<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-K

         FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
         For the fiscal year ended March 30, 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 0-24268

                             PALM HARBOR HOMES, INC.
             (Exact name of registrant as specified in our charter)

                    FLORIDA                             59-1036634
        (State or other jurisdiction of     (I.R.S. Employer identification no.)
        incorporation or organization)

15303 DALLAS PARKWAY, SUITE 800, ADDISON, TEXAS            75001
   (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (972) 991-2422

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of Class)

         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 registrant's Common Stock held by
non-affiliates of the registrant as of May 14, 2001, was $167,464,616 based on
the closing price on that date of the Common Stock as quoted on the Nasdaq
National Stock Market.

         As of May 14, 2001, 22,842,911 shares of the registrant's Common Stock
were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement relating to our Annual
Meeting of Shareholders to be held June 27, 2001 are incorporated by reference
in Part III.


================================================================================


<PAGE>   2




         This report contains forward looking statements within the safe harbor
provisions of the Securities Litigation Reform Act, including, without
limitation, those regarding the growth and financing strategies of Palm Harbor
Homes, Inc. ("Palm Harbor"), projections of revenues, income or other financial
items, the effective implementation of Palm Harbor's business or growth
strategy, the adequacy of Palm Harbor's capital resources and other statements
regarding trends relating to the manufactured home industry and various other
items involving known and unknown risks, uncertainties and other factors which
may cause the actual results, performance and achievements of Palm Harbor to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include
political, economic or other factors such as inflation rates, employment
conditions, interest rates, recessionary or expansive trends, taxes and
regulations and laws affecting the business in each of Palm Harbor's markets;
competitive product, advertising, promotional and pricing activity; inclement or
catastrophic weather conditions affecting revenues, inventory levels and
insurance reserves; raw material and labor costs and availability; dependence on
the rate of development and degree of acceptance of new product introductions in
the marketplace; relationships with customers or dealers; the availability,
terms and development of capital; trends to consolidate the number of production
facilities; changes in or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of Palm Harbor; the difficulty of forecasting sales at certain times in
certain markets; and government regulation.

                                     PART I.

ITEM 1. BUSINESS

GENERAL

         Palm Harbor Homes, Inc. is one of the largest producers of
multi-section manufactured homes in the United States. Palm Harbor's operations
are vertically integrated and encompass manufacturing, marketing, financing and
insurance. At March 30, 2001, Palm Harbor operated 15 manufacturing facilities
that sell homes in 28 states through 145 Company-owned superstores and
approximately 150 independent retail sales centers.

         At March 30, 2001, the Company-owned superstores operated in Alabama,
Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kentucky, Louisiana,
Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, South Carolina,
Tennessee, Texas, Virginia and Washington. With a net increase of 12 superstores
in fiscal 2001, Palm Harbor continued to advance towards its long-term plan of
increasing sales through Company-owned superstores. This increase in
Company-owned superstores resulted in a rise in the internalization rate - which
is the percent of homes manufactured by Palm Harbor and sold through
Company-owned retail superstores. For fiscal 2001, Palm Harbor's internalization
rate was 83%, up from 76% in the preceding fiscal year.

         Through our subsidiary, CountryPlace Mortgage, Ltd. ("CountryPlace"),
Palm Harbor offers installment financing to purchasers of manufactured homes
sold by Company-owned superstores. Palm Harbor believes that the ability to
finance our home sales has provided us with an advantage over certain of our
competitors and has created a source of additional earnings.

         Through our subsidiary, Standard Casualty Company, Palm Harbor provides
property and casualty insurance for owners of manufactured homes. Management of
Palm Harbor believes that having the internal capability to provide this type of
insurance complements the services of CountryPlace and has been additive to
earnings.

PRODUCTS

         Palm Harbor manufactures single and multi-section homes under various
brand names including Palm Harbor, Masterpiece, Keystone, CountryPlace, River
Bend and Windsor Homes(TM). Palm Harbor offers over 150 floor plans and
approximately 90% of the homes produced by Palm Harbor are structurally or
decoratively customized to the home buyer's specifications. Although Palm Harbor
produces a wide retail price range of homes,


                                       1
<PAGE>   3


the average retail sales price (excluding land) of Palm Harbor's homes is
approximately $59,000 and approximately 86% of Palm Harbor's homes are
multi-section.

         A typical home built by Palm Harbor contains two to five bedrooms, a
living room, family room, dining room, kitchen, two or three bathrooms and
features central heating, a range, refrigerator, carpeting and drapes. In
addition, Palm Harbor offers optional amenities, including dishwashers, washers,
dryers, furniture packages and specialty cabinets, as well as a wide range of
colors, moldings and finishes. Palm Harbor also offers optional features usually
associated with site-built homes such as stone fireplaces, computer rooms,
skylights, vaulted ceilings and whirlpool baths. Palm Harbor has a unique
package of energy saving construction features referred to as "EnerGmiser(TM)"
which includes, among other things, additional insulation to reduce heating and
cooling costs, and which exceeds statutorily-mandated energy efficiency levels.

         Palm Harbor's homes are designed and copyrighted after extensive field
research and consumer feedback. Palm Harbor has developed engineering systems
which, through the use of computer-aided technology, permit customization of
homes and assist with product development and enhancement.

MANUFACTURING OPERATIONS

         Palm Harbor currently owns or leases 16 facilities located in Alabama,
Arizona, Florida, Georgia, North Carolina, Ohio, Oregon and Texas. In fiscal
2000, Palm Harbor temporarily idled one facility and consolidated production
into another facility due to declining overall industry conditions. A typical
Palm Harbor manufacturing facility has approximately 100,000 square feet of
floor space and employs approximately 190 associates.

         Palm Harbor's facilities generally operate on a one shift per day, five
days per week basis, and Palm Harbor currently manufactures a typical home in
approximately three to five days. Palm Harbor's facilities have the capacity to
produce an aggregate of approximately 150 sections per day. The current rate of
production is 73 sections per day.

         The following table sets forth the total sections produced and homes
sold, as well as the number of manufacturing facilities operated by Palm Harbor,
for the fiscal years indicated:


<TABLE>
<CAPTION>
                                   1997       1998       1999       2000       2001
                                 --------   --------   --------   --------   --------
<S>                              <C>        <C>        <C>        <C>        <C>
Homes sold:
   Single-section ............      2,781      2,687      3,474      2,862      1,542
   Multi-section .............     11,092     11,457     12,154     11,439      9,287
                                 --------   --------   --------   --------   --------
Total homes sold .............     13,873     14,144     15,628     14,301     10,829
                                 ========   ========   ========   ========   ========

Sections produced ............     24,545     26,014     27,380     25,237     19,911
Manufacturing facilities
   (at end of fiscal year) ...         14         16         16         15         15
</TABLE>

         Palm Harbor's homes are constructed at our manufacturing facilities.
The finished homes are transported by independent trucking companies to
retailers at the retailer's expense. Retailers or other independent installers
are responsible for placing the home on site, making utility hook-ups and, in
certain instances, providing installation and finish-out services. The industry
practice is to have third parties hired by the retailer provide the installation
and finish-out services. Palm Harbor's associates, rather than independent
contractors, perform the finish out services on homes sold through Company-owned
superstores. Palm Harbor believes our finish-out services ensure that Palm
Harbor quality is applied during the entire process, increases customer
satisfaction and provides Palm Harbor an advantage over many of our competitors.



                                       2
<PAGE>   4


         Palm Harbor's backlog of orders as of May 14, 2001 was approximately
$9.0 million, as compared to approximately $8.7 million as of May 15, 2000.
Since retailers may cancel orders prior to production without penalty, Palm
Harbor does not consider our order backlog to be firm orders; however, such
cancellations rarely occur. Because of the seasonality of the housing market,
the level of backlog generally declines during the winter months.

         The principal materials used in the production of Palm Harbor's homes
include wood, wood products, gypsum wallboard, steel, fiberglass insulation,
carpet, vinyl, fasteners, appliances, electrical items, windows and doors. Palm
Harbor believes that the materials used in the production of our homes are
readily available at competitive prices from a wide variety of suppliers. Three
suppliers, which accounted for more than 5% of Palm Harbor's total purchases
during the fiscal year ended March 30, 2001, represented approximately 8.8%,
6.6% and 6.0%, respectively, of total purchases during such fiscal year.
Accordingly, Palm Harbor does not believe that the loss of any single supplier
would have a material adverse effect on our business.

RETAIL OPERATIONS

         Palm Harbor's homes are sold through a distribution network consisting
of (i) superstores owned by Palm Harbor; and (ii) independent retailers. The
following table sets forth the number of homes sold by Palm Harbor through each
of these distribution channels, as well as the number of superstores and retail
sales centers in each channel, during the past three fiscal years:

<TABLE>
<CAPTION>
                                March 26,    March 31,    March 30,
                                  1999         2000          2001
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>
Homes sold by retailers:

Company-owned ..............       10,776       11,078        9,012
Independent ................        4,852        3,223        1,817
                               ----------   ----------   ----------
Total ......................       15,628       14,301       10,829
                               ==========   ==========   ==========

Number of sales centers:

Company-owned ..............          120          133          145
Independent ................          300          200          150
                               ----------   ----------   ----------
Total ......................          420          333          295
                               ==========   ==========   ==========
</TABLE>

         Palm Harbor first established wholly-owned superstores in 1992, and
currently has 145 superstores in Alabama, Arizona, Arkansas, Colorado, Florida,
Georgia, Indiana, Kentucky, Louisiana, Nevada, New Mexico, North Carolina, Ohio,
Oklahoma, Oregon, South Carolina, Texas, Virginia and Washington. Palm Harbor
plans to add 15 to 20 retail superstores in fiscal 2002.

         Palm Harbor's independent retailer network principally consists of
local retailers, developers that market land/home packages and developers of
retirement lifestyle communities. The decrease in Palm Harbor's independent
retailer network is the result of an increase in the internalization rate from
63% for the fiscal year ended March 26, 1999 to 83% for the fiscal year ended
March 30, 2001. No single independent retailer accounted for 5% or more of Palm
Harbor's net sales during fiscal 2001. Palm Harbor provides comprehensive sales
training to our retail sales associates and brings them to the manufacturing
facilities for product training and to view new product designs as they are
developed. These training seminars, known as "Palm Harbor University",
facilitate the sale of Palm Harbor's homes by increasing the skill and knowledge
of the retail sales consultants. In addition, Palm Harbor displays our products
in trade shows and supports our retailers through the distribution of floor plan
literature, brochures, decor boards, banners and videos.


