of loss under repurchase  agreements is lessened by
the fact that (1) sales of our  manufactured  homes are spread over a relatively
large  number  of  independent  dealers,  the  largest  of which  accounted  for

<PAGE>
approximately 2.2% of sales in 2001; (2) the price that Cavalier is obligated to
pay under such repurchase  agreements  declines based on  predetermined  amounts
over  the  period  of the  agreement  (generally  18  months)  and (3)  Cavalier
historically has been able to resell homes  repurchased  from lenders.  Cavalier
reviews  the  aging of retail  dealers'  inventory  to  estimate  the  amount of
inventory subject to repurchase obligation.  Additionally,  we review repurchase
notifications  received from floor plan sources and review our dealer  inventory
for expected repurchase  notifications based on various  communications from the
lenders and the dealers as well as for  dealers who are  experiencing  financial
difficulty.  We apply a historical loss factor to the inventory  estimated to be
repurchased.  The maximum amount for which we are contingently liable under such
agreements  approximated  $135,000 at December 31, 2001. Changes in the level of
retail inventories in the manufactured housing industry,  either up or down, can
have a significant impact on the Company's operating results.  For example,  due
to the rapid expansion of the retail  distribution  network in the manufacturing
housing  industry  that  occurred in much of the 1990's,  there is  currently an
imbalance   between   industry  retail   inventories  and  consumer  demand  for
manufactured  homes. The  deterioration in the availability of retail financing,
along with significant  competition from repossessed homes, has already extended
the inventory  adjustment period beyond what was originally  expected.  If these
trends  were to  continue,  or if retail  demand  were to  significantly  weaken
further,  the  inventory  overhang  could result in even greater  intense  price
competition,  further pressure on profit margins within the industry, and have a
material  adverse  effect on Cavalier.  * The Company's  inventory at all retail
locations,  including  Company-owned retail sales centers,  declined 34% in 2000
from 1999 and another 10% in 2001 from levels at the end of 2000. While Cavalier
believes that  inventories  of its homes are  approaching  levels which are more
consistent with retail demand,  due in part to the Company's emphasis on working
with its  dealers  to  reduce  retail  inventories,  we  cannot  give  investors
assurances to this effect. * In spite of these efforts,  significant unfavorable
developments or further deterioration within the industry would undoubtedly have
an adverse impact on Company operating results. We have a reserve for repurchase
commitments of $3,200 (2001) and $4,100 (2000).

Impairment of Long-Lived Assets
Since the latter part of 1999,  Cavalier and the  manufactured  housing industry
have experienced a downturn in business as discussed above. Due to deteriorating
market  conditions,  during  this  time,  we  have  idled,  closed  or  sold  10
manufactured housing facilities,  a portion of our insurance and premium finance
business,  a portion of our supply  operations  and 11  under-performing  retail
locations.  We periodically  evaluate the carrying value of long-lived assets to
be held and used,  including goodwill and other intangible  assets,  when events
and circumstances warrant such a review. The carrying value of long-lived assets
is considered  impaired when the  anticipated  undiscounted  cash flow from such
assets is less than its  carrying  value.  In that event,  a loss is  recognized
based on the amount by which the carrying value exceeds the fair market value of
the  long-lived  assets.  Fair market value is  determined  primarily  using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses  on  long-lived  assets to be  disposed  of are  determined  in a similar
manner,  except that the fair market values are based  primarily on  independent
appraisals and preliminary or definitive contractual  arrangements less costs to
dispose.

Related Party Transactions
During  2001,   2000,  and  1999,   the  Company   purchased  raw  materials  of
approximately $15,648, $11,893, and $20,166,  respectively,  from joint ventures
in which the  Company  owns a  minority  interest  and from a company in which a
stockholder and director of the Company is also a stockholder.

The  Company  has a $35,000  revolving  and  term-loan  agreement  (the  "Credit
Facility")  with its primary bank,  whose president is a director of the Company
of which $15,000 was  outstanding  at December 31, 2001 and 2000. See footnote 5
to the Consolidated  Financial Statements for additional  information  regarding
the Credit Facility.

Two of  the  Company's  manufacturing  facilities  were  leased  under  separate
operating  lease  agreements  with  companies  among  whose  owners are  certain
officers,  directors  or  stockholders  of the  Company.  One related  lease was
terminated  in April 2000 with a one-time  cancellation  payment of $150 made to
the  lessor.  The other  related  lease  contained  a purchase  option  that was

* See Safe Harbor Statement on page 32.
<PAGE>
exercised in 2001 for $1,125 using proceeds from an industrial  development bond
issue. The Company paid rents to related parties of $63 (2001), $377 (2000), and
$354 (1999). In 1999, the Company paid $337 for construction of plant facilities
and  paid  $3,400  to  exercise   purchase  options  on  two  previously  leased
facilities,  to companies among whose owners are certain officers,  directors or
stockholders of the Company.

The Company recorded net income (loss) of investees  accounted for by the equity
method of $(485),  $(243), and $397 for the years ended December 31, 2001, 2000,
and 1999,  respectively.  Additionally,  the  Company  and certain of its equity
partners  have  guaranteed  certain debt for companies in which the Company owns
various  equity  interests.   For  additional   information   related  to  these
guarantees,  see  footnote (2) under  Contractual  Obligations  and  Commitments
above.

The  Company's  General  Counsel is also a director of the Company.  The Company
paid legal fees of $170 (2001), $201 (2000), and $269 (1999).

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,  however, can affect the ability of the Company to
increase  its  selling  prices.   As  discussed  above,  in  1999,  the  Company
experienced  tightened supply of certain types of raw materials,  which resulted
in some higher costs that were not recoverable  through price  increases.  For a
further  discussion of this matter,  see "2000 Compared to 1999 - Gross Profit."
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
Statement of Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended,  establishes accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts and for hedging activities.  Under SFAS
133,  certain  contracts that were not formerly  considered  derivatives may now
meet the  definition  of a  derivative.  The Company  adopted SFAS 133 effective
January 1, 2001. The adoption of SFAS 133 did not have a material  impact on the
Company's consolidated financial statements.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets.  This statement is effective for financial  statements  issued for years
beginning  after  December  15,  2001.  Under this  pronouncement,  goodwill and
intangible assets with indefinite lives will no longer be amortized but reviewed
at least annually for impairment.  Goodwill is considered impaired and a loss is
recognized  when its carrying value exceeds its implied fair value.  The Company
is currently  evaluating  SFAS No. 142 and has not yet  determined its impact on
the Company's  consolidated  financial  statements  although it is probable that
some or all of the goodwill may be impaired. The Company has $15,468 in recorded
goodwill at December 31, 2001.  Impairment charges, if any, would be recorded in
the first  quarter  of 2002 and  would be  reflected  as a change in  accounting
principle.

In August  2001,  the FASB issued SFAS No. 144,  Accounting  for  Impairment  or
Disposal of Long-Lived  Assets,  which is effective  for fiscal years  beginning
after  December  15,  2001.  SFAS No. 144  addresses  financial  accounting  and
reporting for the impairment of long-lived  assets and for long-lived  assets to
be disposed of. The Company is currently evaluating SFAS No. 144 and has not yet
determined its impact on the Company's consolidated financial statements.

Market Risk
Market risk is the risk of loss arising from  adverse  changes in market  prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial  instruments,  but is not  currently  subject to foreign  currency  or

* See Safe Harbor Statement on page 32.
<PAGE>
commodity  price risk.  The Company  manages its  exposure to these market risks
through its regular operating and financing activities.

The  Company  is  exposed  to  market  risk  related  to  investments  held in a
non-qualified trust used to fund benefits under its deferred  compensation plan.
These   investments   totaled  $2,233  at  December  31,  2001  and  a  deferred
compensation  liability of $2,934.  Due to the  long-term  nature of the benefit
liabilities that these assets fund, the Company currently considers its exposure
to market  risk to be low.  * The  Company  does not  believe  that a decline in
market value of these  investments  would result in a material near term funding
of the trust or exposure to the benefit liabilities funded. *

The Company purchases retail  installment  contracts from its dealers,  at fixed
interest rates, in the ordinary course of business,  and periodically  resells a
majority  of these  loans to  financial  institutions  under the terms of retail
finance  agreements.  The periodic resale of installment  contracts  reduces the
Company's exposure to interest rate  fluctuations,  as the majority of contracts
are held for a short period of time. The Company's  portfolio  consists of fixed
rate contracts with interest rates  generally  ranging from 9.0% to 14.0% and an
average original term of 298 months at December 31, 2001. The Company  estimated
the fair  value  of its  installment  contracts  receivable  which  approximates
carrying value, using discounted cash flows and interest rates offered by CIS on
similar contracts at December 31, 2001.

The Company has notes payable under retail floor plan agreements, two industrial
development  revenue bond issues and a revolving line of credit that are exposed
to interest  rate  changes.  Since these  borrowings  are floating rate debt, an
increase in short-term  interest rates would adversely affect interest  expense.
Additionally,  Cavalier has five industrial  development  revenue bond issues at
fixed  interest  rates.  The  Company  estimated  the  fair  value  of its  debt
instruments  using  rates at which the Company  believes it could have  obtained
similar borrowings at that time. *
<TABLE>
<CAPTION>
                                                           Assumed Annual Principal Cash Flows
                                         ------------------------------------------------------------------------
<S>                                        <C>         <C>       <C>       <C>       <C>     <C>         <C>     <C>

(dollars in thousands)                     2002        2003      2004      2005      2006    Thereafter  Total   Fair value
                                           ----        ----      ----      ----      ----    ----------  -----   ----------
Installment loan portfolio                 $ 930 a      $ 30      $ 34      $ 38      $ 43   $ 3,916   $ 4,991   $ 4,944
(weighted average interest rate - 11.60%)
</TABLE>
<TABLE>
<CAPTION>
                                                            Expected Principal Maturity Dates
                                         ------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>       <C>       <C>       <C>       <C>       <C>

(dollars in thousands)                     2002        2003      2004      2005      2006    Thereafter  Total   Fair value
                                           ----        ----      ----      ----      ----    ----------  -----   ----------
Notes payable and long-term debt         $ 3,658 b  $ 16,339   $ 1,546   $ 1,204   $ 1,245   $ 3,665   $ 27,657  $ 28,292
(weighted average interest rate - 4.69%)
<FN>

a  The Company has recorded an allowance for credit losses  of  $829,  primarily
   based upon management's assessment  of  historical   experience  factors  and
   current economic conditions.
b  Amount payable in 2002 includes $1,294 of current portion of long-term   debt
   and $2,364 of notes payable under retail floor plan agreements.
</FN>
</TABLE>

* See Safe Harbor Statement on page 32.
<PAGE>
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Our  disclosure  and  analysis in this Annual  Report on Form 10-K  contain some
forward-looking   statements.   Forward  looking  statements  give  our  current
expectations  or  forecasts of future  events,  including  statements  regarding
trends in the industry  and the  business,  financing  and other  strategies  of
Cavalier.  You can identify these statements by the fact that they do not relate
strictly to historical or current facts.  They generally are designated  with an
asterisk  (*)  and  use  words  such  as  "estimates,"   "projects,"  "intends,"
"believes,"  "anticipates,"  "expects,"  "plans,"  and other  words and terms of
similar  meaning  in  connection  with any  discussion  of future  operating  or
financial  performance.  From time to time,  we also may provide oral or written
forward-looking  statements in other  materials we release to the public.  These
forward-looking  statements  include  statements  involving  known  and  unknown
assumptions,  risks,  uncertainties and other factors which may cause our actual
results,  performance  or  achievements  to  differ  from  any  future  results,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements or words. In particular,  such assumptions,  risks, uncertainties and
factors include those associated with the following:

o        the cyclical and  seasonal nature  of the manufactured housing industry
         and the economy generally;
o        limitations in Cavalier's ability to pursue its business strategy;
o        acceptance of Cavalier's new product initiatives;
o        changes in  demographic  trends,  consumer  preferences  and Cavalier's
         business strategy;
o        changes  and  volatility  in  interest  rates and the  availability  of
         capital;
o        changes  in  the  availability of retail (consumer) financing;
o        changes  in  the  availability  of wholesale (dealer) financing;
o        changes in level of industry retail inventories;
o        the   ability  to  attract  and  retain  quality  independent  dealers,
         executive officers and other key personnel;
o        competition;
o        contingent repurchase and guaranty obligations;
o        uncertainties regarding Cavalier's retail financing activities;
o        the potential unavailability and price increases for raw materials;
o        the potential unavailability of manufactured housing sites;
o        regulatory constraints;
o        the potential for additional warranty claims;
o        litigation;
o        the potential volatility in our stock price; and
o        currency fluctuations, exchange controls, market disruptions and  other
         effects resulting from the terrorist attacks on  September 11, 2001 and
         actions, including  armed  conflict by the  United  States  and   other
         governments, in reaction thereto.

