CAVALIER HOMES INC
10-Q, 2000-11-13
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      September 30, 2000
                                        ----------------------------------------

                                      OR

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

         For the transition period from                    to
                                        ------------------     -----------------

                          Commission File Number 1-9792

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


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


      Highway 41 North & 32 Wilson  Boulevard,  Addison,   Alabama   35540
   --------------------------------------------------------------------------
                (Address  of   principal executive offices)
                               (Zip Code)


                              (256) 747-9800
                 ------------------------------------------
            (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 November 10, 2000
----------------------------                    --------------------------------
Common Stock, $.10 Par Value                           17,860,041 Shares


<PAGE>



<TABLE>
<CAPTION>
                                            CAVALIER HOMES, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED BALANCE SHEETS
                                             (Unaudited - dollars in thousands)
                                                                                              September 30,    December 31,
 ASSETS                                                                                          2000              1999
                                                                                            ---------------    --------------
<S>                                                                                      <C>                <C>

 CURRENT ASSETS:
      Cash and cash equivalents                                                          $          23,805  $         39,635
      Marketable securities held to maturity                                                         5,996                 -
      Accounts receivable, less allowance for doubtful accounts $178 (2000) and $134 (1999)         17,463            10,022
      Notes and installment contracts receivable - current                                             604               939
      Inventories                                                                                   31,187            50,120
      Deferred income taxes                                                                         16,172            15,166
      Income tax receivable                                                                         12,997             2,133
      Other current assets                                                                           4,984             3,109
                                                                                            ---------------    --------------
             Total current assets                                                                  113,208           121,124
                                                                                            ---------------    --------------
 PROPERTY, PLANT AND EQUIPMENT (Net)                                                                67,668            74,495
                                                                                            ---------------    --------------
 INSTALLMENT CONTRACTS RECEIVABLE, less
     allowance for credit losses of $1,138 (2000) and $1,656 (1999)                                  6,325             7,651
                                                                                            ---------------    --------------
 GOODWILL, less accumulated amortization of $6,369 (2000) and $5,432 (1999)                         17,756            22,684
                                                                                            ---------------    --------------
 OTHER ASSETS                                                                                        7,258             9,083
                                                                                            ---------------    --------------
 TOTAL                                                                                   $         212,215  $        235,037
                                                                                            ===============    ==============
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
      Current portion of long-term debt                                                  $           1,142  $          1,119
      Notes payable under retail floor plan agreements                                               7,111            15,562
      Accounts payable                                                                              11,700            12,303
      Amounts payable under dealer incentive programs                                               22,914            25,442
      Accrued compensation and related withholdings                                                  6,108             5,312
      Estimated warranties                                                                          12,300            13,000
      Reserve for repurchase commitments                                                             4,525             3,330
      Accrued insurance                                                                              5,963             6,027
      Other accrued expenses                                                                         9,123             6,377
                                                                                            ---------------    --------------
           Total current liabilities                                                                80,886            88,472
                                                                                            ---------------    --------------
 DEFERRED INCOME TAXES                                                                               1,043             1,459
                                                                                            ---------------    --------------
 LONG-TERM DEBT                                                                                     24,329            10,218
                                                                                            ---------------    --------------
 OTHER LONG-TERM LIABILITIES                                                                         5,900             5,497
                                                                                            ---------------    --------------
 STOCKHOLDERS' EQUITY:
      Common stock, $.10 par value; authorized 50,000,000 shares,
        issued 18,365,141 (2000) shares and 18,271,433 (1999) shares                                 1,837             1,827
      Additional paid-in capital                                                                    55,375            55,181
      Treasury stock, at cost; 505,100 (2000) shares and 480,100 (1999) shares                      (3,309)           (3,210)
      Retained earnings                                                                             46,154            75,593
                                                                                            ---------------    --------------
          Total stockholders' equity                                                               100,057           129,391
                                                                                            ---------------    --------------
 TOTAL                                                                                   $         212,215  $        235,037
                                                                                            ===============    ==============
</TABLE>

<TABLE>
<CAPTION>

                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited - dollars in thousands except per share amounts)
                                                          Thirteen Weeks Ending                 Thirty-nine Weeks Ending

                                                       September 30,     October 1,           September 30,       October 1,
                                                          2000               1999                  2000              1999
                                                     --------------    ---------------       ---------------    --------------
<S>                                              <C>               <C>                   <C>                <C>

REVENUE                                          $         69,860  $         135,835     $         257,437  $        466,610

COST OF SALES                                              61,095            110,883               225,886           377,666

SELLING, GENERAL AND ADMINISTRATIVE                        18,002             26,031                69,244            78,514

IMPAIRMENT CHARGE                                             103              1,453                 4,848             1,453
                                                    --------------    ---------------       ---------------    --------------
OPERATING PROFIT (LOSS)                                    (9,340)            (2,532)              (42,541)            8,977
                                                    --------------    ---------------       ---------------    --------------
OTHER INCOME (EXPENSE):
     Interest expense                                        (774)              (537)               (2,013)           (1,049)
     Other, net                                               284                388                   961             1,493
                                                    --------------    ---------------       ---------------    --------------
                                                             (490)              (149)               (1,052)              444
                                                    --------------    ---------------       ---------------    --------------
 INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)               (9,830)            (2,681)              (43,593)            9,421

 INCOME TAXES (BENEFIT)                                    (3,638)            (1,060)              (15,755)            3,721
                                                    --------------    ---------------       ---------------    --------------
 NET INCOME (LOSS)                               $         (6,192) $          (1,621)    $         (27,838) $          5,700
                                                    ==============    ===============       ===============    ==============
 BASIC NET INCOME (LOSS) PER SHARE               $          (0.35) $           (0.09)    $           (1.56) $           0.31
                                                    ==============    ===============       ===============    ==============
 DILUTED NET INCOME (LOSS) PER SHARE             $          (0.35) $           (0.09)    $           (1.56) $           0.31
                                                    ==============    ===============       ===============    ==============
 WEIGHTED AVERAGE SHARES OUTSTANDING                   17,836,486         17,949,080            17,791,922        18,221,146
                                                    ==============    ===============       ===============    ==============
 WEIGHTED AVERAGE SHARES OUTSTANDING                   17,836,486         17,949,080            17,791,922        18,304,173
                                                    ==============    ===============       ===============    ==============
                         ASSUMING DILUTION
 See notes to consolidated financial statements.
</TABLE>

<PAGE>




<TABLE>
<CAPTION>


                                            CAVALIER HOMES, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (Unaudited - in thousands)
                                                                                                Thirty-nine Weeks Ending