                                       3
<PAGE>   5


MARKETS SERVED

         Management believes that Palm Harbor's broad geographic presence
lessens the impact of adverse economic trends specific to any one region, while
at the same time enabling Palm Harbor to capitalize on favorable regional
economic trends. During the fiscal year ended March 30, 2001, the percentage of
Palm Harbor's revenues by region was as follows:


<TABLE>
<CAPTION>
                                                                                PERCENTAGE OF
REGION                          PRIMARY STATES                                REVENUE BY REGION
------                          --------------                                -----------------

<S>           <C>                                                             <C>
Southeast     Florida, North Carolina, Alabama, Georgia, South Carolina,
              Mississippi, Tennessee, Virginia                                       33%

Central       Texas, Oklahoma, Arkansas, Louisiana, Kansas                           38

West          New Mexico, Arizona, California, Colorado, Oregon,
              Washington, Montana, Nevada, Utah                                      24

Midwest       Ohio, Michigan, Indiana, Kentucky, Illinois                             5
                                                                                  -----
                                                                                    100%
                                                                                  =====
</TABLE>

         Manufactured housing is a regional business and the primary geographic
market for a typical manufacturing facility is within a 250-mile radius. Each of
Palm Harbor's manufacturing facilities typically serves 20 to 55 retailers, and
the facility sales staff maintains personal contact with each retailer, whether
Company-owned or independent. Palm Harbor's decentralized operations allow us to
be more responsive to retailers' concerns with respect to leadership in product
innovation, local home design and customer satisfaction.

CONSUMER FINANCING

         Historically, Palm Harbor has facilitated retail sales of our homes by
maintaining relationships with conventional lenders. While Palm Harbor intends
to maintain these relationships, we believe that our ability to provide
financing to our customers on competitive terms only improve our responsiveness
to the financing needs of prospective purchasers and provides an additional
source of earnings for Palm Harbor. Through CountryPlace, Palm Harbor offers a
variety of financing options, including customary retail installment sales
contracts, land in lieu of down payment and land/home financing, to best suit
the needs of our retail customers. Financing services by CountryPlace are
currently being offered only through Company-owned superstores.

         Loan applications originate at the Company-owned superstore and are
forwarded to CountryPlace for final credit approval. CountryPlace then sells the
approved loan contracts to primarily one of three national consumer finance
companies. CountryPlace and the national consumer finance companies share on a
predetermined basis the interest income on all loans and in some cases, losses
resulting from defaults or prepayments. During the fiscal year ended March 31,
2000, several national consumer finance companies announced that they plan to
discontinue the manufactured housing segment of their business. See the
Liquidity and Capital Resources section of "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further details.

         Retail installment loans sold by CountryPlace are serviced and
administered by the national consumer finance companies. CountryPlace's share of
the interest income is in consideration for the following services provided by
CountryPlace: (i) contract origination services, including the training of
retailers with respect to the loan evaluation process; (ii) receipt and
processing of the retail installment sale contracts; (iii) collection assistance
with delinquent accounts, upon the request of the finance company and (iv)
repossession assistance.


                                       4
<PAGE>   6


RETAILER INVENTORY FINANCING

         In accordance with manufactured housing industry practice,
substantially all retailers finance a portion of their purchases of manufactured
homes through wholesale "floor plan" financing arrangements. Under a typical
floor plan financing arrangement, a financial institution provides the retailer
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 retailer customarily requires Palm Harbor to enter into a separate
repurchase agreement with the financial institution under which Palm Harbor is
obligated, upon default by the retailer and under certain other circumstances,
to repurchase the financed home at declining prices over the term of the
repurchase agreement (which generally ranges from 12 to 18 months). The price at
which Palm Harbor may be obligated to repurchase a home under these agreements
is based upon Palm Harbor's original invoice price plus certain administrative
and shipping expenses. Palm Harbor's obligation under these repurchase
agreements ceases upon the purchase of the home by the retail customer.

         The risk of loss under such repurchase agreements is mitigated by the
fact that (i) only 17% of Palm Harbor's homes are sold to independent retailers;
(ii) a majority of the homes sold by Palm Harbor to independent retailers are
pre-sold to specific retail customers; (iii) Palm Harbor monitors each
retailer's inventory position on a regular basis; (iv) sales of Palm Harbor's
manufactured homes are spread over a large number of retailers; (v) none of Palm
Harbor's independent retailers accounted for more than 5% of Palm Harbor's net
sales in fiscal 2001; (vi) the price Palm Harbor is obligated to pay declines
over time and (vii) Palm Harbor is, in most cases, able to resell homes
repurchased from credit sources in the ordinary course of business without
incurring significant losses. Palm Harbor estimates that our potential
obligations under such repurchase agreements was approximately $30.3 million as
of March 30, 2001. During the fiscal years ended March 26, 1999, March 31, 2000
and March 30, 2001, net expenses incurred by Palm Harbor under these repurchase
agreements totaled $29,000, $155,000 and $132,000, respectively.

COMPETITION

         The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, depth of
field inventory, promotion, merchandising and the terms of retail customer
financing. In addition, manufactured homes compete with new and existing
site-built homes, as well as apartments, town houses and condominiums. Palm
Harbor does not view any of our competitors as being dominant in the industry,
although some of Palm Harbor's competitors possess substantially greater
manufacturing, distribution and marketing resources than Palm Harbor.

         Beginning in fiscal 2000, lenient credit standards, which had
facilitated increased industry-wide wholesale shipments in previous years,
tightened, resulting in declining wholesale shipments, declining margins and
lower retail sales levels for most industry participants. While this contraction
in consumer credit provides an advantage to those participants with substantial
capital resources, it is unclear the impact that these industry conditions will
have on Palm Harbor's future results.

GOVERNMENT REGULATION

         Palm Harbor's manufactured homes are subject to a number of federal,
state and local laws, codes and regulations. Construction of manufactured
housing is governed by the National Manufactured Housing Construction and Safety
Standards Act of 1974, as amended (the "Home Construction Act"). In 1976, the
Department of Housing and Urban Development ("HUD") issued regulations under the
Home Construction Act establishing comprehensive national construction
standards. The HUD regulations, known collectively as the Federal Manufactured
Home Construction and Safety Standards, cover all aspects of manufactured home
construction, including structural integrity, fire safety, wind loads, thermal
protection and ventilation. Such regulations preempt conflicting state and local
regulations on such matters, and are subject to continual change. Palm Harbor's
manufacturing facilities and the plans and specifications of our manufactured
homes have been approved by a HUD-certified inspection agency. Further, an
independent HUD-certified third-party inspector regularly reviews Palm Harbor's
manufactured homes for compliance with the HUD regulations during



                                       5
<PAGE>   7


construction. Failure to comply with applicable HUD regulations could expose
Palm Harbor to a wide variety of sanctions, including mandated closings of Palm
Harbor manufacturing facilities. Palm Harbor believes our manufactured homes
meet or surpass all present HUD requirements.

         Manufactured and site-built homes are all typically built with paneling
and other products that contain formaldehyde resins. Since February 1985, HUD
has regulated the allowable concentrations of formaldehyde in certain products
used in manufactured homes and requires manufacturers to warn purchasers as to
formaldehyde-associated risks. The Environmental Protection Agency (the "EPA")
and other governmental agencies have in the past evaluated the effects of
formaldehyde. Palm Harbor uses materials in our manufactured homes that meet HUD
standards for formaldehyde emissions and believes we comply with HUD and other
applicable government regulations in this regard.

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

         Palm Harbor's manufactured homes are subject to local zoning and
housing regulations. In certain cities and counties in areas where Palm Harbor's
homes are sold, local governmental ordinances and regulations have been enacted
which restrict the placement of manufactured homes on privately-owned land or
which require the placement of manufactured homes in manufactured home
communities. Such ordinances and regulations may adversely affect Palm Harbor's
ability to sell homes for installation in communities where they are in effect.
A number of states have adopted procedures governing the installation of
manufactured homes. Utility connections are subject to state and local
regulation and must be complied with by the retailer or other person installing
the home.

         Certain Palm Harbor warranties may be subject to the Magnuson-Moss
Warranty Federal Trade Commission Improvement Act, which regulates the
descriptions of warranties on products. The description and substance of Palm
Harbor's warranties are also subject to a variety of state laws and regulations.
A number of states require manufactured home producers to post bonds to ensure
the satisfaction of consumer warranty claims.

         A variety of laws affect the financing of the homes manufactured by
Palm Harbor. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z promulgated thereunder require written disclosure of information
relating to such financing, including the amount of the annual percentage rate
and the finance charge. The Federal Fair Credit Reporting Act also requires
certain disclosures to potential customers concerning credit information used as
a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation
B promulgated thereunder prohibit discrimination against any credit applicant
based on certain specified grounds. The Real Estate Settlement Procedures Act
and Regulation X promulgated thereunder require certain disclosures regarding
the nature and costs of real estate settlements. The Federal Trade Commission
has adopted or proposed various Trade Regulation Rules dealing with unfair
credit and collection practices and the preservation of consumers' claims and
defenses. Installment sales contracts eligible for inclusion in a Government
National Mortgage Association program are subject to the credit underwriting
requirements of the Federal Housing Association. A variety of state laws also
regulate the form of the installment sale contracts or financing documents and
the allowable deposits, finance charge and fees chargeable pursuant to
installment sale contracts or financing documents. The sale of insurance
products by Palm Harbor is subject to various state insurance laws and
regulations which govern allowable charges and other insurance practices.

         Palm Harbor's operations are also subject to federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines, the entry of injunctions or both.
The requirements of such laws and enforcement policies have generally become
more strict in recent years. Accordingly, Palm Harbor is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
See "Item 3. Legal Proceedings."



                                       6
<PAGE>   8


ASSOCIATES

         As of March 30, 2001, Palm Harbor had approximately 4,180 associates.
All of Palm Harbor's associates are non-union. Palm Harbor has not experienced
any labor-related work stoppages and believes that our relationship with our
associates is good.

ITEM 2. PROPERTIES

         Palm Harbor currently owns or leases 16 manufacturing facilities in
eight states. Palm Harbor owns substantially all of our machinery and equipment.
Palm Harbor believes our facilities are adequately maintained and suitable for
the purposes for which they are used. The following table sets forth certain
information with respect to Palm Harbor's manufacturing facilities:

<TABLE>
<CAPTION>
                                           COMMENCEMENT                      APPROXIMATE
          STATE             CITY          OF PRODUCTION     OWNED/LEASED     SQUARE FEET
          -----             ----          -------------     ------------     -----------
<S>                     <C>              <C>                <C>              <C>
         Alabama            Boaz          December 1986        Leased          97,683
                                          January 1993         Leased          75,164(1)

         Arizona           Tempe          January 1978         Owned          103,500
                        Casa Grande         July 1997          Owned           90,000

         Florida         Plant City      September 1981        Owned           93,600
                                            June 1985          Owned           87,200

         Georgia          LaGrange         August 1996         Owned          200,000

     North Carolina      Albemarle        January 1994         Owned          112,700
                         Siler City       January 1988         Owned           91,200
                                            July 1996          Leased          40,000

          Ohio             Sabina         January 1988         Owned           85,000

         Oregon         Millersburg        April 1995          Owned          168,650

          Texas            Austin         January 1981         Owned          103,800
                                           April 1992          Owned           77,000
                          Burleson          June 1993          Owned           94,300
                         Fort Worth        April 1993          Owned          121,300
                            Buda          November 1994        Owned           88,275
</TABLE>

     (1) Idled in October 1999.

