CAVALIER HOMES INC
10-Q, 1999-05-17
MOBILE HOMES
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                                  UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q


(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the quarterly period ended      April 2, 1999                      
                                        --------------------------
                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from _________________ to ___________________

                          Commission File Number 1-9792

                                   Cavalier Homes, Inc.                       
               -----------------------------------------------------------------
                    (Exact name of Registrant as specified in its charter)


         Delaware                                             63-0949734        
- ----------------------------                           -------------------------
(State or other jurisdiction                                IRS Employer
of incorporation organization)                         Identification Number)

                                             

         Highway 41 North & Cavalier Road,  Addison, Alabama    35540  
    ---------------------------------------------------------------------    
                 (Address of principal executive offices)
                                   (Zip Code)


                                  (256) 747-0044 
            ----------------------------------------------------  
            (Registrant's telephone number, including area code)


               --------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)


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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the close of the latest practicable date.

          Class                              Outstanding at May 14, 1999 
- ------------------------------               ---------------------------=
Common Stock, $.10  Par Value                     17,974,137 Shares


 <PAGE>
<TABLE>
<CAPTION>
                                            CAVALIER HOMES, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED BALANCE SHEETS
                                              (Unaudited - dollars in thousands)

                                                                                                  April 2,       December 31,
<S>                                                                                          <C>              <C> 
                                                                                                    1999             1998
                                                                                                ------------    --------------
 CURRENT ASSETS:
      Cash and cash equivalents                                                              $       22,689   $        64,243
      Accounts receivable, less allowance for losses of $1,224 (1999) and $1,201 (1998)              39,729             7,678
      Notes and installment contracts receivable - current                                            1,591             1,577
      Inventories                                                                                    48,075            38,803
      Deferred income taxes                                                                          10,032             9,413
      Other current assets                                                                            4,301             4,077
                                                                                                ------------    --------------
 
             Total current assets                                                                   126,417           125,791
                                                                                                ------------    --------------

 PROPERTY, PLANT AND EQUIPMENT (Net)                                                                 68,452            61,422
                                                                                                ------------    --------------

 INSTALLMENT CONTRACTS RECEIVABLE, less
     allowance for credit losses of $747 (1999) and $760 (1998)                                      25,044            24,512
                                                                                                ------------    --------------

 GOODWILL, less accumulated amortization of $4,429 (1999) and $4,154 (1998)                          19,811            19,945
                                                                                                ------------    --------------

 OTHER ASSETS                                                                                         5,118             4,282
                                                                                                ------------    --------------
 
 TOTAL                                                                                       $      244,842  $        235,952
                                                                                                ============    ==============
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
      Current portion of long-term debt                                                      $          458  $            405
      Notes payable                                                                                   7,167             4,163
      Accounts payable                                                                               26,593            15,944
      Amounts payable under dealer incentive programs                                                16,987            18,752
      Accrued compensation and related withholdings                                                  10,182             7,154
      Estimated warranties                                                                           12,615            12,400
      Other accrued expenses                                                                         27,620            25,266
                                                                                                ------------    --------------
 
           Total current liabilities                                                                101,622            84,084
                                                                                                ------------    --------------

 DEFERRED INCOME TAXES                                                                                  281               390
                                                                                                ------------    --------------

 LONG-TERM DEBT                                                                                       4,223             3,650
                                                                                                ------------    --------------

 OTHER LONG-TERM LIABILITIES                                                                          3,792             2,917
                                                                                                ------------    --------------

 STOCKHOLDERS' EQUITY:
      Common stock, $.10 par value; authorized 50,000,000 shares,
        issued 20,285,737 (1999) shares and 20,282,782 (1998) shares                                  2,029             2,028
      Additional paid-in capital                                                                     61,011            60,760
      Treasury stock, at cost; 2,311,600 (1999) shares and 852,600 (1998) shares                    (22,240)           (8,277)
      Retained earnings                                                                              94,124            90,400
                                                                                                ------------    --------------
 
          Total stockholders' equity                                                                134,924           144,911
                                                                                                ------------    --------------

 TOTAL                                                                                       $      244,842  $        235,952
                                                                                                ============    ==============

                                              CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited - dollars in thousands except per share data)
                                                                                                     Thirteen Weeks Ended
                                                                                                ------------------------------

                                                                                                  April 2,        March 27,
                                                                                                    1999             1998
                                                                                                ------------    --------------
 REVENUE                                                                                     $      163,416  $        125,579

 COST OF SALES                                                                                      130,819           102,755

 SELLING, GENERAL AND ADMINISTRATIVE                                                                 25,634            17,722
                                                                                                ------------    --------------

 OPERATING PROFIT                                                                                     6,963             5,102
                                                                                                ------------    --------------

 OTHER INCOME (EXPENSE):
     Interest expense                                                                                  (165)             (425)
     Other, net                                                                                         643               392
                                                                                                ------------    --------------
                                                                                                        478               (33)
                                                                                                ------------    --------------

 INCOME BEFORE INCOME TAXES                                                                           7,441             5,069
                                                                                                

 INCOME TAXES                                                                                         2,940             2,027
                                                                                                ------------    --------------

 NET INCOME                                                                                  $        4,501  $          3,042
                                                                                                ============    ==============

 BASIC NET INCOME PER SHARE                                                                  $         0.24  $           0.15
                                                                                                ============    ==============

 DILUTED NET INCOME PER SHARE                                                                $         0.24  $           0.15
                                                                                                ============    ==============

 WEIGHTED AVERAGE SHARES OUTSTANDING                                                             18,733,889        19,967,999
                                                                                                ============    ==============

 WEIGHTED AVERAGE SHARES OUTSTANDING, ASSUMING DILUTION                                          18,836,758        20,160,536
                                                                                                ============    ==============
<FN>
                       See notes to consolidated financial statements.
</FN>
</TABLE>
                       

<PAGE>
<TABLE>
<CAPTION>
                            CAVALIER HOMES, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited - in thousands)
                                                                                                     Thirteen Weeks Ended
                                                                                                ------------------------------

                                                                                                  April 2,        March 27,
                                                                                                    1999             1998
<S>                                                                                          <C>             <C> 
                                                                                                ------------    --------------
 OPERATING ACTIVITIES:
   Net income                                                                                $        4,501  $          3,042
   Adjustments to reconcile net income to net cash used in operating activities:
        Depreciation and amortization                                                                 2,337             1,971
        Provision for credit losses and repurchase commitments                                           10              (142)
        Gain on sale of installment contracts                                                          (494)           (1,126)
        Loss on sale of property, plant and equipment                                                   (17)               (2)
        Other, net                                                                                      132               103
        Changes in assets and liabilities provided (used) cash, net of effects of acquisition:
             Accounts receivable                                                                    (32,074)          (23,864)
             Inventories                                                                             (8,708)           (4,912)
             Accounts payable                                                                        10,649            10,418
             Other assets and liabilities                                                             3,698            (1,786)
                                                                                                ------------    --------------

        Net cash used in operating activities                                                       (19,966)          (16,298)
                                                                                                ------------    --------------

 INVESTING ACTIVITIES:
   Net cash paid in connection with acquisition                                                        (275)                -
   Proceeds from sale of property, plant and equipment                                                   47                 2
   Capital expenditures                                                                              (9,024)           (1,557)
   Purchases of certificates of deposit                                                                   -            (6,044)
   Maturities of certificates of deposit                                                                  -             2,500
   Proceeds from sale of installment contracts                                                       14,230            26,153
   Net change in notes and installment contracts                                                    (14,434)           (1,206)
   Other investing activities                                                                          (447)              106
                                                                                                ------------    --------------

        Net cash provided by (used in) investing activities                                          (9,903)           19,954
                                                                                                ------------    --------------

 FINANCING ACTIVITIES:
   Net proceeds from notes payable                                                                    2,411                 -
   Payments on long-term debt                                                                          (154)          (14,779)
   Proceeds from long-term borrowings                                                                   780                 -
   Cash dividends paid                                                                                 (777)             (599)
   Proceeds from exercise of stock options                                                               14                14
   Net proceeds from sales of common stock                                                                4               528
   Purchase of treasury stock                                                                       (13,963)                -
                                                                                                ------------    --------------

        Net cash used in financing activities                                                       (11,685)          (14,836)
                                                                                                ------------    --------------

 NET DECREASE IN CASH AND CASH EQUIVALENTS                                                          (41,554)          (11,180)
                                                                                                ------------    --------------

 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                      64,243            37,276
                                                                                                ------------    --------------

 CASH AND CASH EQUIVALENTS, END OF PERIOD                                                    $       22,689  $         26,096
                                                                                                ============    ==============

 SUPPLEMENTAL CASH FLOW DISCLOSURES:
   Cash paid for:
        Interest                                                                             $          111  $            445
        Income taxes                                                                                  2,240               356
<FN>
                                 See notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
            (Unaudited - dollars in thousands except per share data)

1.       BASIS OF PRESENTATION
o        The accompanying  consolidated  financial statements have been prepared
         in compliance with Form 10-Q  instructions  and thus do not include all
         of  the  information  and  footnotes  required  by  generally  accepted
         accounting principles for complete financial statements. In the opinion
         of management,  these statements  contain all adjustments  necessary to
         present  fairly the Company's  financial  position as of April 2, 1999,
         and the results of its  operations  and its cash flows for the thirteen
         week periods ended April 2, 1999 and March 27, 1998, respectively.  All
         such adjustments are of a normal, recurring nature.

o        The results of  operations  for the thirteen  weeks ended April 2, 1999
         are not  necessarily  indicative  of the results to be expected for the
         full year. The information included in this Form 10-Q should be read in
         conjunction  with  Management's  Discussion  and Analysis and financial
         statements  and notes  thereto  included in the  Company's  1998 Annual
         Report on Form 10-K.

o        In accordance  with SFAS 128,  Earnings per Share,  the Company reports
         two separate net income per share numbers,  basic and diluted. Both are
         computed  by  dividing  net  income  by  the  weighted  average  shares
         outstanding  (basic) or weighted  average shares  outstanding  assuming
         dilution (diluted) as detailed below:

<TABLE>
<CAPTION>
                                                                 Thirteen Weeks Ended
                                                         ---------------------------------------
                                                             April 2,              March 27,
                                                               1999                  1998
                                                         -----------------     -----------------
  <S>                                                    <C>                   <C>
 
  Weighted average common shares outstanding (basic)         18,733,889            19,967,999

   Dilutive effect if stock options were exercised               102,869               192,537
                                                         -----------------     -----------------

  Weighted average common shares
       outstanding, assuming dilution (diluted)               18,836,758            20,160,536
                                                         =================     =================
</TABLE>


o        Inventories  consist  primarily of raw  materials and are stated at the
         lower of cost (first-in, first-out method) or market.

2.       ACCOUNTING STANDARD NOT YET ADOPTED
         In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS
         No. 133,  Accounting for Derivative Instruments and Hedging Activities.
         This statement is effective for financial  statements  issued for years
         beginning  after June 15, 1999.  Cavalier is currently  evaluating SFAS
         No. 133 and has   not   yet determined   its  impact on  the  Company's
         consolidated financial statements.

3.       STOCKHOLDERS' EQUITY
o        Cash  dividends of $.04 per share were paid during  the  quarter  ended
         April 2, 1999.

o        During the first  quarter of 1999,  the Company  repurchased  1,459,000
         shares of stock under its stock repurchase  program.  At April 2, 1999,
         2,311,600  shares had been repurchased for $22,240 which is recorded as
         treasury stock.