                                                                                              September 30,      October 1,
                                                                                                 2000              1999
                                                                                            ---------------    --------------
<S>                                                                                      <C>                <C>
 OPERATING ACTIVITIES:
   Net income (loss)                                                                     $         (27,838) $          5,700
   Adjustments to reconcile net income (loss) to net cash used in operating activities:
        Depreciation and amortization                                                                7,508             7,443
        Change in provision for credit losses and repurchase commitments                               721               647
        Gain on sale of installment contracts                                                       (1,671)           (1,848)
        Gain on sale of property, plant and equipment                                                 (154)              (42)
        Impairment charge                                                                            4,848             1,453
        Other, net                                                                                     322                (7)
        Changes in assets and liabilities provided (used) cash, net of effects of acquisitions:
             Accounts receivable                                                                    (7,485)          (24,947)
             Inventories                                                                            18,933           (16,689)
             Income tax receivable                                                                 (10,864)           (5,640)
             Accounts payable                                                                         (603)            5,431
             Other assets and liabilities                                                             (500)            3,829
                                                                                            ---------------    --------------
        Net cash used in operating activities                                                      (16,783)          (24,670)
                                                                                            ---------------    --------------
  INVESTING ACTIVITIES:
   Net cash paid in connection with acquisitions                                                         -            (4,439)
   Proceeds from disposition of property, plant and equipment                                        2,327               300
   Capital expenditures                                                                             (3,521)          (20,667)
   Purchase of marketable securities                                                                (5,996)                -
   Proceeds from sale of installment contracts                                                      52,112            52,701
   Net change in notes and installment contracts                                                   (47,568)          (33,854)
   Other investing activities                                                                         (511)           (1,196)
                                                                                            ---------------    --------------
        Net cash used in investing activities                                                       (3,157)           (7,155)
                                                                                            ---------------    --------------
  FINANCING ACTIVITIES:
   Net borrowings (payments) on notes payable                                                       (8,451)            3,650
   Payments on long-term debt                                                                         (866)             (318)
   Proceeds from long-term borrowings                                                               15,000             3,145
   Cash dividends paid                                                                              (1,601)           (2,214)
   Proceeds from exercise of stock options                                                               4               284
   Net proceeds from sales of common stock                                                             123               316
   Purchase of treasury stock                                                                          (99)          (14,944)
                                                                                            ---------------    --------------

        Net cash provided by (used in) financing activities                                          4,110           (10,081)
                                                                                            ---------------    --------------
 NET DECREASE IN CASH AND CASH EQUIVALENTS                                                         (15,830)          (41,906)
                                                                                            ---------------    --------------
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                     39,635            64,243
                                                                                            ---------------    --------------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                                                $          23,805  $         22,337
                                                                                            ===============    ==============
 SUPPLEMENTAL CASH FLOW DISCLOSURES:
   Cash paid (received) for:
        Interest                                                                         $           1,864  $            861
        Income taxes                                                                                (3,472)           11,376

                                       See notes to consolidated financial statements.


</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 September 30,
         2000 and  October 1, 1999,  and the results of its  operations  and its
         cash  flows  for  the  thirteen  and  thirty-nine  week  periods  ended
         September  30,  2000  and  October  1,  1999,  respectively.  All  such
         adjustments are of a normal, recurring nature.

o        The results of operations for the thirteen and thirty-nine  weeks ended
         September 30, 2000 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
         1999 Annual Report on Form 10-K.

o        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            Thirty-nine Weeks Ended
                                                              --------------------------------  -------------------------------
                                                               September 30,      October 1,     September 30,     October 1,
                                                                   2000              1999            2000             1999
                                                              ----------------   -------------  ----------------  -------------
<S>                                                           <C>                <C>            <C>               <C>

   Weighted average common shares
       outstanding (basic)                                         17,836,486      17,949,080        17,791,922     18,221,146

   Dilutive effect if stock options and warrants were                       -               -                 -         83,027
       exercised                                              ----------------   -------------  ----------------  -------------

   Weighted average common shares
       outstanding, assuming dilution (diluted)                    17,836,486      17,949,080        17,791,922     18,304,173
                                                              ================   =============  ================  =============
</TABLE>

o        The diluted share base for the thirteen weeks ended  September 30, 2000
         and October 1, 1999, and for the thirty-nine  weeks ended September 30,
         2000  excludes   incremental  shares  of  9,808,   42,957,  and  24,340
         respectively,  related to  employee  stock  options.  These  shares are
         excluded due to their anti-dilutive effect as a result of the Company's
         loss from operations.

o        Certain  amounts from the prior periods have   been    reclassified  to
         conform to the 2000 presentation.

2.       ACCOUNTING STANDARD NOT YET ADOPTED
o        In June 1998, the Financial  Accounting Standards Board ("FASB") issued
         Statement  of  Financial   Accounting   Standards   ("SFAS")  No.  133,
         Accounting for Derivative  Instruments and Hedging Activities.  In June
         2000, the FASB issued SFAS 138, which amends certain provisions of SFAS
         133 to  clarify  areas  causing  difficulties  in  implementation.  The
         Company has  appointed a team to implement  SFAS 133 and will adopt the
         provisions of SFAS 133 and 138 on January 1, 2001. SFAS 133, as amended
         by SFAS 138, is not expected to have a material impact on the Company's
         consolidated financial statements.

o        In December 1999, the Securities and Exchange Commission released Staff
         Accounting  Bulletin  (SAB) No. 101,  Revenue  Recognition in Financial
         Statements,  related  to  selected  revenue  recognition  issues.  This
         release,  as amended,  is effective no later than the fourth quarter of
         this fiscal year. SAB 101 is not expected to have a material  impact on
         the Company's consolidated financial statements.

3.       INVENTORIES
o        Inventories  are  stated  at the  lower  of cost  (first-in,  first-out
         method) or  market.  Work-in-process  and  finished  goods  inventories
         include an  allocation  for labor and overhead  costs.  Inventories  at
         September 30, 2000 and December 31, 1999 were as follows:

                            September 30,            December 31,
                                2000                    1999
                           -------------            ------------

         Raw materials     $     18,102             $    27,363
         Work-in-process          2,295                   3,513
         Finished goods          10,790                  19,244
                           -------------            ------------
         Total inventory   $     31,187             $    50,120
                           =============            ============

4.       IMPAIRMENT CHARGE
o        The Company periodically evaluates the carrying value of     long-lived
         assets to be held and used, including goodwill and other     intangible
         assets, when events and  circumstances  warrant   such  a  review.  The
         carrying value of a long-lived asset is    considered impaired when the
         anticipated undiscounted cash flow   from   such asset is less than its
         carrying value. In that event, a loss is recognized based on the amount
         by which the carrying value exceeds the  fair market value of the long-
         lived   asset.  Fair  market   value is determined  primarily using the
         anticipated cash flows discounted at a rate commensurate with  the risk
         involved.  Losses on long-lived assets to be disposed of are determined
         in a similar manner, except that the fair   market values are primarily
         based on   independent   appraisals   and   preliminary   or definitive
         contractual arrangements less cost to dispose.
<PAGE>

o        Due to deteriorating market conditions, during the thirty-nine    weeks
         ended September 30, 2000, the Company recorded    non-cash   impairment
         charges of   $4,848 ($3,843 after   tax or $0.21 per diluted share)  in
         connection with the closing of four home   manufacturing facilities, 11
         retail sales center closings or dispositions and  the sale of a portion
         of the Company's insurance and premium finance business. The impairment
         charge for assets to be held and used includes write-downs of $43   for
         property, plant and   equipment (home   manufacturing   segment).   The
         impairment charge for assets to be disposed of includes  write-downs of
         $1,607 for property,  plant  and  equipment ($981  home   manufacturing
         segment and $626 retail segment), $3,038    for goodwill ($1,541 retail
         segment  and  $1,497  financial  services   segment), and $160 for non-
         competition agreements and lease   obligations ($228 retail segment and
         a credit of   $68 home manufacturing segment).  After   recording   the
         impairment  charges, the carrying value of the assets to be disposed of
         was $3,493.  The Company developed plans to market the facilities to be
         disposed of   and expects disposition to occur within one year.  Before
         recording the   impairment   charges, the results of operations for the
         thirty-nine weeks ended September 30, 2000   included   a $2,444 after-
         tax loss  from the retail segment and    $100 after-tax income from the
         financial services segment for assets to be disposed of. The results of
         operations for the   home manufacturing segment related to assets to be
         disposed  of are not separately identifiable as these closed facilities
         were not accounted for separately.