         In addition to our production facilities, Palm Harbor owns certain
properties upon which 38 of our retail superstores are located. Palm Harbor also
leases approximately 30,000 square feet of office space in Addison, Texas for
our corporate headquarters and CountryPlace's office. Palm Harbor's corporate
headquarters lease expires in 2003 and the CountryPlace office lease expires in
2002.


                                       7
<PAGE>   9


ITEM 3. LEGAL PROCEEDINGS

         Except as described below, Palm Harbor is not currently subject to any
pending or threatened litigation, other than routine litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the business, financial condition or results of operations of
Palm Harbor.

         In late 1992, Palm Harbor removed an underground storage tank formerly
used to store gasoline from the site of our Tempe, Arizona manufacturing
facility. Palm Harbor is currently working in cooperation with the Arizona
Department of Environmental Quality to assess and respond to gasoline related
hydrocarbons detected in soil and groundwater at this site. Under certain
circumstances, a state fund may be available to compensate responsible parties
for petroleum releases from underground storage tanks. Palm Harbor is evaluating
the extent of the corrective action that may be necessary. Site characterization
is complicated by virtue of the presence of contaminants associated with the
Indian Bend Wash Area Superfund Site described below. At this time, Palm Harbor
does not expect that the costs of any corrective action or assessments related
to the tank will have a material adverse effect on our results of operations or
financial condition.

         Palm Harbor's Tempe facility is partially located within a large area
that has been identified by the Environmental Protection Agency as the Indian
Bend Wash Area Superfund Site. Under federal law, certain persons known as
potentially responsible parties ("PRPs") may be held strictly liable on a joint
and several basis for all cleanup costs and natural resource damages associated
with the release of hazardous substances from a facility. The average cost to
clean up a site listed on the National Priorities List is over $30 million. The
Indian Bend Superfund Site is listed on the National Priorities List. Groups of
PRPs may include current owners and operators of a facility, owners and
operators of a facility at the time of disposal of hazardous substances,
transporters of hazardous substance and those who arrange for the treatment or
disposal of hazardous substances at a site. No government agency, including the
EPA, has indicated that Palm Harbor has been or will be named as a PRP or that
we are otherwise responsible for the contamination present at the Indian Bend
Superfund Site. In general, although no assurance can be given as to the future
actions of either the EPA or PRPs who may incur cleanup costs related to this
site, Palm Harbor does not believe that our ownership of property partially
located within the Indian Bend Superfund Site will have a material adverse
effect on our results of operations or financial condition.

         In 1994, Palm Harbor removed two underground storage tanks used to
store petroleum substances from property we own in Georgia. Palm Harbor is
currently working in cooperation with the Georgia Department of Natural
Resources to assess and respond to petroleum related hydrocarbons detected in
soil and groundwater at this site, and to evaluate the extent of corrective
action that may be necessary. At this time, Palm Harbor does not expect that the
costs of future assessment and corrective action related to the tanks will have
a material adverse effect on our results of operations or financial condition.

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

         No matter was submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders, through the solicitation
of proxies or otherwise.



                                       8
<PAGE>   10


                                    PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Palm Harbor's Common Stock has been traded on the Nasdaq National Stock
Market under the symbol "PHHM" since July 31, 1995, the date on which Palm
Harbor completed our initial public offering. The following table sets forth,
for the period indicated, the high and low sales information per share of the
Common Stock as reported on the Nasdaq National Stock Market.

<TABLE>
<CAPTION>

FISCAL 2001                             HIGH        LOW
-----------                            --------   --------
<S>                                   <C>        <C>

First Quarter .....................   $  16.75   $  13.25

Second Quarter ....................      14.81      13.13

Third Quarter .....................      17.00      12.38

Fourth Quarter ....................      20.56      14.88

</TABLE>

<TABLE>
<CAPTION>

FISCAL 2000                             HIGH        LOW
-----------                           --------   --------

<S>                                   <C>        <C>
First Quarter .....................   $  24.94   $  19.00

Second Quarter ....................      25.38      15.00

Third Quarter .....................      20.00      13.75

Fourth Quarter ....................      19.00      12.00
</TABLE>


         On May 14, 2001, the last reported sale price of Palm Harbor's Common
Stock on the Nasdaq National Stock Market was $18.65. As of May 14, 2001, there
were approximately 850 record holders of the Common Stock, and approximately
3,000 holders of the Common Stock overall based on an estimate of the number of
individual participants represented by security position listings.

         Palm Harbor has never paid cash dividends on our Common Stock. The
Board of Directors intends to retain any future earnings generated by Palm
Harbor to support operations and to finance expansion and does not intend to pay
cash dividends on the Common Stock for the foreseeable future. The payment of
cash dividends in the future will be at the discretion of the Board of Directors
and will depend upon factors such as Palm Harbor's earnings levels, capital
requirements, financial condition and other factors deemed relevant by the Board
of Directors. Future loan agreements may restrict or prohibit the payment of
dividends.





                                       9
<PAGE>   11



ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth selected financial information regarding
Palm Harbor's financial position and operating results which has been extracted
from Palm Harbor's financial statements for the five fiscal years ended March
30, 2001. The information should be read in conjunction with Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and accompanying Notes
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                                 FISCAL YEAR ENDED
                                                   ----------------------------------------------------------------------
                                                    MARCH 28,      MARCH 27,      MARCH 26,      MARCH 31,      MARCH 30,
                                                      1997           1998           1999           2000           2001
                                                   ----------     ----------     ----------     ----------     ----------
                                                            (In thousands of dollars, except per share data)
<S>                                                <C>            <C>            <C>            <C>            <C>
STATEMENT OF INCOME:
Net sales                                          $  563,192     $  637,268     $  761,374     $  777,471     $  650,451
Cost of sales                                         436,850        466,494        530,698        530,415        443,131
                                                   ----------     ----------     ----------     ----------     ----------
Gross profit                                          126,342        170,774        230,676        247,056        207,320
Selling, general and
     administrative expenses                           86,927        117,018        158,916        180,224        165,896
                                                   ----------     ----------     ----------     ----------     ----------
Income from operations                                 39,415         53,756         71,760         66,832         41,424
Interest expense                                       (3,085)        (4,700)        (9,728)       (10,245)       (12,792)
Interest income and other                               2,250          2,718          4,933          7,034          7,279
                                                   ----------     ----------     ----------     ----------     ----------
Income before income from
     affiliate, income taxes and cumulative
     effect of change in accounting principle          38,580         51,774         66,965         63,621         35,911
Income from affiliate                                   1,049             --             --             --             --
                                                   ----------     ----------     ----------     ----------     ----------
Income before income taxes and cumulative
     effect of change in accounting principle          39,629         51,774         66,965         63,621         35,911
Income tax expense                                     14,890         19,920         26,788         25,025         14,034
                                                   ----------     ----------     ----------     ----------     ----------
Income before cumulative effect of change
     in accounting principle                           24,739         31,854         40,177         38,596         21,877
Cumulative effect of change in accounting
     principle                                             --             --             --             --         (2,048)
                                                   ----------     ----------     ----------     ----------     ----------
Net income                                         $   24,739     $   31,854     $   40,177     $   38,596     $   19,829
                                                   ==========     ==========     ==========     ==========     ==========
Net income per common share -
     basic and diluted                             $     1.07     $     1.35     $     1.69     $     1.66     $     0.87
                                                   ==========     ==========     ==========     ==========     ==========
Weighted average common shares
     outstanding - basic                               23,013         23,589         23,783         23,225         22,760

Weighted average common shares
     outstanding - diluted                             23,036         23,632         23,838         23,255         22,772

OPERATING DATA:
Number of homes sold                                   13,873         14,144         15,628         14,301         10,829
Multi-section homes sold as a
     percentage of total homes sold                        81%            81%            78%            80%            86%
Number of manufacturing facilities(1)                      15             16             16             15             15
Number of company-owned superstores(1)                     54             94            120            133            145

BALANCE SHEET DATA:
Working capital                                    $   39,232     $   22,290     $   40,316     $   59,452     $   80,368
Total assets                                          246,335        353,846        427,410        457,174        468,368
Long-term debt                                          3,583          3,382          3,149          2,906          2,745
Shareholders' equity                                  119,949        157,056        195,325        217,176        235,652
</TABLE>

----------

(1) As of the end of the applicable period.

                                       10
<PAGE>   12



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

         Fiscal 2001 continued to be a challenging period for the manufactured
housing industry. Elevated credit standards resulted in reduced retail sales
levels and declining margins for most industry participants. Additionally,
business conditions have resulted in a considerable contraction of industry-wide
manufacturing capacity. Calendar 2000 industry shipments were down 28% from a
year ago and it seems likely that the present industry lending environment will
continue to dampen industry sales and shipments for the next several months.
Despite the difficult conditions, Palm Harbor maintained gross margins,
profitably increased market share, decreased fixed expenses and reduced
inventories, while continuing our controlled growth strategy of opening new
retail superstores. During fiscal 2001, the number of Company-owned retail
superstores increased by 12 to 145. This increase in Company-owned retail
superstores resulted in a rise in the internalization rate - which is the
percentage of homes manufactured by Palm Harbor and sold through Company-owned
retail superstores - to 83% from 76% in the preceding fiscal year. The financial
services segment, which consists of CountryPlace Mortgage, Palm Harbor's finance
subsidiary, and Standard Casualty Company, Palm Harbor's insurance subsidiary,
continued to be additive to consolidated sales and net income.

         The Company has cash and cash equivalents of $61.3 million after
investing over $20 million in the Company's stock buyback program and virtually
no long-term debt. In addition, the Company continues to control inventory
levels with the average new home inventory per retail superstore averaging
$746,000 per location, a decline of approximately $90,000, or 11%, compared to
the year earlier period. Gross margin remained stable at 31.9%.