Any or all of our forward-looking  statements in this report, in the 2001 Annual
Report to Stockholders  and in any other public  statements we make may turn out
to be wrong. These statements may be affected by inaccurate assumptions we might
make or by known or unknown risks and  uncertainties.  Many factors listed above
will  be   important   in   determining   future   results.   Consequently,   no
forward-looking  statement can be  guaranteed.  Actual  future  results may vary
materially.

We undertake no obligation to publicly  update any  forward-looking  statements,
whether as a result of new  information,  future  events or  otherwise.  You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the  Securities and Exchange  Commission or in any of
our press releases.  Also note that,  under the heading "Risk Factors",  we have
provided a discussion of factors that we think could cause our actual results to
differ  materially from expected and historical  results.  Other factors besides
those listed could also adversely affect  Cavalier.  This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.

<PAGE>
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Selected Quarterly Financial Data (Unaudited)

The table below sets forth certain  unaudited  quarterly  financial data for the
two years ended  December  31,  2001 and 2000.  The  Company  believes  that the
following quarterly financial data includes all adjustments necessary for a fair
presentation, in accordance with accounting principles generally accepted in the
United States of America.  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>
<CAPTION>
                                          Fourth Quarter    Third Quarter   Second Quarter    First Quarter       Total
                                        ----------------  ---------------  ---------------  ----------------  ------------
<S>                                     <C>               <C>              <C>              <C>               <C>
2001
Revenue:
        Home manufacturing                 $ 105,222          $ 97,118         $ 90,332         $ 55,563         $ 348,235
        Financial services                       884               724              785              695             3,088
        Retail                                 1,785             1,790            1,751            1,642             6,968
        Other                                  1,520             1,313            1,469            1,278             5,580

                                        -------------     -------------    -------------    -------------     -------------

        Total revenue                        109,411           100,945           94,337           59,178           363,871
                                        -------------     -------------    -------------    -------------     -------------

Gross profit                                  20,581            16,567           12,044            5,023            54,215
Net income (loss)                              1,250              (397)          (4,613)         (10,258)          (14,018)
Basic net income (loss) per share     a         0.07  b          (0.02)           (0.26)           (0.59)            (0.80)  b
Diluted net income (loss) per share   a         0.07  b          (0.02)           (0.26)           (0.59)            (0.80)  b

2000
Revenue:
        Home manufacturing                  $ 58,581          $ 67,891         $ 91,492         $ 88,275         $ 306,239
        Financial services                       709             1,132            1,590            1,447             4,878
        Retail                                 2,654             3,382            7,865            2,941            16,842
        Other                                  1,073               808            1,748            1,524             5,153

                                        -------------     -------------    -------------    -------------     -------------

        Total revenue                         63,017            73,213          102,695           94,187           333,112
                                        -------------     -------------    -------------    -------------     -------------

Gross profit                                   8,396             8,818           11,689           11,399            40,302
Net loss                                      (5,630)           (6,192)         (13,009)          (8,637)          (33,468)
Basic net loss per share              a        (0.32) f          (0.35) e         (0.73) d         (0.49) c          (1.88)c,d,e,f
Diluted net loss per share            a        (0.32) f          (0.35) e         (0.73) d         (0.49) c          (1.88)c,d,e,f
<FN>
   a    The sum of quarterly amounts may not  equal  the  annual  amounts due to
        rounding.
   b    Includes impairment and other related charges of $1,003 ($1,003 net   of
        taxes, or $.06 per share basic and diluted) recorded in connection  with
        closing one home manufacturing facility.
   c    Includes  impairment  and  other related  charges of $348 ($313  net  of
        taxes, or $.02 per share basic and diluted) recorded in connection  with
        idling two home  manufacturing facilities and closing three retail sales
        centers.
   d    Includes impairment and other related charges of $4,397 ($3,465  net  of
        taxes, or $.19 per share basic and diluted) recorded in connection  with
        closing  or  disposition  of  retail sales centers, idling of  two  home
        manufacturing facilities  and  the  sale  of a portion of the  Company's
        insurance and premium finance business.
   e    Includes impairment and other related charges of $103 ($65 net of taxes,
        or $.00 per share  basic  and diluted)  recorded in connection with  the
        closing of a retail sales center.
   f    Includes impairment and other related charges of $2,127 ($1,340 net   of
        taxes, or $.08 per share basic  and diluted) recorded in connection with
        retail sales centers and the disposition of a supply company.
</FN>
</TABLE>
<PAGE>
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

             Index to Consolidated Financial Statements and Schedule

Independent Auditor's Report                                                  35

Consolidated Balance Sheets                                                   36

Consolidated Statements of Operations                                         38

Consolidated Statements of Stockholders' Equity                               39

Consolidated Statements of Cash Flows                                         40

Notes to Consolidated Financial Statements                                    41

Schedule -

         II - Valuation and Qualifying Accounts                               56



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,  2001 and  2000,  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period ended  December 31, 2001.  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 the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 at December 31, 2001 and 2000, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 2001 in conformity  with  accounting  principles  generally  accepted in the
United  States of  America.  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.


/s/ Deloitte and Touche LLP
-----------------------------

Birmingham, Alabama
February 22, 2002
<PAGE>

<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>
                                                                                 2001       2000
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                  $  43,256   $ 35,394
  Accounts receivable, less allowance for losses of
    $625 (2001) and $346 (2000)                                                  7,293      3,751
  Notes and installment contracts receivable - current                           1,708      1,890
  Inventories                                                                   20,672     21,390
  Deferred income taxes                                                          8,075     11,776
  Income tax receivable                                                                    15,052
  Other current assets                                                           2,011      2,211
                                                                              ---------  ---------
           Total current assets                                                 83,015     91,464
                                                                              ---------  ---------

PROPERTY, PLANT AND EQUIPMENT:
  Land                                                                           6,047      5,943
  Buildings and improvements                                                    50,633     49,784
  Machinery and equipment                                                       44,185     44,763
                                                                              ---------  ---------
                                                                               100,865    100,490
  Less accumulated depreciation and amortization                                41,173     36,010
                                                                              ---------  ---------
           Total property, plant and equipment, net                             59,692     64,480
                                                                              ---------  ---------

INSTALLMENT CONTRACTS RECEIVABLE, less
  allowance for credit losses of $829 (2001) and
  $1,180 (2000)                                                                  3,232      5,079
                                                                              ---------  ---------
DEFERRED INCOME TAXES                                                            7,787      4,591
                                                                              ---------  ---------
GOODWILL, less accumulated amortization
   of $6,968 (2001) and $5,990 (2000)                                           15,468     16,446
                                                                              ---------  ---------
OTHER ASSETS                                                                     4,922      5,535
                                                                              ---------  ---------
TOTAL                                                                        $ 174,116  $ 187,595
                                                                              =========  =========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>

                                                                                 2001        2000
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                          $   1,294   $   1,154
  Notes payable under retail floor plan agreements                               2,364       3,321
  Accounts payable                                                               8,059       8,176
  Amounts payable under dealer incentive programs                               17,542      21,204
  Accrued compensation and related withholdings                                  4,260       2,725
  Accrued insurance                                                              7,083       4,615
  Estimated warranties                                                          11,700      11,800
  Reserve for repurchase commitments                                             3,200       4,100
  Other accrued expenses                                                         9,330       7,156
                                                                              ---------   ---------
           Total current liabilities                                            64,832      64,251
                                                                              ---------   ---------

LONG-TERM DEBT                                                                  23,999      24,054
                                                                              ---------   ---------

OTHER LONG-TERM LIABILITIES                                                      5,093       4,972
                                                                              ---------   ---------
COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY:
  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; 50,000,000 shares authorized,
    18,677,651 (2001) and 18,504,266 (2000) shares issued                        1,868       1,850
  Additional paid-in capital                                                    55,918      55,436
  Retained earnings                                                             26,507      40,525
  Treasury stock, at cost; 1,017,300 (2001) and 705,100 (2000) shares           (4,101)     (3,493)
                                                                              ---------   ---------

           Total stockholders' equity                                           80,192      94,318
                                                                              ---------   ---------
TOTAL                                                                        $ 174,116   $ 187,595
                                                                              =========   =========

See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>          <C>          <C>
                                                                                 2001         2000         1999

REVENUE                                                                      $  363,871   $  333,112   $  614,468
                                                                             -----------  -----------  -----------
COST OF SALES                                                                   309,656      292,810      504,011

SELLING, GENERAL AND ADMINISTRATIVE                                              66,690       85,430      102,938

IMPAIRMENT AND OTHER RELATED
  CHARGES                                                                         1,003        6,975        4,002
                                                                             -----------  -----------  -----------
                                                                                377,349      385,215      610,951
                                                                             -----------  -----------  -----------
OPERATING PROFIT (LOSS)                                                         (13,478)     (52,103)       3,517
                                                                             -----------  -----------  -----------
OTHER INCOME (EXPENSE):
  Interest expense                                                               (1,935)      (2,736)      (1,643)
  Other, net                                                                        795        2,242        1,679
                                                                             -----------  -----------  -----------
                                                                                 (1,140)        (494)          36
                                                                              ----------  -----------  -----------
INCOME (LOSS) BEFORE INCOME TAXES
  (BENEFIT)                                                                     (14,618)     (52,597)       3,553

INCOME TAXES (BENEFIT)                                                             (600)     (19,129)       1,403
                                                                             -----------  -----------  -----------
NET INCOME (LOSS)                                                            $  (14,018)  $  (33,468)  $    2,150
                                                                             ===========  ===========  ===========
BASIC NET INCOME (LOSS) PER SHARE                                            $    (0.80)  $    (1.88)  $     0.12
                                                                             ===========  ===========  ===========
DILUTED NET INCOME (LOSS) PER SHARE                                          $    (0.80)  $    (1.88)  $     0.12
                                                                             ===========  ===========  ===========
WEIGHTED AVERAGE SHARES
  OUTSTANDING                                                                17,580,499   17,799,505   18,125,763
                                                                             ===========  ===========  ===========
WEIGHTED AVERAGE SHARES OUTSTANDING,
   ASSUMING DILUTION                                                         17,580,499   17,799,505   18,204,030
                                                                             ==========   ===========  ===========