5.       STOCKHOLDERS' EQUITY
o        The Company paid cash dividends of $.01 per share  during  the  quarter
         ended September 30, 2000.

o        During  year-to-date  2000,  the Company  repurchased  25,000 shares of
         stock under its stock  repurchase  program.  At  September  30, 2000, a
         total of 2,656,600 shares had been repurchased for $24,050. The Company
         retired  2,151,500  of these  shares at  December  31,  1999,  with the
         remaining   shares  being  recorded  as  treasury   stock.   Continuing
         authorization   remains  under  this  program  for  the  repurchase  of
         1,343,400 additional shares.

6.       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   obligation  under  such  agreements
         approximated  $194,000 at September 30, 2000. The Company has a reserve
         for repurchase commitments of $4,525 (at September 30, 2000) and $3,330
         (at December 31, 1999) based on prior experience and market conditions.

o        The Company's product   liability   and  general  liability   insurance
         coverages (with the exception of two subsidiaries whose    insurance is
         provided under fully insured policies)  are     provided under incurred
         loss, retrospectively rated premium plans.   The   Company's   workers'
         compensation coverage prior to February 1, 1999 was  also covered under
         this type plan, but was  converted  on  that  date   to a fully insured
         policy.  Under these plans, the Company incurs insurance expenses based
         upon    various  rates  applied to current payroll   costs and   sales.
         Annually, such insurance expense is adjusted by the carrier for    loss
         experience factors subject to minimum and maximum premium calculations.
         Refunds  or additional   premiums are   estimated   and recorded   when
         sufficiently reliable data   is   available. At September 30, 2000, the
         Company   was    contingently liable for   future retrospective premium
         adjustments up to a maximum   of $14,456   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 guaranteed  certain
         debt for companies in which the Company owns various equity  interests.
         The  guarantees are limited to various  percentages of the  outstanding
         debt up to a maximum guaranty of $5,505.  At September 30, 2000, $9,159
         was outstanding under the various guarantees,  of which the Company had
         guaranteed $3,537.

* See Safe Harbor  Statement on page 13.
<PAGE>



7.   SEGMENT INFORMATION
     Segment  information  relating to the thirteen and thirty-nine weeks ending
     September 30, 2000 and October 1, 1999 is presented below:
<TABLE>
<CAPTION>


                                            Thirteen Weeks Ended                              Thirty-nine Weeks Ended
                               -----------------------------------------------     -----------------------------------------------
                                  September 30, 2000         October 1, 1999          September 30, 2000         October 1, 1999
                               ------------------------    -------------------     ------------------------   --------------------
<S>                            <C>                         <C>                     <C>                        <C>
Gross revenue:
  Home manufacturing           $                64,658     $          130,646      $               238,465    $           455,530
  Financial services                             1,132                  1,470                        4,169                  4,951
  Retail                                         3,382                  6,748                       14,188                 15,230
  Other                                          6,624                 10,912                       23,325                 32,094
                               ------------------------    -------------------     ------------------------   --------------------

      Gross revenue            $                75,796     $          149,776      $               280,147    $           507,805
                               ========================    ===================     ========================   ====================

Intersegment revenue:
  Home manufacturing           $                    52     $            4,563      $                 3,273    $            12,878
  Financial services                                 -                      -                            -                      -
  Retail                                             -                      -                            -                      -
  Other                                          5,884                  9,378                       19,437                 28,317
                               ------------------------    -------------------     ------------------------   --------------------

      Intersegment revenue     $                 5,936     $           13,941      $                22,710    $            41,195
                               ========================    ===================     ========================   ====================

Revenue from external customers:
  Home manufacturing           $                64,606     $          126,083      $               235,192    $           442,652
  Financial services                             1,132                  1,470                        4,169                  4,951
  Retail                                         3,382                  6,748                       14,188                 15,230
  Other                                            740                  1,534                        3,888                  3,777
                               ------------------------    -------------------     ------------------------   --------------------

      Total revenue            $                69,860     $          135,835      $               257,437    $           466,610
                               ========================    ===================     ========================   ====================

Operating profit (loss):
  Home manufacturing           $                (6,664)    $              856      $               (26,202)   $            17,515
  Financial services                               (47)                  (195)                      (1,247)                   541
  Retail                                          (701)                  (621)                      (6,981)                (1,233)
  Other                                            (44)                   196                         (910)                 1,067
  Elimination                                      (27)                  (195)                       1,012                 (1,175)
                               ------------------------    -------------------     ------------------------   --------------------
  Segment operating profit (loss)               (7,483)                    41                      (34,328)                16,715

  General corporate                             (1,857)                (2,573)                      (8,213)                (7,738)
                               ------------------------    -------------------     ------------------------   --------------------

      Operating profit (loss)  $                (9,340)    $           (2,532)     $               (42,541)   $             8,977
                               ========================    ===================     ========================   ====================

Identifiable assets:
  Home manufacturing           $               155,204     $          181,854      $               155,204    $           181,854
  Financial services                            12,784                 17,377                       12,784                 17,377
  Retail                                        14,719                 23,072                       14,719                 23,072
  Other                                         15,757                 15,762                       15,757                 15,762
  Elimination                                  (55,567)               (35,734)                     (55,567)               (35,734)
                               ------------------------    -------------------     ------------------------   --------------------

  Segment assets                               142,897                202,331                      142,897                202,331
  General corporate                             69,318                 47,104                       69,318                 47,104
                               ------------------------    -------------------     ------------------------   --------------------

      Total assets             $               212,215     $          249,435      $               212,215    $           249,435
                               ========================    ===================     ========================   ====================
</TABLE>


     PART I.  FINANCIAL INFORMATION

Item 1:  Financial Statements  (See pages 2 through 6)

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

Industry and Company Outlook
Cavalier Homes,  Inc. and its subsidiaries are engaged in the production,  sale,
financing,  and  insuring of  manufactured  housing.  The  manufactured  housing
industry is cyclical and seasonal and is influenced by many of the same economic
and  demographic  factors that affect the housing market as a whole. As a result
of the growth in the  industry  during  much of the 1990s,  the number of retail
dealerships,   manufacturing   capacity   and   wholesale   shipments   expanded
significantly,  which ultimately  created slower retail turnover,  higher retail
inventory levels and increased price  competition.  Inventory  oversupply at the
retail level continues to have a significant impact on wholesale shipments as it
did during much of 1999. The  Manufactured  Housing  Institute  ("MHI") reported
that industry wholesale shipments declined 24.6% through August 2000 as compared
to the same period of 1999.  The industry has also been  impacted by an increase
in dealer  failures,  higher interest  rates, a reduction in available  consumer
credit and wholesale financing for manufactured housing, more restrictive credit
standards and increased  home  repossessions  which  re-enter home  distribution
channels.  In response to deteriorating  market  conditions,  manufacturers have
closed or idled some of their  manufacturing  facilities and retail dealers have
closed some locations. The Company also believes that the possibility exists for
additional retail dealer failures, as well as for the loss of additional lenders
from  the  industry,  further  tightening  of  credit  standards  and a  further
reduction in the availability of wholesale and retail financing. *