4.       CONTINGENCIES
o        The Company is contingently liable under terms of repurchase agreements
         with financial institutions providing inventory financing for retailers
         of its products.  These arrangements,  which   are  customary  in   the
         industry, provide for the repurchase of products sold to retailers   in
         the event of default on    payments by the retailer.  The risk  of loss
         under these agreements is spread over numerous retailers. The price the
         Company is obligated to pay generally declines over the period of   the
         agreement   and is further   reduced by the resale value of repurchased
         homes.  The estimated potential obligations   under   such   agreements
         approximated $257,000 at April 2, 1999.  The Company has  an  allowance
         for losses of  $1,224 (1999)   and   $1,201 (1998)   based  on    prior
         experience and market conditions.  Management expects no  material loss
         in excess of the allowance.*

o        The Company's product liability  and   general   liability    insurance
         coverages    are provided under   incurred loss,  retrospectively rated
         premium plans. The Company's  workers'  compensation  coverage  through
         February 1999 was also    covered  under  this type plan.  Under  these
         plans,  the  Company  incurs    insurance  expenses  based upon various
         rates  applied to current  payroll    costs and sales.  Annually,  such
         insurance  expenses  are adjusted by the    carrier for loss experience
         factors subject to minimum and maximum premium  calculations.  At April
         2, 1999,  the Company was contingently  liable for future retrospective
         premium adjustments   up   to  a maximum of $7,531 in the    event that
         additional losses are reported related to prior periods.

o        The Company is engaged in various legal proceedings that are incidental
         to and arise in the course of its business.  Certain of the cases filed
         against the Company and other companies engaged in businesses   similar
         to the  Company   allege, among   other things, breach of contract  and
         warranty, product liability,  personal injury and fraudulent, deceptive
         or collusive practices in connection with their businesses. These kinds
         of suits are typical of suits that have been filed in recent years, and
         they sometimes seek   certification as class actions, the imposition of
         large amounts of compensatory and punitive damages and  trials by jury.
         In the opinion of management, the ultimate liability,   if   any,  with
         respect to the   proceedings in which the Company is currently involved
         is not presently expected to have a material   adverse   effect  on the
         Company.  * However, the  potential  exists for unanticipated  material
         adverse judgments against the Company.

o        The  Company  and  certain  of its equity  partners  have  jointly  and
         severally  guaranteed  revolving notes for three companies and a letter
         of credit for one  company in which the  Company  owns  various  equity
         interests.  The  guarantees  are limited to various  percentages of the
         outstanding debt up to a maximum guaranty of $2,319.  At April 2, 1999,
         $4,660  was  outstanding  under the  various  guarantees,  of which the
         Company had guaranteed $1,118.

5.       SEGMENT INFORMATION
     On December  31,  1998,  the Company  adopted  SFAS 131,  Disclosure  about
     Segments  of an  Enterprise  and  Related  Information,  which  established
     standards  for reporting  information  about  segments in annual  financial
     statements and interim  financial  reports issued to stockholders.  Segment
     information  relating to the first  quarters of 1999 and 1998 is  presented
     below.


                                                 Thirteen Weeks Ended
                                         -------------------------------------

                                         April 2, 1999       March 27, 1998
                                         ---------------    ------------------
Gross revenue:
  Home manufacturing                    $       161,685   $           122,843
  Financial services                              1,455                 2,426
  Retail                                          2,478                     -
  Other                                           9,825                 6,307
                                         ---------------    ------------------

      Gross revenue                     $       175,443   $           131,576
                                         ===============    ==================

Intersegment revenue:
  Home manufacturing                    $         3,202   $                 -
  Financial services                                  -                     -
  Retail                                              -                     -
  Other                                           8,825                 5,997
                                         ---------------    ------------------

      Intersegment revenue              $        12,027               $ 5,997
                                         ===============    ==================

Revenue from external customers:
  Home manufacturing                          $ 158,483             $ 122,843
  Financial services                              1,455                 2,426
  Retail                                          2,478                     -
  Other                                           1,000                   310
                                         ---------------    ------------------

      Total revenue                           $ 163,416             $ 125,579
                                         ===============    ==================

Operating profit
  Home manufacturing                            $ 7,216               $ 2,943
  Financial services                                179                 1,471
  Retail                                           (267)                    -
  Other                                               3                   415
                                         ---------------    ------------------
  Segment operating profit                        7,131                 4,829
                                         
  General corporate                                (168)                  273
                                         ---------------    ------------------

      Operating profit                          $ 6,963               $ 5,102
                                         ===============    ==================



Identifiable assets:
  Home manufacturing                          $ 173,832             $ 152,764
  Financial services                             28,639                28,645
  Retail                                         11,607                     -
  Other                                          13,621                 7,913
  Elimination                                    (3,138)               (1,454)
                                         ---------------    ------------------

  Segment assets                                224,561               187,868
  General corporate                              20,281                22,203
                                         ---------------    ------------------

      Total assets                            $ 244,842             $ 210,071
                                         ===============    ==================

* See Safe Harbor Statement on page 11.
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1: Financial Statements (See pages 2 through 4)

Item 2:  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Results of Operations (dollars in thousands)

The following  tables set forth,  for the periods and dates  indicated,  certain
financial and operating data, including, as applicable,  the percentage of total
revenue:

<TABLE>
<CAPTION>
                                                                       
                                                                                                            
INCOME STATEMENT DATA                                          For the Thirteen Weeks Ended
                                     ---------------------------------------------------------------------------------
                                         April 2, 1999            March 27, 1998            Difference
                                        ---------------          ----------------          -------------
<S>                                    <C>            <C>       <C>              <C>      <C>             <C>
Revenue:
   Home manufacturing net sales        $   158,483              $     122,843             $     35,640
   Financial services                        1,455                      2,426                     (971)
   Retail                                    2,478                          -                    2,478
   Other                                     1,000                        310                      690
                                         ----------               ------------              -----------

Total revenue                          $   163,416       100.0% $     125,579      100.0% $     37,837        30.1%
                                         ==========   ==========  ============   =========  ===========   ==========

Total revenue                          $   163,416       100.0% $     125,579      100.0% $     37,837        30.1%
Cost of sales                              130,819        80.1%       102,755       81.8%       28,064        27.3%
                                         ----------   ----------  ------------   ---------  -----------   ----------

Gross Profit                           $    32,597        19.9% $      22,824       18.2% $      9,773        42.8%
                                         ==========   ==========  ============   =========  ===========   ==========

Selling, general and administrative    $    25,634        15.7% $      17,722       14.1% $      7,912        44.6%
                                         ==========   ==========  ============   =========  ===========   ==========

Operating profit                       $     6,963         4.3% $       5,102        4.1% $      1,861        36.5%
                                         ==========   ==========  ============   =========  ===========   ==========

Other income (expense), net            $       478         0.3% $         (33)       0.0% $        511      1348.5%
                                         ==========   ==========  ============   =========  ===========   ==========

Net Income                             $     4,501         2.8% $       3,042        2.4% $      1,459        48.0%
                                         ==========   ==========  ============   =========  ===========   ==========


OPERATING DATA                                                  For the Thirteen Weeks Ended
                                                      -------------------------------------------------
                                                            April 2, 1999              March 27, 1998
                                                      ------------------------   ----------------------

Manufacturing sales:
Floor shipments                                           9,585                     7,544
Home shipments
                      Single section                      3,030         48.1%       2,646        51.9%
                       Multi section                      3,268         51.9%       2,449        48.1%
                                                      ----------  ------------   ---------  ------------

Total shipments                                           6,298        100.0%       5,095       100.0%

Shipments to company owned stores                          (115)         1.8%           -         0.0%
                                                      ----------  ------------   ---------  ------------

Shipment to independent dealers                           6,183         98.2%       5,095       100.0%
                                                      ==========  ============   =========  ============

Retail sales:
                      Single section                         37         53.6%           -         0.0%
                       Multi section                         32         46.4%           -         0.0%
                                                      ----------  ------------   ---------   -----------

Total sales                                                  69        100.0%           -         0.0%
                                                      ==========  ============   =========   ===========

Cavalier produced homes sold                                 50         72.5%           -         0.0%
                                                      ==========  ============   =========   ===========

Used homes sold                                               9         13.0%           -         0.0%
                                                      ==========  ============   =========   ===========

Other Operating Data:
Installment loan purchases                          $    15,362                $    2,717                            

Capital expenditures                                $     9,024                $    1,557

Independent exclusive dealer locations                      255                       134

Home manufacturing facilities                                24                        22

Company owned stores                                          7                         -
</TABLE>


Revenue
Total  revenue  for the  first  quarter  of 1999 was a first  quarter  record of
$163,416, up 30% from 1998's first quarter revenue of $125,579, during a time of
the year that is traditionally the slowest for Cavalier and the industry.

Home manufacturing net sales for the first quarter of 1999 compared to the first
quarter of 1998  increased by 29%, or $35,640,  to $158,483 net of  intercompany
eliminations of $3,202.  Home shipments  increased  23.6%,  with floor shipments
increasing by 27.1%.  Multi-section home shipments  continued to increase,  from
48.1% of shipments in the first  quarter of 1998, to 51.9% of shipments in 1999.
Actual shipments of homes for the first quarter were 6,298 versus 5,095 in 1998.
The  Company  attributes  the  increase  in sales  and  shipments  to a  special
promotional  program and additional  production days during the quarter, as well
as to the success of the Company's  sales and marketing  efforts,  including its
exclusive dealer program.  During the first quarter of 1999,  Cavalier  launched
its first ever,  national  advertising  campaign promoting a home concept called
the PowerHouse, which contributed to the 1999 sales increase. This home included
a  special  package  of  options  such as a home  computer,  satellite  dish and
entertainment  center with television/VCR  combination.  The Company's exclusive
dealer program  continues to gain acceptance,  increasing by 25 locations during
the  quarter,  bringing  the total to 262 at April 2, 1999.  Sales to  exclusive
dealers  represented 57.2% in the first quarter of 1999 versus 34.4% in the same
period of 1998.  In addition,  the quarter  ending April 2, 1999  included  five
additional production days compared to the quarter ending March 27, 1998.

Revenue from the financial  services segment  decreased 40%, or $971, from 1998.
The  decrease  in 1999 is due to absence of the gain  recorded  in 1998 from the
sale of approximately $25,000 of the Company's loan portfolio and lower interest
income in 1999 from the reduced level of installment  contract  portfolio  held.
During 1998,  the focus of CAC's  business  changed from  building,  holding and
servicing a portfolio of loans to  purchasing  loans from its dealers  which are
then resold to another financial institution.  CAC does not retain the servicing
function and does not earn the interest income on these resold loans. During the
first quarter of 1999, CAC purchased  contracts of $15,362 and resold $13,735 of
these loans. In the first quarter of 1998, CAC had purchased contracts of $2,717
and sales of installment contracts totaling $25,027.

Revenues  from the retail  segment  were $2,478 for 1999,  of which 72.5% of the
units sold were Cavalier product. During the first quarter, the Company acquired
one retail  dealership and opened one retail location.  Subsequent to the end of
the  quarter,  Cavalier  acquired  six  retail  locations,  bringing  the  total
company-owned retail locations to 13.

Other revenue consists mainly of revenue from the wholesale supply and component
manufacturing  businesses.  Revenues from external customers  increased 223%, or
$690, for the first quarter of 1999 compared to the first quarter of 1998.  This
increase is due primarily to the addition of a supply company.

Gross Profit
Gross profit was $32,597,  or 19.9% of total  revenue,  for the first quarter of
1999, versus $22,824,  or 18.2%, in 1998. An increase in total revenue,  as well
as cost savings due to increased  purchasing  and other  efficiencies  after the
Belmont merger,  is responsible for a significant  portion of this increase.  As
discussed  in the  Company's  Annual  Report on Form 10-K,  the Company is still
experiencing  tightened supply from its traditional  vendors of certain types of
raw materials,  including  sheetrock and insulation,  required for production of
its homes. The Company is attempting to obtain these products from other vendors
and to  purchase  substitute  products,  which may result in higher  than normal
costs.  The  possibility  exists that the Company may be unable to recover these
additional  costs through price increases or that these and substitute  products
may become scarce or  unavailable.*  The Company is uncertain at this time as to
the  extent and  duration  of these  developments  and as to what  effect  these
factors may have on the Company's future sales and earnings.

Selling, General and Administrative
Selling,  general and  administrative  expenses during the first quarter of 1999
were $25,634,  or 15.7% of total  revenue,  versus  $17,722 or 14.1% in 1998, an
increase of $7,912.  Of this increase,  $2,021 is related to broadened sales and
marketing efforts,  including the PowerHouse promotion,  and recruiting,  set-up
and maintenance of the exclusive dealer network. Additionally,  selling, general
and  administrative  expenses  increased  $662 due to higher  costs for employee
benefits,  primarily  health  insurance,  $387 for  increased  warranty  service
activities  and $413 for the start-up  costs  associated  with  implementing  an
enterprise-wide management information system. Other factors contributing to the
increase in selling,  general and administrative  expenses are the costs of $503
associated  with  acquiring and operating new retail  locations,  as well as the
continued  development  of a retail  infrastructure,  $324  costs of  opening an
additional  home  manufacturing  facility  and the  costs  associated  with  the
expansion of the supply distribution business of $238.