The following table sets forth certain items of Palm Harbor's Statement of
Income as a percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
                                                                                      FISCAL YEAR ENDED
                                                                             ------------------------------------
                                                                              MARCH 26,    MARCH 31,    MARCH 30,
                                                                                1999         2000         2001
                                                                             ----------   ----------   ----------
<S>                                                                          <C>          <C>          <C>
Net sales                                                                        100.0%       100.0%       100.0%
Cost of sales                                                                     69.7         68.2         68.1
                                                                              --------     --------     --------
      Gross profit                                                                30.3         31.8         31.9
Selling, general and administrative expenses                                      20.9         23.2         25.5
                                                                              --------     --------     --------
      Income from operations                                                       9.4          8.6          6.4
Interest expense                                                                  (1.3)        (1.3)        (2.0)
Interest income and other                                                          0.7          0.9          1.1
                                                                              --------     --------     --------
      Income before income taxes and cumulative effect of change
            in accounting principle                                                8.8          8.2          5.5
                                                                              --------     --------     --------
Income tax expense                                                                 3.5          3.2          2.2
                                                                              --------     --------     --------
      Income before cumulative effect of change in accounting principle            5.3          5.0          3.3
      Cumulative effect of change in accounting principle                           --           --         (0.3)
                                                                              --------     --------     --------
      Net income                                                                   5.3%         5.0%         3.0%
                                                                              ========     ========     ========
</TABLE>


                                       11
<PAGE>   13


The following table summarizes certain key sales statistics as of and for the
period indicated.

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED
                                            --------------------------------------
                                             MARCH 26,     MARCH 31,     MARCH 30,
                                               1999          2000          2001
                                            ----------    ----------    ----------
<S>                                         <C>           <C>           <C>
Company homes sold through
       company-owned retail superstores          9,871        10,906         8,964
Total new homes sold                            15,628        14,301        10,829
Internalization rate (1)                            63%           76%           83%
Average new home price - retail             $   55,000    $   58,000    $   59,000
Number of retail superstores at
       end of period                               120           133           145
Homes sold to independent retailers              4,852         3,223         1,817
</TABLE>


(1)      The internalization rate is the percentage of new homes that are
         manufactured by Palm Harbor and sold through Company-owned retail
         superstores.


Palm Harbor's fiscal year consists of 52 or 53 weeks, ending on the Friday
nearest the last day of March each year. The 1999 and 2001 fiscal years
consisted of 52 weeks and the 2000 fiscal year consisted of 53 weeks.

2001 COMPARED TO 2000

NET SALES. Net sales decreased 16.3% to $650.5 million in 2001 from $777.5
million in 2000. The decrease in net sales was primarily due to competitive
conditions in the manufactured housing industry as indicated by a decrease of
18.7% in the volume of homes sold through Company-owned superstores while
overall unit volume, which includes sales to independent retailers, declined
24.3% in fiscal 2001. This decline in volume is partially offset by an increase
in the average selling price of a new home, which resulted from a continued
shift in product mix towards multi-section homes. Currently, 86% of the homes
sold by the Company are multi-section. The number of superstores increased from
133 at the end of fiscal 2000 to 145 at the end of fiscal 2001.

GROSS PROFIT. Gross profit margin as a percentage of net sales increased
slightly to 31.9% compared to 31.8% in fiscal 2001. Gross profit decreased 16.1%
to $207.3 million in 2001 compared to $247.1 million in 2000. Palm Harbor sold
83% of its homes through Company-owned retail superstores in fiscal 2001 versus
76% in fiscal 2000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $14.3 million, or 8.0%, to $165.9 million in
2001 from $180.2 million in 2000, primarily due to Palm Harbor's continued focus
on reducing fixed expenses company-wide. This decrease was partially offset by
the continued commitment to building brand awareness via advertising and
expenses associated with the net increase of 12 retail superstores. As a
percentage of net sales, selling, general and administrative expenses increased,
as planned, to 25.5% in 2001 from 23.2% in 2000. This increase is due to the
growth in Palm Harbor's retail operations which, generally, have higher selling,
general and administrative expenses as a percentage of net sales as compared to
wholesale operations.

INTEREST EXPENSE. Interest expense increased 24.9% to $12.8 million in 2001 from
$10.2 million in 2000. This increase was primarily due to increases in both the
average floor plan balance and interest rates from fiscal 2000 to fiscal 2001.

2000 COMPARED TO 1999

NET SALES. Net sales increased 2.1% to $777.5 million in 2000 from $761.4
million in 1999. This increase reflects a 10.5% increase in the volume of
company homes sold through Company-owned retail superstores offset by an overall
volume decline of 8.5%, which includes homes sold to independent retailers. The
number of superstores increased from 120 at the end of fiscal 1999 to 133 at the
end of fiscal 2000.


                                       12
<PAGE>   14


GROSS PROFIT. Gross profit increased 7.1% to $247.1 million in 2000 compared to
$230.7 million in 1999. During the same period, gross profit margin as a
percentage of net sales increased to 31.8% compared to 30.3%. This increase was
the result of selling 76% of Palm Harbor's homes through Company-owned retail
superstores in 2000 versus 63% in 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 13.4% to $180.2 million in 2000 from $158.9
million in 1999, primarily due to Palm Harbor's continued commitment to brand
advertising, expenses associated with the 13 additional retail superstores and
performance-based compensation expense. As a percentage of net sales, selling,
general and administrative expenses increased, as planned, to 23.2% in 2000 from
20.9% in 1999. This increase is due to the growth in Palm Harbor's retail
operations which, generally, have higher selling, general and administrative
expenses as a percentage of net sales as compared to wholesale operations.

INTEREST EXPENSE. Interest expense increased 5.3% to $10.2 million in 2000 from
$9.7 million in 1999. This increase was primarily due to increased borrowings
under Palm Harbor's floor plan credit facilities.

INTEREST INCOME AND OTHER. Interest income and other increased 42.6% to $7.0
million in 2000 from $4.9 million in 1999. This increase was primarily the
result of gains on the disposition of certain properties and additional
investment income during fiscal 2000, somewhat offset by gains on sales of
investments which occurred in fiscal 1999.

LIQUIDITY AND CAPITAL RESOURCES

         Cash provided by operating activities totaled $20.1 million in 1999,
compared to $35.9 million in 2000 and $23.9 million in 2001. Cash provided by
operating activities declined in fiscal 2001 primarily due to decreases in
accounts payable and other accrued liabilities. The decrease in accounts payable
and other accrued liabilities was the result of a planned decrease in production
as well as decreases in fixed expenses. Cash provided by operations combined
with additional floor plan financing were adequate to support Palm Harbor's
working capital needs, capital expenditures and share repurchases during fiscal
2001.

         Capital expenditures were $20.8 million, $15.9 million and $14.1
million in 1999, 2000 and 2001, respectively. In 1999, capital expenditures
included $11.7 million for expansion of retail superstores and approximately
$9.1 million for improvements in mature manufacturing facilities. In 2000,
capital expenditures included $10.1 million for expansion of retail superstores
and approximately $5.8 million for improvements on mature manufacturing
facilities. In 2001, capital expenditures included $8.2 million for expansion of
retail superstores and approximately $5.9 million for improvements in mature
manufacturing facilities. Palm Harbor expects capital expenditures to
approximate $12.0 million during 2002 for the purpose of adding 15 to 20 retail
superstores and to upgrade current manufacturing facilities.

         Palm Harbor has floor plan credit facilities totaling $150.0 million,
which include an overline of $10.0 million through April 30, 2001 and $5.0
million effective May 1, 2001 through May 30, 2001, to finance a major portion
of our home inventory at Palm Harbor's retail superstores. The facility with
Conseco Finance, a subsidiary of Conseco, Inc., is secured by a portion of Palm
Harbor's home inventory and cash in transit from financial institutions. The
interest rate on the facility is prime (8.0% at March 30, 2001). The agreement
is effective until June 30, 2001; however, the agreement requires Conseco to
provide written notification 12 months prior to cancellation. Palm Harbor also
has a floor plan credit facility with Deutsche Financial Services for $75.0
million (with an overline of $10.0 million through April 30, 2001, and $5.0
million effective May 1, 2001 through May 30, 2001). The Deutsche agreement has
substantially the same terms as the agreement with Conseco and is available
through September 11, 2001; however, the agreement requires Deutsche to provide
written notification six months prior to cancellation. Palm Harbor is in
negotiations with Deutsche to expand our facility and has received an offer for
an additional $25.0 million facility from another financial institution.



                                       13
<PAGE>   15


         Palm Harbor's floor plan financing agreements permit Palm Harbor to
earn interest on investments made with the financial institution, which can be
withdrawn without any imposed restrictions. The agreement with Conseco allows
Palm Harbor to invest up to fifty percent of the floor plan balance provided
that the net of the floor plan balance and investment balance does not fall
below $60.0 million. The agreement with Deutsche allows the Company to invest up
to 25% of the outstanding amount owed to them. The interest rate on the
outstanding borrowings is prime (8.0% at March 30, 2001).

         Palm Harbor has a $25.0 million unsecured revolving line of credit from
a financial institution for general corporate purposes. The line of credit bears
interest, at the option of Palm Harbor (under certain conditions), at either the
LIBOR rate (5.1% at March 30, 2001) plus 1.2% or the prime rate (8.0% at March
30, 2001) minus 1.0%. The line of credit contains provisions regarding minimum
net worth requirements and certain indebtedness limitations, which would limit
the amount available for future borrowings. The line is available through June
27, 2001 and requires an annual commitment fee of up to $12,500. At March 30,
2001, the additional floor plan credit facilities discussed above effectively
reduced the amount available under the line of credit to $13.4 million.

         Through CountryPlace Mortgage, Palm Harbor sells approved loan
contracts to one of three national finance companies, primarily Associates
Housing Finance. In January 2000, the Associates announced that they would be
discontinuing retail and floor plan financing for the manufactured housing
industry. Palm Harbor does however have a contract through March 31, 2002 with
the Associates and they have committed to providing consumer financing to Palm
Harbor throughout the duration of the contract.

         In accordance with customary business practice in the manufactured
housing industry, Palm Harbor has entered into repurchase agreements with
various financial institutions and other credit sources pursuant to which Palm
Harbor has agreed, under certain circumstances, to repurchase homes sold to
independent retailers in the event of a default by a retailer. Under such
agreements, Palm Harbor agrees to repurchase homes at declining prices over the
term of the agreement, generally 12 to 18 months. At March 30, 2001, Palm Harbor
estimates that our potential obligations under such repurchase agreements were
approximately $30.3 million. During fiscal years 1999, 2000 and 2001, the costs
incurred relating to such repurchase agreements have not been significant.

         In July 1999, Palm Harbor's Board of Directors authorized, subject to
certain business and market conditions, the use of up to $20.0 million to
repurchase Palm Harbor's common stock. In July 2000, the Board of Directors
authorized another $20.0 million for common stock repurchases. As of May 14,
2001, Palm Harbor had invested $20.5 million in the common stock buyback
program.