Industry  conditions  significantly  impacted  Cavalier's business and financial
results  during the first nine months of 2000.  The Company is uncertain at this
time as to the extent and duration of these  developments  and as to what effect
these  factors  will have on the  Company's  future  sales and  earnings.  *
* See Safe Harbor Statement on page 13.
<PAGE>

The Company  currently  believes  these  conditions  will  continue to adversely
affect its financial  performance at least through the next several quarters and
perhaps  through the end of 2001.  * The  Company's  revenues  during the fourth
quarter-to-date  continue  to be  substantually  below the prior  year,  and the
Company  currently expects to record a significant loss in the fourth quarter of
2000 and first quarter of 2001.

Due to  deteriorating  market  conditions,  during the  thirty-nine  weeks ended
September 30, 2000, the Company recorded non-cash  impairment  charges of $4,848
($3,843 after tax or $0.21 per diluted share) in connection  with the closing of
four  home  manufacturing   facilities,  11  retail  sales  center  closings  or
dispositions  and the sale of a portion of the  Company's  insurance and premium
finance business.  The  manufacturing  facilities built primarily single section
homes, and production has been consolidated into other plants. Since the fall of
1999,  Cavalier  has idled nine home  manufacturing  plants and  disposed of the
operations  of one other.  Another  plant was  destroyed by fire in June 2000 (a
previously  idled  facility  has  been  restarted  to  replace  that  capacity).
Consequently,   Cavalier,  at  September  30,  2000,  operated  a  total  of  14
manufacturing  facilities,  reflecting a 34% reduction in manufacturing capacity
over the last year. Despite this consolidation of its manufacturing  facilities,
the Company does not believe it has reduced the breadth of its product  offering
or the price points reached by its product line. On the retail side, the Company
has  closed  or  disposed  of 11 of its 16  retail  sales  centers.  In terms of
operating costs, Cavalier has made cost reductions in virtually all areas of the
Company,   including  its  exclusive  dealer  and  marketing  programs  and  its
administrative  personnel  and  associated  costs.  Altogether,  the Company has
reduced its  production  and  administrative  workforce by  approximately  2,600
employees or more than 46% since December 31, 1998.  While  management  believes
these actions are prudent,  these steps do not immediately  reduce the Company's
cost  structure in all cases.  The Company is continuing  to evaluate  capacity,
cost  and  overhead  issues,  the need  for  further  plant,  retail  and  other
consolidations, reductions, idlings and closings and methods designed to address
the  Company's  decline in revenue in light of  developing  market and  business
conditions. * The Company can give no assurance as to which one or more of these
options, if any, it may ultimately adopt.

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
                                      ------------------------------------------------------------------------------------
                                         September 30, 2000           October 1, 1999          Difference
                                         ------------------           ---------------         ------------
<S>                                    <C>                  <C>     <C>              <C>     <C>              <C>
Revenue:
   Home manufacturing net sales        $           64,606           $      126,083           $     (61,477)
   Financial services                               1,132                    1,470                    (338)
   Retail                                           3,382                    6,748                  (3,366)
   Other                                              740                    1,534                    (794)
                                         -----------------            -------------            ------------

Total revenue                          $           69,860   100.0%  $      135,835   100.0%  $     (65,975)        -48.6%
Cost of sales                                      61,095    87.5%         110,883    81.6%        (49,788)        -44.9%
                                         -----------------   ------   -------------   ------   ------------   ------------

Gross profit                           $            8,765    12.5%  $       24,952    18.4%  $     (16,187)        -64.9%
                                         =================   ======   =============   ======   ============   ============

Selling, general and administrative    $           18,002    25.8%  $       26,031    19.2%  $      (8,029)        -30.8%
                                         =================   ======   =============   ======   ============   ============

Impairment charge                      $              103     0.1%  $        1,453     1.1%  $      (1,350)        -92.9%
                                         =================   ======   =============   ======   ============   ============

Operating profit (loss)                $           (9,340)   -13.4% $       (2,532)   -1.9%  $      (6,808)        268.9%
                                         =================   ======   =============   ======   ============   ============

Other income (expense), net            $             (490)   -0.7%  $         (149)   -0.1%  $        (341)        228.9%
                                         =================   ======   =============   ======   ============   ============

Net income (loss)                      $           (6,192)   -8.9%  $       (1,621)   -1.2%  $      (4,571)        282.0%
                                         =================   ======   =============   ======   ============   ============


                                                                For the Thirty-nine Weeks Ended
                                      ------------------------------------------------------------------------------------
                                         September 30, 2000           October 1, 1999          Difference
                                         ------------------           ---------------         ------------

Revenue:
   Home manufacturing net sales        $          235,192           $      442,652           $    (207,460)
   Financial services                               4,169                    4,951                    (782)
   Retail                                          14,188                   15,230                  (1,042)
   Other                                            3,888                    3,777                     111
                                         -----------------            -------------            ------------

Total revenue                          $          257,437   100.0%  $      466,610   100.0%  $    (209,173)        -44.8%
Cost of sales                                     225,886    87.7%         377,666    80.9%       (151,780)        -40.2%
                                         -----------------   ------   -------------   ------   ------------   ------------

Gross profit                           $           31,551    12.3%  $       88,944    19.1%  $     (57,393)        -64.5%
                                         =================   ======   =============   ======   ============   ============

Selling, general and administrative    $           69,244    26.9%  $       78,514    16.8%  $      (9,270)        -11.8%
                                         =================   ======   =============   ======   ============   ============

Impairment charge                      $            4,848     1.9%  $        1,453     0.3%  $       3,395         233.7%
                                         =================   ======   =============   ======   ============   ============

Operating profit (loss)                $          (42,541)   -16.5% $        8,977     1.9%  $     (51,518)       -573.9%
                                         =================   ======   =============   ======   ============   ============

Other income (expense), net            $           (1,052)   -0.4%  $          444     0.1%  $      (1,496)       -336.9%
                                         =================   ======   =============   ======   ============   ============

Net income (loss)                      $          (27,838)   -10.8% $        5,700     1.2%  $     (33,538)       -588.4%
                                         =================   ======   =============   ======   ============   ============
* See Safe Harbor Statement on page 13.
<PAGE>
</TABLE>