Operating Profit
Operating  profit for the quarter was $6,963 or 4.3% of sales,  versus $5,102 or
4.1% of sales in the first quarter of 1998. Home manufacturing  operating profit
improved  $4,473 due to the increase in sales and cost savings  associated  with
increased purchasing and other efficiencies after the Belmont merger,  partially
offset by an increase in selling, general and administrative expense.  Financial
services operating profit declined $1,292 due mainly to the absence in 1999 of a
gain on the sale of a significant portion of CAC's loan portfolio.

Other Income (Expense)
Interest  expense  decreased $260 due primarily to the March 1998  retirement of
the financial  services debt which was paid with the proceeds from the sale of a
portion of CAC's loan  portfolio.  Other,  net  increased  $251 due primarily to
increased earnings from a company in which Cavalier owns a minority interest.

Net Income
Net income  improved 48% to $4,501 in 1999 from $3,042 in 1998.  The increase in
total revenue and continued cost savings  associated with the Belmont merger are
primarily  responsible  for the  improved  net  income.  Net  income  per  share
increased to $.24 for the first quarter of 1999, compared to $.15 in 1998, a 60%
increase.  Net income per share  increased at a greater rate than net income due
to the lower  number of weighted  average  shares  outstanding  during the first
quarter of 1999.

*See Safe Harbor Statement on page 11.
<PAGE>



Liquidity and Capital Resources (dollars in thousands)

<TABLE>
<CAPTION>
BALANCE SHEET DATA                                                          Balances as of
                                                                ---------------------------------------
                                                                April 2, 1999             December 31, 1998
                                                                --------------            -------------
<S>                                                             <C>                       <C>    
Cash and cash equivalents                                       $      22,689             $     64,243
Accounts receivable                                             $      39,729             $      7,678
Working capital                                                 $      24,795             $     41,707
Current ratio                                                        1.2 to 1                 1.5 to 1
Long-term debt                                                  $       4,223             $      3,650
Ratio of long-term debt to equity                                     1 to 32                  1 to 40
Installment loan portfolio                                      $      26,632             $     26,117
</TABLE>

Operating  activities during the first quarter of 1999 used net cash of $19,966.
Working  capital  decreased  $16,912,  primarily  as a result of the purchase of
1,459,000 shares of treasury stock during the first quarter of 1999 for $13,963.

The increase in accounts  receivable and reduction in cash and cash  equivalents
from December 31, 1998 to April 2, 1999, is a normal seasonal occurrence.  As is
customary for the Company, most of its manufacturing  operations are idle during
the final two weeks of the year for  vacations,  holidays  and  reduced  product
demand,  during which time the Company  collects the majority of its outstanding
receivables.

The Company's capital  expenditures were  approximately  $9,024 for the thirteen
weeks ended April 2, 1999,  as compared to $1,557 for the  comparable  period of
1998. Capital expenditures during these periods included normal property,  plant
and  equipment  additions  and  replacements  and the  continued  expansion  and
modernization   of   certain   of  the   Company's   manufacturing   facilities.
Additionally,  during the first quarter of 1999,  the Company  purchased,  for a
total of $3,400,  two  Alabama  manufacturing  facilities  that were  previously
leased, and renovated a Georgia manufacturing  facility at a cost of $1,693 that
was placed in operation at the end of the quarter.

The increase in long-term  debt of $573 is primarily due to the assumption of an
industrial development revenue bond in the amount of $728 related to the Alabama
facilities acquired.

Year 2000 Compliance
Many of the Company's  computer  systems and software  products,  as well as the
systems and products of third  parties  doing  business  with the  Company,  are
subject to the "Year  2000"  issue,  which is the  inability  of a  computer  to
correctly   process  dates  after  December  31,  1999.   This  inability  could
potentially  cause  affected   computers  to  shut  down  or  perform  incorrect
calculations,   ultimately   resulting  in  a  system  failure,   disruption  of
operations,  and the  inability to engage in normal  business  activities.  This
issue also affects  products or systems which contain  embedded  computer  chips
with date sensitive  programming such as security systems,  telephone  equipment
and office equipment. As a result, many companies' software and computer systems
need to be upgraded or replaced in order to address the Year 2000 issue.

The Company has implemented   a program to evaluate   and address the risks  and
problems associated with the Year   2000 issue.  This program  identifies   four
stages as follows:
1)       The preliminary assessment of each computer system and   microprocessor
         the Company utilizes for Year 2000 compliance  is  complete,   and  the
         testing  of  these  systems and microprocessors  is  approximately  80%
         complete.  As a result of this  assessment,  the Company  believes most
         of the significant  systems and    microprocessors    it  utilizes  are
         currently  Year 2000 compliant or will  be  with  the  installation  of
         available  upgrades,   except  for  an accounting system used by two of
         the Company's subsidiaries.*
2)       The  identification  of Year 2000 compliance by significant or critical
         third parties has been completed,  and the scheduled completion date to
         replace all non-compliant third parties is October 1999.
3)       The completion of any Company system  conversions and verification that
         all  Company  systems  are  Year  2000  compliant  are  expected  to be
         completed by December 1999. *
4)       The development of a contingency plan is the last phase and is expected
         to be  completed by October  1999.  The Company  currently  expects its
         contingency plan to include installation of certain Year 2000 compliant
         software,  currently  in use at  most  of its  operations,  for the two
         subsidiaries with non-compliant accounting software. *

The  costs  incurred  to date to  address  the  Year  2000  issue  have not been
material;  however,  the Company  expects to incur between $800 and $1,200 as an
expense,  in addition to between $300 and $400 of capital  expenditures,  during
1999 in order to complete the  assessment and  implementation,  and to fund such
cost  from   operations.   *  This  anticipated  cost  is  required  to  replace
non-compliant  microprocessors and to purchase and implement accounting software
for two of the Company's  subsidiaries.  These activities are being performed in
conjunction  with a  larger  multi-year  migration  from the  Company's  current
systems to an  enterprise-wide  management  information  system.  This  estimate
assumes that third  parties have  correctly  assessed  and  communicated  to the
Company the status of their Year 2000  compliance,  and that  material Year 2000
compliance  issues with respect to third parties who have not communicated  with
the Company  will not arise in the future.  * Because of this  reliance  and the
subjective nature of the Year 2000 compliance issue, the actual costs to address
and  resolve  any  non-compliance   issues  may  differ  materially  from  those
anticipated.

The  Company  could  be  affected  if the Year  2000  issue  affects  suppliers'
abilities to provide raw  materials  needed in the  manufacturing  process.  The
Company is also  dependent on third parties or government  agencies to 1) supply
sufficient  electrical power,  utilities,  transportation  and other services to
sustain the  manufacturing  process and CAC's  operations,  2) process,  pay and
maintain  records  of certain  employee  benefits,  3) supply  funds in a timely
fashion for its  dealers and retail  customers  to purchase  homes,  and 4) fund
sales of  portions  of CAC's loan  portfolio.  Any  failure on the part of these
third parties could have a material  adverse  effect on the business  operations
and financial performance of the Company. *

If the  Company's  efforts to resolve  the Year 2000 issue are not  adequate  or
implemented in a timely manner, the Company could experience a disruption in its
normal  business  activities.  *  Management  of the Company  believes  the most
reasonably  likely worst case scenario  would be the delay in  collections  from
third party  financing  agents which could  result in  liquidity  issues for the
Company,  as well as the  delay of  financial  reporting  due to any  accounting
processes which may need to be performed manually until all Year 2000 issues are
resolved.*  However,  the  potential  consequences  of the Year  2000  issue are
inherently uncertain, and consequently, no assurance can be given that this will
be the reasonably likely worst case scenario.

Market Risk
Market risk is the risk of loss arising from  adverse  changes in market  prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial  instruments,  but is not  currently  subject to foreign  currency  or
commodity  price risk.  The Company  manages its  exposure to these market risks
through its regular operating and financing activities.

The  Company  is  exposed  to  market  risk  related  to  investments  held in a
non-qualified trust used to fund benefits under its deferred  compensation plan.
These  investments  totaled $2,094 at April 2, 1999. Due to the long-term nature
of the benefit  liabilities  that these assets fund,  the Company's  exposure to
market  risk is low. A decline in market  value of these  investments  would not
result in a material  near term  funding of the trust or exposure to the benefit
liabilities funded.

The Company purchases retail  installment  contracts from its exclusive dealers,
at fixed interest rates, in the ordinary  course of business,  and  periodically
resells certain of these loans to a financial  institution  under the terms of a
retail finance agreement.  The periodic resale of installment  contracts reduces
the  Company's  exposure  to  interest  rate  fluctuations,  as the  majority of
contracts are held for a short period of time. The Company's  portfolio consists
of fixed rate contracts with interest rates generally ranging from 8.0% to 13.0%
and an  average  original  term of 218  months  at April 2,  1999.  The  Company
estimated  the  fair  value  of  its  installment  contracts  receivable,  which
approximated  carrying  value,  using  discounted  cash flows and interest rates
offered by CAC on similar contracts at April 2, 1999.

The  Company  has notes  payable  under  retail  floor  plan  agreements  and an
Industrial  Development  Revenue  Bond  issue  that are  exposed  to  changes in
interest rates.  Although these  borrowings are floating rate debt, the interest
rate risk posed by these borrowings  currently is low because the amount of debt
has historically been small in relation to annual cash flow. The Company has the
ability to retire  this debt if interest  rates were to increase  significantly.
Additionally,  the Company has three Industrial  Development Revenue Bond issues
at fixed interest  rates.  The estimated  fair value of  outstanding  borrowings
approximated  carrying value at April 2, 1999,  using rates at which the Company
believes it could have obtained  similar  borrowings  at that time.  The Company
also has the ability to incur debt under its credit  facility which provides for
interest at the bank's prime rate for the revolving and warehouse line of credit
and at fixed rates for a certain period of time for the term notes.

PART II.  OTHER INFORMATION

Item 3:  Legal Proceedings

Reference is made to the legal proceedings  previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 under the
heading "Item 3 - Legal  Proceedings."  The description of legal  proceedings in
the Company's Form 10-K remains unchanged,  except that with respect to the suit
against Belmont Homes, Inc. and certain other defendants referenced therein, the
Alabama  Supreme Court recently upheld the transfer upon motion of the defendant
of the Madison County action to the Circuit Court of Franklin County, Alabama.

Item 5:  Other Matters

The Board of Directors has declared its regular  quarterly cash dividend of $.04
per share payable on May 14, 1999 to stockholders of record on April 30, 1999.

Item 6:  Exhibits and Reports on Form 8-K

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

(a)      (3) Articles of Incorporation and By-laws.
                  (a) The  Composite   Amended  and  Restated   Certificate   of
                      Incorporation of the Company, filed as Exhibit 3(a) to the
                      Company's  Annual  Report on Form 10-K for the year  ended
                      December 31, 1998, is incorporated herein by reference.
                  (b) The   Certificate   of  Designation  of  Series  A  Junior
                      Participating  Preferred Stock of Cavalier Homes,  Inc. as
                      filed with the Office of the  Delaware  Secretary of State
                      on October 24, 1996 and filed as Exhibit A to Exhibit 4 to
                      the Company's  Registration Statement on form 8-A filed on
                      October 30, 1996, is incorporated herein by reference.
                  (c) The Amended and Restated By-laws of the Company,  filed as
                      Exhibit  3(d) to the  Company's  Quarterly  Report on Form
                      10-Q  for  the  quarter  ended  June  27,  1997,  and  the
                      amendments  thereto filed as Exhibit 3(e) to the Company's
                      Quarterly  Report  on  Form  10-Q  for the  quarter  ended
                      September  26, 1997,  and as Exhibit 3(c) to the Company's
                      Quarterly  Report  on  Form  10-Q  for the  quarter  ended
                      September 25, 1998, are incorporated herein by reference.