         Palm Harbor believes that cash flows from operations, together with
floor plan financing and revolving lines of credit, will be adequate to support
our working capital, currently planned capital expenditure needs and future
share repurchases in the foreseeable future. Palm Harbor may, from time to time,
obtain additional floor plan financing for our retail inventories. Such practice
is customary in the industry. However, because future cash flows and the
availability of financing will depend on a number of factors, including
prevailing economic and financial conditions, business and other factors beyond
Palm Harbor's control, no assurances can be given in this regard.

RECENT PRONOUNCEMENTS

         In December 1999, the Securities and Exchange Commission issued SAB No.
101, which summarizes the Staff's view in applying generally accepted accounting
principles to revenue recognition in financial statements. Palm Harbor adopted
SAB 101 in the fourth quarter of fiscal 2001 retroactive to April 1, 2000 in
accordance with the amendment issued in June 2000, requiring implementation of
SAB 101 no later than the fourth quarter of fiscal years beginning after
December 15, 1999. Fiscal year 2001 amounts reflect compliance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 on
revenue recognition, including recognition of a $2,048,000 charge to net income
for the cumulative effect of an accounting change as of April 1, 2000.


                                       14
<PAGE>   16


FORWARD-LOOKING INFORMATION

         Certain statements contained in this annual report are forward-looking
statements within the safe harbor provisions of the Securities Litigation Reform
Act. Management is unaware of any trends or conditions that could have a
material adverse effect on Palm Harbor's consolidated financial position, future
results of operations or liquidity. However, investors should be aware that all
forward-looking statements are subject to risks and uncertainties and, as a
result of certain factors, actual results could differ materially from these
expressed in or implied by such statements. These risks include political,
economic or other factors such as inflation rates, employment conditions,
interest rates, recessionary or expansive trends, taxes and regulations and laws
affecting the business in each of Palm Harbor's markets; competitive product,
advertising, promotional and pricing activity; inclement or catastrophic weather
conditions affecting revenues, inventory levels, and insurance reserves; trends
to consolidate the number of production facilities; and management's ability to
anticipate acceptance of new products in the marketplace and to forecast sales
and profits at certain times in certain markets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Palm Harbor is exposed to market risks related to fluctuations in
interest rates on our variable rate debt, which consists primarily of our
liabilities under retail floor plan financing arrangements. Palm Harbor is not
involved in any other market risk sensitive contracts or investments such as
interest rate swaps, futures contracts, or other types of derivative financial
instruments.

         For variable interest rate obligations, changes in interest rates
generally do not impact fair market value, but do affect future earnings and
cash flows. Assuming Palm Harbor's level of variable rate debt as of March 30,
2001 is held constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for the coming year of approximately $1.4 million.



                                       15
<PAGE>   17


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         Report of Independent Auditors



Board of Directors
Palm Harbor Homes, Inc.

We have audited the accompanying consolidated balance sheets of Palm Harbor
Homes, Inc. and Subsidiaries (the "Company") as of March 31, 2000 and March 30,
2001, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three fiscal years in the period ended March 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Palm Harbor Homes,
Inc. and Subsidiaries at March 31, 2000 and March 30, 2001, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended March 30, 2001, in conformity with accounting
principles generally accepted in the United States.

As discussed in Note 1 to the financial statements, in fiscal 2001 the Company
changed its method of accounting for revenue recognition.

Ernst & Young LLP

Dallas, Texas
May 4, 2001













                                       16
<PAGE>   18



                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                            (In thousands of dollars)

<TABLE>
<CAPTION>
                                                 MARCH 31,    MARCH 30,
                                                   2000         2001
                                                ----------   ----------
<S>                                             <C>          <C>
ASSETS
Current assets
      Cash and cash equivalents                 $   49,138   $   61,290
      Investments                                   22,423       25,132
      Receivables                                   91,494       86,369
      Inventories                                  122,645      125,917
      Prepaid expenses and other assets              6,910        8,748
                                                ----------   ----------
Total current assets                               292,610      307,456


Goodwill, net                                       56,773       52,940
Other assets, net                                   20,799       17,858
                                                ----------   ----------
                                                    77,572       70,798


Property, plant and equipment, at cost:
      Land and improvements                         20,243       22,949
      Buildings and improvements                    58,046       62,990
      Machinery and equipment                       43,499       50,321
      Construction in progress                       4,451        3,428
                                                ----------   ----------
                                                   126,239      139,688
      Accumulated depreciation                      39,247       49,574
                                                ----------   ----------
                                                    86,992       90,114
                                                ----------   ----------
Total assets                                    $  457,174   $  468,368
                                                ==========   ==========
</TABLE>


                                       17
<PAGE>   19



                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                            (In thousands of dollars)


<TABLE>
<CAPTION>
                                                          MARCH 31,     MARCH 30,
                                                            2000          2001
                                                         ----------    ----------
<S>                                                      <C>           <C>

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
      Accounts payable                                   $   41,705    $   33,766
      Floor plan payable                                    138,608       144,747
      Accrued liabilities                                    52,602        48,412
      Current portion of long-term debt                         243           163
                                                         ----------    ----------
Total current liabilities                                   233,158       227,088

Long-term debt, less current portion                          2,906         2,745

Deferred income taxes                                         3,934         2,883

Commitments and contingencies

Shareholders' equity
      Preferred stock, $.01 par value
           Authorized shares - 2,000,000
           Issued and outstanding shares - none
      Common stock, $.01 par value
           Authorized shares - 50,000,000
           Issued shares - 23,807,879 at March 31,
               2000 and March 30, 2001                          239           239
      Additional paid-in capital                             54,149        54,149
      Retained earnings                                     181,082       200,911
      Accumulated other comprehensive income                    803         2,869
                                                         ----------    ----------
                                                            236,273       258,168

      Less treasury shares - 787,039 at March 31,
           2000, and 964,590 at March 30, 2001              (13,848)      (16,512)
Unearned compensation                                        (5,249)       (6,004)
                                                         ----------    ----------
Total shareholders' equity                                  217,176       235,652
                                                         ----------    ----------
Total liabilities and shareholders' equity               $  457,174    $  468,368
                                                         ==========    ==========
</TABLE>


See accompanying notes.





                                       18
<PAGE>   20


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                (In thousands of dollars, except per share data)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                     --------------------------------------------
                                                       MARCH 26,       MARCH 31,       MARCH 30,
                                                         1999            2000            2001
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>

Net sales                                            $    761,374    $    777,471    $    650,451

Cost of sales                                             530,698         530,415         443,131
Selling, general and
      administrative expenses                             158,916         180,224         165,896
                                                     ------------    ------------    ------------
Income from operations                                     71,760          66,832          41,424


Interest expense                                           (9,728)        (10,245)        (12,792)
Interest income and other                                   4,933           7,034           7,279
                                                     ------------    ------------    ------------

Income before income taxes and cumulative
      effect of change in accounting principle             66,965          63,621          35,911

Income tax expense                                         26,788          25,025          14,034
                                                     ------------    ------------    ------------

Income before cumulative effect of change
       in accounting principle                             40,177          38,596          21,877
Cumulative effect of change in accounting
      principle                                                --              --          (2,048)
                                                     ------------    ------------    ------------

Net income                                           $     40,177    $     38,596    $     19,829
                                                     ============    ============    ============

Net income per common share -
       basic and diluted                             $       1.69    $       1.66    $       0.87
                                                     ============    ============    ============

Weighted average common
      shares outstanding - basic                           23,783          23,225          22,760
                                                     ============    ============    ============

Weighted average common
      shares outstanding - diluted                         23,838          23,255          22,772
                                                     ============    ============    ============
</TABLE>


See accompanying notes.




                                       19
<PAGE>   21



                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            (In thousands of dollars)


<TABLE>
<CAPTION>
                                                                        ADDITIONAL
                                                 COMMON STOCK             PAID-IN        RETAINED           TREASURY SHARES
                                             SHARES        AMOUNT         CAPITAL        EARNINGS        SHARES          AMOUNT
                                         ------------   ------------   ------------    ------------   ------------    ------------
<S>                                      <C>            <C>            <C>             <C>            <C>             <C>
Balance at March 27, 1998                  19,045,668            191         54,197         102,309        (16,611)           (197)
     Comprehensive income
          Net income                               --             --             --          40,177             --              --
          Unrealized gain                          --             --             --              --             --              --


     Total comprehensive income                    --             --             --              --             --              --
     1.25 to 1 stock split                  4,762,211             48            (48)             --         (4,154)             --
     Treasury shares purchased                     --             --             --              --        (10,000)           (245)
     Long-Term Incentive Plan
          Shares purchased                         --             --             --              --             --              --
                                         ------------   ------------   ------------    ------------   ------------    ------------
Balance at March 26, 1999                  23,807,879            239         54,149         142,486        (30,765)           (442)
     Comprehensive income
          Net income                               --             --             --          38,596             --              --
          Unrealized gain (loss), net              --             --             --              --             --              --


     Total comprehensive income                    --             --             --              --             --              --
     Treasury shares purchased, net                --             --             --              --       (737,709)        (12,986)
     Long-Term Incentive Plan
          Shares purchased                         --             --             --              --             --              --
          Terminations                             --             --             --              --        (18,565)           (420)
          Provision                                --             --             --              --             --              --
                                         ------------   ------------   ------------    ------------   ------------    ------------
Balance at March 31, 2000                  23,807,879            239         54,149         181,082       (787,039)        (13,848)
     Comprehensive income
          Net income                               --             --             --          19,829             --              --
          Unrealized gain                          --             --             --              --             --              --


     Total comprehensive income                    --             --             --              --             --              --
     Treasury shares purchased, net                --             --             --              --       (121,259)         (1,661)
     Long-Term Incentive Plan
          Shares purchased                         --             --             --              --             --              --
          Terminations                             --             --             --              --        (56,292)         (1,003)
          Provision                                --             --             --              --             --              --
                                         ------------   ------------   ------------    ------------   ------------    ------------
Balance at March 30, 2001                  23,807,879   $        239   $     54,149    $    200,911       (964,590)   $    (16,512)
                                         ============   ============   ============    ============   ============    ============

<CAPTION>

                                            ACCUMULATED
                                              OTHER
                                           COMPREHENSIVE     UNEARNED
                                               INCOME      COMPENSATION       TOTAL
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>

Balance at March 27, 1998                           556              --         157,056
     Comprehensive income
          Net income                                 --              --          40,177
          Unrealized gain                           639              --             639
                                                                           ------------

     Total comprehensive income                      --              --          40,816
     1.25 to 1 stock split                           --              --              --
     Treasury shares purchased                       --              --            (245)
     Long-Term Incentive Plan
          Shares purchased                           --          (2,302)         (2,302)
                                           ------------    ------------    ------------
Balance at March 26, 1999                         1,195          (2,302)        195,325
     Comprehensive income
          Net income                                 --              --          38,596
          Unrealized gain (loss), net              (392)             --            (392)
                                                                           ------------

     Total comprehensive income                      --              --          38,204
     Treasury shares purchased, net                  --              --         (12,986)
     Long-Term Incentive Plan
          Shares purchased                           --          (4,468)         (4,468)
          Terminations                               --             420              --
          Provision                                  --           1,101           1,101
                                           ------------    ------------    ------------
Balance at March 31, 2000                           803          (5,249)        217,176
     Comprehensive income
          Net income                                 --              --          19,829
          Unrealized gain                         2,066              --           2,066
                                                                           ------------

     Total comprehensive income                      --              --          21,895
     Treasury shares purchased, net                  --              --          (1,661)
     Long-Term Incentive Plan
          Shares purchased                           --          (3,250)         (3,250)
          Terminations                               --           1,003              --
          Provision                                  --           1,492           1,492
                                           ------------    ------------    ------------
Balance at March 30, 2001                  $      2,869    $     (6,004)   $    235,652
                                           ============    ============    ============
</TABLE>



See accompanying notes.