<TABLE>
<CAPTION>




OPERATING DATA                                For the Thirteen Weeks Ended          For the Thirty-nine Weeks Ended
                                          -------------------------------------   -------------------------------------
                                          September 30, 2000  October 1, 1999     September 30, 2000  October 1, 1999
                                          -----------------   -----------------   -----------------   -----------------
<S>                                       <C>       <C>       <C>       <C>       <C>        <C>      <C>        <C>
Home manufacturing sales:
Floor shipments                            4,029               7,867               14,789              27,184
Home shipments     Single section            819     33.9%     2,313     45.6%      3,732    40.4%      8,430    47.4%
                   Multi section           1,600     66.1%     2,764     54.4%      5,509    59.6%      9,340    52.6%
                                          -------   -------   -------   -------   --------   ------   --------   ------
Total Shipments                            2,419    100.0%     5,077    100.0%      9,241    100.0%    17,770    100.0%

Shipments to Company Owned Stores            (47)     1.9%      (169)     3.3%       (165)    1.8%       (463)    2.6%
                                          -------   -------   -------   -------   --------   ------   --------   ------
Shipments to independent dealers           2,372     98.1%     4,908     96.7%      9,076    98.2%     17,307    97.4%
                                          =======   =======   =======   =======   ========   ======   ========   ======
Retail sales:
  Single section                              60     51.3%       125     59.2%        283    53.1%        272    57.9%
  Multi section                               57     48.7%        86     40.8%        250    46.9%        198    42.1%
                                          -------   -------   -------   -------   --------   ------   --------   ------
Total sales                                  117    100.0%       211    100.0%        533    100.0%       470    100.0%
                                          =======   =======   =======   =======   ========   ======   ========   ======
Cavalier produced homes sold                  90     76.9%       163     77.3%        431    80.9%        352    74.9%
                                          =======   =======   =======   =======   ========   ======   ========   ======
Used homes sold                               25     21.4%        36     17.1%         91    17.1%         84    17.9%
                                          =======   =======   =======   =======   ========   ======   ========   ======
Other Operating Data:
Installment loan purchases              $ 17,252            $  6,400            $  49,376           $  35,791

Capital expenditures                    $  1,169            $  5,153            $   3,521           $  20,667

Home manufacturing facilities                 14                  22                   14                  22
                   (operating)
Independent exclusive dealer locations       204                 277                  204                 277

Company owned stores                           5                  14                    5                  14

</TABLE>
Thirteen weeks ended September 30, 2000 and October 1, 1999
Revenue
Revenue for the third  quarter of 2000 totaled  $69,860 down 49% from 1999 third
quarter revenue of $135,835.  The Company's  revenues and profits were adversely
affected  by intense  competitive  market  conditions,  including,  among  other
things,  excess  inventory in retail  channels,  an increase in dealer failures,
higher interest rates, a reduction in available consumer and wholesale financing
for manufactured  housing,  more restrictive credit standards and increased home
repossessions which re-enter home distribution channels.

Home  manufacturing net sales accounted for virtually the entire decline against
the  comparable  1999  period,  falling  49% to  $64,606,  net  of  intercompany
eliminations of $52. Home  manufacturing net sales for the third quarter of 1999
were  $126,083,  net of  intercompany  eliminations  of $4,563.  Home  shipments
decreased 52.4% with floor  shipments  decreasing by 48.8%.  Multi-section  home
shipments, as a percentage of total shipments,  continued to increase from 54.4%
of  shipments  in the third  quarter of 1999 to 66.1% of  shipments in the third
quarter of 2000 in  response to  increasing  consumer  demand for  multi-section
homes as compared to single  section  homes.  Actual  shipments of homes for the
third quarter were 2,419 versus 5,077 in the third quarter of 1999.

Cavalier  attributes  the  decrease  in sales  and  shipments  primarily  to the
unfavorable industry conditions described above. Approximately 84% of Cavalier's
shipments  were to its core market of 11 states,  where the Company's  shipments
declined  54% compared to the third  quarter of 1999.  The Company has pursued a
strategy of working  closely with its dealers to assist them in reducing  retail
inventories,  which the Company believes has contributed to its disproportionate
decline in manufacturing  sales volume in relation to the industry's  decline. *
Additionally,  industry sales in several  states in Cavalier's  core market have
declined at a worse rate than the industry  overall,  which the Company believes
has also had an impact on its sales.  * The Company's  exclusive  dealer program
included 209 dealers,  including  five  company-owned  stores,  at September 30,
2000. At October 1, 1999,  the exclusive  dealer  program  included 291 dealers,
including 14 company-owned stores. Sales to exclusive dealers represented 51% in
the third quarter of 2000 versus 55% in the same period of 1999.

Revenue from the  financial  services  segment  decreased  23% to $1,132 for the
third quarter of 2000 compared to $1,470 in 1999, due primarily to the sale of a
portion of the Company's insurance and premium finance business during the third
quarter  of  2000  and  competitive  pressure  on  the  rate  earned  on  resold
installment  contracts.  During the third quarter of 2000,  Cavalier  Acceptance
Corporation  ("CAC"), the Company's  wholly-owned finance subsidiary,  purchased
contracts of $17,252 and resold installment  contracts totaling $16,481.  In the
third quarter of 1999, CAC purchased  contracts of $6,400 and resold installment
contracts  totaling $7,096.  CAC does not retain the servicing function and does
not earn the interest income on these resold loans.

Revenue  from the  retail  segment  was  $3,382  for the third  quarter  of 2000
compared to $6,748 for 1999. In addition to the ten retail closings  recorded in
the first half of 2000,  during the third  quarter the Company  planned to close
one  additional  under-  performing  retail  location,  and recorded  impairment
charges and inventory valuation charges as discussed below,  bringing the number
of company-owned retail locations to five.

Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing  businesses.  Revenues from external customers decreased
52% to $740 for the third  quarter of 2000  compared to $1,534  during the third
quarter of 1999.  The decrease is due primarily to lower sales volume related to
competitive industry conditions.
* See Safe Harbor Statement on page 13.
<PAGE>
Gross Profit
Gross profit was $8,765,  or 12.5% of total  revenue,  for the third  quarter of
2000,  versus  $24,952,  or 18.4%  of total  revenue  in  1999.  Of the  $16,187
decrease,  the Company attributes  approximately  $12,100 to volume decrease and
$4,100 to margin erosion.  The margin erosion includes  approximately  $2,200 of
additional  sales  discounts  at  the  manufacturing  level  to  help  encourage
sell-through of inventory,  $1,600 for inefficiencies  related to low volume and
plant closings and other wholesale  related costs, and $300 due to company-owned
retail  locations  margin decrease,  primarily  relating to inventory  valuation
charges.  There were no comparable  inventory  valuation charges recorded in the
third quarter of 1999.

Selling, General and Administrative
Selling,  general and  administrative  expenses during the third quarter of 2000
were $18,002 or 25.8% of total revenue, versus $26,031 or 19.2% of total revenue
in 1999, a decrease of $8,029. The overall decrease is due to a $2,333 reduction
in salaries,  wages and  incentive  compensation,  a $990  reduction in employee
benefits cost (primarily  health  insurance),  a $2,853 reduction in advertising
and promotion cost, including costs to support the exclusive dealer program, and
an $832 decrease in costs  associated  with the retail segment which were offset
by a $484  increase  in  repurchase  charges and a $231  increase in  management
information system and internet strategy costs.