See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>            <C>           <C>           <C>

                                                                            Additional
                                                                  Common      Paid-in      Retained        Treasury
                                                                  Stock       Capital      Earnings         Stock         Total

BALANCE, JANUARY 1, 1999                                       $  2,028      $ 60,760      $ 90,400      $  (8,277)    $ 144,911
  Stock options exercised                                             4           280                                        284
  Income tax benefit attributable to exercise of
    stock options                                                                  28                                         28
  Sale of common stock under Employee Stock
    Purchase Plan                                                    10           481                                        491
  Sale of common stock under Dividend
    Reinvestment Plan                                                              14                                         14
  Accrued compensation                                                            114                                        114
  Cash dividends paid ($.16 per share)                                                       (2,926)                      (2,926)
  Purchase of treasury stock (1,779,000 shares)                                                            (15,675)      (15,675)
  Retirement of treasury stock (2,151,500 shares)                  (215)       (6,496)      (14,031)        20,742
  Net income                                                                                  2,150                        2,150
                                                               ---------     ---------     ---------     ----------    ----------
BALANCE, DECEMBER 31, 1999                                        1,827        55,181        75,593         (3,210)      129,391
  Stock options exercised                                             1             3                                          4
  Income tax benefit attributable to exercise of
    stock options                                                                   3                                          3
  Sale of common stock under Employee Stock
    Purchase Plan                                                    22           196                                        218
  Sale of common stock under Dividend
    Reinvestment Plan                                                               8                                          8
  Accrued compensation                                                             45                                         45
  Cash dividends paid ($.09 per share)                                                       (1,600)                      (1,600)
  Purchase of treasury stock (225,000 shares)                                                                 (283)         (283)
  Net loss                                                                                  (33,468)                     (33,468)
                                                               ---------     ---------     ---------     ----------    ----------
BALANCE, DECEMBER 31, 2000                                        1,850        55,436        40,525         (3,493)       94,318
  Stock options exercised                                                           1                                          1
  Sale of common stock under Employee Stock
    Purchase Plan                                                    18           120                                        138
  Accrued compensation                                                            361                                        361
  Purchase of treasury stock (312,200 shares)                                                                 (608)         (608)
  Net loss                                                                                  (14,018)                     (14,018)
                                                               ---------     ---------     ---------     -----------   ----------
BALANCE, DECEMBER 31, 2001                                     $  1,868      $ 55,918      $ 26,507      $  (4,101)    $  80,192
                                                               =========     =========     =========     ===========   ==========

See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>             <C>
                                                                               2001            2000           1999
OPERATING ACTIVITIES:
  Net income (loss)                                                         $ (14,018)     $ (33,468)      $  2,150
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                             8,174          9,759         10,250
      Change in provision for credit and accounts receivable losses               (72)          (264)         1,004
      Gain on sale of installment contracts                                    (1,640)        (2,037)        (2,257)
      (Gain) loss on sale of property, plant and equipment                       (355)          (864)            85
      Impairment and other related charges                                      1,003          6,975          4,002
      Other, net                                                                  714            411              2
      Changes in assets and liabilities provided (used) cash,
        net of effects of acquisitions:
          Accounts receivable                                                  (3,821)         6,059         (1,277)
          Inventories                                                             718         28,730         (5,376)
          Income tax receivable                                                15,052        (12,919)        (5,804)
          Accounts payable                                                       (117)        (4,127)        (6,929)
          Other assets and liabilities                                          1,665         (7,830)        (2,370)
                                                                            ----------     ----------      ---------
             Net cash provided by (used in) operating activities                7,303         (9,575)        (6,520)
                                                                            ----------     ----------      ---------
INVESTING ACTIVITIES:
  Net cash paid in connection with acquisitions                                                              (4,439)
  Proceeds from disposition of property, plant and equipment                    1,111          3,673            437
  Capital expenditures                                                         (3,496)        (3,807)       (24,546)
  Net change in notes and installment contracts                               (33,722)       (57,057)       (44,943)
  Proceeds from sale of installment contracts                                  37,965         62,278         62,815
  Other investing activities                                                       42            270         (1,686)
                                                                            ----------     ----------      ---------
           Net cash provided by (used in) investing activities                  1,900          5,357        (12,362)
                                                                            ----------     ----------      ---------
FINANCING ACTIVITIES:
  Net borrowings (payments) on notes payable                                     (957)       (12,241)         4,824
  Proceeds from long-term borrowings                                            1,250         15,000          7,807
  Payments on long-term debt                                                   (1,165)        (1,129)          (545)
  Net proceeds from sales of common stock                                         138            226            505
  Proceeds from exercise of stock options                                           1              4            284
  Cash dividends paid                                                                         (1,600)        (2,926)
  Purchase of treasury stock                                                     (608)          (283)       (15,675)
                                                                            ----------     ----------      ---------
           Net cash used in financing activities                               (1,341)           (23)        (5,726)
                                                                            ----------     ----------      ---------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                                   7,862         (4,241)       (24,608)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   35,394         39,635         64,243
                                                                            ---------      ----------      ---------
CASH AND CASH EQUIVALENTS, END OF YEAR                                      $  43,256      $  35,394       $ 39,635
                                                                            =========      ==========      =========
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   and
     majority-owned  subsidiaries  (collectively,  the "Company"). The Company's
     minority  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  transactions have
     been eliminated in  consolidation.  See Note 11 for information  related to
     the Company's business segments.

     Nature of Operations - The Company designs and produces  manufactured homes
     which are sold to a  network  of  dealers  located  primarily  in the South
     Central  and South  Atlantic  regions of the United  States.  In  addition,
     through  its  financial   services  segment,   the  Company  offers  retail
     installment  sale financing and related  insurance  products  primarily for
     manufactured homes sold through the Company's dealer network. The Company's
     retail segment  operates  retail sales  locations which offer the Company's
     homes, financing and insurance products to retail customers.

     Accounting   Estimates  -  The  preparation  of  financial   statements  in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America  requires  management to make  estimates and  assumptions
     that affect the amounts  reported in the  financial  statements  and notes.
     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 nature of these
     instruments.  Additional  information  concerning  the fair  value of other
     financial instruments is disclosed in Notes 3 and 5.

     Cash Equivalents - The Company considers all highly liquid investments with
     original maturities of three months or less to be cash equivalents.

     Inventories  -  Inventories  are  stated  at the  lower of cost  (first-in,
     first-out method) or market. Work-in-process and finished goods inventories
     include an allocation for labor and overhead costs.

     Property,  Plant and Equipment - Property, plant and equipment is stated at
     cost and depreciated  over the estimated useful lives of the related assets
     primarily  using the  straight-line  method.  Maintenance  and  repairs are
     expensed  as  incurred.  In 2001,  the  Company  paid  $1,125 to exercise a
     purchase option on a previously  leased facility,  and in 1999, the Company
     paid $337 for  construction of plant facilities and paid $3,400 to exercise
     purchase options on two previously  leased  facilities,  to companies among
     whose  owners  are  certain  officers,  directors  or  stockholders  of the
     Company.

     Goodwill - Goodwill  represents  the excess of the purchase  price over the
     fair  value of the net  assets  acquired  and is being  amortized  over the
     expected periods to be benefited,  15 to 25 years,  using the straight-line
     method.
<PAGE>
     Impairment of Long-Lived  Assets - The Company  periodically  evaluates the
     carrying value of long-lived assets to be held and used, including goodwill
     and other intangible assets,  when events and circumstances  warrant such a
     review. The carrying value of long-lived assets is considered impaired when
     the  anticipated  undiscounted  cash flow from such assets is less than its
     carrying value. In that event, a loss is recognized  based on the amount by
     which the carrying  value  exceeds the fair market value of the  long-lived
     assets.  Fair market value is determined  primarily  using the  anticipated
     cash flows discounted at a rate commensurate with the risk involved. Losses
     on long-lived  assets to be disposed of are determined in a similar manner,
     except  that the fair  market  values are  primarily  based on  independent
     appraisals and  preliminary  or definitive  contractual  arrangements  less
     costs to dispose.

     Revenue  Recognition - Sales of manufactured  homes to independent  dealers
     are  recorded  as of the date the home is shipped  since  title and risk of
     loss  passes to the  dealer at that time.  All sales are final and  without
     recourse except for the contingency described in Note 10. For Company-owned
     retail locations, revenue is recorded upon funding and transfer of title to
     the retail home buyer.  Interest income on installment contracts receivable
     is recognized using the interest method.

     Product  Warranties - The Company provides the retail home buyer 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.


     Allowance  for Credit  Losses on  Installment  Contracts  - The Company has
     provided an allowance for estimated  future  credit losses  resulting  from
     retail financing  activities of CIS Financial  Services,  Inc.  ("CIS"),  a
     wholly-owned  subsidiary,  primarily based upon management's  assessment of
     historical experience and current economic conditions.


     Insurance  - The  Company's  workmen's  compensation  (prior to February 1,
     1999,  and after April 1, 2001),  product  liability and general  liability
     (prior to April 1, 2001)  insurance  coverages were 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 and
     recorded  when  sufficiently  reliable  data is  available.  The  Company's
     workmen's  compensation insurance coverage from February 1999 through March
     2001 was provided  under a fully  insured,  large  deductible  policy,  and
     during  2001,  the  Company's   product  liability  and  general  liability
     insurance  coverages  were  converted to fully  insured,  large  deductible
     policies.


     Net Income  (Loss) Per Share - The Company  reports two separate net income
     (loss) per share numbers,  basic and diluted. Both are computed by dividing
     net income (loss) by the weighted  average  shares  outstanding  (basic) or
     weighted average shares outstanding assuming dilution (diluted) as detailed
     below (in thousands of shares):

                                                        2001     2000      1999

     Weighted average shares outstanding               17,580   17,800    18,126

     Dilutive effect of stock options and warrants                            78
                                                       ------  -------    ------
     Weighted average shares outstanding,
       assuming dilution                               17,580   17,800    18,204
                                                       ======   ======    ======

     Options and  warrants  that could  potentially  dilute basic net income per
     share in the future  were not  included in the  computation  of diluted net
     income per share because to do so would have been antidilutive. All options

<PAGE>
     and warrants in 2001 and 2000 are excluded due to their antidilutive effect
     as a result of the  Company's net loss.  Antidilutive  options and warrants
     (in thousands of shares) were 2,661,  2,971, and 2,602, for 2001, 2000, and
     1999, respectively.

     Recent  Accounting   Pronouncement  -  Statement  of  Financial  Accounting
     Standards  ("SFAS") No. 133,  Accounting  for  Derivative  Instruments  and
     Hedging Activities,  is effective for all fiscal years beginning after June
     15,  2000.  SFAS 133,  as amended,  establishes  accounting  and  reporting
     standards  for  derivative   instruments,   including  certain   derivative
     instruments  embedded in other contracts and for hedging activities.  Under
     SFAS 133, certain contracts that were not formerly  considered  derivatives
     may now meet the definition of a derivative.  The Company  adopted SFAS 133
     effective January 1, 2001. The adoption of SFAS 133 did not have a material
     impact on the Company's consolidated financial statements.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
     Goodwill and Other  Intangible  Assets.  This  statement  is effective  for
     fiscal years beginning after December 15, 2001.  Under this  pronouncement,
     goodwill  and  intangible  assets with  indefinite  lives will no longer be
     amortized  but reviewed at least  annually for  impairment.  The Company is
     currently  evaluating SFAS No. 142 and has not yet determined its impact on
     the Company's  consolidated  financial  statements  although it is probable
     that some or all of the goodwill may be impaired.