                                       20
<PAGE>   22


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                                                       --------------------------------------
                                                                        MARCH 26,     MARCH 31,     MARCH 30,
                                                                          1999          2000          2001
                                                                       ----------    ----------    ----------
<S>                                                                    <C>           <C>           <C>
OPERATING ACTIVITIES
 Income before cumulative effect of change
     in accounting principle                                           $   40,177    $   38,596    $   21,877
     Adjustments to reconcile income before cumulative effect of
          change in accounting principle to net cash provided by
          operating activities
              Cumulative effect of change in accounting principle              --            --        (2,048)
              Depreciation                                                  7,588         9,503        10,765
              Amortization                                                  3,982         4,053         4,066
              Deferred income tax benefit                                  (1,807)       (1,411)       (1,792)
              Gain on sale of loans                                       (11,438)       (2,253)           --
              Gain on disposition of assets                                   (45)          (16)          (16)
              Purchases of stock for Long-Term Incentive Plan              (2,302)       (4,468)       (3,250)
              Provision for Long-Term Incentive Plan                           --         1,101         1,492
              Changes in operating assets and liabilities
                 Accounts receivable                                        6,586        (7,077)        5,228
                 Inventories                                              (14,477)           17        (3,272)
                 Prepaid expenses and other current assets                     48           342        (1,097)
                 Other assets                                             (10,213)          409         2,708
                 Accounts payable and accrued expenses                      4,524        (1,102)      (12,129)
                                                                       ----------    ----------    ----------
     Cash provided by operations                                           22,623        37,694        22,532
Loans originated                                                         (160,690)     (154,457)     (142,635)
Sale of loans                                                             158,133       152,637       143,956
                                                                       ----------    ----------    ----------
Net cash provided by operating activities                                  20,066        35,874        23,853

INVESTING ACTIVITIES
Purchases of property, plant and equipment                                (20,846)      (15,933)      (14,147)
Purchases of investments                                                  (23,900)      (10,197)      (11,769)
Sales of investments                                                       11,824         3,424         9,702
Proceeds from disposition of assets                                            97            20           276
                                                                       ----------    ----------    ----------
Net cash used in investing activities                                     (32,825)      (22,686)      (15,938)

FINANCING ACTIVITIES
Net proceeds from floor plan payable                                       49,288         9,756         6,139
Borrowings (payments) on line of credit                                   (17,000)           --            --
Principal payments on notes payable and
     long-term debt                                                          (944)         (233)         (241)
Net purchases of treasury stock                                              (245)      (12,986)       (1,661)
                                                                       ----------    ----------    ----------
Net cash provided by (used in) financing activities                        31,099        (3,463)        4,237

Net increase in cash and cash equivalents                                  18,340         9,725        12,152
Cash and cash equivalents at beginning of year                             21,073        39,413        49,138
                                                                       ----------    ----------    ----------
Cash and cash equivalents at end of year                               $   39,413    $   49,138    $   61,290
                                                                       ==========    ==========    ==========

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest                                                               $    9,024    $   10,206    $   12,670
Income taxes                                                           $   28,625    $   26,182    $   17,874
</TABLE>



See accompanying notes.



                                       21
<PAGE>   23


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Palm Harbor Homes,
Inc. (the "Company") and our wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company's fiscal year ends on the last Friday in March. Fiscal years 1999,
2000 and 2001 contained 52, 53 and 52 weeks, respectively. Headquartered in
Addison, Texas, the Company markets manufactured homes nationwide through
vertically integrated operations, encompassing manufacturing, marketing,
financing and insurance.

Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from the estimates and
assumptions used by management in preparation of the financial statements.

REVENUE RECOGNITION

Effective April 1, 2000, in accordance with Staff Accounting Bulletin No. 101,
the Company changed its method of accounting for revenue recognition for retail
sales. Historically, the Company recognized revenues for its retail home sales
when the home was delivered. Under its new accounting method, adopted in the
fourth quarter of 2001 retroactive to April 1, 2000, the Company now recognizes
revenue for retail sales when the home is delivered and permanently located at
the customer's site. The second and third quarters of 2001 have not been
restated for the change because the effect on such quarters is immaterial.
Furthermore, the effect of the change on the fourth quarter was immaterial. The
cumulative effect of the change on prior years resulted in a charge to net
income of $2,048,000 (after income taxes of $1,366,000 which is included in
results for fiscal 2001). The effect of the change on fiscal 2001 was to
increase income before the cumulative effect of the accounting change by
$101,000 and decrease net income by approximately $2.0 million ($0.09 per
share). For the first quarter of 2001, the Company recognized $11,535,000 in
revenues that are included in the cumulative effect adjustment as of April 1,
2000. Pro-forma amounts (assuming the change is applied retroactively) for
periods prior to 2001 are not materially different from reported results and are
not presented.

Retail sales are recognized when a down payment is received, the customer enters
into a legally binding installment sales contract, title has transferred and the
home is accepted by the customer, delivered and permanently located at the
customer's site. Homes sold to independent retailers are recognized when the
home is shipped which is when the title passes to the independent retailer.

Most of the homes sold to independent retailers are financed through standard
industry arrangements which include repurchase agreements (see Note 14). The
Company extends credit in the normal course of business under normal trade terms
and our receivables are subject to normal industry risk.

CountryPlace Mortgage, Ltd. ("CountryPlace"), the Company's finance subsidiary,
originates and sells loan contracts to national consumer finance companies and
receives cash and/or retains a residual interest in the interest generated by
the sold contracts. The fair value of the residual interest is determined using
a number of market based assumptions. The gain on the sale of these contracts is
included in revenues net of any estimated credit losses while unrealized gains
are included as a component of retained earnings. The interest income is shared
between CountryPlace and the national consumer finance companies on a
predetermined basis for all loans and losses resulting from defaults or
prepayments are shared in some cases.



                                       22
<PAGE>   24


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


During the fiscal years ended March 31, 2000 and March 30, 2001, the Company
recognized approximately $6.7 million and $5.0 million in gains, of which in
2001 none were noncash. The Company had $1.1 million and $1.1 million in
unrealized gains for the fiscal years ended March 31, 2000 and March 30, 2001,
respectively. Additionally, as of March 31, 2000 and March 30, 2001, the Company
had net receivables of approximately $8.0 million and $8.2 million,
respectively, related to the retained residual interests of loan contracts
previously sold by CountryPlace.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are all liquid investments with maturities of three
months or less when purchased.

INVESTMENTS

The Company holds investments as trading and available-for-sale. The trading
account assets consist of marketable debt and equity securities and are stated
at fair value. Marketable debt and equity securities not classified as trading
are classified as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of tax, reported in
shareholders' equity.

INVENTORIES

Raw materials inventories are valued at the lower of cost (first-in, first-out
method which approximates actual cost) or market. Finished goods are valued at
the lower of cost or market, using the specific identification method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost. Depreciation is calculated
using the straight-line method over the assets' estimated useful lives.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease period or the improvements' useful lives. Estimated useful
lives for significant classes of assets are as follows: Land Improvements 10-15
years, Buildings and Improvements 3-15 years, and Machinery and Equipment 2-10
years.

GOODWILL

Goodwill is the excess of cost over fair value of net assets of businesses
acquired and is amortized on the straight-line method over the expected periods
to be benefited - between 10 and 20 years. The Company evaluates the existence
of goodwill impairment on the basis of whether the goodwill is fully recoverable
from projected, undiscounted future cash flows.

PRODUCT WARRANTIES

Products are warranted against manufacturing defects for a period of one year
commencing at the time of sale to the retail customer. Estimated costs relating
to product warranties are provided at the date of sale.

START-UP COSTS

Costs incurred in connection with the start-up of manufacturing facilities and
retail superstores are expensed as incurred.

INCOME TAXES

Deferred income taxes are determined by the liability method and reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.


                                       23
<PAGE>   25


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


EARNINGS PER SHARE

In computing both basic and diluted earnings per share, the number of weighted
average shares outstanding during the periods presented were used.


RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current
period presentation.


2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                            MARCH 31,    MARCH 30,
                                              2000         2001
                                           ----------   ----------
                                               (in thousands)
<S>                                        <C>          <C>
Raw materials                              $    7,376   $    7,627
Work in process                                 3,424        3,075
Finished goods - manufacturing                    629           68
Finished goods - retail                       111,216      115,147
                                           ----------   ----------
                                           $  122,645   $  125,917
                                           ==========   ==========
</TABLE>

3. INVESTMENTS

The Company's investments totaled $22,423,000 and $25,132,000 at March 31, 2000
and March 30, 2001, respectively. The fair value of the available-for-sale
securities was $17,134,000 and $20,469,000, resulting in net unrealized gains
(losses) recorded of $(1,517,000) and $961,000 at March 31, 2000 and March 30,
2001, respectively. The majority of the available-for-sale securities consist of
U.S. government related obligations and other debt obligations with contractual
maturities of generally 2 to 11 years. The remaining of the Company's
investments are classified as trading securities.

4. GOODWILL

Goodwill was $67,584,000 at March 31, 2000 and $67,720,000 at March 30, 2001,
with accumulated amortization of $10,811,000 and $14,780,000, respectively, as
of those dates.