Impairment Charge
Impairment charges totaling $103 ($65 after tax or $0.00 per diluted share) were
recorded in the third  quarter of 2000  reflecting  primarily the closing of one
under-performing  company-owned retail sales center. During the third quarter of
1999, the Company recorded impairment charges of $1,453 ($879 after tax or $0.05
per diluted share) related to the idling of two home manufacturing plants.

Operating Profit (Loss)
Operating  loss for the quarter  was $9,340  compared  to an  operating  loss of
$2,532  in the  third  quarter  of 1999.  Home  manufacturing  operating  profit
declined  $7,520,  from $856 operating  income to an operating loss of $6,664 in
the third quarter of 2000,  primarily due to the decrease in sales,  an increase
in home repurchase costs, and the industry and business  conditions cited above.
In  addition,  on October 2, 2000,  the Company  sold the  inventory,  tools and
supplies at an under-performing home manufacturing operation in Adrian, Georgia,
and  leased  the  facility  to a third  party  with an option to  purchase.  The
operating  loss  during  the third  quarter of 2000  attributable  to the Adrian
plant,  together with  inventory  valuation  and other  charges  recorded in the
quarter in connection with the transaction,  totaled $1,970 ($1,241 after tax or
$0.07 per  diluted  share).  In the third  quarter  of 1999,  the  Adrian  plant
sustained  operating  losses of $129 ($78 after tax or $0.00 per diluted share).
Financial  services  operating  loss  decreased  $148 from 1999 due primarily to
reduced costs associated with loan losses.  The retail segment's  operating loss
increased $80 due primarily to the inventory  valuation charges noted above. The
other  segment  operating  loss  increase  of $240  is due  mainly  to the  cost
associated  with the start-up of two new supply company  locations and a loss at
another supply company due primarily to lower sales volume. In addition, general
corporate  operating  expense,  which is not identifiable to a specific segment,
decreased $716.

Other Income (Expense)
Interest  expense  increased  $237 due  primarily  to the  increase  in  amounts
outstanding  under  industrial  development  revenue bond issues and  borrowings
under the Company's credit facility.  Other, net decreased $104 due primarily to
lower income from supply related equity partnerships.

Net Income (Loss)
Before impairment charges related to the closures discussed above, the Company's
net loss for the third  quarter  of 2000 was $6,127 or $0.35 per  diluted  share
compared with a net loss before impairment  charges of $742 or $0.04 per diluted
share in the same period in 1999.  The  Company's net loss for the third quarter
of 2000,  after  impairment  charges,  was  $6,192 or $0.35 per  diluted  share,
primarily due to the factors noted above,  as compared with a net loss of $1,621
or $0.09 per diluted share in the same period of 1999.

Thirty-nine weeks ended September 30, 2000 and October 1, 1999
Revenue
Revenue for the  thirty-nine  weeks ending  September 30, 2000 totaled  $257,437
down 45% from 1999 year-to-date revenue of $466,610.  The Company's revenues and
profits were adversely  affected by challenging  market  conditions,  including,
among other  things,  intense  competition,  the ongoing  contraction  of dealer
locations,  reduced lending availability and tightened credit standards,  higher
interest  rates,  inventory  over-supply  at the retail level and increased home
repossessions which re-enter home distribution channels.

Home  manufacturing  net sales accounted for the majority of the decline against
the  comparable  1999  period,  falling  47% to  $235,192  net  of  intercompany
eliminations of $3,273.  Home  manufacturing  net sales  year-to-date  1999 were
$442,652, net of intercompany  eliminations of $12,878. Home shipments decreased
48.0%, with floor shipments  decreasing by 45.6%.  Multi-section home shipments,
as a percentage of total shipments, increased from 52.6% of shipments in 1999 to
59.6% of  shipments  in 2000 in  response  to  increasing  consumer  demand  for
multi-section  homes as compared to single  section homes.  Actual  shipments of
homes for the  thirty-nine  weeks  ending  September  30, 2000 were 9,241 versus
17,770 in 1999.

Cavalier  attributes  the  decrease  in sales  and  shipments  primarily  to the
unfavorable industry conditions described above. Approximately 87% of Cavalier's
shipments  were to its core market of 11 states,  where the Company's  shipments
declined 48% compared to the first  thirty-nine  weeks of 1999.  The Company has
pursued a  strategy  of  working  closely  with its  dealers  to assist  them in
reducing retail  inventories,  which the Company believes has contributed to its
disproportionate  decline  in  manufacturing  sales  volume in  relation  to the
industry's  decline.  *  Additionally,  industry  sales  in  several  states  in
Cavalier's core market have declined at a worse rate than the industry  overall,
which the Company believes has also had an impact on its sales. *

Revenue from the financial  services  segment  decreased 15.8% to $4,169 for the
first  thirty-nine  weeks of 2000  compared to $4,951 in 1999,  due primarily to
* See Safe Harbor Statement on page 13.
<PAGE>
competitive  pressure on the rate earned on resold  installment  contracts.  For
2000, CAC has purchased  contracts of $49,376 and resold  installment  contracts
totaling  $50,441.  In 1999,  CAC  purchased  contracts  of  $35,791  and resold
installment contracts totaling $50,853, including $16,000 previously held in its
portfolio.  CAC does not retain  the  servicing  function  and does not earn the
interest income on these resold loans.

Revenue  from the retail  segment was  $14,188 for 2000  compared to $15,230 for
1999. As of September 30, 2000,  the Company has closed,  sold or plans to close
or sell eleven under- performing retail locations,  and has recorded  impairment
charges and inventory valuation charges as discussed below,  bringing the number
of company-owned retail locations to five.

Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing  businesses.  Revenues from external customers increased
3% to $3,888 for 2000 compared to $3,777 during 1999.

Gross Profit
Gross profit was $31,551, or 12.3% of total revenue, for the year-to-date period
of 2000, versus $88,944 or 19.1%, in 1999. Of the $57,393 decrease,  the Company
attributes  approximately  $39,700  to volume  decrease  and  $17,600  to margin
erosion.  The margin erosion includes  approximately  $5,300 of additional sales
discounts  at  the  manufacturing  level  to  help  encourage   sell-through  of
inventory,  $8,900 for inefficiencies  related to low volume and plant closings,
and $3,400 due to company-owned retail locations margin decrease, which included
$2,004 inventory valuation charges.

Selling, General and Administrative
Selling,  general and administrative  expenses during the year-to-date period of
2000 were $69,244,  or 26.9% of total revenue,  versus $78,514 or 16.8% of total
revenue in 1999, a decrease of $9,270.  The overall  decrease is due to a $6,915
reduction in salaries,  wages and incentive compensation,  a $2,306 reduction in
employee  benefits cost  (primarily  health  insurance),  a $3,795  reduction in
advertising and promotion cost,  including costs to support the exclusive dealer
program,  and a $478 decrease in costs  associated with the retail segment which
were offset by a $6,716 increase in repurchase  charges and a $1,113 increase in
management information system and internet strategy costs.