     In August 2001, the FASB issued SFAS No. 144,  Accounting for Impairment or
     Disposal  of  Long-Lived  Assets,  which  is  effective  for  fiscal  years
     beginning  after  December  15,  2001.  SFAS No.  144  addresses  financial
     accounting  and reporting for the  impairment of long-lived  assets and for
     long-lived  assets to be disposed of. The Company is  currently  evaluating
     SFAS  No.  144 and  has not yet  determined  its  impact  on the  Company's
     consolidated financial statements.

     Reclassifications  -  Certain  amounts  from the  prior  periods  have been
     reclassified to conform to the 2001 presentation.

2.   IMPAIRMENT AND OTHER RELATED CHARGES

     During 2001, the Company  recorded  impairment and other related charges of
     $1,003 ($1,003 after tax or $0.06 per diluted share) in connection with the
     closing of a home  manufacturing  facility  to be  disposed  of. The charge
     includes  writedowns of $332 for  property,  plant and  equipment,  $84 for
     lease  obligations  and $587 for  involuntary  termination  benefits for 93
     employees.  No  termination  benefits have been paid as of year end.  After
     recording  the  impairment  charges,  the  carrying  value of  assets to be
     disposed of was $27. Before recording the impairment charges, the result of
     operations  for 2001  related  to  assets to be  disposed  of was a loss of
     $2,309.

     During 2000, due to deteriorating  market conditions,  the Company recorded
     impairment  and other related  charges of $6,975 ($5,183 after tax or $0.29
     per  diluted   share)  in   connection   with  the  closing  of  four  home
     manufacturing  facilities and Company-owned  retail sales centers, the sale
     of a portion of the Company's  insurance and premium finance business,  and
     the expected  disposition of a portion of the Company's supply  operations.
     The charge for assets to be held and used includes  write-downs of $277 for
     property,  plant and  equipment  ($43 home  manufacturing  segment and $234
     retail segment) and $1,044 for goodwill  (retail  segment).  The charge for
     assets to be disposed of includes write-downs of $2,229 for property, plant
     and equipment ($981 home manufacturing  segment,  $1,058 retail segment and
     $190 other segment),  $3,038 for goodwill ($1,541 retail segment and $1,497
     financial services segment),  and $387 for  non-competition  agreements and
     lease  obligations  ($335  retail  segment  and $52 other  segment).  After
     recording the  impairment  charges,  the carrying value of the assets to be
     disposed  of was  $2,004  ($602 home  manufacturing  segment,  $901  retail
     segment and $501 other  segment).  The Company is  actively  marketing  the
     facilities to be disposed of. Before recording the impairment charges,  the
     results of operations for 2000 related to assets to be disposed of included

<PAGE>
     a $3,323  after-tax loss from the retail segment,  $683 after tax loss from
     the other segment,  and $100 after-tax  income from the financial  services
     segment.  During  2001,  payments of $165 were made against the reserve for
     lease  obligations.  The results of operations  for the home  manufacturing
     segment related to assets to be disposed of are not separately identifiable
     as these closed facilities were not accounted for separately.

     During 1999, the Company  recorded  impairment and other related charges of
     $4,002 ($2,458 after tax or $0.14 per diluted share) in connection with the
     closing of five home manufacturing facilities.  The charge for assets to be
     held  and  used  includes  write-downs  of $850  for  property,  plant  and
     equipment.  The charge for assets to be disposed of includes write-downs of
     $2,186  for  property,  plant  and  equipment  and $966 for lease and other
     obligations.  After recording the impairment charges, the carrying value of
     the assets to be disposed of was $1,139.  The Company is actively marketing
     the  facilities  to be  disposed  of.  Payments  of $100 and $619 were made
     against the reserve for lease and other  obligations  during 2001 and 2000,
     respectively.  The results of operations for the home manufacturing segment
     related to assets to be  disposed  of are not  separately  identifiable  as
     these closed facilities were not accounted for separately.

3.   INSTALLMENT CONTRACTS RECEIVABLE


     CIS finances  retail sales  through the purchase of  installment  contracts
     primarily from a portion of the Company's dealer network, at fixed interest
     rates,  in the ordinary  course of business,  and resells a majority of the
     loans  to  financial   institutions  under  the  terms  of  retail  finance
     agreements.  Standard loan programs require minimum down payments,  ranging
     from  5% to 20% of the  purchase  price  of the  home,  on all  installment
     contracts based on the creditworthiness of the borrower.  In addition,  CIS
     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 CIS upon default by the borrower.


     CIS's  portfolio  consists  of fixed rate  contracts  with  interest  rates
     generally ranging from 9.0% to 14.0% and from 9.0% to 16.0% at December 31,
     2001 and 2000, respectively. The average original term of the portfolio was
     approximately   298  and  296  months  at  December   31,  2001  and  2000,
     respectively.   CIS  enters  into  agreements  to  sell,  without  recourse
     (provided that the transferred  loan was properly  originated by the dealer
     and  purchased by CIS),  contracts  in its  portfolio  that meet  specified
     credit criteria.  Under these agreements,  CIS sold $36,325,  $60,241,  and
     $60,558 of contracts  receivable and realized gains of $1,640,  $2,037, and
     $2,257 for the years ended December 31, 2001, 2000 and 1999, respectively.

     At December 31, 2001, scheduled principal payments of installment contracts
     receivable (including sales of contracts receivable in January 2002) are as
     follows:

                   Year Ending
                  December 31,
                      2002                                                 $ 930
                      2003                                                    30
                      2004                                                    34
                      2005                                                    38
                      2006                                                    43
                   Thereafter                                              3,916
                                                                         -------
                     Total                                               $ 4,991
                                                                         =======
<PAGE>

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

                                             2001           2000           1999

       Balance, beginning of year         $ 1,180        $ 1,656        $   760
       Provision for credit losses            459            687          2,192
       Charge-offs, net                      (810)        (1,163)        (1,296)
                                          --------       --------       --------
       Balance, end of year               $   829        $ 1,180        $ 1,656
                                          ========       ========       ========


     At December  31, 2001 and 2000,  the  estimated  fair value of  installment
     contracts receivable was $4,944 and $7,360, respectively. These fair values
     were estimated  using  discounted  cash flows and interest rates offered by
     CIS on similar contracts at such times.

4.   INVENTORIES

     Inventories consisted of the following:

                                                           2001          2000

      Raw materials                                     $ 13,917      $ 14,501
      Work-in-process                                      2,086         2,224
      Finished goods                                       4,669         4,665
                                                        --------      --------
      Total                                             $ 20,672      $ 21,390
                                                        ========      ========

     During  2001,  2000,  and 1999,  the Company  purchased  raw  materials  of
     approximately  $15,648,  $11,893,  and  $20,166,  respectively,  from joint
     ventures in which the Company  owns a minority  interest and from a company
     in which a stockholder and director of the Company is also a stockholder.

5.   CREDIT ARRANGEMENTS

     The Company has a $35,000  revolving 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 $35,000. At
     certain levels of tangible net worth, defined as the total of the Company's
     tangible  net worth and treasury  stock  purchases  for 2000 and 2001,  the
     amount  available under the Credit  Facility and applicable  interest rates
     are noted in the following table.
<TABLE>
<CAPTION>
                Tangible net worth                 Credit Facility               Applicable interest rate
                                                                         -------------------------------------
                   ("TNW")                          Available             Bank's Prime              LIBOR
     -------------------------------------     ---------------------     ----------------       --------------
<S>  <C>                                        <C>                      <C>                    <C>

     Above $85,000                              $35,000                  less 0.50%             plus 2.00%
     $85,000 - $77,000                          35% of TNW               less 0.50%             plus 2.00%
     $77,000 - $65,000                          35% of TNW               prime                  plus 2.50%
     $65,000 - $58,000                          30% of TNW               plus 0.25%             plus 2.75%
</TABLE>

     However,  in no event may the aggregate  outstanding  borrowings  under the
     revolving  line of credit and term-loan  agreement  exceed $35,000 (or such
     lesser  amount as may be  available).  At December  31,  2001,  $15,000 was
     outstanding  under the  revolving  line of credit,  against a total lending
     capacity of $20,087 based on the Company's  tangible net worth. At December
     31,  2000,  $15,000 was  outstanding  under the  revolving  line of credit,
     against a total lending capacity of $27,354 based on the Company's tangible

<PAGE>
     net worth.  The bank's  prime rate and LIBOR rate at December  31, 2001 and
     2000 were 4.75% and 9.5%,  and 1.88% and 6.4%,  respectively.  The maturity
     date of the revolving line of credit is April 2003.

     The  term-loan  agreement  contained  in the Credit  Facility  provides for
     borrowings  of up  to  80%  of  the  Company's  eligible  installment  sale
     contracts,  up to a maximum of  $35,000  (or such  lesser  amount as may be
     available). 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 1.95%, and floats for
     the remaining two years at a rate (subject to certain  limits) equal to the
     bank's  prime  rate  plus  .75%.  No  amounts  were  outstanding  under the
     term-loan portion of the Credit Facility at December 31, 2001 and 2000.

     The Credit Facility contains certain  restrictive and financial  covenants,
     which,  among other things,  limit the  aggregate of dividend  payments and
     purchases  of treasury  stock,  restrict  the  Company's  ability to pledge
     assets, incur additional  indebtedness and make capital  expenditures,  and
     requires the Company to maintain certain defined financial ratios.  Amounts
     outstanding   under  the  Credit  Facility  are  secured  by  the  accounts
     receivable and  inventories of the Company,  loans purchased and originated
     by CIS,  and the  capital  stock of certain of the  Company's  consolidated
     subsidiaries.

     The Company has $2,364 and $3,321 of notes  payable under retail floor plan
     agreements  at  December  31,  2001 and 2000,  respectively.  The notes are
     collateralized by certain  inventories and bear interest ranging from prime
     to prime plus 2%.

     The Company  has amounts  outstanding  under seven  Industrial  Development
     Revenue  Bond issues  ("Bonds") of $10,293 and $10,208 at December 31, 2001
     and 2000,  respectively.  Four of the bond issues bear interest at variable
     rates  ranging from 4.0% to 5.4% and mature at various  dates through April
     2009. One of the bond issues is payable in equal monthly  installments  and
     bears  interest  at 75% of the prime rate and  matures in 2005.  One of the
     bond issues is payable in equal quarterly  principal payments with interest
     payable at 6.75% and matures in 2004.  One of the bond issues is payable in
     annual  installments  through  2013  with  interest  payable  monthly  at a
     variable rate currently at 2.01% as determined by a remarketing  agent. The
     bonds are collateralized by certain plant facilities. At December 31, 2000,
     restricted  bond proceeds of $228 were not disbursed and are reflected as a
     non-current asset in the consolidated  balance sheet. At December 31, 2001,
     principal repayment requirements on long-term debt are as follows:

                   Year Ending
                  December 31,

                      2002                                              $  1,294
                      2003                                                16,339
                      2004                                                 1,546
                      2005                                                 1,204
                      2006                                                 1,245
                   Thereafter                                              3,665
                                                                        --------
                     Total                                                25,293
                   Less current portion                                    1,294
                                                                        --------
                   Long-term debt                                       $ 23,999
                                                                        ========


     At December  31, 2001 and 2000,  the  estimated  fair value of  outstanding
     borrowings was $25,928 and $25,281.  These estimates were determined  using
     rates  at  which  the  Company  believes  it could  have  obtained  similar
     borrowings at such times.