(4)      Instruments Defining the Rights of Security Holders.
                  (a) Articles four, six, seven, eight and nine of the Company's
                      Amended and  Restated  Certificate  of  Incorporation,  as
                      amended, included in Exhibit 3(a) above.
                  (b) Article  II,  Sections  2.1  through  2.18;  Article  III,
                      Sections  3.1 and 3.2;  Article IV,  Sections 4.1 and 4.3;
                      Article  VI,  Sections  6.1  through  6.5;  Article  VIII,
                      Sections  8.1 and 8.2;  and  Article  IX of the  Company's
                      Amended and  Restated  By-laws,  included in Exhibit  3(c)
                      above.
                  (c) Rights  Agreement   between   Cavalier  Homes,   Inc.  and
                      ChaseMellon  Shareholder Services, LLC, filed as Exhibit 4
                      to the Company's  Current Report on Form 8-K dated October
                      30, 1996, is incorporated herein by reference.

(10)      Material Contracts.
                  (a) Amended and Restated  Guaranty  Agreement,  executed as of
                      March 24, 1999, by Cavalier Homes,  Inc. in favor of First
                      Commercial  Bank  (relating to the Loan  Agreement,  dated
                      March  24,  1999,   between  Lamraft,   L.  P.  and  First
                      Commercial  Bank and the Amended and  Restated  Promissory
                      Note,  dated March 24, 1999,  between  Lamraft,  L. P. and
                      First   Commercial   Bank).   The  original   guaranty  is
                      referenced  in  Exhibit  10(oo)  of the  Company's  Annual
                      Report on Form 10-K for the year ended December 31, 1998.
                  (b) Amendment  to  the  Limited  Credit  Guaranty   Agreement,
                      executed as of March 24, 1999, by Cavalier Homes, Inc. and
                      First  Commercial  Bank (relating to the Credit  Agreement
                      (Letter of Credit),  dated July 15, 1997, from Lamraft, L.
                      P. to First  Commercial  Bank).  The original  guaranty is
                      referenced  in  Exhibit  10(ll)  of the  Company's  Annual
                      Report on Form 10-K for the year ended  December 31, 1998.
                  (c) Amendment  to  the  Limited  Credit  Guaranty   Agreement,
                      executed as of March 24,  1999,  by and  between  Cavalier
                      Homes,  Inc. and First  Commercial  Bank  (relating to the
                      Credit and Security  Agreement,  dated July 15,  1997,  as
                      amended, between Hillsboro Manufacturing,  L. P. and First
                      Commercial  Bank). The original  guaranty is referenced in
                      Exhibit 10(mm) of the Company's Annual Report on Form 10-K
                      for the year ended December 31, 1998.
                  (d) Amendment  to  the  Limited  Credit  Guaranty   Agreement,
                      executed as of March 24,  1999,  by and  between  Cavalier
                      Homes,  Inc. and First  Commercial  Bank  (relating to the
                      Credit and Security  Agreement,  dated July 15,  1997,  as
                      amended,  between  WoodPerfect  of Texas,  L. P. and First
                      Commercial  Bank). The original  guaranty is referenced in
                      Exhibit 10(nn) of the Company's Annual Report on Form 10-K
                      for the year ended December 31, 1998.

(11)     Statement re: Computation of Net Income per Common Share.

(27)  Article 5 - Financial  Data Schedule and Restated  Financial Data
               Schedule for Form 10-Q submitted as Exhibit 27 as an EDGAR filing
               only.

(b)      Current Report on Form 8-K.
         None

*See Safe Harbor Statement on page 11.

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

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

o        integrating the business operations and achieving the benefits of   the
         Belmont merger and other acquisitions;
o        the cyclical and seasonal nature of the manufactured housing   industry
         and the economy generally;
o        litigation;
o        competition;
o        regulatory constraints;
o        changes   and volatility in interest rates   and the  availability   of
         capital and consumer and dealer  financing;
o        changes in demographic  trends,  consumer  preferences   and Cavalier's
         business strategy; 
o        the  ability to attract  and retain  quality     independent   dealers,
         executive officers and other personnel; 
o        the potential unavailability and price increases for raw materials;  
o        contingent  repurchase and guaranty obligations; and 
o        unanticipated  delays or difficulties   in implementing our   Year 2000
         plans.
  
Any or all of our forward-looking  statements in this report, in the 1998 Annual
Report to Stockholders  and in any other public  statements we make may turn out
to be wrong. These statements may be affected by inaccurate assumptions we might
make or by known or unknown risks and  uncertainties.  Many factors listed above
will  be   important   in   determining   future   results.   Consequently,   no
forward-looking  statement can be  guaranteed.  Actual  future  results may vary
materially.

We undertake no obligation to publicly  update any  forward-looking  statements,
whether as a result of new  information,  future  events or  otherwise.  You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the  Securities and Exchange  Commission or in any of
our press  releases.  Also note that,  in our Annual Report on Form 10-K for the
period  ending  December 31, 1998,  under the heading  "Risk  Factors",  we have
provided a discussion of factors that we think could cause our actual results to
differ  materially from expected and historical  results.  Other factors besides
those listed could also adversely affect  Cavalier.  This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.

SIGNATURES
Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                            Cavalier Homes, Inc.                
                                            Registrant


Date: May 17, 1999                        /s/ David A. Roberson                 
                                          --------------------------------------
                                          David A. Roberson - President
                                          and Chief Executive Officer


Date: May 17, 1999                        /s/ Michael R. Murphy                 
                                          --------------------------------------
                                          Michael R. Murphy -
                                          Chief Financial Officer (Principal
                                          Financial and Accounting Officer)



- --------------------------------------------------------------------------------
       THIS AGREEMENT AMENDS  AND  RESTATES  IN  ITS  ENTIRETY THAT  CERTAIN
 GUARANTY AGREEMENT DATED DECEMBER 18.1998 EXECUTED AND DELIVERED TO THE BANK BY
                              THE GUARANTOR
- --------------------------------------------------------------------------------


                     AMENDED AND RESTATED GUARANTY AGREEMENT


                  THIS  AGREEMENT is executed as of March 24, 1999,  by Cavalier
Homes,  Inc.,  a  Delaware  corporation  (the  "Guarantor"),  in  favor of First
Commercial Bank, a banking corporation  organized and existing under the laws of
the State of Alabama (the "Bank").

                                    Recitals

                  A.  Pursuant  to that  certain  Credit  Agreement  (Letter  of
Credit) (the "Credit  Agreement")  dated July 15, 1997 from  Lamraft,  L.P. (the
"Borrower") to the Bank, the Bank issued its  Irrevocable  Letter of Credit (the
"Letter of Credit") No. 921 dated July 22, 1997 to secure $3,000,000  Adjustable
Rate Industrial  Development Revenue Bonds, Series 1997 (Lamraft,  L.P. Project)
(the "Bonds")  issued by the Hillsboro  Industrial  Development  Corporation  to
finance an  industrial  manufacturing  project  (the  "Project")  for use by the
Borrower.

                  B. The Borrower  requested  the Bank to lend it an  additional
$2, 000,000 (the "Additional  Construction  Loan") to pay increased costs of the
Project. The Bank approved the request and pursuant to the Borrower's Promissory
Note (the "December  Note") dated  December 18, 1998 in the principal  amount of
$2,000,000,  the Bank  made a  90-day  loan to the  Borrower  in the  amount  of
$2,000,000.  The  Guarantor  executed  and  delivered  to the Bank its  Guaranty
Agreement (the "December Guaranty") dated December 18, 1998 pursuant to which it
guaranteed,  subject to the limitations  contained therein, the repayment of the
indebtedness evidenced by the December Note. The Borrower has requested the Bank
to renew,  and extend the repayment terms of, the Additional  Construction  Loan
and the Bank has agreed to do so if the  Guarantor  executes and  delivers  this
Amended and Restated Guaranty  Agreement of even date herewith.  The renewal and
extension of the Additional  Construction Loan will be evidenced by that certain
Loan Agreement (the "Loan Agreement") and that certain Amended and Restated Note
(the  "Restated  Note"),  both of even  date  herewith  and  both  executed  and
delivered by the Borrower to the Bank.

                                    Agreement

                  NOW,  THEREFORE,  in order  to  induce  the Bank to renew  and
extend  the  repayment  of the  Additional  Construction  Loan  to the  Borrower
pursuant to the Restated Note and for other good and valuable consideration, the
receipt and sufficiency of which is hereby  acknowledged,  the December Guaranty
is hereby amended and restated in its entirety,  and the Guarantor covenants and
agrees with the Bank, as follows:

                  1.  Guaranteed  Payments.   Subject  to  and  limited  by  the
provisions of Section 1A hereof,  the Guarantor  hereby  guarantees  the due and
punctual  payment to the Bank when and as the same shall  become due and payable
(whether by acceleration or otherwise) of the following amounts (the "Guaranteed
Payments"):

                  (a) all amounts of  principal  becoming due and payable on the
         Restated Note in accordance  with the terms thereof,  whether at stated
         maturity or as an  installment  or by required  prepayment or notice of
         optional prepayment or declaration of acceleration or otherwise;

                  (b) all  amounts of interest  becoming  due and payable on the
         Restated Note in accordance with the terms thereof,  including interest
         on any overdue  principal  and (to the extent  permitted by  applicable
         law) on any overdue interest;

                  (c) all other amounts   payable   by  the Borrower   under the
         Restated Note;

                  (d) all amounts payable by the Borrower under the terms of the
         Loan  Agreement  and  any  mortgages,   security   agreements,   pledge
         agreements or other  documents  evidencing  or securing the  Additional
         Construction Loan (the "Security Documents");

                  (e) all renewals and extensions of any or all the  obligations
         of  the  Borrower   described  in  paragraphs  (a)  through  (d)  above
         (including  without  limitation  any renewal or  extension  of, and any
         substitute  for,  the  Restated  Note),  whether or not any  renewal or
         extension agreement is executed in connection therewith; and

                  (f) all Recovered Payments  (as hereinafter defined in Section
          14).

                  The  guaranty  provided  for in this Section 1 is an absolute,
unconditional,   present  and   continuing   guaranty  of  payment  and  not  of
collectibility  and is in no way  conditioned  upon or limited by any attempt to
collect  from the  Borrower or the  exercise of any other  remedies the Bank may
have  against  any  other  person,  firm  or  corporation  (including,   without
limitation,  any other guarantors and any other maker,  endorser,  surety of, or
other party to, any of the Loan Documents,  as hereinafter defined, the Borrower
and such other persons,  firms and corporations  being hereinafter  collectively
referred to as the "Obligors" and individually as an "Obligor") or the resort to
any other  security,  guaranty  or  collateral  held by the  Bank,  or any other
action,  occurrence or circumstance whatsoever. If any Guaranteed Payment is not
made when and as the same shall become due and payable,  the Guarantor  shall on
demand forthwith make such Guaranteed Payment, in immediately available funds in
lawful money of the United States, directly to the Bank at its address specified
in or pursuant to Section 13 of this Agreement.  The Guarantor further agrees to
be  bound  by all of the  terms  and  provisions  appearing  on the  face of any
instrument or agreement now or hereafter evidencing,  guaranteeing,  securing or
in any other way relating to any of the Guaranteed Payments,  including, without
limitation,  the Loan Agreement,  the Restated Note, and the Security  Documents
(all such instruments and agreements being hereinafter  collectively  called the
"Loan Documents"),  and of any instrument or agreement extending or renewing any
such instrument or agreement (including any terms waiving notice and agreeing to
pay costs and expenses of collection in the event of default) just as though the
Guarantor had signed such instrument or agreement; and that the Bank will not be
required  first to  proceed  against  the  Borrower  or resort to the  security,
guaranty or collateral,  pledged or granted to it by any instrument or agreement
(including,  without limitation,  the Loan Documents),  or otherwise assigned or
conveyed to it, but in case of default in the  payment of any of the  Guaranteed
Payments,  the Bank may  forthwith  look to the  Guarantor for payment under the
provisions hereof.