Impairment Charge
Impairment charges totaling $4,848 ($3,843 or $0.21 per diluted share after tax)
were  recorded in the period  ending  September  30,  2000.  These  charges were
recorded in connection with the closings of four manufacturing facilities ($956)
and 11 company-owned  retail locations ($2,395) and the sale of a portion of the
Company's  insurance and premium finance  business  ($1,497) - a step related to
the scaling back of the Company's retail operations.  One previously closed home
manufacturing  facility has been reopened to replace the production  capacity of
another  facility that was destroyed by fire in June 2000.  These  manufacturing
facilities  built  primarily  single  section  homes,  and  production  has been
consolidated  into other  plants.  During  the  comparable  period of 1999,  the
Company  recorded  impairment  charges  of $1,453  ($879  after tax or $0.05 per
diluted share) related to the idling of two home manufacturing plants.

Operating Profit (Loss)
Operating  loss  year-to-date  was $42,541,  compared to an operating  profit of
$8,977 in 1999. Home  manufacturing  operating profit declined  primarily due to
the decrease in sales, an increase in home repurchase costs,  impairment charges
and the industry and business  conditions  cited above.  The  thirty-nine  weeks
results in 2000 included an operating loss and inventory and equipment valuation
charges  relating  to the  Adrian  plant  totaling  $3,450  ($2,173 or $0.12 per
diluted share after tax). In the year earlier period, the Adrian plant sustained
an operating loss of $591 ($357 or $0.02 per diluted share after tax). Financial
services  operating  profit  decreased  $1,788  from the same period in 1999 due
primarily to the decrease in sales and impairment charge noted above. The retail
segment's  operating loss increased  $5,748 due to costs of inventory  valuation
charges,  impairment  charges,  low sales volume and the competitive  conditions
currently  prevalent  in the  marketplace.  The  other  segment  operating  loss
increase  of $1,977 is due  mainly to the cost  associated  with the  geographic
expansion of one supply company,  the startup of a new supply company and a loss
at another  supply  company due  primarily to lower sales  volume.  In addition,
general  corporate  operating  expense,  which is not identifiable to a specific
segment,  increased $475 primarily due to an increase in costs associated with a
new management information system and internet strategy.

Other Income (Expense)
Interest  expense  increased $964 due primarily to the increase in notes payable
under  retail  floor  plan  agreements,  amounts  outstanding  under  industrial
development  revenue  bond  issues and  borrowings  under the  Company's  credit
facility.  Other,  net decreased  $532 due primarily to lower income from supply
related equity partnerships.

Net Income (Loss)
Before impairment  charges related to the closures and sale discussed above, the
Company's net loss for year-to-date  2000 was $23,995 or $1.35 per diluted share
compared  with net  income  before  impairment  charges  of  $4,821 or $0.26 per
diluted  share  in  the  same  period  in  1999.  The  Company's  net  loss  for
year-to-date  2000, after impairment  charges,  was $27,838 or $1.56 per diluted
share,  primarily due to the factors  noted above,  as compared to net income of
$5,700 or $0.31 per diluted  share in 1999,  primarily  due to the factors noted
above.
<PAGE>

 Liquidity and Capital Resources (dollars in thousands)

<TABLE>
<CAPTION>


BALANCE SHEET DATA                                      Balances as of
                                             -----------------------------------
                                                9/30/00               12/31/99
                                              -----------------------------------
<S>                                          <C>                    <C>
Cash and cash equivalents                    $       23,805         $      39,635
Marketable securities held to maturity       $        5,996         $           -
Accounts receivable                          $       17,463         $      10,022
Working capital                              $       32,322         $      32,652
Current ratio                                      1.4 to 1              1.4 to 1
Long-term debt                               $       24,329         $      10,218
Ratio of long-term debt to equity                    1 to 4               1 to 13
Installment loan portfolio                   $        7,510         $       9,450

</TABLE>]
Operating  activities during the thirty-nine weeks ended September 2000 used net
cash of $16,783.

An increase in accounts  receivable and a reduction in cash and cash equivalents
from December 31, 1999 to September 30, 2000, 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.

Inventory decreased $18,933 from December 31, 1999 to September 30, 2000, as the
Company emphasized conservative cash management and a build-for-sale  philosophy
and reduced the number of  company-owned  retail  locations.  Of this  decrease,
$8,025 related to retail inventories that resulted in a corresponding  reduction
in notes payable under retail floor plan agreements.

The Company's  capital  expenditures were $3,521 for the thirty-nine weeks ended
September  30, 2000, as compared to $20,667 for the  comparable  period of 1999.
Capital  expenditures  during these periods included normal property,  plant and
equipment  additions and  replacements  and the expansion and  modernization  of
certain of the Company's  manufacturing  facilities.  During  year-to-date 2000,
additions also included $388 related to the replacement of property destroyed by
fire at the  Belmont  facility.  Additionally,  during  year-to-date  1999,  the
Company purchased,  for a total of $3,400, two Alabama manufacturing  facilities
that were previously  leased,  renovated a Georgia  manufacturing  facility at a
cost of $1,693 and capitalized  $2,523 costs of implementing an  enterprise-wide
management information system.

The  increase  in  long-term  debt of  $14,111  is  primarily  due to a  $15,000
borrowing under the Company's credit facility.

The Company  purchased 25,000 shares of treasury stock during  year-to-date 2000
for $99. The Company has  authorization  to acquire up to  1,343,400  additional
shares under the current program.

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

The Company currently expects to receive between the date of this report and the
middle of 2001 cash,  outside of its normal,  recurring  operations,  within the
range of $15,000 to $20,000,  in connection with an income tax refund,  due to a
net operating loss  carry-back,  and insurance  proceeds  related to the Belmont
plant fire. * These  amounts are only  estimates,  however,  and the receipt and
timing of receipt of the amounts are subject to reaching a  resolution  with the
Company's  insurer on its  insurance  claim,  and  successfully  finalizing  and
processing a tax return and claim for refund with the Internal  Revenue  Service
and other  appropriate tax  authorities.  Consequently,  the Company cannot give
assurances  that it will  receive  cash  within  this range or within  this time
frame.

On September 29, 2000, the Company  amended its Credit Facility with its primary
lender in certain respects. The maturity date under the revolving line of credit
was  changed  from  April 2002 to April  2003.  The  Credit  Facility  presently
consists of a $35,000 revolving and term loan agreement and contains a revolving
line of credit that provides for borrowings  (including letters of credit) up to
a maximum of $35,000; provided, that if the Company's tangible net worth is less
than $85,000, the amount available under the facility is reduced from $35,000 to
35% of the Company's tangible net worth.  However, in no event may the aggregate
outstanding  borrowings  under  the  revolving  line  of  credit  and  term-loan
agreement  exceed  $35,000  (or such  lesser  amount  as may be  available).  At
September 30, 2000,  $15,000 was outstanding under the revolving line of credit,
against a total lending capacity of $28,800 based on the Company's  tangible net
worth at quarter's  end. At October 1, 1999, no amounts were  outstanding  under
the Credit  Facility.  Interest is payable under the revolving line of credit at
the bank's prime rate less 0.5%, or, if elected by the Company, the 90-day LIBOR
Rate plus  2.0%.  If the  Company's  tangible  net worth is below  $77,000,  the
interest  rate changes to prime or, if elected by the Company,  the 90-day LIBOR
Rate plus 2.5%. The Credit  Facility  provides the option for amounts drawn down
for CAC's  benefit to be converted to a term loan with respect to  borrowings of
up to 80% of the Company's eligible (as defined) installment sales contracts, up
to a maximum of $35,000 (or such lesser  amount as may be  available).  Interest
under the term notes is fixed for a period of five years from issuance at a rate
based on the weekly average yield on five-year treasury securities averaged over
the preceding 13 weeks,  plus 1.95%,  with a floating rate for the remaining two
years (subject to certain limits) equal to the bank's prime rate plus 0.75%.

