SecProbe.io

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November 11, 2005

Securities and Exchange Commission
100 F Street NE
Mail Stop 7010
Washington, DC 20549-7010
Attn: Nili Shah

                  RE:      Cavalier Homes, Inc.
                           Form 10-K for Fiscal Year Ended December 31, 2004
                           Filed March 31, 2005
                           Form 10-K/A for Fiscal Year Ended December 31, 2004
                           Filed May 2, 2005
                           Form 10-Q for Quarter Ended April 2, 2005
                           Filed May 12, 2005
                           Form 10-Q for Quarter Ended July 2, 2005
                           Filed August 11, 2005
                           File No. 1-9792

Ladies and Gentlemen:

         In a phone conversation between members of the Commission's staff and
Company personnel, we agreed to outline in this response letter the Company's
understanding and application of FIN 45 paragraph 10. The following paragraphs
set forth our response to the Commission's request for information regarding FIN
45 paragraph 10.

Under the provisions of FIN 45, issuance of a guarantee results in two different
types of obligations:

         1. A non-contingent obligation to stand ready to perform under the
         guarantee (accounted for as a liability pursuant to FIN 45); and

         2. A contingent obligation to make future payments under the conditions
         of a guarantee (accounted for pursuant to SFAS No. 5).

The second element of the guarantee is accounted for pursuant to SFAS No. 5
after the triggering event occurs. Thus, until the triggering event occurs,
there is no SFAS No. 5 loss contingency to accrue. FIN 45 states, however, that
regardless of whether the triggering event has occurred, the guarantor still has
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Securities and Exchange Commission
November 11, 2005
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an obligation to stand ready to perform under the guarantee. Since that element
of the guarantee is an unconditional obligation, it should be recognized as a
liability at inception of the guarantee in an amount equal to its estimated fair
value in the guarantor's balance sheet. The recognition of this liability is not
dependent on the probability of future payments under the guarantee. The
contingent portion of the obligation, however, is still subject to the probable
and estimable criteria of SFAS No. 5.

Paragraph 10 of FIN 45 states the following:

In the event that, at the inception of the guarantee, the guarantor is required
to recognize a liability under SFAS No. 5 for the related contingent loss, the
liability to be initially recognized for that guarantee shall be the greater of
(a) the amount that satisfies the fair value objective as discussed in paragraph
9 or (b) the contingent liability amount required to be recognized at inception
of the guarantee by paragraph 8 of SFAS No. 5. For many guarantors, it would be
unusual for the contingent liability amount under (b) above to exceed the amount
that satisfies the fair value objective under (a) above at the inception of the
guarantee.

The Company estimates the fair value of the non-contingent portion of its
manufacturer's inventory repurchase agreements under the provisions of FIN 45 at
inception (the date a home is shipped to dealers whose floor plan financing
agreement is supported by Cavalier's repurchase commitment). For repurchase
commitments, other than for those dealers who are identified at an elevated risk
of default, the Company's SFAS No. 5 liability would be zero at inception. The
Company evaluates the probability of default for the group of similar dealers
(those who are identified at an elevated risk of default), and even though the
particular dealers to default are unknown, the Company applies a probability of
default to the group, based on historical default rates, and a SFAS No. 5
contingent liability is recorded in an amount equal to the estimated loss on
repurchase. The Company's repurchase commitments for the group of dealers
included in the SFAS No. 5 reserve are excluded from the fair value calculation
required by FIN 45, since the resulting SFAS No. 5 loss reserve has historically
been greater than the FIN 45 reserve.

Additionally, subsequent to the inception of the guarantee, the Company
evaluates the likelihood that it will be called on to perform under the
inventory repurchase commitments. Based on identified changes in dealers'
financial conditions, the Company evaluates the probability of default for the
group of similar dealers (those who are identified at an elevated risk of
default) and applies a probability of default to the group, based on historical
default rates. Cavalier records an SFAS No. 5 contingent liability in an amount
equal to the estimated loss on repurchase.

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Securites and Exchange Commission
November 11, 2005
Page 3
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Cavalier hereby acknowledges the following:

        o Cavalier is responsible for the adequacy and accuracy of the
          disclosure in its filings;
        o Staff comments or changes to disclosure in response to staff comments
          in Company filings reviewed by the staff do not foreclose the
          Commission from taking any action with respect to such filings; and
        o Cavalier may not assert staff comments as a defense in any proceeding
          initiated by the Commission or any person under the federal securities
          laws of the United States.

If you have any questions or require any further information with respect to the
Cavalier's filings, please telephone either myself at (256) 747-9831 or David
Roberson at (256) 747-9838.

                                   Sincerely,

                                                     /s/ Michael R. Murphy
                                                     ---------------------

                                                     Micheal R. Murphy
                                                     Chief Financial Officer

cc:      David Roberson
         June Martin
         Paul S. Ware, Esq.
         Laura P. Washburn, Esq.
         Brian Barksdale
         Elton Sims
         Lori Snodgrass
         Bobby Tesney, Audit Committee, Chairman
         A. Douglas Jumper, Sr., Audit Committee
         J. Don Williams, Audit Committee

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