                  1A. Limitation of Obligations. Notwithstanding anything herein
to the contrary,  the  obligations of the Guarantor for the Guaranteed  Payments
shall be limited to 24% of the Guaranteed  Payments that are  outstanding at the
time  demand for  payment  thereof  is made,  without  regard to or taking  into
account any demand upon, or payment or  contribution  by, any other Obligor with
respect to such Guaranteed Payments.

                  2. Nature of  Obligations.  The obligations and liabilities of
the Guarantor under this Agreement are primary obligations of the Guarantor, are
continuing,   absolute   and   unconditional,   shall  not  be  subject  to  any
counterclaim,  recoupment,  set-off,  reduction or defense  based upon any claim
that the Guarantor may have against the Borrower,  the Bank, any of the Obligors
or any of their respective affiliates, and shall remain in full force and effect
until all of the Guaranteed  Payments have been paid in full, without regard to,
and  without  being  released,  discharged,  impaired,  modified  or in any  way
affected  by, the  occurrence  from time to time of any event,  circumstance  or
condition  (whether  or not the  Guarantor  shall have any  knowledge  or notice
thereof),  including,  without  limitation,  any one or  more of the  following,
whether or not with notice to, or consent of, the Guarantor:

                  (a)      any term or provision of any  instrument or agreement
        (including,  without  limitation,  the Loan Documents) applicable to the
        Borrower or any of the Obligors;

                  (b) the invalidity or  unenforceability of any such instrument
         or agreement (including, without limitation, the Loan Documents);

                  (c) the failure or refusal to give notice to the  Guarantor of
         the  occurrence  of any event of default  under any such  instrument or
         agreement (including, without limitation, the Loan Documents);

                  (d)  any  modification,   amendment  or  supplement   (whether
         material  or  otherwise)  of  any  obligation,  covenant  or  agreement
         contained  in any such  instrument  or  agreement  (including,  without
         limitation,  the Loan Documents);  provided,  however, that if any such
         modification, amendment or supplement increases the principal amount of
         the  Additional  Construction  Loan,  the  interest  rate  borne by the
         Additional  Construction  Loan , or any other charges payable under the
         Loan  Documents  without the consent of the  Guarantor,  the  Guarantor
         shall not be liable for any portion of such increased  principal amount
         or charges or any amounts due because of such increased interest rate;

                  (e) any  assignment  or  transfer  of any such  instrument  or
         agreement (including, without limitation, the Loan Documents) or of any
         interest thereunder;

                  (f) the compromise,  settlement, release or termination of any
         or all of the obligations, covenants or agreements of the Borrower, any
         of the  Obligors  or any  other  party  under  any such  instrument  or
         agreement (including, without limitation, the Loan Documents);

                  (g) any waiver of payment,  performance  or  observance by the
         Borrower,  any of the  Obligors  or any  other  party  of any of  their
         respective   obligations,   covenants  or  agreements  under  any  such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents);

                  (h) any  consent,  extension,  indulgence  or other  action or
         inaction  (including,  without  limitation,  any lack of  diligence  or
         failure to mitigate damages) under or in respect of any such instrument
         or agreement (including,  without limitation,  the Loan Documents),  or
         any exercise or non-exercise of any right,  remedy,  power or privilege
         under or in respect of any such  instrument  or  agreement  (including,
         without limitation, the Loan Documents);

                  (i) the failure,  omission,  delay or lack of diligence on the
         part of the Bank,  or any  assignee or successor  thereto,  to enforce,
         assert or exercise any right, power, privilege or remedy conferred upon
         the  Bank by any  such  instrument  or  agreement  (including,  without
         limitation, the Loan Documents);

                  (j) the  extension of time for payment of the principal of, or
         interest on, any of the  Guaranteed  Payments,  or the extension of the
         time for performance of any other obligations,  covenants or agreements
         under any such instrument or agreement (including,  without limitation,
         the Loan  Documents)  or under any  renewals or  extensions  thereof or
         successor agreements thereto;

                  (k) the  furnishing  or  accepting of  additional  collateral,
         guaranties or other security for any of the Guaranteed  Payments or the
         release, modification,  substitution, nonexistence or invalidity of any
         collateral,  guaranties  or other  security  for any of the  Guaranteed
         Payments;

                  (l) the death of,  voluntary  or  involuntary  liquidation  or
         dissolution of, sale or other  disposition of all or substantially  all
         of the  assets  of,  or  the  marshaling  of  assets  and  liabilities,
         receivership,  insolvency,  bankruptcy,  assignment  for the benefit of
         creditors, reorganization, arrangement, composition or readjustment of,
         or other  similar  proceeding  affecting,  the  Borrower  or any of the
         Obligors or any of their respective  assets, or any action taken by any
         trustee  or  receiver  or by any court in any such  proceeding,  or the
         disaffirmance,  rejection or postponement in any such proceeding of any
         of the  Borrower's,  any Obligor's or any other party's  obligations or
         undertakings set forth in any such instrument or agreement  (including,
         without limitation, the Loan Documents);

                  (m) the failure of the Bank, in the event of the occurrence of
         any of the events specified in subsection (l) above, to file a claim or
         proof  of  claim  or  otherwise  pursue  any  of  its  remedies  in any
         proceeding resulting from such event;

                  (n)  the  release  or  discharge   (by  operation  of  law  or
         otherwise) of the Borrower, any of the Obligors or any other party from
         the performance or observance of any obligation,  covenant,  agreement,
         undertaking  or  condition  to be  performed by the same under any such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents);

                  (o) any  limitation on the  liabilities  or obligations of the
         Borrower,  any of the  Obligors  or any  other  party  under  any  such
         instrument  or  agreement  (including,  without  limitation,  the  Loan
         Documents), or any termination,  cancellation,  frustration, invalidity
         or  unenforceability,  in whole or in part,  of any such  instrument or
         agreement  (including,  without limitation,  the Loan Documents) or any
         limitation on the method or terms of payment thereunder that may now or
         hereafter be caused or imposed in any manner whatsoever;

                  (p)  any  failure  on the  part  of the  Borrower,  any of the
         Obligors  or any other  party for any  reason  fully to  perform  or to
         comply with any term of any such  instrument  or agreement  (including,
         without limitation, the Loan Documents);

                  (q)  any claim   whatsoever   of   the   Guarantor against the
         Borrower or any of the Obligors;

                  (r) any understanding or agreement that any other person, firm
         or organization  was or is to execute this  Agreement,  any of the Loan
         Documents,  or any other instrument or agreement evidencing or securing
         any of the Guaranteed Payments; or

                  (s) any  other  matter  that  might  otherwise  be  raised  in
         avoidance  of,  or  in  defense  against  an  action  to  enforce,  the
         obligations of the Guarantor under this Agreement.

                  3. Waiver by Guarantor. The Guarantor  unconditionally waives,
insofar as such Guarantor's obligations hereunder are concerned:

                  (a) notic   of   the   execution   and   delivery of  the Loan
         Documents;

                  (b) notice of the Bank's  acceptance  of and  reliance on this
         Agreement  or the  making of the  Additional  Construction  Loan to the
         Borrower;

                  (c)      notice of any of the matters referred to in Section 2
         of this Agreement;

                  (d) all notices required by statute,  rule of law or otherwise
         to preserve  any rights  against the  Guarantor  hereunder,  including,
         without limitation,  any demand,  proof or notice of non-payment of any
         Guaranteed Payment by the Borrower or any of the Obligors and notice of
         any  failure  on the part of the  Borrower  or any of the  Obligors  to
         perform  or  comply  with  any  term  of any  instrument  or  agreement
         (including,  without  limitation,  the Loan  Documents)  to  which  the
         Borrower or any of the Obligors is a party;

                  (e) any right to the enforcement, assertion or exercise of any
         right,  power or remedy under or in respect of any such  instrument  or
         agreement (including, without limitation, the Loan Documents); and

                  (f) any requirement that the Borrower,  any of the Obligors or
         any  other  person  be  joined  as a party  to any  proceeding  for the
         enforcement of any term of any such instrument or agreement (including,
         without limitation,  the Loan Documents),  any requirement of diligence
         on the part of the Bank and any  requirement on the part of the Bank to
         mitigate any damages  resulting from any  non-payment of any Guaranteed
         Payment or any default or event of default under any such  agreement or
         instrument (including, without limitation, the Loan Documents).

All waivers granted by the Guarantor hereunder,  including,  without limitation,
the waiver by the Guarantor of the rights of subrogation to any Lender's  rights
against the Borrower and others as provided herein,  shall be unconditional  and
irrevocable  irrespective  of whether the Guaranteed  Payments have been paid in
full by the Guarantor or any other party.



                  4.    Subordination,  Assignment,  Agreement  not  to  Enforce
Subrogation Rights.

                  (a)  Subordination.  Any  interest  of  the  Guarantor  in any
         collateral assigned to the Bank as security for the Guaranteed Payments
         or any portion of them,  whether now owned or hereafter acquired by the
         Guarantor,  is hereby subordinated to the interest of the Bank therein.
         Any  indebtedness of the Borrower to the Guarantor,  whether  presently
         existing  or  hereafter   incurred,   is  hereby  subordinated  to  all
         indebtedness of the Borrower to the Bank;  provided,  however,  that so
         long as no default or Event of Default has occurred  and is  continuing
         with respect to either the Additional  Construction  Loan, the Borrower
         may pay the  Guarantor  such  subordinated  indebtedness  when  due and
         payable (but not in advance of  originally  scheduled  due dates).  Any
         notes now or hereafter  evidencing  indebtedness of the Borrower to the
         Guarantor shall, upon request of the Bank, be marked with a legend that
         the same are subject to this  Agreement,  and/or endorsed and delivered
         to the Bank.

                  (b)  Assignment.  Any  indebtedness  of  the  Borrower  to the
         Guarantor is hereby    assigned   to the   Bank as security   for   the
         performance of the   Guarantor's  obligations   hereunder   and for the
         performance of the   obligations  of the Borrower to the Bank under the
         Loan Documents.   If   the   Bank so requests, any indebtedness  of the
         Borrower to the Guarantor  shall be collected, enforced and received by
         the  Guarantor as trustee for the Bank,  to be   paid over to  the Bank
         on  account of the  indebtedness  and  obligations  of   the   Borrower
         guaranteed  hereunder,  but without reducing or affecting in any manner
         the liability of the Guarantor  under the provisions of this Agreement.
         The Guarantor  agrees to and the Bank is hereby authorized, in the name
         of the Guarantor from time to time,    to  execute  and file  financing
         statements,  security  instruments  and  other  documents,  and to take
         such  other  action  as the  Bank  deems  necessary  or  appropriate to
         effect, preserve and enforce its rights hereunder.

                  (c) Agreement Not to Enforce  Subrogation  Rights.  So long as
         any Guaranteed  Payment remains unpaid and the possibility  exists that
         the Guarantor could be liable to the Bank for a Recovered Payment,  the
         Guarantor  hereby  agrees not to assert,  enforce or attempt to enforce
         any right  (individually,  a "Subrogation  Right" and  collectively the
         "Subrogation  Rights"),  whether at law, in equity, or otherwise,  that
         the Guarantor now or hereafter may have (including  without  limitation
         any right of indemnity,  contribution,  reimbursement,  exoneration  or
         subrogation) to recover from the Borrower,  or from any person, firm or
         corporation that may now or hereafter have such a right to recover from
         the Borrower, any amounts paid by the Guarantor to satisfy, in whole or
         in part,  the  Guaranteed  Payments or any  Recovered  Payment.  If any
         amount  shall be paid to the  Guarantor  on account of the  Subrogation
         Rights at any time when all of the  Guaranteed  Payments shall not have
         been paid in full,  such amount shall be held by the Guarantor in trust
         for the Bank, segregated from other funds of the Guarantor,  and shall,
         forthwith upon receipt by the Guarantor,  be turned over to the Bank in
         the  exact  form  received  by  the  Guarantor  (duly  endorsed  by the
         Guarantor to the Bank,  if required by the Bank) to be applied  against
         the Guaranteed Payments, whether matured or unmatured, in such order as
         the Bank may determine.

