Viceroy Homes announces second quarter results



    TSX: VHL.A

    PORT HOPE, ON, Nov. 12 /CNW/ - Viceroy Homes today announced financial
results for the six months ended September 30, 2007. A further sharp reduction
in sales to Japan and a weakening of the U.S. housing market negatively
impacted results.

    RESULTS OF OPERATIONS

    Total consolidated sales for the six months ended September 30 decreased
26% to $38.6 million from $51.9 million for the first six months one year ago.
Sales units decreased 43% to 554 in the first half of fiscal 2008, from 971
one year ago. Total consolidated sales for the second quarter decreased 33% to
$20.1 million, from $30.0 million for the second quarter one year ago. Sales
units were 271 in the second quarter, versus 517 one year ago, representing a
48% decrease.
    In the first six months of fiscal 2008, sales to Japan decreased by 57%
to $11.5 million (30% of total sales), from $27.0 million (52% of total sales)
in the first six months of fiscal 2007. Sales to Japan in the second quarter
decreased by 65% to $4.6 million (23% of total sales), from $13.1 million (44%
of total sales) in the second quarter of fiscal 2007. The rapidly
strengthening Canadian dollar has created an extremely unfavourable exchange
rate, and, along with increases in the customers' shipping costs, has had a
devastating impact on the Company's competitive position with the Japanese
customers. As discussed in the first quarter, the value of the Yen, compared
to the Canadian dollar, has dropped by 45% in three years, with a great deal
of the damage coming within the past year. Furthermore, there has been a sharp
divergence in Japanese housing starts, with high-rise condominium starts
increasing and single family detached units decreasing, particularly within
the two-by-four wood frame category. The combined effect of these factors has
led to a fundamental deterioration in this segment of the Company's sales.
    Sales to other countries outside of North America, in the first six
months of fiscal 2008, were $2.7 million ($1.5 million in the most recent
quarter), compared to $191,000 in the first half of fiscal 2007 ($143,000 in
the second quarter one year ago). The majority of these sales were to the
Russian Federation with the balance to the United Kingdom.
    Sales in Canada during the first six months of fiscal 2008 were
$17.4 million (45% of total sales) and $17.4 million (33% of total sales) in
the same period one year ago. Sales to customers in the United States
decreased by 4% to $7.0 million (18% of total sales) in the first six months
of fiscal 2008, compared to $7.3 million (14% of total sales) in the first
half of fiscal 2007. In the second quarter, sales in Canada decreased by 5% to
$10.6 million (53% of total sales) from $11.2 million (37% of total sales).
Sales to the United States in the second quarter decreased by 41% to $3.3
million (17% of total sales) from $5.6 million (18% of total sales) in the
second quarter of fiscal 2007. The U.S. housing market is in its worst slump
in a generation and this severe downturn in sales is spilling into Viceroy's
American orders even sooner than expected. Canadian sales have held up better.
Even though the Canadian sales dipped in the second quarter, they are expected
to show an increase in growth for the year.
    In the first six months of fiscal 2008, revenues included $410,000 of
expired (forfeited) North American customer deposits, versus $326,000 in the
first six months of fiscal 2007. In the most recent second quarter, forfeited
deposits of $113,000 were recognized as income, versus $130,000 during the
second quarter of fiscal 2007.
    Gross profit was $5.3 million (14% of total sales) in the first six
months of fiscal 2008, compared to $7.1 million (14% of total sales) in the
first six months one year ago. For the most recent quarter, the gross profit
was $2.9 million (14% of total sales), versus $4.6 million (15% of total
sales) for the second quarter one year ago. The material margin percentage
improved as a result of the changing sales mix but costs of delivery to
customers continued to escalate.
    Fixed factory overheads were lower by $1.2 million in the first six
months of fiscal 2008, compared to the first half of fiscal 2007 (lower by
$869,000 in the most recent quarter). The major contributor to the reduced
overheads was "manufacturing salaries, benefits and overtime premiums," lower
by $885,000 in the most recent six months (lower by $687,000 in the most
recent quarter), primarily due to cost reduction efforts. Included in the
lower benefit costs, Workers' Compensation premiums were lower by $178,000 in
the most recent six months (lower by $107,000 in the most recent quarter).
Approximately one third of the reduction was due to lower rates in the
Richmond, B.C. facilities. Rental expenses, outside services, property taxes,
insurance and utilities were lower by $361,000 in the most recent six months