<PAGE>
     Cash paid for interest during the years ended December 31, 2001,  2000, and
     1999 was $1,990, $2,725, and $1,480, respectively.

6.   STOCKHOLDERS' EQUITY

     The  Company  has  adopted  a  Stockholder  Rights  Plan with the terms and
     conditions  of the plan 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. One
     Right is also  associated  with  each  share of the  Company's  outstanding
     common  stock  issued  after  November  6, 1996,  until the  Rights  become
     exercisable, are redeemed or expire. The Rights, when exercisable,  entitle
     the holder to purchase a unit equal to 0.80 one-hundredth share of Series A
     Junior  Participating  Preferred Stock, par value $.01, at a purchase price
     of $80 per unit.  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.

     Pursuant to a common stock  repurchase  program  approved by the  Company's
     Board of  Directors,  a total of 3,168,800  shares has been  purchased at a
     cost of $24,842.  The Company retired 2,151,500 of these shares at December
     31, 1999,  with the remaining  shares being recorded as treasury  stock. At
     December 31, 2001,  the Company has authority  under the program to acquire
     up to 831,200 additional shares.

7.   INCENTIVE PLANS

     Dealership Stock Option Plan

o         Effective December 31, 1999, the   Company   cancelled  its Dealership
          Stock  Option  Plan  (the  "Dealer  Plan")  to  eligible   independent
          dealerships.  The Dealer Plan allowed for 562,500 options to be issued
          at a price  equal to the fair market  value on the date of grant,  and
          these  options  were earned  based on the amount of  contracts  funded
          through CIS during the year. Options granted under the Dealer Plan are
          immediately  exercisable  and expire  three years from the grant date.
          Since these options have been granted to persons other than employees,
          the Company adopted the recognition and measurement provisions of SFAS
          123, Accounting for Stock-Based Compensation.

     Employee and Director Plans:

o         The Company has a Key Employee Stock  Incentive Plan (the "1996 Plan")
          which  provides for the granting of both  incentive 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.  Options
          granted under the 1996 Plan are generally exercisable six months after
          the grant date and expire ten years from the date of grant.

o         The Company also has a Non-employee Director Plan under  which 625,000
          shares  of the  Company's  common  stock  were  reserved  for grant to
          non-employee directors at fair market value on the date of such grant.
          Options  are  granted  upon  the  director's   initial   election  and
          automatically on an annual basis thereafter. Options granted under the
          plan are  generally  exercisable  six months  after the grant date and
          expire ten years from the date of grant.
<PAGE>
o         The Company has an Employee  Stock  Purchase Plan under which  625,000
          shares  of the  Company's  common  stock  may be  issued  to  eligible
          employees at a price equal to the lesser of 85% of the market price of
          the  stock  as of the  first or last day 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.  As of December 31, 2001,  all 625,000  shares  available  were
          issued to eligible employees.

o         The Company has a Deferred Compensation and Flexible Option  Plan (the
          "Deferred  Plan") which  provides for deferral of a portion of certain
          key employees' earnings plus a Company match. Upon the occurrence of a
          distributable  event, the employee will receive the greater of cash at
          a fixed annual return or shares of the Company's common stock credited
          to his account valued at fair market value. The Company funds benefits
          under the Deferred  Plan through  cash  contributions  and through the
          issuance of a stock  option to a trust at an  exercise  price equal to
          fair market value on the date of the grant.  Under the Deferred  Plan,
          there are  500,000  shares  of  Company  common  stock  available  for
          issuance.  At  December  31,  2001,  the  Company  had  recorded  plan
          investments of $2,233 and a deferred compensation liability of $2,934.

     Compensation  expense recorded in connection with these plans for the years
     ended December 31, 2001, 2000 and 1999 was not material.

     The Company has a Dividend  Reinvestment  Plan which  provides  for 500,000
     shares to be purchased by  participants in the Plan by reinvesting the cash
     dividends  on all,  or  part,  of their  shares.  The  price of the  shares
     purchased  through the Plan is 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.

     The Company applied Accounting  Principles Board Opinion 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.  Cavalier  has  granted  no such
     options.  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 (loss) and net income
     (loss) per share would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                                                  2001            2000            1999
<S>                                                          <C>             <C>              <C>

     Net income (loss):
       As reported                                              $ (14,018)      $ (33,468)       $ 2,150
       Pro forma                                                $ (14,461)      $ (33,904)       $ 1,029

     Basic net income (loss) per share:
       As reported                                                $ (0.80)        $ (1.88)        $ 0.12
       Pro forma                                                  $ (0.82)        $ (1.90)        $ 0.06

     Diluted net income (loss) per share:
       As reported                                                $ (0.80)        $ (1.88)        $ 0.12
       Pro forma                                                  $ (0.82)        $ (1.90)        $ 0.06
</TABLE>


     The fair value of options granted were estimated at the date of grant using
     the Black-Scholes  option pricing model with the following weighted average
     assumptions:
<PAGE>
<TABLE>
<CAPTION>

                                                                     2001            2000             1999
<S>                                                              <C>             <C>              <C>

     Dividend yield                                                  0.00%           0.10%            1.90%
     Expected volatility                                            56.05%          42.87%           40.10%
     Risk free interest rate                                         4.64%           6.57%            5.27%
     Expected lives                                              5.6 years       6.2 years        9.0 years
</TABLE>

     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  (benefit)  reflected  in the  Company's  financial
     statements  have  been  credited  to  additional  paid-in  capital.   These
     benefits,  which totaled $0 (2001), $3 (2000), and $28 (1999),  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:
<TABLE>
<CAPTION>
                                                                                                         Weighted
                                                                                   Weighted               Average
                                                                                    Average              Fair Value
                                                              Shares            Exercise Price        At Grant Date

<S>                                                         <C>                     <C>                   <C>
     Outstanding at January 1, 1999                         2,559,994               $ 10.52
       Granted at fair value                                  448,266                  8.96               $ 3.48
       Exercised                                              (38,500)                 7.37
       Cancelled                                             (174,357)                12.34
                                                            ----------
     Outstanding at December 31, 1999                       2,795,403               $ 10.20
       Granted at fair value                                  343,048                  3.73               $ 1.86
       Exercised                                               (7,071)                 0.55
       Cancelled                                             (454,111)                10.20
                                                            ----------
     Outstanding at December 31, 2000                       2,677,269               $  9.40
       Granted at fair value                                  330,663                  2.90               $ 1.58
       Exercised                                               (1,610)                 0.55
       Cancelled                                             (218,233)                11.27
                                                            ----------
     Outstanding at December 31, 2001                       2,788,089               $  8.49
                                                            ==========              ========
     Options exercisable at December 31, 2001               2,494,114               $  9.13
                                                            ==========              ========
     Options exercisable at December 31, 2000               2,656,869               $  9.46
                                                            ==========              ========
     Options exercisable at December 31, 1999               2,762,803               $ 10.17
                                                            ==========              ========
</TABLE>
     Stock  options  available  for  future  grants at  December  31,  2001 were
     1,177,415 under all of the Company's various stock option plans.
<PAGE>
The following table summarizes information concerning stock options  outstanding
at December 31, 2001:
<TABLE>
<CAPTION>
                                               Options Outstanding                    Options Exercisable
                                   --------------------------------------------- ------------------------------

                                                      Weighted
                                                       Average      Weighted                        Weighted
                                                      Remaining      Average                        Average
             Range of                   Number       Contractual    Exercise          Number        Exercise
         Exercise Prices             Outstanding        Life          Price        Exercisable       Price
<S>      <C>                         <C>               <C>          <C>            <C>             <C>

          $0.55 - $5.50                867,249         10.10        $ 3.56           573,274       $ 3.83
          $6.00 - $9.88                401,470         18.44          8.84           401,470         8.84
         $10.00 - $10.50               576,446          5.89         10.18           576,446        10.18
         $10.63 - $16.60               942,924          5.27         11.84           942,924        11.84
                                     ---------                                     ---------
          $0.55 - $16.60             2,788,089          8.80        $ 8.49         2,494,114       $ 9.13
                                     =========         =====        ======         =========       =======
</TABLE>

8.   INCOME TAXES (BENEFIT)

     Provision (benefit) for income taxes consist of:
<TABLE>
<CAPTION>

                                                                     2001             2000          1999
<S>                                                               <C>            <C>              <C>

     Current:
       Federal                                                    $  (505)       $ (16,469)       $ 5,337
       State                                                         (600)                            750
                                                                  --------       ----------       --------
                                                                   (1,105)         (16,469)         6,087
                                                                  --------       ----------       --------
     Deferred:
       Federal                                                        446           (2,353)        (4,140)
       State                                                           59             (307)          (544)
                                                                  --------       ----------       --------
                                                                      505           (2,660)        (4,684)
                                                                  --------       ----------       --------
          Total                                                   $  (600)       $ (19,129)       $ 1,403
                                                                  ========       ==========       ========
</TABLE>

     Total income tax expense  (benefit) for 2001,  2000, and 1999, is different
     from the amount that would be computed by  applying  the  expected  federal
     income tax rate of 35% to income (loss)  before  income taxes.  The reasons
     for this difference are as follows:
<TABLE>
<CAPTION>

                                                                     2001            2000            1999
<S>                                                              <C>             <C>              <C>
     Income tax (benefit) at expected federal income tax rate    $ (5,117)       $ (18,409)       $ 1,143
     State income taxes, net of federal tax effect                   (178)          (1,439)           125
     Valuation allowance                                            4,310              500
     Non-deductible operating expenses                                385              219            262
     State jobs tax credits                                                                           (38)
     Other                                                                                            (89)
                                                                 ---------       ----------       --------
           Total                                                 $   (600)       $ (19,129)       $ 1,403
                                                                 =========       ==========       ========
</TABLE>

     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, 2001 and 2000 were as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                                  2001            2000
                                                                  Assets (Liabilities)
                                                           --------------------------------
<S>                                                             <C>              <C>

     Current differences:
       Warranty expense                                         $  4,031         $  3,941
       Inventory capitalization                                      885              668
       Allowance for losses on receivables                         1,024            1,060
       Accrued expenses                                            4,755            5,275
       Repurchase commitments                                      1,203            1,552
       Deferred gain                                                (332)
       Other                                                          13              (102)
                                                                ---------        ----------
                                                                  11,579           12,394
     Less valuation allowance                                      3,504              618
                                                                ---------        ----------
           Total                                                $  8,075         $ 11,776
                                                                =========        ==========
</TABLE>
<TABLE>
<CAPTION>

                                                                    2001           2000
                                                                    Assets (Liabilities)
                                                             -------------------------------
<S>                                                             <C>             <C>
     Noncurrent differences:
       Depreciation and basis differential of acquired assets   $ (2,047)       $ (2,601)
       Fixed asset valuation                                       1,919           1,813
       Net operating loss carryforwards                            8,445           2,681
       Alternative minimum tax credit  carryforward                  254
       Goodwill                                                      537             621
       Capital loss carryforward                                     576             576
       Charitable contribution carryforward                           57
       Merger related expenses                                       252             427
       Other                                                       1,173           1,315
                                                                 -------         -------
                                                                  11,166           4,832
       Less valuation allowance                                    3,379             241
                                                                 -------         -------
           Total                                                 $ 7,787         $ 4,591
                                                                 =======         =======
</TABLE>

     At December 31, 2001, the Company had a capital loss carryforward of $1,472
     which will expire in 2005. Additionally,  at December 31, 2001, the Company
     had  federal  and state net  operating  loss  carryforwards  of $15,100 and
     $68,600,  respectively. The net operating loss carryforwards will expire as
     follows:

                                                    Federal       State

     2010                                           $ 848
     2019                                                        $ 3,602
     2020                                                         48,239
     2021                                           14,252        16,759


     The  Company  has  recorded a  valuation  allowance  of $6,883  against net
     deferred  income tax assets  because  management  believes  it is no longer
     appropriate  to record  income tax benefits on current  losses in excess of
     anticipated refunds and certain carryforward items. The valuation allowance
     can be adjusted in future periods as the  probability of realization of the
     deferred assets change.