                  5.  Enforcement  Expenses.  The Guarantor  shall indemnify and
hold  harmless the Bank against (a) 24% of the amount of any loss,  liability or
expense,  including  reasonable  attorneys' fees and disbursements and any other
fees and disbursements, that may result from any failure of the Borrower to make
any Guaranteed Payment when and as due and payable or that may be incurred by or
on behalf of the Bank in enforcing any  obligation of the Borrower or any of the
Obligors (other than the Guarantor) to make any such Guaranteed Payment, and (b)
any  loss,  liability  or  expense,  including  reasonable  attorneys'  fees and
disbursements and any other fees and  disbursements,  that may be incurred by or
on behalf of the Bank in enforcing any  obligation  of the Guarantor  hereunder;
provided  however,  that if this  Agreement  is  subject  to sec. 5-19-10 of the
Minicode,  sec. 5-19-1 et seq.,  Code of Alabama 1975,  attorneys' fees shall be
limited to 15% of the unpaid  balance of the debt after  default and referral to
an attorney not a salaried employee of the Bank.

                  6. Delay and Waiver by the Bank.  No delay in the  exercise of
or failure to exercise any right,  remedy or power  accruing upon any default or
failure  of the  Guarantor  in the  performance  of any  obligation  under  this
Agreement shall impair any such right,  remedy or power or shall be construed to
be a waiver thereof,  but any such right,  remedy or power may be exercised from
time to time and as often as may be  deemed by the Bank  expedient.  In order to
entitle the Bank to exercise any right,  remedy or power  reserved to it in this
Agreement, it shall not be necessary to give any notice to the Guarantor. If the
Guarantor  should default in the  performance of any obligation  hereunder,  and
such  default  should  thereafter  be waived by the Bank,  such waiver  shall be
limited to the particular  default so waived. No waiver,  amendment,  release or
modification of this Agreement shall be established by conduct, custom or course
of dealing, but solely by an instrument in writing duly executed by an executive
officer of the Bank.

                  7.  Consent  to  Jurisdiction,   Waiver  of  Jury  Trial.  The
Guarantor  irrevocably (a) waives the Guarantor's  right to a jury trial for any
controversy  arising out of this Agreement or any transaction  described herein;
(b)  submits  to the  jurisdiction  of any state or  federal  court  sitting  in
Birmingham,  Alabama  over any suit,  action  or  proceeding  arising  out of or
relating to this Agreement;  and (c) waives,  to the fullest extent permitted by
law, any objection that the Guarantor may now or hereafter have to the laying of
the venue of any such suit,  action or proceeding  brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient  forum.  Final judgment in any such suit, action
or proceeding brought in any such court shall be conclusive and binding upon the
Guarantor  and may be  enforced  in any court to the  jurisdiction  of which the
Guarantor is subject,  by a suit upon such  judgment,  provided  that service of
process is effected upon the  Guarantor in one of the manners  specified in this
Section  7 or as  otherwise  permitted  by law and  provided,  further  that the
enforcement  of such  judgment  has not  been  stayed  by a court  of  competent
jurisdiction.   The  Guarantor  hereby   irrevocably   designates  and  appoints
Michael R. Murphy    of    Cavalier  Homes, Inc., Addison,   Alabama,   as  such
Guarantor's  authorized  agent to accept  and  acknowledge  on such  Guarantor's
behalf service of any and all process that may be served in any suit,  action or
proceeding  of the nature  referred to in this Section 7 in any state or federal
court sitting in the State of Alabama.  If such agent shall cease so to act, the
Guarantor  shall  irrevocably  designate and appoint  without delay another such
agent in the  State of  Alabama  satisfactory  to the  Bank and  shall  promptly
deliver to the Bank evidence in writing of such other agent's acceptance of such
appointment and its agreement that such  appointment  shall be irrevocable.  The
Guarantor  hereby  consents  to  process  being  served in any  suit,  action or
proceeding  of the nature  referred to in this Section 7 by (a) the mailing of a
copy thereof by registered or certified mail,  postage  prepaid,  return receipt
requested,  to  such  Guarantor  at the  Guarantor's  address  designated  in or
pursuant to Section 13 hereof and (b) serving a copy thereof upon the agent,  if
any,  designated  and appointed by such Guarantor as the  Guarantor's  agent for
service of process by or pursuant to this Section 7. The  Guarantor  irrevocably
agrees that such service (i) shall be deemed in every respect  effective service
of process upon such  Guarantor in any such suit,  action or proceeding and (ii)
shall,  to the fullest  extent  permitted  by law, be taken and held to be valid
personal service upon such Guarantor. Nothing in this Section 7 shall affect the
right of the Bank to serve process in any manner  otherwise  permitted by law or
limit the right of the Bank otherwise to bring proceedings against the Guarantor
in the courts of any jurisdiction or jurisdictions.

                  8. Financial Condition. The Guarantor hereby agrees to provide
to the Bank the following:

                  (a) (i) if the Guarantor is a publicly held  corporation,  its
         annual report to shareholders and its Form 10K each year as soon as the
         same are  available;  or (ii) if the  Guarantor is not a publicly  held
         corporation,  within  90 days  after the end of the  Borrower's  fiscal
         year,  the balance sheet of the Borrower as of the end of such year and
         the related  statements of income and changes in financial  position of
         the Borrower for such fiscal year, together with supporting  schedules,
         all on a  comparative  basis with the prior fiscal year,  in reasonable
         detail  prepared  in  accordance  with  generally  accepted  accounting
         principles  consistently  applied throughout the periods involved,  and
         audited and certified by independent  certified  public  accountants of
         recognized  standing  selected by the Borrower and  satisfactory to the
         Lender (the form and substance of such audit and certification  also to
         be  satisfactory  to the  Lender),  showing  the  financial  condition,
         assets,  liabilities  and  stockholders'  equity of the Borrower at the
         close of such year and the results of the  operations  of the  Borrower
         during such year; and

                  (b) as soon  as  practical,  from  time to  time,  such  other
         information  regarding the financial  condition of the Guarantor as the
         Bank may reasonably request.

                  9. Intent. The purpose of this Agreement is to memorialize the
parties'  understanding  that, if the Borrower  does not pay or otherwise  fully
perform its  obligations  in a timely manner as provided in the Loan  Documents,
the  Guarantor  will  promptly pay the amount due and payable by the Borrower to
the Bank upon demand.

                  10.  Consideration.  In order to  induce  the Bank to make the
Additional Construction Loan, the Guarantor, who acknowledges that the Guarantor
will benefit from such Loans to the Borrower,  has agreed to execute and deliver
this Agreement on the  understanding  that doing so is a condition  precedent to
the Bank's making such Loans.

                  11.  Guarantor's  Warranty;  Related  Parties.  The  Guarantor
confirms and warrants that the Guarantor is limited partner of the Borrower, has
personal  knowledge of and is familiar  with the  Borrower's  business  affairs,
books and records,  has the ability to influence the Borrower's  decision-making
process, and warrants that the Borrower is in sound financial condition and will
perform in accordance with the terms and conditions of the Loan Documents.

                  12. Reliance.  The Guarantor  acknowledges  that in making the
Additional Construction Loan the Bank is relying primarily upon the covenants of
the  Guarantor  contained  in this  Agreement  and the Limited  Credit  Guaranty
Agreement dated July 15, 1997 and upon the guaranties of other  guarantors,  and
undertakes to perform the Guarantor's obligations hereunder promptly and in good
faith. The Guarantor also acknowledges that because of the primary reliance that
the  Bank  places  upon  the  Guarantor's  covenants  contained  herein  and the
guaranties of other Guarantors,  the Bank has not monitored, and does not intend
to monitor in the future,  the  progress of  construction  of the Project  being
financed with the proceeds of the  Additional  Construction  Loan,  and the Bank
does not intend to conduct any physical  inspections of the Project.  Any rights
that the Bank has under the Loan Documents  with respect to the Borrower  and/or
the  Project  shall inure only to the benefit of the Bank and not to the benefit
of the Guarantor, any other guarantor or any other third parties.

                  13.  Notices  and   Communications.   All  notices  and  other
communications hereunder shall be in writing and shall be effective when sent by
certified or registered mail, return receipt requested, by courier service or by
hand delivery:  (a) if to the Guarantor,  at Highway 41 North and Cavalier Road,
Addison,  Alabama  35540 or at such other  address as the  Guarantor  shall have
furnished  to the Bank,  or (b) if to the Bank,  addressed  to it at 800  Shades
Creek Parkway,  Birmingham,  Alabama 35288, Attention: Paul M. Schabacker, or at
such other address as the Bank shall have furnished to the Guarantor.

                  14.Termination  of Agreement . This  Guaranty  shall remain in
full force and effect until the Bank shall have  terminated  this  Guaranty in a
writing signed by a duly authorized officer of the Bank; provided, however, that
regardless of whether this Guaranty  shall have been  terminated,  this Guaranty
and the obligations of the Guarantor hereunder shall continue to be effective or
be automatically  reinstated, as the case may be, any time payment of all or any
part  of the  Guaranteed  Payments  is  recovered  (individually,  a  "Recovered
Payment" and collectively,  the "Recovered  Payments") from the Bank as a result
of  a  preference  or  other  claim  made  under  any  bankruptcy,   insolvency,
dissolution,  liquidation,  reorganization,   receivership  or  similar  law  or
otherwise.

                  15.    Survival   of   Agreements,    etc.   All   agreements,
representations  and  warranties  of the Guarantor  hereunder  shall survive the
execution and delivery of this Agreement,  any investigation at any time made by
or on behalf of the Bank,  the  acceptance  of the Restated Note by the Bank and
any disposition and payment of the Restated Note.

                  16.  Successors  and Assigns.  All covenants and agreements of
the  Guarantor  set forth in this  Agreement  shall bind the  Guarantor  and the
Guarantor's personal  representatives,  heirs,  successors and assigns and shall
inure to the benefit of, and be enforceable  by, the Bank and its successors and
assigns including,  without  limitation,  any holder of the Restated Note or any
part thereof.

                  17. No Oral  Agreements.  This written  Agreement is the final
expression  of the  agreement  between  the parties  hereto with  respect to the
subject matter hereof, and this Agreement may not be contradicted by evidence of
any prior agreement between such parties.  All previous oral agreements  between
the parties hereto have been incorporated  into this Agreement,  and there is no
unwritten oral agreement in existence between the parties hereto.
               
                  18. Miscellaneous.  Neither this Agreement nor any term hereof
may be terminated,  amended, supplemented,  waived, released or modified orally,
but only by an  instrument  in  writing  signed by the party  against  which the
enforcement  of the  termination,  amendment,  supplement,  waiver,  release  or
modification is sought. This Agreement shall in all respects be governed by, and
construed and enforced in accordance with, the laws of the State of Alabama.  If
any  term of this  Agreement  or any  obligation  hereunder  shall be held to be
invalid, illegal or unenforceable, the remainder of this Agreement and any other
application of such term shall not be affected thereby.  The section headings of
this  Agreement have been inserted for  convenience  only, and shall not modify,
define, limit or expand the express provisions hereof.

                  IN WITNESS WHEREOF, the Guarantor has caused this Agreement to
be executed by its duly authorized officer as of the date first above written.

                                                CAVALIER HOMES, INC.

                                            By  /s/ Michael R. Murphy
                                               _________________________________

                                            Name: Michael R. Murphy
                                                 _______________________________

                                            Title: Vice President
                                                  ______________________________


             AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT


         THIS  AGREEMENT  is executed as of March 24, 1999,  by CAVALIER  HOMES,
INC., a Delaware  corporation  (the  "Guarantor"),  and FIRST COMMERCIAL BANK, a
state banking corporation (the "Bank").