The Credit Facility,  as amended,  contains certain restrictive  covenants which
limit,  among other things,  the Company's ability to (i) make dividend payments
and  purchases  of treasury  stock in an aggregate  amount which  exceeds 50% of
consolidated  net income for the two most recent years,  (ii) mortgage or pledge
assets  which  exceed,  in  the  aggregate,   $1,000,   (iii)  incur  additional
indebtedness,  including  lease  obligations,  which  exceed  in  the  aggregate
$18,000,  excluding floor plan notes payable which cannot exceed $25,000 ($6,000
effective  December 31,  2000),  and (iv) make annual  capital  expenditures  in
excess of $10,000.  In addition,  the Credit Facility contains certain financial
covenants  requiring  the Company to maintain on a  consolidated  basis  certain
defined levels of net working capital (at least  $15,000),  debt to tangible net
* See Safe Harbor Statement on page 13.
<PAGE>
worth ratio (not to exceed 2 to 1) and cash flow to debt service ratio (not less
than  1.75  to 1)  commencing  with  the  year  ending  December  31,  2001  and
thereafter, and to maintain a current ratio of at least 1.17 to 1 and the sum of
consolidated tangible net worth plus treasury stock purchases, in 2000 and 2001,
of at least  $65,000.  The Credit  Facility  also  requires  CAC to comply  with
certain specified restrictions and financial covenants. The Company has obtained
a waiver as of the end of the third quarter to the extent it was in violation of
certain  covenants  in effect  prior to amending  the Credit  Facility  and with
respect to the sale of certain assets of the Adrian, Georgia facility.  Cavalier
was not in  violation  of any  financial  covenants  at  September  30,  2000 in
accordance with the amended credit facility.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

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  $3,262 at September 30, 2000.  Due to the long-term
nature of the benefit  liabilities that these assets fund, the Company currently
considers  its exposure to market risk to be low. * The Company does not believe
that a decline in market value of these  investments  would result in a material
near term funding of the trust or exposure to the benefit liabilities funded. *

The Company purchases retail  installment  contracts from its exclusive dealers,
at fixed interest rates, in the ordinary  course of business,  and  periodically
resells  certain of these  loans to  financial  institutions  under the terms of
retail finance agreements.  The periodic resale of installment contracts reduces
the  Company's  exposure  to  interest  rate  fluctuations,  as the  majority of
contracts are held for a short period of time. The Company's  portfolio consists
of fixed rate contracts with interest rates generally ranging from 9.0% to 16.0%
and an average  original term of 299 months at September  30, 2000.  The Company
estimated  the  fair  value  of  its  installment   contracts  receivable  which
approximates  carrying  value,  using  discounted  cash flows and interest rates
offered by CAC on similar contracts at September 30, 2000.

The Company has notes payable under retail floor plan agreements,  an industrial
development  revenue bond issue and a revolving  line of credit that are exposed
to interest  rate  changes.  Since these  borrowings  are floating rate debt, an
increase in short-term  interest rates would adversely affect interest  expense.
Additionally,  Cavalier has five industrial  development  revenue bond issues at
fixed  interest  rates.  The  estimated  fair  value of  outstanding  borrowings
approximated  carrying  value at September 30, 2000.  The Company  estimated the
fair value of its debt instruments  using rates at which the Company believes it
could have obtained similar borrowings at that time.
* See Safe Harbor Statement on page 13.
<PAGE>

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Our disclosure  and analysis in this 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,  financing  and other  strategies  of
Cavalier.  You can identify these statements by the fact that they do not relate
strictly to historical or current facts.  They generally are designated  with an
asterisk  (*)  and  use  words  such  as  "estimates,"   "projects,"  "intends,"
"believes,"  "anticipates,"  "expects,"  "plans,"  and other  words and terms of
similar  meaning  in  connection  with any  discussion  of future  operating  or
financial  performance.  From time to time,  we 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        the cyclical and  seasonal nature  of the manufactured housing industry
         and the economy generally;
o        limitations in Cavalier's ability to pursue its business strategy;
o        changes in demographic trends, consumer preferences    and   Cavalier's
         business strategy;
o        changes  and  volatility  in  interest  rates and the  availability  of
         capital  and  consumer and dealer financing;
o        the   ability  to  attract  and  retain  quality  independent  dealers,
         executive officers and other personnel;
o        competition;
o        contingent repurchase and guaranty obligations;
o        uncertainties regarding Cavalier's retail financing activities;
o        integrating   the   business  operations  and  achieving  the  benefits
         of the  1997 merger  with Belmont Homes, Inc. and other acquisitions;
o        the potential unavailability and price increases for raw materials;
o        the potential unavailability of manufactured housing sites;
o        regulatory constraints;
o        the potential for additional warranty claims;
o        litigation; and
o        the potential volatility in our stock price.

Any or all of our forward-looking  statements in this report, in the 1999 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, 1999,  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.

PART II.  OTHER INFORMATION

Item 1:  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, 1999 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
Court of Civil  Appeals  has  affirmed  the  Circuit  Court's  grant of  summary
judgment in favor of the  defendants on all counts  asserted in the  plaintiffs'
complaint.  The  time  for  further  appeal  of  the  Court  of  Civil  Appeals'
affirmation has expired. In addition, with respect to the referenced    Kentucky
Lawsuit, the Kentucky Court of Appeals has affirmed the trial court's  dismissal
of the plantiff's complaint filed in the Kentucky Circuit Court.  The  time  for
further appeal of the Court of Appeals' affirmation has expired.

Item 5:  Other Matters

The Board of Directors has  eliminated  the Company's  quarterly  dividend.  The
Board had already  reduced the  quarterly  rate,  cutting it in July to one cent
($0.01) per share from four cents ($0.04) per share.

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.
<PAGE>
                  (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  Registration Statement on Form 8-A dated October
                      30, 1996, is incorporated herein by reference.

(10)     Material Contracts.
         First Amendment to Amended   and  Restated   Revolving   and Term  Loan
         Agreement dated as of September 29, 2000 between
         Cavalier Homes, Inc. and First Commercial Bank.

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

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

(b)      Current Report on Form 8-K.
         (1)The Company filed a Current  Report  on  Form  8-K on July 18, 2000,
            with  respect to the  reduction of its  regular  quarterly  dividend
            from $0.04 per share to $0.01 per share.
         (2)The Company filed a Current Report on Form 8-K on October 24, 2000,
            with respect to the elimination of dividends.


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: November 13, 2000                       /s/ David A. Roberson
                                              ----------------------------------
                                              David A. Roberson - President
                                              and Chief Executive Officer


Date: November 13, 2000                       /s/ Michael R. Murphy
                                              ----------------------------------
                                              Michael R. Murphy -
                                              Chief Financial Officer (Principal
                                              Financial and Accounting Officer)



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