     Net cash paid  (received) for income taxes for the years ended December 31,
     2001, 2000, and 1999 was $(17,057), $(3,553), and $11,835, respectively.
<PAGE>
9.   EMPLOYEE BENEFIT PLANS

     The Company has self-funded  group medical plans which are  administered by
     third party  administrators.  The medical plans have  reinsurance  coverage
     limiting  liability for any individual  employee loss to a maximum of $100,
     with an  aggregate  limit of losses in any one year  based on the number of
     covered employees.  Incurred claims identified under the Company's incident
     reporting system and incurred but not reported claims are funded or accrued
     based on estimates that incorporate the Company's past experience,  as well
     as other  considerations  such as the  nature  of each  claim or  incident,
     relevant trend factors and advice from  consulting  actuaries.  The Company
     has established  self-insurance trust funds for payment of claims and makes
     deposits to the trust funds in amounts determined by consulting  actuaries.
     The cost of these plans to the Company was $4,334,  $5,467,  and $8,022 for
     years ended December 31, 2001, 2000, and 1999, respectively.

     The Company  sponsors an  employee  401(k)  retirement  plan  covering  all
     employees who meet participation  requirements.  Employee contributions are
     limited to a percentage of  compensation as defined in the plan. The amount
     of the Company's  matching  contribution is  discretionary as determined by
     the Board of Directors.  Company contributions  amounted to $591, $736, and
     $1,071 for the years ended December 31, 2001, 2000, and 1999, respectively.

10.  COMMITMENTS AND CONTINGENCIES

     Operating Leases:

     Two of the Company's  manufacturing  facilities  were leased under separate
     operating  lease  agreements  with companies among whose owners are certain
     officers,  directors or stockholders of the Company.  One related lease was
     terminated in April 2000 with a one-time  cancellation payment of $150 made
     to the lessor. The other related lease contained a purchase option that was
     exercised in 2001 for $1,125 using proceeds from an industrial  development
     bond issue.

     Additionally,  the  Company is  obligated  under  various  operating  lease
     agreements with varying monthly  payments and expiration dates through June
     2017.  Total rent expense  under  operating  leases was $292,  $1,131,  and
     $1,191 for the years ended December 31, 2001, 2000, and 1999, respectively,
     including  rents paid to related  parties of $63 (2001),  $377 (2000),  and
     $354 (1999).

     Future  minimum rents payable under  operating  leases that have initial or
     remaining  noncancelable  lease terms in excess of one year at December 31,
     2001 are not significant.


     Contingent Liabilities and Other:

      a.  The  Company  is  contingently   liable   under  terms  of  repurchase
          agreements with financial  institutions  providing inventory financing
          for retailers of its products. These arrangements, which are customary
          in the  industry,  provide  for the  repurchase  of  products  sold to
          retailers  in the event of default by the  retailer.  The risk of loss
          under these  agreements is spread over numerous  retailers.  The price
          the Company is obligated to pay generally  declines over the period of
          the  agreement  and  is  further   reduced  by  the  resale  value  of
          repurchased  homes.  The  maximum  amount  for  which the  Company  is
          contingently  liable under such  agreements  approximated  $135,000 at
          December  31,  2001.   The  Company  has  a  reserve  for   repurchase
          commitments  of  $3,200  (2001)  and  $4,100  (2000)  based  on  prior
          experience and market conditions.

      b.  Under   the   insurance   plans described   in Note 1, the Company was
          contingently  liable at  December  31,  2001 for future  retrospective
          premium  adjustments up to a maximum of  approximately  $19,675 in the
          event that additional losses are reported related to prior years.
<PAGE>
      c.  The  Company  is  engaged  in  various   legal  proceedings  that  are
          incidental to and arise in the course of its business.  Certain of the
          cases  filed  against  the  Company  and other  companies  engaged  in
          businesses similar to the Company allege,  among other things,  breach
          of contract  and  warranty,  product  liability,  personal  injury and
          fraudulent,  deceptive or collusive practices in connection with their
          businesses.  These  kinds of suits are typical of suits that have been
          filed in recent years, and they sometimes seek  certification as class
          actions,  the imposition of large amounts of compensatory and punitive
          damages and trials by jury.  Legal fees associated with these lawsuits
          are accrued at the time such cases are  identified.  In the opinion of
          management,  the  ultimate  liability,  if any,  with  respect  to the
          proceedings  in  which  the  Company  is  currently  involved  is  not
          presently  expected to have a material  adverse effect on the Company.
          However,  the  potential  exists for  unanticipated  material  adverse
          judgments against the Company.

      d.  The Company and certain of its equity partners have guaranteed certain
          debt for companies in which the Company owns various equity interests.
          The guarantees are limited to various  percentages of the  outstanding
          debt up to a maximum  aggregate  guaranty of $2,805.  At December  31,
          2001,  $5,663 was outstanding under the various  guarantees,  of which
          the Company had guaranteed $1,861.

11.  SEGMENT INFORMATION

     The  Company's  reportable  segments  are  organized  around  products  and
     services.   Through  its  Home  manufacturing  segment,  the  Company's  11
     divisions,   which  are  aggregated  for  reporting  purposes,  design  and
     manufacture  homes  which are sold in the  United  States  to a network  of
     dealers  which  includes  Company  owned  retail  locations.   Through  its
     Financial  services  segment,  the Company offers retail  installment  sale
     financing  and  related  insurance  products  for  manufactured  homes sold
     through the  Company's  dealer  network.  The Company's  retail  segment is
     comprised of company owned retail lots that derive their revenues from home
     sales to individuals. Included in the "other" category are primarily supply
     companies  who sell  their  products  to the  manufacturing  segment of the
     Company as well as other  manufacturers.  The  accounting  policies  of the
     segments  are the same as those  described  in the  summary of  significant
     accounting  policies except that  intercompany  profits,  transactions  and
     balances have not been eliminated.  The Company's  determination of segment
     operating  profit does not reflect other income  (expenses) or income taxes
     (benefit).
<PAGE>
<TABLE>
<CAPTION>

                                                           2001            2000             1999
<S>                                                     <C>             <C>              <C>
     Gross revenue:
       Home manufacturing                               $ 352,431       $ 311,531        $ 599,647
       Financial services                                   3,088           4,878            6,107
       Retail                                               6,968          16,842           20,914
       Other                                               28,966          29,261           40,465
                                                        ----------      ----------       ----------
         Gross revenue                                    391,453         362,512          667,133
                                                        ----------      ----------       ----------
     Intersegment revenue:
       Home manufacturing                                   4,196           5,292           17,373
       Financial services
       Retail
       Other                                               23,386          24,108           35,292
                                                        ----------      ----------       ----------
         Intersegment revenue                              27,582          29,400           52,665
                                                        ----------      ----------       ----------
     Revenue from external customers:
       Home manufacturing                                 348,235         306,239          582,274
       Financial services                                   3,088           4,878            6,107
       Retail                                               6,968          16,842           20,914
       Other                                                5,580           5,153            5,173
                                                        ----------      ----------       ----------
         Total revenue                                  $ 363,871       $ 333,112        $ 614,468
                                                        ==========      ==========       ==========

     Operating profit (loss):
       Home manufacturing                               $  (7,915)      $ (33,211)       $  16,544
       Financial services                                     211          (1,251)            (219)
       Retail                                                 (87)         (9,514)          (1,934)
       Other                                                1,948          (1,808)             689
       Elimination                                            (64)         1,507            (1,281)
                                                        ----------      ----------       ----------
       Segment operating profit (loss)                     (5,907)        (44,277)          13,799
       General corporate                                   (7,571)         (7,826)         (10,282)
                                                        ----------      ----------       ----------
         Operating profit (loss)                        $ (13,478)      $ (52,103)       $   3,517
                                                        ==========      ==========       ==========

     Depreciation and amortization:
       Home manufacturing                               $   6,427       $   7,370        $   8,215
       Financial services                                     118             294              359
       Retail                                                  24             327              544
       Other                                                  463             548              463
                                                        ----------      ----------       ----------
       Segment depreciation and amortization                7,032           8,539            9,581
       General corporate                                    1,142           1,220              669
                                                        ----------      ----------       ----------
         Total depreciation and amortization            $   8,174       $   9,759        $  10,250
                                                        ==========      ==========       ==========

                                                            2001            2000             1999
     Capital expenditures:
       Home manufacturing                               $   1,501       $   3,289        $  17,486
       Financial services                                      20              86              167
       Retail                                                                  11              986
       Other                                                1,947             159            1,208
                                                        ----------      ----------       ----------
       Segment capital expenditures                         3,468           3,545           19,847
       General corporate                                       28             262            4,699
                                                        ----------      ----------       ----------
         Total capital expenditures                     $   3,496       $   3,807        $  24,546
                                                        ==========      ==========       ==========
     Identifiable assets:
       Home manufacturing                               $ 109,429       $ 131,925        $ 159,493
       Financial services                                  12,387          12,674           17,248
       Retail                                               5,566          11,006           24,372
       Other                                               11,709          14,153           14,225
       Elimination                                        (51,803)        (45,526)         (32,752)
                                                        ----------      -----------       ---------
       Segment identifiable assets                         87,288         124,232          182,586
       General corporate                                   86,828          63,363           50,992
                                                        ----------      -----------       ---------
         Total assets                                   $ 174,116       $ 187,595        $ 233,578
                                                        ==========      ==========       ==========
</TABLE>
<PAGE>
     The Financial  services  segment's  operating  profit includes net interest
     income  of  $1,197,  $1,223,  and  $1,968,  and  gains  from  the  sale  of
     installment  contracts  of $1,640,  $2,037,  and $2,257 for the years ended
     December 31, 2001, 2000, and 1999, respectively.