                                     Recital

                  Pursuant to that certain Credit  Agreement  (Letter of Credit)
(the "Credit Agreement") dated July 15, 1997 from Lamraft, L.P. (the "Borrower")
to the Bank,  the Bank issued its  Irrevocable  Letter of Credit (the "Letter of
Credit")  No.  921 dated  July 22,  1997 to secure  $3,000,000  Adjustable  Rate
Industrial  Development Revenue Bonds, Series 1997 (Lamraft,  L.P. Project) (the
"Bonds") issued by the Hillsboro Industrial  Development  Corporation to finance
an industrial manufacturing project (the "Project") for use by the Borrower. The
Guarantor  executed  and  delivered to the Credit  Obligor that certain  Limited
Credit Guaranty  Agreement (the "Limited Credit Guaranty  Agreement") dated July
15, 1997  guaranteeing a portion of the Borrower's  obligations under the Credit
Agreement,  as well as all other  indebtedness  of the  Borrower  to the  Credit
Obligor.  The Borrower  has  requested  the Credit  Obligor to amend the Limited
Credit Guaranty  Agreement to delete the provision  thereof that guarantees such
other  indebtedness,  so that pursuant to the Limited Credit Guaranty Agreement,
and after the  amendment,  the Guarantor  will  guarantee  only a portion of the
Credit  Agreement  obligations  and certain other  obligations  related  thereto
specifically  enumerated in the Limited Credit Guaranty Agreement.  The Bank has
agreed to do so pursuant to the terms of this Agreement.


                                    Agreement

         NOW THEREFORE,  in consideration of the foregoing Recitals and of other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged, the Bank and the Guarantor hereby agree as follows:

         1.       Amendment to Limited Credit Guaranty Agreement.    The Limited
Credit  Guaranty  Agreement  is hereby amended as follows:

                                    (a)  to  amend  the   definition  of  Credit
                           Guaranty to read as follows: "`Credit Guaranty' shall
                           mean  collectively  the Limited  Guaranty  Agreements
                           dated as of July  15,  1997 by the  Guarantors  other
                           than the  Oakwood  Homes  Corporation,  as amended by
                           Amendment to Limited Guaranty  Agreements dated as of
                           March  24,  1999  and  the  Limited  Credit  Guaranty
                           Agreement dated as of March 24, 1999 by Oakwood Homes
                           Corporation in favor of the Credit Obligor."

                                    (b) to amend the definition of Guarantors to
                           read as follows:  "Guarantors" means collectively the
                           following  and  the  respective   heirs,   executors,
                           administrators and assigns thereof:

                                            (i)      Lee Roy Jordan;
                                            (ii)     Cavalier Homes, Inc.;
                                            (iii)    Patriot Homes, Inc.;
                                            (iv)     Oakwood Homes, Inc.; and
                                            (v)      Southern Energy Homes, Inc.

                                    (c) to delete  therefrom    subdivision  (8)
                           of  subsection 2.01(a).

         2. No Events of Default; No Claims; Continuing Effect of Limited Credit
Guaranty  Agreement.  The Borrower hereby represents and warrants that no Events
of Default,  and no events that with the passage of time or the giving of notice
or both would  constitute an Event of Default,  have occurred  under the Limited
Credit Guaranty Agreement.  The Guarantor represents and warrants that it has no
claims against the Credit Obligor and no defenses,  counterclaims, or setoffs to
or against its or his obligations  under the Limited Credit Guaranty  Agreement.
To the extent that such claims,  defenses,  counterclaims  or setoffs exist, the
same are hereby released and  relinquished.  Except as expressly amended hereby,
the Limited Credit Guaranty Agreement remains and shall remain in full force and
effect in accordance with its terms.

         IN WITNESS  WHEREOF,  the Credit  Obligor and the Guarantor have caused
this Agreement to be executed by its duly  authorized  officer as of the day and
year first written above.

                                               FIRST COMMERCIAL BANK


                                       By  /s/ Paul M. Schabacker
                                          ______________________________________

                                       Name:  Paul M. Schabacker
                                            ____________________________________

                                       Title: Vice President
                                             ___________________________________


                                                    CAVALIER HOMES, INC.


                                       By /s/ Michael R. Murphy
                                          ______________________________________

                                       Name: Michael R. Murphy
                                            ____________________________________
 
                                       Title: Vice President
                                             ___________________________________



                    AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT


         THIS AMENDMENT TO LIMITED CREDIT GUARANTY  AGREEMENT (this "Amendment")
is entered into as of March 24, 1999 by and between  Cavalier  Homes,  Inc. (the
"Guarantor")and  First  Commercial  Bank, an Alabama  banking  corporation  (the
"Credit Obligor").

                                    Recitals

         A.  Hillsboro  Manufacturing,  L.P.  (the  "Borrower")  and the  Credit
Obligor  entered into that certain Credit and Security  Agreement (as amended by
Amendment of even date herewith and as the same may from time to time  hereafter
be amended or  restated,  the  "Credit  Agreement")  dated as of July 15,  1997.
Pursuant to the Credit  Agreement,  the Credit Obligor extended a revolving loan
facility to the Borrower which terminated on July 15, 1998.

         B. The Guarantor entered into a Limited Credit Guaranty  Agreement (the
"Guaranty")  dated  July  15,  1997  guaranteeing,  subject  to the  limitations
contained therein, the Borrower's obligations under the Credit Agreement. Unless
otherwise  defined  herein,  all terms used  herein with their  initial  letters
capitalized shall have the meanings assigned to them in the Credit Agreement.

         C. The Borrower and the Guarantor  have requested the Credit Obligor to
extend the Revolving Loan Commitment  Termination Date (as defined in the Credit
Agreement)  to April 15, 2000,  thereby  extending  the date  through  which the
Credit Obligor is obligated to make revolving  loans under the Credit  Agreement
to April 15,  2000.  The  Credit  Obligor  has agreed to do so if,  among  other
things,  the Guarantor  continues to guarantee the Borrower's  obligations under
the Credit Agreement.

         D. The Borrower and the Guarantor  have requested the Credit Obligor to
make a loan (the  "Equipment  Loan") to the  Borrower in the  maximum  principal
amount of $450,000 for the purposes of purchasing  equipment for the Project (as
defined in the Credit Agreement).  The Credit Obligor has agreed to do so on the
terms and  conditions  set out herein if,  but only if, the  Guarantor  consents
thereto and guarantees the Equipment Loan. The Guarantors has a direct ownership
interest  in the  Borrower  and the  Equipment  Loan will  result in a  material
financial benefit to the Guarantor.

         E.       The Guarantor has requested the Credit Obligor to   amend  the
Guaranty to delete therefrom  Section  2.01(a)(7) and the  Credit   Obligor  has
agreed to do so.


                                    Agreement

         NOW,  THEREFORE,  to induce the Credit  Obligor to extend the Revolving
Loan Commitment  Termination  Date and to make the Equipment Loan, and for other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees as follows:

         1.  Guarantor's  Request for Equipment  Loan and Extension of Revolving
Loan  Commitment  Termination  Date.  The Guarantor  hereby  requests the Credit
Obligor to extend the Revolving Loan  Commitment  Termination  Date on the terms
set out in the Amendment to Credit and Security  Agreement of even date herewith
between the Borrower and the Credit Obligor.  The Guarantor  hereby requests the
Credit Obligor to make the Equipment Loan on the terms and conditions set out in
the Credit  Agreement.  It is the  Guarantor's  intention  that,  subject to the
limitations set out in the Guaranty,  the Equipment Loan be guaranteed,  and all
Revolving Loans (as defined in the Credit Agreement)  continue to be guaranteed,
under and in accordance with the terms of the Guaranty.


         2.  Amendments  to Section  1.01 of the  Guaranty.  Section 1.01 of the
Guaranty is hereby  amended by amending and restating the  definition of "Credit
Agreement,"  "Credit  Guaranty,"  "Credit  Obligor  Financing   Documents,"  and
"Guarantors" and adding the definition of "Equipment Note", as follows:

                  "Credit Agreement" shall mean that certain Credit and Security
         Agreement  dated July 15,  1997  between  the  Borrower  and the Credit
         Obligor  as  amended  by that  certain  First  Amendment  to Credit and
         Security  Agreement  dated as of March 24,  1999 and as the same may be
         modified, amended and restated from time to time hereafter.

                  "Credit  Guaranty" shall mean  collectively the Limited Credit
         Guaranty  Agreements  dated as of July 15,  1997 from  Southern  Energy
         Homes,  Inc.,  Patriot  Homes,  Inc.  and the  Guarantor  to the Credit
         Obligor,  as amended by Amendment to Limited Credit Guaranty  Agreement
         dated as of March 24, 1999 and the Limited  Credit  Guaranty  Agreement
         dated as of March 24, 1999 from Oakwood Homes Corporation to the Credit
         Obligor.

                  "Credit Obligor  Financing  Documents" shall mean collectively
         the Credit  Agreement,  the Revolving  Note, the Equipment Note and the
         Credit  Guaranty,  and any and all  amendments  or  supplements  to any
         thereof.

                  "Equipment Note" shall mean that certain Promissory Note dated
         as of March 24, 1999 executed and delivered by the Borrower in favor of
         the Credit Obligor in the principal amount of $450,000.

                  "Guarantors" shall mean collectively the following Persons and
         the respective heirs, executors, administrators and assigns thereof:

                           (i)      Patriot Homes, Inc.,
                           (ii)     Southern Energy Homes, Inc.,
                           (iii)    Oakwood Homes Corporation, and
                           (iv)     Cavalier Homes,Inc.

         3.       Amendment to Section 2.01 of the  Guaranty.  Section  2.01 (a)
of the Guaranty is hereby  amended and restated to read as follows:

                  (a) Subject to and  limited by the  provisions  of  subsection
         2.01(d) hereof,  the Guarantor  hereby  absolutely and  unconditionally
         guarantees the punctual  payment when due (whether at stated  maturity,
         by acceleration  or call for redemption or otherwise),  in lawful money
         of the United States of America, of all of the following  (collectively
         the "Obligations"):

                           (1) all commissions, fees, charges and costs becoming
                  due and payable under the Credit  Agreement in accordance with
                  the terms thereof;

                           (2) all amounts  becoming  due and payable  under the
                  Revolving  Note  and the  Equipment  Note  (including  without
                  limitation principal,  interest, late charges, and interest on
                  overdue amounts);

                           (3) all amounts  becoming  due and payable  under the
                  Credit  Agreement and all future advances and amounts becoming
                  due and payable  under the  Revolving  Note and the  Equipment
                  Note;

                           (4)  all  late  charges  and  all  interest  on  late
                  payments  becoming due and payable under the Credit Agreement,
                  the Revolving Note and the Equipment Note;

                           (5) all amounts  becoming  due and payable  under the
                  Credit  Agreement,  the Revolving  Note and the Equipment Note
                  upon the  occurrence  and  continuance  of an event of default
                  under the Credit Agreement;

                           (6) all other amounts becoming due and payable by the
                  Borrower  under the Credit  Agreement,  the Revolving Note and
                  the Equipment Note;

                           (7) all  renewals  and  extensions  of any or all the
                  obligations  of  the  Borrower  described  in  paragraphs  (1)
                  through (6) above (including without limitation any renewal or
                  extension  of, and any  substitute  for,  the  Revolving  Note
                  and/or the  Equipment  Note),  whether  or not any  renewal or
                  extension agreement is executed in connection therewith.


         4. Representations and Warranties;  No Defaults; No Claims;  Continuing
Effect; Collateral. The representations and warranties set forth in the Guaranty
shall be true and correct on and as of the date of this  Amendment with the same
effect as though such  representations and warranties had been made on and as of
such  date,  except to the  extent  that  such  representations  and  warranties
expressly  relate to an  earlier  date.  The  Guarantor  hereby  represents  and
warrants that no Events of Default,  and no events that with the passage of time
or the  giving of notice or both  would  constitute  an Event of  Default,  have
occurred.  The Guarantor  represents  and warrants that it has no claims against
the Credit Obligor and no defenses,  counterclaims, or setoffs to or against the
Obligations  for which it is liable under the Guaranty.  To the extent that such
claims,  defenses,  counterclaims or setoffs exist, the same are hereby released
and relinquished.  Except as expressly amended hereby, the Guaranty shall remain
in full force and effect in accordance with its terms.

         IN WITNESS WHEREOF,  this Amendment has been executed as of the day and
year first written above.

                                                CAVALIER HOMES, INC.