5. FLOOR PLAN PAYABLE

The Company has floor plan facilities totaling $150.0 million, which include an
overline facility of $10.0 million through April 30, 2001 and $5.0 million
effective May 1, 2001 through May 30, 2001. These facilities are obtained from
financial institutions to finance a major portion of the Company's home
inventory at its retail superstores and they are secured by a portion of the
Company's home inventory and receivables from financial institutions. The
interest rates on the facilities are prime (8.0% at March 30, 2001). One
facility expires June 30, 2001 and requires notification 12 months prior to
cancellation, while the other expires September 11, 2001 and requires
notification six months prior to cancellation. The Company expects to negotiate
similar facilities during fiscal 2002. The Company had $138,608,000 and
$144,747,000 outstanding on these floor plan credit facilities at March 31, 2000
and March 30, 2001, respectively.


                                       24
<PAGE>   26


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Company's floor plan financing agreements permit the Company to earn
interest on investments made with the financial institution, which can be
withdrawn without any imposed restrictions. One agreement allows the Company to
invest up to fifty percent of the floor plan balance provided that the net of
the floor plan balance and investment balance does not fall below $60.0 million.
The other agreement allows the Company to invest up to 25% of the outstanding
amount owed to the financial institution. Interest rates on the amounts invested
range from prime (8.0% at March 30, 2001) to prime minus 0.5%. The Company had
$47,000,000 and $16,175,000 invested at March 31, 2000 and March 30, 2001,
respectively, and has classified these amounts as Cash and Cash Equivalents in
the accompanying Consolidated Balance Sheets.

6. LINE OF CREDIT

The Company has a $25.0 million unsecured revolving line of credit from a
financial institution for general corporate purposes. The line of credit bears
interest, at the option of the Company (under certain conditions), at either the
LIBOR rate (5.1% at March 30, 2001) plus 1.2% or the prime rate (8.0% at March
30, 2001) minus 1.0%.

The line of credit contains provisions regarding minimum net worth requirements
and certain indebtedness limitations which would limit the amount available for
future borrowings. The line of credit is available through June 27, 2001. The
Company had zero outstanding on this line of credit at March 31, 2000 and March
30, 2001. At March 30, 2001, the additional floor plan credit facilities
discussed in Note 5 effectively reduced the amount available under the line of
credit to $13.4 million.

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                            MARCH 31,    MARCH 30,
                                              2000         2001
                                           ----------   ----------
                                               (in thousands)
<S>                                        <C>          <C>
Salaries, wages and benefits               $   15,997   $   12,953
Accrued expenses on homes sold                 12,616        8,020
Warranty                                        6,406        5,248
Customer deposits                               5,697        7,508
Other                                          11,886       14,683
                                           ----------   ----------
                                           $   52,602   $   48,412
                                           ==========   ==========
</TABLE>

8. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                  MARCH 31,     MARCH 30,
                                                    2000          2001
                                                 ----------    ----------
                                                      (in thousands)
<S>                                              <C>           <C>
Economic development revenue bonds;
interest payable monthly at 7.54%; monthly
interest and principal payments of $40,029
through February 2001, $31,393 through
January 2006 with final payment of
$2,002,040 in February 2006                      $    3,149    $    2,908

Less current portion                                   (243)         (163)
                                                 ----------    ----------
Long-term debt, less current portion             $    2,906    $    2,745
                                                 ==========    ==========
</TABLE>

The revenue bonds require the maintenance of certain financial statement ratios,
prohibit the payment of dividends and are collateralized by certain fixed assets
having a carrying value as of March 30, 2001 of $5,652,000.



                                       25
<PAGE>   27


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Scheduled maturities of long-term debt are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR                             AMOUNT
-----------                           ----------
<S>                                   <C>
2002                                  $      163
2003                                         176
2004                                         190
2005                                         204
2006 and thereafter                        2,175
                                      ----------
                                      $    2,908
                                      ==========
</TABLE>

The carrying value of the Company's long-term debt approximates its fair value.

9. INCOME TAXES

Income tax expense for fiscal years 1999, 2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                   MARCH 26,       MARCH 31,       MARCH 30,
                                     1999            2000            2001
                                 ------------    ------------    ------------
                                                (in thousands)
<S>                              <C>             <C>             <C>
Current
Federal                          $     25,144    $     24,616    $     14,687
State                                   2,831           2,381           1,440

Deferred                               (1,187)         (1,972)         (2,093)
                                 ------------    ------------    ------------
Total income taxes               $     26,788    $     25,025    $     14,034
                                 ============    ============    ============
</TABLE>

Significant components of deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                 MARCH 31,     MARCH 30,
                                                   2000          2001
                                                ----------    ----------
                                                     (in thousands)
<S>                                             <C>           <C>
Current deferred tax assets
     Warranty reserves                          $    2,242    $    2,585
     Accrued liabilities                             2,680         3,219
     Inventory                                         457           319
     Other                                           1,319         2,613
                                                ----------    ----------
                                                     6,698         8,736

Non-current deferred tax assets
     Unrecognized income                             3,207         3,253
                                                ----------    ----------
         Total deferred tax assets                   9,905        11,989

Deferred tax liabilities
     Tax benefits purchased                          2,624         2,266
     Property and equipment                           (767)       (1,583)
     Other                                           2,077         2,200
                                                ----------    ----------
         Total deferred tax liabilities              3,934         2,883
                                                ----------    ----------
Net deferred income tax assets                  $    5,971    $    9,106
                                                ==========    ==========
</TABLE>

Tax benefits purchased are investments in Safe Harbor lease agreements that are
carried net of tax benefits realized. The balance will be amortized over the
remaining term of the related lease. Current and non-current deferred tax assets
are classified in prepaid expenses and other assets and other assets, net,
respectively, in the Consolidated Balance Sheets.



                                       26
<PAGE>   28

                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Income tax expense for fiscal year 2001 does not include approximately
$1,366,000 in income tax benefit provided for the cumulative effect of a change
in accounting principle.

The effective income tax rate on pretax earnings differed from the U.S. federal
statutory rate for the following reasons:

<TABLE>
<CAPTION>
                                                       MARCH 26,       MARCH 31,        MARCH 30,
                                                         1999            2000             2001
                                                     ------------    ------------     ------------
                                                                    (in thousands)
<S>                                                  <C>             <C>              <C>
Tax at statutory rate                                $     23,437    $     22,268     $     12,567
Increases (decreases)
      State taxes - net of federal tax benefit              1,840           1,547              939
      Goodwill amortization                                 1,023           1,011            1,016
      Tax exempt interest                                      --            (166)            (162)
      Other                                                   488             365             (326)
                                                     ------------    ------------     ------------
Income tax expense                                   $     26,788    $     25,025     $     14,034
                                                     ============    ============     ============
Effective tax rate                                           40.0%           39.3%            39.1%
                                                     ============    ============     ============
</TABLE>


10. SHAREHOLDERS' EQUITY

The Board of Directors may, without further action by the Company's
shareholders, from time to time, authorize the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the powers, rights,
preferences and limitations, including the dividend rate, conversion rights,
voting rights, redemption price and liquidation preference, and the number of
shares to be included in any such series. Any preferred stock so issued may rank
senior to the common stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up, or both. In addition, any such
shares of preferred stock may have class or series voting rights.

11.  LONG-TERM INCENTIVE PLAN

Effective March 29, 1999, the Board of Directors approved the Fiscal Year 2000
Long-Term Incentive Plan (the "Plan") whereby certain key associates received
awards of restricted common stock. The Company's Chairman, President and
Executive Vice President do not participate in the plan. Shares awarded under
the Plan are purchased by the Company in the open market. These restricted stock
awards give the associate the right to receive a specific number of shares of
common stock contingent upon remaining an associate of the Company for a
specified period. Effective April 3, 2000 and April 2, 2001, the Board of
Directors approved the Fiscal Year 2001 Long-Term Incentive Plan (the "2001
Plan") and the Fiscal Year 2002 Long-Term Incentive Plan (the "2002 Plan"),
respectively. The 2001 Plan and the 2002 Plan have substantially the same terms
as the Plan.

The unamortized cost of the common stock acquired by the Company for the
participants in the plans is reflected as "Unearned Compensation" in the
accompanying Consolidated Balance Sheets. The plans are administered by a
committee authorized by the Board of Directors.

12. EMPLOYEE PLAN

The Company sponsors an employee savings plan (the "401k Plan") that is intended
to provide participating employees with additional income upon retirement.
Employees may contribute between 1% and 15% of eligible compensation to the 401k
Plan. The Company matches 50% of the first 6% deferred by employees. Employees
are immediately eligible to participate and employer contributions, which begin
one year after employment, are vested at the rate of 20% per year and are fully
vested after five years of employment. Contribution expense was $2,163,000,
$1,916,000 and $2,021,000 in fiscal years 1999, 2000 and 2001, respectively.



                                       27
<PAGE>   29


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



13. COMMITMENTS AND CONTINGENCIES

Future minimum lease payments for all noncancelable operating leases having a
remaining term in excess of one year at March 30, 2001, are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR                         AMOUNT
-----------                      ------------
<S>                              <C>
   2002                          $      6,361
   2003                                 3,869
   2004                                 2,113
   2005                                 1,081
   2006 and thereafter                  2,718
                                 ------------
                                 $     16,142
                                 ============
</TABLE>

Rent expense (net of sublease income) was $6,811,000, $9,047,000 and $8,991,000
for fiscal years 1999, 2000 and 2001, respectively.

The Company is contingently liable under the terms of repurchase agreements
covering independent retailers' floor plan financing. Under such agreements, the
Company agrees to repurchase homes at declining prices over the term of the
agreement, generally 12 to 18 months. At March 30, 2001, the Company estimates
that our potential obligations under such repurchase agreements were
approximately $30.3 million. However, it is management's opinion that no
material loss will occur from the repurchase agreements. During fiscal years
1999, 2000 and 2001, net expenses incurred by the Company under these repurchase
agreements totaled $29,000, $155,000 and $132,000, respectively.

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.