     Identifiable  assets for the General  corporate  category  include  $1,603,
     $1,768, and $1,604 of investment in equity method investees at December 31,
     2001,  2000, and 1999,  respectively.  General  corporate  operating income
     includes equity in the net income (loss) of investees  accounted for by the
     equity method of $(485),  $(243), and $397 for the years ended December 31,
     2001, 2000, and 1999, respectively.
<PAGE>
<TABLE>
<CAPTION>
                                               CAVALIER HOMES INC. AND SUBSIDIARIES
                                         SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                       For the Years Ended December 31, 2001, 2000 and 1999
                                                      (Dollars in Thousands)

                                                                               Increases    Additions
                                           Balance at   Attributable Charged to    Charged                  Balance at
                                           Beginning of     to       Costs and     to Other                   End of
                                             Period     Acquisitions  Expenses     Accounts   Deductions      Period
                                           -----------  -----------  -----------  ----------- ------------  -----------
<S>                                     <C>             <C>          <C>          <C>         <C>          <C>
Allowance for losses on Accounts
   Receivable:
       Year Ended December 31, 2001     $         346                       343                       (64) $       625
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $         134                       369                      (157) $       346
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $          26                       127                       (19) $       134
                                           ===========  ===========  ===========  =========== ============  ===========

Allowance for credit losses:
       Year Ended December 31, 2001     $       1,180                       459                      (810) $       829
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $       1,656                       687                    (1,163) $     1,180
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $         760                     2,192                    (1,296) $     1,656
                                           ===========  ===========  ===========  =========== ============  ===========

Accumulated amortization of goodwill:
       Year Ended December 31, 2001     $       5,990                       978                         -  $     6,968
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $       5,368                     1,203                      (581) $     5,990
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $       4,130                     1,278                       (40) $     5,368
                                           ===========  ===========  ===========  =========== ============  ===========

Accumulated amortization of non-compete
   agreement:
       Year Ended December 31, 2001     $           -                         -                         - $          -
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $         169                        50                      (219)$          -
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $         154                       100                       (85)$        169
                                           ===========  ===========  ===========  =========== ============  ===========

Warranty reserve:
       Year Ended December 31, 2001     $      11,800                    21,819                   (21,919)$     11,700
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $      13,000                    27,531                   (28,731)$     11,800
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $      12,400                    33,653                   (33,053)$     13,000
                                           ===========  ===========  ===========  =========== ============  ===========

Reserve for repurchase commitments:
       Year Ended December 31, 2001     $       4,100                     1,848                    (2,748)$      3,200
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 2000     $       3,330                     9,414                    (8,644)$      4,100
                                           ===========  ===========  ===========  =========== ============  ===========

       Year Ended December 31, 1999     $       1,175                     3,088                      (933)$      3,330
                                           ===========  ===========  ===========  =========== ============  ===========
</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
"Section 16(a) Beneficial Ownership Reporting Compliance' of the Company's Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held on May 21, 2002,
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 21,  2002,  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 21,
2002, 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 21, 2002,
which are incorporated herein by reference.
                               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:
<TABLE>
<CAPTION>
         Financial Statement Description                                                Form 10-K Page No.
         -------------------------------                                                ------------------
<S>      <C>                                                                                      <C>

         Independent Auditors' Report                                                            35
         Consolidated Balance Sheets as of December 31, 2001 and 2000                            36
         Consolidated Statements of Operations for the years ended December 31, 2001,            38
                           2000 and 1999
         Consolidated Statements of Stockholders' Equity for the years ended                     39
                           December 31, 2001, 2000 and 1999
         Consolidated Statements of Cash Flows for the years ended December 31,                  40
                           2001, 2000 and 1999
         Notes to Consolidated Financial Statements                                              41
</TABLE>
<PAGE>
     2.       The financial statement schedule required to be filed  with   this
report and the pages on which it may be found is as follows:
<TABLE>
<CAPTION>
No.       Schedule Description                                                                   Form 10-K Page
---      ---------------------                                                                   ---------------
<S>      <C>                                                                                     <C>
  II     Valuation and Qualifying Accounts                                                       56
</TABLE>

     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 Composite  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, 1998.

     * (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.

     * (c) The Amended and  Restated  By-laws of the  Company,  filed as Exhibit
3(d) to the Company's  Quarterly  Report on Form 10-Q for the quarter ended June
27, 1997,  and the  amendments  thereto  filed as Exhibit 3(e) to the  Company's
Quarterly  Report on Form 10-Q for the quarter  ended  September 26, 1997 and as
Exhibit  3(c) to the  Company's  Quarterly  Report on Form 10-Q for the  quarter
ended September 25, 1998.

(4)  Instruments Defining the Rights of Security Holders, Including Indentures.

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

     * (b) Article II, Sections 2.1 through 2.18;  Article III, Sections 3.1 and
3.2;  Article IV,  Sections 4.1 and 4.3;  Article VI,  Sections 6.1 through 6.5;
Article VIII,  Sections 8.1 and 8.2; and Article IX of the Company's Amended and
Restated 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.

(10) Material contracts

     * (a)  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.

     * (b) Lease Agreement dated April 1, 1999, between Development Authority of
Johnson County,  Georgia and Bellcrest  Homes,  Inc.  regarding the lease of the
manufacturing facility located in Adrian, Georgia, filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.

     * (c)  Industrial  Sublease  dated October 2, 2000,  by and among  Cavalier
Industries,  Inc.,  as successor by merger to Bellcrest  Homes,  Inc.,  Alliance
Homes, Inc., All-Span Homes, LLC and G. Hiller Spann,  regarding the sublease of
the manufacturing facility located in Adrian, Georgia, filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

     *  (d)  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).
<PAGE>
     * (e) Lease Agreement dated March 1, 1997, between the City of Winfield and
Buccaneer  Homes, a division of Cavalier  Manufacturing,  Inc., filed as Exhibit
10(aa) to the Company's  Annual Report on Form 10-K for the year ended  December
31, 1996.

     * (f) Lease Agreement between the Industrial  Development Board of the Town
of Addison and Jerry F. Wilson,  Robert Lowell Burdick and John W Lowe, dated as
of June 1, 1984, filed as Exhibit 10(j) to the Company's  Registration Statement
on Form S-1, Registration No. 33-3525, dated February 21, 1986.

     * (g) Assignment and Assumption  Agreement by and among the Estate of Jerry
F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier Manufacturing,  Inc. and
Cavalier Real Estate Co., Inc.,  dated January 13, 1999,  regarding the lease of
the manufacturing  facility located in Addison,  Alabama, filed as Exhibit 10(g)
to the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1999.

     * (h) Lease Agreement between the Industrial  Development Board of the Town
of Addison and the Winston County Industrial Development  Association,  dated as
of February 1, 1994,  regarding the lease of the manufacturing  facility located
in Addison,  Alabama,  filed as Exhibit 10(h) to the Company's  Annual Report on
Form 10-K for the year ended December 31, 1999.

     * (i)  Assignment  and  Assumption  Agreement by and among  Winston  County
Industrial Development  Association,  Cavalier Manufacturing,  Inc. and Cavalier
Real  Estate  Co.,  Inc.  dated  January 13,  1999,  regarding  the lease of the
manufacturing facility located in Addison Alabama, filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.

     * (j) Lease Agreement between The Industrial  Development Board of the Town
of Addison and Cavalier Homes of Alabama, a division of Cavalier  Manufacturing,
Inc.,  dated November 1, 1997,  filed as Exhibit 10(yy) to the Company's  Annual
Report on Form 10-K for the year ended December 31, 1997.

     * (k) Lease  Agreement  dated April 1, 1999, between Crisp County - Cordele
Industrial  Development  Authority and Cavalier  Industries,  Inc. regarding the
lease of the  manufacturing  facility  located  in  Cordele,  Georgia,  filed as
Exhibit  10(j) to the  Company's  Annual  Report on Form 10-K for the year ended
December 31, 1999.

     * (l) 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,  filed as Exhibit  10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.

     * (m) Assignment and Assumption Agreement between Star Industries, Inc. and
Cavalier  Industries,  Inc.  regarding the lease of the  manufacturing  facility
located in Robbins,  North  Carolina,  filed as Exhibit  10(c) to the  Company's
Annual Report on Form 10-K for the year ended December 31, 1996.

     *  (n)  Lease  Agreement  dated  March  1,  2001,  between  the  Industrial
Development  Board of the City of  Hamilton  and  Quality  Housing  Supply,  LLC
regarding the lease of the component manufacturing facility located in Hamilton,
Alabama,  filed as Exhibit 10(a) to the Company's  Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.

     * (o) Lease  Agreement  dated  March 5,  2001,  between  Minor & Smith Real
Estate,  Inc.  and  Ridge  Crest,  LLC  regarding  the  lease  of the  component
manufacturing facility located in Haleyville, Alabama, filed as Exhibit 10(b) to
the  Company's  Quarterly  Report on Form 10-Q for the  quarter  ended March 31,
2001.

     *  (p)  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,  filed as Exhibit  10(bb) to the Company's  Annual Report on Form
10-K for the year ended December 31, 1996.
<PAGE>
     * (q)  Lease  Agreement  dated  June 1,  1997,  between  Graham  Industrial
Association,  Inc. and Cavalier  Manufacturing,  Inc. regarding the lease of the
manufacturing  facility located in Graham,  Texas, filed as Exhibit 10(q) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.

     * (r) Lease Agreement dated November 1, 1997, between Greenstar, L.L.C. and
The  Colonial  Group,  regarding  the  lease of an  administrative  facility  in
Greensboro,  North  Carolina,  filed as Exhibit  10(r) to the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1999.

     *  (s)  Addendum  to  Lease  Agreement  dated  January  18,  1999,  between
Greenstar,   L.L.C.   and  The  Colonial  Group,   regarding  the  lease  of  an
administrative facility in Greensboro, North Carolina, filed as Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

     * (t) Assignment and Assumption Agreement dated April 29, 1999, between The
Colonial   Group  and  Cavalier   Homes,   Inc.   regarding  the  lease  of  the
administrative facility in Greensboro, North Carolina, filed as Exhibit 10(t) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

     * (u) Amended and Restated  Revolving and Term Loan Agreement,  dated as of
March 31, 2000,  by and among the  Company,  First  Commercial  Bank and certain
subsidiaries of the Company,  filed as Exhibit 10(b) to the Company's  Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.

     * (v) First  Amendment  to Amended  and  Restated  Revolving  and Term Loan
Agreement,  dated as of  September  29,  2000,  between  the  Company  and First
Commercial  Bank,  filed as Exhibit 10(a) to the Company's  Quarterly  Report on
Form 10-Q for the quarter ended September 30, 2000.

     * (w) Second  Amendment  to Amended and  Restated  Revolving  and Term Loan
Agreement,  dated as of May 4, 2001,  between the  Company and First  Commercial
Bank, filed as Exhibit 10(c) to the Company's  Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001.

     * (x) Guaranty  Agreement between First Commercial Bank and Cavalier Homes,
Inc. dated July 15, 1997,  relating to guaranty of payments by Lamraft, LP filed
as Exhibit 10(a) to the Company's  Quarterly Report on Form 10-Q for the quarter
ended September 26, 1997.

     * (y)  Amendment to the Limited  Credit  Guaranty  Agreement  between First
Commercial  Bank and  Cavalier  Homes,  Inc.,  executed  as of March  24,  1999,
relating to guaranty  of payments by Lamraft,  LP filed as Exhibit  10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.

     * (z) Guaranty  Agreement between First Commercial Bank and Cavalier Homes,
Inc.,  dated as of  September  1, 1999,  relating  to  guaranty  of  payments by
Lamraft,  LP, filed as Exhibit 10(a) to the Company's  Quarterly  Report on Form
10-Q for the quarter ended October 1, 1999.

     * (aa) Guaranty Agreement between First Commercial Bank and Cavalier Homes,
Inc.  dated July 15, 1997,  relating to guaranty of payments by  Woodperfect  of
Texas, LP filed as Exhibit 10(c) to the Company's  Quarterly Report on Form 10-Q
for the quarter ended September 26, 1997.

     * (bb) Amendment to the Limited  Credit  Guaranty  Agreement  between First
Commercial Bank and Cavalier Homes,  Inc.  executed March 24, 1999,  relating to
guaranty of payments by Woodperfect  of Texas,  LP filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.