                                      By  /s/ Michael R. Murphy
                                        ________________________________________

                                      Name: Michael R. Murphy
                                           _____________________________________
    
                                      Title: Vice President
                                            ____________________________________


                AMENDMENT TO LIMITED CREDIT GUARANTY AGREEMENT


         THIS AMENDMENT TO LIMITED CREDIT GUARANTY  AGREEMENT (this "Amendment")
is entered into as of March 24, 1999 by and between  Cavalier  Homes,  Inc. (the
"Guarantor")and  First  Commercial  Bank, an Alabama  banking  corporation  (the
"Credit Obligor").

                                    Recitals

         A.  WoodPerfect of Texas,  L.P. (the "Borrower") and the Credit Obligor
entered into that certain Credit and Security Agreement (as amended by Amendment
of even date herewith and as the same may from time to time hereafter be amended
or restated,  the "Credit Agreement") dated as of July 15, 1997. Pursuant to the
Credit  Agreement,  the Credit Obligor extended a revolving loan facility to the
Borrower which terminated on July 15, 1998.

         B. The Guarantor entered into a Limited Credit Guaranty  Agreement (the
"Guaranty")  dated  July  15,  1997  guaranteeing,  subject  to the  limitations
contained therein, the Borrower's obligations under the Credit Agreement. Unless
otherwise  defined  herein,  all terms used  herein with their  initial  letters
capitalized shall have the meanings assigned to them in the Credit Agreement.

         C. The Borrower and the Guarantor  have requested the Credit Obligor to
extend the Revolving Loan Commitment  Termination Date (as defined in the Credit
Agreement)  to April 15, 2000,  thereby  extending  the date  through  which the
Credit Obligor is obligated to make revolving  loans under the Credit  Agreement
to April 15,  2000.  The  Credit  Obligor  has agreed to do so if,  among  other
things,  the Guarantor  continues to guarantee the Borrower's  obligations under
the Credit Agreement.

         D. The Borrower and the Guarantor  have requested the Credit Obligor to
make a loan (the  "Equipment  Loan") to the  Borrower in the  maximum  principal
amount of $850,000 for the purposes of purchasing  equipment for the Project (as
defined in the Credit Agreement).  The Credit Obligor has agreed to do so on the
terms and  conditions  set out herein if,  but only if, the  Guarantor  consents
thereto and guarantees the Equipment Loan. The Guarantor has a direct  ownership
interest  in the  Borrower  and the  Equipment  Loan will  result in a  material
financial benefit to the Guarantor.

         E. The Guarantor has requested the Credit Obligor to amend the Guaranty
to delete therefrom  Section  2.01(a)(7) and the Credit Obligor has agreed to do
so.


                                    Agreement

         NOW,  THEREFORE,  to induce the Credit  Obligor to extend the Revolving
Loan Commitment  Termination  Date and to make the Equipment Loan, and for other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees as follows:

         1.  Guarantor's  Request for Equipment  Loan and Extension of Revolving
Loan  Commitment  Termination  Date.  The Guarantor  hereby  requests the Credit
Obligor to extend the Revolving Loan  Commitment  Termination  Date on the terms
set out in the Amendment to Credit and Security  Agreement of even date herewith
between the Borrower and the Credit Obligor.  The Guarantor  hereby requests the
Credit Obligor to make the Equipment Loan on the terms and conditions set out in
the Credit  Agreement.  It is the  Guarantor's  intention  that,  subject to the
limitations set out in the Guaranty,  the Equipment Loan be guaranteed,  and all
Revolving Loans (as defined in the Credit Agreement)  continue to be guaranteed,
under and in accordance with the terms of the Guaranty.


         2.  Amendments  to Section  1.01 of the  Guaranty.  Section 1.01 of the
Guaranty is hereby  amended by amending and restating the  definition of "Credit
Agreement,"  "Credit  Guaranty,"  "Credit  Obligor  Financing   Documents,"  and
"Guarantors" and adding the definition of "Equipment Note", as follows:

                  "Credit Agreement" shall mean that certain Credit and Security
         Agreement  dated July 15,  1997  between  the  Borrower  and the Credit
         Obligor  as  amended  by that  certain  First  Amendment  to Credit and
         Security  Agreement  dated as of March 24,  1999 and as the same may be
         modified, amended and restated from time to time hereafter.

                  "Credit  Guaranty" shall mean  collectively the Limited Credit
         Guaranty  Agreements  dated as of July 15,  1997 from  Southern  Energy
         Homes,  Inc., Patriot Homes, Inc., Lee Roy Jordan, and the Guarantor to
         the Credit Obligor,  as amended by Amendment to Limited Credit Guaranty
         Agreement  dated as of March 24, 1999 and the Limited  Credit  Guaranty
         Agreement dated as of March 24, 1999 from Oakwood Homes  Corporation to
         the Credit Obligor.

                  "Credit Obligor  Financing  Documents" shall mean collectively
         the Credit  Agreement,  the Revolving  Note, the Equipment Note and the
         Credit  Guaranty,  and any and all  amendments  or  supplements  to any
         thereof.

                  "Equipment Note" shall mean that certain Promissory Note dated
         as of March 24, 1999 executed and delivered by the Borrower in favor of
         the Credit Obligor in the principal amount of $850,000.

                  "Guarantors" shall mean collectively the following Persons and
         the respective heirs, executors, administrators and assigns thereof:

                           (i)      Patriot Homes, Inc.,
                           (ii)     Southern Energy Homes, Inc.,
                           (iii)    Oakwood Homes Corporation,
                           (iv)     Cavalier Homes, Inc., and
                           (v)      Lee Roy Jordan.


         3.   Amendment   to  Section   2.01  of  the  Guaranty. Section 2.01(a)
of the Guaranty is hereby  amended  and  restated  to  read  as follows:

                  (a) Subject to and  limited by the  provisions  of  subsection
         2.01(d) hereof,  the Guarantor  hereby  absolutely and  unconditionally
         guarantees the punctual  payment when due (whether at stated  maturity,
         by acceleration  or call for redemption or otherwise),  in lawful money
         of the United States of America, of all of the following  (collectively
         the "Obligations"):


                           (1) all commissions, fees, charges and costs becoming
                  due and payable under the Credit  Agreement in accordance with
                  the terms thereof;

                           (2) all amounts  becoming  due and payable  under the
                  Revolving  Note  and the  Equipment  Note  (including  without
                  limitation principal,  interest, late charges, and interest on
                  overdue amounts);

                           (3) all amounts  becoming  due and payable  under the
                  Credit  Agreement and all future advances and amounts becoming
                  due and payable  under the  Revolving  Note and the  Equipment
                  Note;

                           (4)  all  late  charges  and  all  interest  on  late
                  payments  becoming due and payable under the Credit Agreement,
                  the Revolving Note and the Equipment Note;

                           (5) all amounts  becoming  due and payable  under the
                  Credit  Agreement,  the Revolving  Note and the Equipment Note
                  upon the  occurrence  and  continuance  of an event of default
                  under the Credit Agreement;

                           (6) all other amounts becoming due and payable by the
                  Borrower  under the Credit  Agreement,  the Revolving Note and
                  the Equipment Note;

                           (7) all  renewals  and  extensions  of any or all the
                  obligations  of  the  Borrower  described  in  paragraphs  (1)
                  through (6) above (including without limitation any renewal or
                  extension  of, and any  substitute  for,  the  Revolving  Note
                  and/or the  Equipment  Note),  whether  or not any  renewal or
                  extension agreement is executed in connection therewith.


         4. Representations and Warranties;  No Defaults; No Claims;  Continuing
Effect; Collateral. The representations and warranties set forth in the Guaranty
shall be true and correct on and as of the date of this  Amendment with the same
effect as though such  representations and warranties had been made on and as of
such  date,  except to the  extent  that  such  representations  and  warranties
expressly  relate to an  earlier  date.  The  Guarantor  hereby  represents  and
warrants that no Events of Default,  and no events that with the passage of time
or the  giving of notice or both  would  constitute  an Event of  Default,  have
occurred.  The Guarantor  represents  and warrants that it has no claims against
the Credit Obligor and no defenses,  counterclaims, or setoffs to or against the
Obligations  for which it is liable under the Guaranty.  To the extent that such
claims,  defenses,  counterclaims or setoffs exist, the same are hereby released
and relinquished.  Except as expressly amended hereby, the Guaranty shall remain
in full force and effect in accordance with its terms.

         IN WITNESS WHEREOF,  this Amendment has been executed as of the day and
year first written above.

                                                 CAVALIER HOMES, INC.

                                      By  /s/ Michael R. Murphy
                                         _______________________________________

                                      Name: Michael R. Murphy
                                           _____________________________________

                                      Title: Vice President
                                            ____________________________________

<PAGE>

STATE OF ALABAMA                    )
                                    )
Winston  COUNTY                     )

         I, the undersigned authority, a Notary Public in and for said County in
said   State,   hereby   certify   that  Michael  R. Murphy,   whose   name   as
Vice President  of  Cavalier  Homes,  Inc., a corporation,  is signed   to   the
foregoing  instrument and who is known to me, acknowledged before me on this day
that,  being  informed of the  contents  of said  instrument  , he/she,  as such
officer and with full  authority,  executed the same  voluntarily for and as the
act of said corporation.

   Given under my hand and official seal this the 29th  day of   March   , 1999.


                                            /s/ Shirley Ann Barnett
                                            ____________________________________
                                            Notary Public
[AFFIX SEAL]

 My commission expires: 2-4-2001


<TABLE>
<CAPTION>
                                      PART II. - EXHIBIT 11
                             CAVALIER HOMES, INC. AND SUBSIDIARIES
                           COMPUTATION OF NET INCOME PER COMMON SHARE


                                                                  Thirteen Weeks Ended
                                                         ---------------------------------------
                                                             April 2,              March 27,
                                                               1999                  1998
                                                         -----------------     -----------------
<S>                                                   <C>                  <C>
       Net Income                                      $         4,501,000  $          3,042,000
                                                         =================     =================

 SHARES:

   Weighted average shares outstanding (basic)                 18,733,889            19,967,999

   Dilutive effect if stock options were exercised                102,869               192,537
                                                         -----------------     -----------------

  Weighted average common shares
       outstanding, assuming dilution (diluted)                18,836,758            20,160,536
                                                         =================     =================


   Basic net income per share                         $               .24  $                .15
                                                         =================     =================

   Diluted net income per share                       $               .24  $                .15
                                                         =================     =================
</TABLE>

<TABLE> <S> <C>
                                               
<ARTICLE>                                                  5
<LEGEND>                                       
This  schedule  contains  summary  financial   information  extracted  from  the
consolidated  balance sheets and  consolidated  statements of income of Cavalier
Homes, Inc. and subsidiaries appearing in this Quarterly Report on Form 10-Q and
is  qualified  in its  entirety  by  reference  to  such  financial  statements.
</LEGEND>
<MULTIPLIER>                                                 1,000
                                                     
<S>                                                    <C>
<PERIOD-TYPE>                                                3-mos
<FISCAL-YEAR-END>                                      Dec-31-1999
<PERIOD-END>                                            Apr-2-1999
<CASH>                                                      22,689
<SECURITIES>                                                     0
<RECEIVABLES>                                               39,729
<ALLOWANCES>                                                 1,224
<INVENTORY>                                                 48,075
<CURRENT-ASSETS>                                           126,417
<PP&E>                                                      94,933
<DEPRECIATION>                                              26,481
<TOTAL-ASSETS>                                             244,842
<CURRENT-LIABILITIES>                                      101,622
<BONDS>                                                          0
                                            0
                                                      0
<COMMON>                                                     2,029
<OTHER-SE>                                                 132,895
<TOTAL-LIABILITY-AND-EQUITY>                               244,842
<SALES>                                                    163,416
<TOTAL-REVENUES>                                           163,416
<CGS>                                                      130,819
<TOTAL-COSTS>                                              130,819
<OTHER-EXPENSES>                                                 0
<LOSS-PROVISION>                                                10
<INTEREST-EXPENSE>                                             165
<INCOME-PRETAX>                                              7,441
<INCOME-TAX>                                                 2,940
<INCOME-CONTINUING>                                          4,501
<DISCONTINUED>                                                   0
<EXTRAORDINARY>                                                  0
<CHANGES>                                                        0
<NET-INCOME>                                                 4,501
<EPS-PRIMARY>                                                 0.24
<EPS-DILUTED>                                                 0.24
        
 


</TABLE>


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