                                       28
<PAGE>   30


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.  BUSINESS SEGMENT INFORMATION

The Company operates primarily in three business segments: retail, manufacturing
and financial services. The following table summarizes information with respect
to the Company's business segments for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                  --------------------------------------------
                                                    MARCH 26,       MARCH 31,       MARCH 30,
                                                      1999            2000            2001
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Net sales
            Retail                                $    612,730    $    657,781    $    555,752
            Manufacturing                              509,869         480,867         379,345
            Financial services                          24,219          24,689          23,620
                                                  ------------    ------------    ------------
                                                     1,146,818       1,163,337         958,717
            Intersegment sales                        (385,444)       (385,866)       (308,265)
                                                  ------------    ------------    ------------
                                                  $    761,374    $    777,471    $    650,451
                                                  ============    ============    ============

Income from operations
            Retail                                $     27,088    $     26,955    $     11,508
            Manufacturing                               51,042          45,078          37,831
            Financial services                          13,183          13,554          11,861
            General corporate expenses                 (16,434)        (18,591)        (18,447)
                                                  ------------    ------------    ------------
                                                        74,879          66,996          42,753
            Intersegment profits                        (3,119)           (164)         (1,329)
                                                  ------------    ------------    ------------
                                                  $     71,760    $     66,832    $     41,424
                                                  ============    ============    ============

            Interest expense                      $     (9,728)   $    (10,245)   $    (12,792)
            Other income                                 4,933           7,034           7,279
                                                  ------------    ------------    ------------
            Income before income taxes and
                 cumulative effect of change
                 in accounting principle          $     66,965    $     63,621    $     35,911
                                                  ============    ============    ============

Identifiable assets
            Retail                                $    167,444    $    198,535    $    203,946
            Manufacturing                              215,403         208,980         213,393
            Financial services                          34,888          40,213          40,268
            Other                                        9,675           9,446          10,761
                                                  ------------    ------------    ------------
                                                  $    427,410    $    457,174    $    468,368
                                                  ============    ============    ============
Depreciation and amortization
            Retail                                $      6,595    $      8,020    $      8,772
            Manufacturing                                4,508           4,989           5,373
            Financial services                             148             191             164
            Other                                          319             356             522
                                                  ------------    ------------    ------------
                                                  $     11,570    $     13,556    $     14,831
                                                  ============    ============    ============
Capital expenditures
            Retail                                $     11,722    $     10,069    $      8,150
            Manufacturing                                8,757           5,469           5,895
            Financial services                              88              88              16
            Other                                          279             307              86
                                                  ------------    ------------    ------------
                                                  $     20,846    $     15,933    $     14,147
                                                  ============    ============    ============
</TABLE>



                                       29
<PAGE>   31


                    PALM HARBOR HOMES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain unaudited quarterly financial information
for the fiscal years 2000 and 2001.

<TABLE>
<CAPTION>
                                                FIRST         SECOND       THIRD        FOURTH
                                               QUARTER       QUARTER      QUARTER       QUARTER       TOTAL
                                              ----------    ----------   ----------   ----------   ----------
                                                          (in thousands, except per share data)
<S>                                           <C>           <C>          <C>          <C>          <C>
FISCAL YEAR ENDED
MARCH 31, 2000
      Net sales                               $  218,575    $  193,678   $  187,617   $  177,601   $  777,471
      Gross profit                                67,510        63,510       60,576       55,460      247,056
      Income from operations                      20,399        17,001       17,320       12,112       66,832
      Net income                                  11,615        10,507        9,474        7,000       38,596
      Earnings per share                             .49           .45          .41          .31         1.66

FISCAL YEAR ENDED
MARCH 30, 2001
      Net sales                               $  190,885    $  175,813   $  145,934   $  137,819   $  650,451
      Gross profit                                59,391        57,052       45,531       45,346      207,320
      Income from operations                      14,365        13,016        7,280        6,763       41,424
      Income before cumulative
         effect of change in accounting
         principle                                 7,653         7,667        3,167        3,390       21,877
      Cumulative effect of change
         in accounting principle                  (2,048)           --           --           --       (2,048)
      Net income                                   5,605         7,667        3,167        3,390       19,829
      Earnings per share                             .24           .34          .14          .15          .87
</TABLE>

Quarterly data for the first quarter of fiscal year 2001 has been restated to
comply with Staff Accounting Bulletin No. 101. The effect of the change on the
first quarter of fiscal year 2001 was to increase income before the cumulative
effect of the accounting change by approximately $2.0 million ($0.09 per share).
The effect of the change on the second, third and fourth quarters was
immaterial.




                                       30
<PAGE>   32


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

         None.

                                    PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         (a) Information with respect to the Company's Board of Directors and
executive officers is incorporated by reference from pages 3 through 6 of the
Company's definitive Proxy Statement filed with the SEC on May 30, 2001 in
connection with the Annual Meeting of Shareholders to be held June 27, 2001.

         (b) Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the
Company's most recent fiscal year and Form 5 and amendments thereto furnished to
the Company with respect to our most recent fiscal year, no person who, at any
time during the most recent fiscal year was a director, officer, beneficial
owner of more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act, or any other person
subject to Section 16 of the Exchange Act failed to file on a timely basis,
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.


ITEM 11. EXECUTIVE COMPENSATION

         Information with respect to executive compensation is incorporated by
reference from pages 10 through 12 of The Company's definitive Proxy Statement
filed with the SEC on May 30, 2001 in connection with the Annual Meeting of
Shareholders to be held June 27, 2001.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information with respect to security ownership of certain beneficial
owners and management is incorporated by reference from pages 7 and 8 of the
Company's definitive Proxy Statement filed with the SEC on May 30, 2001 in
connection with the Annual Meeting of Shareholders to be held June 27, 2001.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.

                                    PART IV.

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

         (a)      (1)      Financial Statements

                  The Company's Consolidated Financial Statements for the year
ended March 30, 2001 are included on pages 17 through 30 of this report.

                  (2)      Financial Statement Schedules

                           None

                  (3)      Index to Exhibits



                                       31
<PAGE>   33

<TABLE>
<CAPTION>
Exhibit
  No.       Description
-------     -----------
<S>         <C>
3.1         Amended and Restated Articles of Incorporation (Incorporated by
            reference to Exhibit 3.1 to the Registrant's Registration Statement
            on Form S-1, Registration No. 33-79164).

3.2         Articles of Amendment (Incorporated by reference to Exhibit 3.2 to
            the Registrant's Registration Statement on Form S-1, Registration
            No. 33-79164).

3.3         Restated Bylaws (Incorporated by reference to Exhibit 3.3 to the
            Registrant's Registration Statement on Form S-1, Registration No.
            33-79164).

4.1         Form of Common Stock Certificate (Incorporated by reference to
            Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
            Registration No. 33-79164).

10.1        Associate Stock Purchase Plan (Incorporated by reference to Exhibit
            10.2 to the Registrant's Registration Statement on Form S-1, No.
            33-97676).

10.2        Form of Indemnification Agreement between the Company and each of
            our directors and certain officers (Incorporated by reference to
            Exhibit 10.4 to the Registrant's Registration Statement on Form S-1,
            Registration No. 33-79164).

10.3        Compensation Agreement between the Company and Lee Posey
            (Incorporated by reference to Exhibit 10.7 to the Registrant's
            Registration Statement on Form S-1, Registration No. 33-79164).

10.4        Amendment to Compensation Agreement between the Company and Lee
            Posey (Incorporated by reference to Exhibit 10.6 to the Registrant's
            Registration Statement on Form S-1, No. 33-97676).

*21.1       List of Subsidiaries.

*23.1       Consent of Ernst & Young LLP.

24.1        Power of Attorney (included on the signature page of the Report).
</TABLE>

----------
* Filed herewith

         (b) None.

         (c) See Item 14(a)(3) above.

         (d) None.




                                       32
<PAGE>   34


                                   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
our behalf by the undersigned, thereunto duly authorized on May 30, 2001.

                                           PALM HARBOR HOMES, INC.

                                           /s/ Lee Posey
                                           ------------------------------------
                                           Lee Posey, Chairman of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

         KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby
constitute and appoint Lee Posey and Kelly Tacke, and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to the annual report on Form 10-K for the year ended March 30, 2001
of Palm Harbor Homes, Inc., and to file the same, with any and all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all of each of said
attorneys-in-fact and agents or any of them may lawfully do or cause to be done
by virtue thereof.

<TABLE>
<CAPTION>
         SIGNATURES                                    TITLE                                    DATE
         ----------                                    -----                                    ----
<S>                                      <C>                                                 <C>

/s/ Lee Posey                            Chairman of the Board and Director                  May 30, 2001
-------------------------------          (Principal Executive Officer)
Lee Posey

/s/ Larry Keener                         Chief Executive Officer,                            May 30, 2001
-------------------------------          President and Director
Larry Keener

/s/ Scott W. Chaney                      Executive Vice President and Director               May 30, 2001
-------------------------------
Scott W. Chaney

/s/ Kelly Tacke                          Vice President-Finance,                             May 30, 2001
-------------------------------          Chief Financial Officer and Secretary
Kelly Tacke                              (Principal Financial and Accounting Officer)

/s/  William R. Thomas                   Director                                            May 30, 2001
-------------------------------
William R. Thomas

/s/ Walter D. Rosenberg, Jr.             Director                                            May 30, 2001
-------------------------------
Walter D. Rosenberg, Jr.

/s/ Frederick R. Meyer                   Director                                            May 30, 2001
-------------------------------
Frederick R. Meyer

/s/ John H. Wilson                       Director                                            May 30, 2001
-------------------------------
John H. Wilson

/s/ A. Gary Shilling                     Director                                            May 30, 2001
-------------------------------
A. Gary Shilling

/s/ Jerry Mallonee                       Director                                            May 30, 2001
-------------------------------
Jerry Mallonee
</TABLE>



                                       33
<PAGE>   35



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER      DESCRIPTION
-------     -----------
<S>         <C>
3.1         Amended and Restated Articles of Incorporation (Incorporated by
            reference to Exhibit 3.1 to the Registrant's Registration Statement
            on Form S-1, Registration No. 33-79164).

3.2         Articles of Amendment (Incorporated by reference to Exhibit 3.2 to
            the Registrant's Registration Statement on Form S-1, Registration
            No. 33-79164).

3.3         Restated Bylaws (Incorporated by reference to Exhibit 3.3 to the
            Registrant's Registration Statement on Form S-1, Registration No.
            33-79164).

4.1         Form of Common Stock Certificate (Incorporated by reference to
            Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
            Registration No. 33-79164).

10.1        Associate Stock Purchase Plan (Incorporated by reference to Exhibit
            10.2 to the Registrant's Registration Statement on Form S-1, No.
            33-97676).

10.2        Form of Indemnification Agreement between the Company and each of
            our directors and certain officers (Incorporated by reference to
            Exhibit 10.4 to the Registrant's Registration Statement on Form S-1,
            Registration No. 33-79164).

10.3        Compensation Agreement between the Company and Lee Posey
            (Incorporated by reference to Exhibit 10.7 to the Registrant's
            Registration Statement on Form S-1, Registration No. 33-79164).

10.4        Amendment to Compensation Agreement between the Company and Lee
            Posey (Incorporated by reference to Exhibit 10.6 to the Registrant's
            Registration Statement on Form S-1, No. 33-97676).

*21.1       List of Subsidiaries.

*23.1       Consent of Ernst & Young LLP.

24.1        Power of Attorney (included on the signature page of the Report).
</TABLE>

----------
* Filed herewith



                                       34