     * (cc)  Continuing  Guaranty  Agreement  between First  Commercial Bank and
Cavalier Homes, Inc., dated March 31, 2000,  relating to guaranty of payments of
Cavalier  Acceptance  Corporation,  filed  as  Exhibit  10(c)  to the  Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
<PAGE>
     * (dd) Release of Guarantor  and  Amendment  to Guaranty  Agreements  among
First Commercial  Bank,  Patriot Homes,  Inc.,  Cavalier Homes,  Inc.,  Southern
Energy Homes,  Inc. and Lee Roy Jordan,  dated as of December 31, 1999, filed as
Exhibit  10(hh) to the  Company's  Annual Report on Form 10-K for the year ended
December 31, 1999.

     * (ee) Guaranty  Agreement between SouthTrust Bank and Cavalier Homes, Inc.
dated as of July 27,  1998,  relating to  guaranty  of payments by  Woodperfect,
Ltd., filed as Exhibit 10(b) to the Company's  Quarterly Report on Form 10-Q for
the quarter ended October 1, 1999.

     * ** (ff)  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.

     * ** (gg) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan,  filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.

     * ** (hh) 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.

     *  **  (ii)  Amendment  to  Cavalier  Homes,   Inc.   Executive   Incentive
Compensation Plan, filed as Exhibit 10(ii) to the Company's  Quarterly Report on
Form 10-Q for the quarter ended March 28, 1997.

     * ** (jj) 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.

     * ** (kk) 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.

     * ** (ll) Amendment to Cavalier  Homes,  Inc. Key Employee Stock  Incentive
Plan, filed as Exhibit 10(i) to the Company's  Quarterly Report on Form 10-Q for
the quarter ended March 28, 1997.

     * ** (mm) Amendment to Cavalier  Homes,  Inc. Key Employee Stock  Incentive
Plan,  effective  December 30,  1997,  filed as Exhibit  10(j) to the  Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

     * ** (nn) Amendment to Cavalier  Homes,  Inc. Key Employee Stock  Incentive
Plan, effective January 23, 1998, filed as Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

     * ** (oo) Amendment to Cavalier  Homes,  Inc. Key Employee Stock  Incentive
Plan, effective October 20, 1998, filed as Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.

     * ** (pp) Cavalier Homes, Inc. Amended and Restated  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.

     *  **  (qq)  Amendment  to  Cavalier  Homes,   Inc.  Amended  and  Restated
Nonemployee Directors Plan filed as Exhibit 10(i) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.

     *  **  (rr)  Amendment  to  Cavalier  Homes,   Inc.  Amended  and  Restated
Nonemployee  Directors  Plan,  filed as Exhibit  10(n) to the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1997.

     * (ss) Cavalier  Homes,  Inc.  Amended and Restated  Dividend  Reinvestment
Plan,  filed  as  Appendix  A to  the  Prospectus  appearing  in  the  Company's
Post-Effective Amendment No. 1 to Form S-3, Registration No. 333-48111, filed on
September 29, 1998.

<PAGE>
     * (tt) Cavalier Homes,  Inc.  Amended and Restated  Dealership Stock Option
Plan filed as Appendix A to the  Company's  Registration  Statement on Form S-3,
Amendment No. 2, Registration No. 33-62487, dated June 18, 1998.

     * ** (uu) Cavalier Homes, Inc. Deferred  Compensation Plan, effective April
1, 1998,  filed as Exhibit  10(d) to the  Quarterly  Report on Form 10-Q for the
quarter ended June 26, 1998.

     * ** (vv) Cavalier Homes,  Inc.  Flexible Option Plan filed as Exhibit 4(e)
to the Company's Registration Statement on Form S-8, Registration No. 333-57743,
dated June 28, 1998.

     * ** (ww)  Belmont  Homes,  Inc.  1994  Incentive  Stock Plan,  filed as an
Exhibit  to  the  Belmont  Homes,  Inc.  Registration  Statement  on  Form  S-1,
Registration No. 33-87868.

     * ** (xx) Belmont  Homes,  Inc.  1994  Non-Qualified  Stock Option Plan for
Non-Employee  Directors,  filed  as  an  Exhibit  to  the  Belmont  Homes,  Inc.
Registration Statement on Form S-1, Registration No. 33-87868.

     * (yy) Form of  Indemnification  Agreement  between Belmont Homes, Inc. and
the Directors and Executive  Officers of Belmont Homes,  Inc.,  filed as Exhibit
10.2 to Belmont  Homes,  Inc.  Current  Report on Form 8-K filed on September 8,
1997.

     * (zz) Form of  Indemnification  Agreement by and between  Cavalier  Homes,
Inc. and each member of its Board of  Directors,  filed as Exhibit  10(a) to the
Company's  Quarterly  Report on Form 10-Q for the quarter  ended  September  25,
1998.

     * (aaa)  Split  dollar  Agreement  dated May 15,  1998,  by and between the
Company and Jerry F. Wilson,  Jr. as Trustee of the David Allen Roberson  Family
Trust, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 26, 1998.

     (bbb) Split Dollar  Insurance  Agreement dated April 1, 1994 by and between
the  Company  and Judy  Darnell  as  Trustee  of the Barry  Donnell  Irrevocable
Insurance Trust.

     * ** (ccc) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and Barry B. Donnell, filed as Exhibit 10(b) to the
Company's  Quarterly  Report on Form 10-Q for the quarter  ended  September  25,
1998.

     * ** (ddd) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and David A. Roberson,  originally filed as Exhibit
10(c) to the  Company's  Quarterly  Report  on Form 10-Q for the  quarter  ended
September 25, 1998 and filed as 10(ggg) to the  Company's  Annual Report on Form
10-K for the year ended  December  31, 1998 in order to correct a  typographical
error.

     * ** (eee) Retention and Severance Agreement, dated August 26, 1998, by and
between  Cavalier Homes,  Inc. and Michael R. Murphy,  filed as Exhibit 10(d) to
the Company's  Quarterly Report on Form 10-Q for the quarter ended September 25,
1998.

     (fff)  Retention  and  Severance  Agreement,  dated August 26, 1998, by and
between Cavalier Homes, Inc. and Gregory A. Brown.

(11) Statement re Computation of Per Share Earnings.

(21) Subsidiaries of the Registrant.

(23) Consent of Deloitte & Touche LLP.
 -----------------------------------------
* Incorporated by reference herein.

<PAGE>
** Management contract or compensatory plan or arrangement.

         (b)      Reports on Form 8-K.
                  None.
<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 25, 2002


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.
<TABLE>
<CAPTION>

Signature                                   Title                                                Date
<S>                                         <C>                                                  <C>

/s/ DAVID A. ROBERSON                       Director and Principal Executive                     March 25, 2002
------------------------------------
                                            Officer

/s/ MICHAEL R. MURPHY                       Director and Principal Financial and                 March 25, 2002
------------------------------------
                                            Accounting Officer

/s/ BARRY DONNELL                           Chairman of the Board and Director                   March 25, 2002
------------------------------------


/s/ THOMAS A. BROUGHTON, III                Director                                             March 25, 2002
------------------------------------


/s/ JOHN W LOWE                             Director                                             March 25, 2002
 -----------------------------------


/s/ LEE ROY JORDAN                          Director                                             March 25, 2002
------------------------------------


/s/ GERALD W. MOORE                         Director                                             March 25, 2002
------------------------------------


/s/ A. DOUGLAS JUMPER, SR.                  Director                                             March 25, 2002
------------------------------------


/s/ MIKE KENNEDY                            Director                                             March 25, 2002
------------------------------------


/s/ JOHN W. ALLISON                         Director                                             March 25, 2002
------------------------------------
</TABLE>
<PAGE>
                                      INDEX

Exhibit
Number

(10)     Material Contracts
         (a) Split Dollar Insurance Agreement dated April 1, 1994 by and between
the Company and Judy Darnell as Trustee of the Barry Donnell Irrevocable
Insurance Trust.
         (b)  Retention and Severance Agreement, dated August 26, 1998, by   and
between Cavalier Homes, Inc. and Gregory A. Brown.

(11)     Statement Re Computation of Per Share Earnings

(21)     Subsidiaries of the Registrant

(23)     Consent of Deloitte & Touche LLP
<PAGE>
                                                  Exhibit 11
                                 Statement re Computation of Per Share Earnings
<TABLE>
<CAPTION>
                                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
                                 (dollars in thousands except per share amounts)

                                                                   For the Year Ended December 31,
                                                    --------------------------------------------------------------
                                                          2001                  2000                  1999
                                                    ------------------    ------------------   -------------------
<S>                                              <C>                   <C>                   <C>
 BASIC & DILUTED
      Net income (loss)                          $            (14,018) $            (33,468) $              2,150
                                                    ==================    ==================   ===================

 SHARES:

   Weighted average common shares
      outstanding (basic)                                  17,580,499            17,799,505            18,125,763

   Dilutive effect of stock options
     and warrants                                                   -                     -                78,267
                                                    ------------------    ------------------   -------------------

   Weighted average common shares
     outstanding, assuming dilution (diluted)              17,580,499            17,799,505            18,204,030
                                                    ==================    ==================   ===================



 Basic net income (loss) per share                $             (0.80) $              (1.88) $               0.12
                                                    ==================    ==================   ===================

 Diluted net income (loss) per share              $             (0.80) $              (1.88) $               0.12
                                                    ==================    ==================   ===================
</TABLE>
<PAGE>
                                   Exhibit 21
                         Subsidiaries of the Registrant


         BRC Components, Inc., an Alabama corporation
         Cavalier/AAA, a Delaware limited liability company
         CIS Financial Services, Inc., an Alabama corporation
         Cavalier Asset Management, Inc., a Delaware corporation
         Cavalier Associated Retailers, Inc., a Delaware corporation
         Cavalier Enterprises, Inc., a Delaware corporation
         Cavalier Enterprises Asset Co., Inc., a Delaware corporation
         Cavalier Industries, Inc., a Delaware corporation
         Cavalier Industries Asset Co., Inc., a Delaware corporation
         Cavalier Manufacturing, Inc., a Delaware corporation
         Cavalier Manufacturing Asset Co., Inc., a Delaware corporation
         Cavalier Properties, Inc., a Delaware corporation
         Cavalier Real Estate Co., Inc., a Delaware corporation
         Delta Homes, Inc., a Mississippi corporation
         Direct Connection, LLC, a Delaware limited liability company
         Impact Media Group, Inc., an Alabama corporation
         CK Homes, Inc., a Florida corporation
         Quality Certified Insurance Services, Inc., an Alabama corporation
         Quality Housing Supply, LLC, a Delaware limited liability company
         Ridge Pointe Manufacturing, LLC, an Alabama limited liability company
         Ridge Crest, LLC, a Delaware limited liability company
         The Home Place, Inc., an Alabama corporation
<PAGE>

                                   Exhibit 23
                        Consent of Deloitte & Touche LLP


INDEPENDENT AUDITORS' CONSENT

We consent to the  incorporation  by reference in  Registration  Statements Nos.
33-20842,  33-20859,  33-86232, 33-86236,  333-06371,  333-19833,  333-45255 and
333-57743  of Cavalier  Homes,  Inc. on Form S-8,  and to the  incorporation  by
reference in Registration  Statements Nos. 33-62487 (as amended),  333-18213 (as
amended),  333-00607  (as  amended),  333-48111(as  amended) and  333-64925  (as
amended) of Cavalier  Homes,  Inc. on Form S-3 of our report dated  February 22,
2002,  appearing in this Annual Report on Form 10-K of Cavalier Homes,  Inc. for
the year ended December 31, 2001.


/s/ Deloitte & Touche LLP

Birmingham, Alabama
March 25, 2002