(lower by $230,000 in the most recent quarter), compared to one year ago, due
to cost reduction efforts, as well as the expiration of the lease for the
Richmond window plant and the consolidation of those operations into the other
two leased Richmond facilities in March 2007. Machine parts and repairs were
lower by $195,000 in the most recent six months (primarily in the second
quarter), compared to the same period a year ago.
    Selling costs were $2.9 million (8% of total sales) in the first six
months of fiscal 2008, compared to $3.0 million (6% of total sales) in the
first six months one year ago. For the most recent quarter, selling costs were
$1.5 million (7% of total sales), versus $1.6 million (5% of total sales) for
the second quarter one year ago. Reduced print media and promotional materials
resulted in advertising expenses being lower by $152,000 in the most recent
six months (lower by $89,000 in the most recent quarter). Building and
equipment amortization expenses were higher by $70,000 in the six months
($35,000 higher in the most recent quarter), relating to additions in
Company-owned sales courts and the relatively new sales offices in the Detroit
and Boston areas.
    General and administrative expenses were $2.1 million (5% of total sales)
in the first six months of fiscal 2008, compared to $2.2 million (4% of total
sales) in the first six months one year ago. For the most recent quarter,
general and administrative expenses were $1.1 million (5% of total sales),
versus $1.1 million (4% of total sales) for the second quarter one year ago.
Computer consulting costs were $42,000 lower in the most recent six months
($30,000 lower for the most recent quarter). Legal fees were $51,000 lower in
the most recent six months ($58,000 lower in the recent quarter).
Communications expenses, company wide, were lower by $83,000 for the most
recent six months (lower by $49,000 for the most recent quarter), due to lower
charges for data lines, telephones and Internet costs. In the most recent
second quarter, shareholder relations expenses included $135,000 relating to
the costs of the independent advisers to the Special Committee of the Board of
Directors, assisting in the review of the proposed acquisition of the Class A
Subordinate shares by "Joint Stock Company Open Investments" ("OPIN"). Further
expenses relating to this review are estimated to approximate $365,000 and are
expected to be incurred in the third quarter.
    The other loss was $285,000 in the first six months of fiscal 2008,
compared to other income of $198,000 in the first six months one year ago. As
summarized in Note 5 to the consolidated interim financial statements, the
other income/loss was comprised primarily of interest income and losses on the
translation of U.S. currency. In the first six months of fiscal 2008, the
translation of net U.S. assets resulted in a loss of $599,000, due to the
rapid appreciation of the Canadian dollar, compared to a loss of $131,000 one
year ago. In the most recent quarter, the translation of net U.S. assets
resulted in a loss of $540,000, compared to a loss of $21,000 in the second
quarter one year ago. Subsequent to the quarter end, the Canadian dollar
continued to strengthen and the translation of net U.S. assets could result in
a further loss of approximately $50,000.
    Income tax expense was $264,000 in the first six months of fiscal 2008,
compared to $610,000 in the first six months one year ago. For the second
quarter, income tax expense was $186,000, compared to $563,000 in the same
period a year ago. The income tax exposure on currency exchange in Viceroy's
U.S. subsidiary (i.e., holding Canadian funds on the U.S. Company's balance
sheet) increased income tax expense by approximately $445,000 for the most
recent six months ($227,000 for the most recent quarter), versus $104,000
($48,000 for the quarter) in the comparable period a year ago. Even though the
currency exchange in the U.S. Company created an income tax exposure (and
therefore income tax expense), it did not represent pre-tax income for the
consolidated results. Subsequent to the quarter end, the Canadian dollar has
continued to strengthen and the additional potential income tax expense in
Viceroy's U.S. subsidiary approximates $100,000.
    The net loss for the first six months of fiscal 2008 was $198,000, or
$0.02 per share ($0.02 on a diluted basis, after giving effect to the
potential exercise of stock options), compared to net earnings $1.6 million,
or $0.14 per share ($0.14 on a diluted basis), one year ago. For the most
recent quarter, the net loss was $238,000, or $0.02 per share ($0.02 on a
diluted basis), versus net earnings of $1.5 million, or $0.13 per share ($0.13
on a diluted basis), for the second quarter one year ago.

    LIQUIDITY AND CAPITAL RE

SOURCES Working capital was $16.3 million as at September 30, 2007, compared to $14.6 million as at March 31, 2007. The cash flow from operations, before changes in non-cash working capital, was $2.0 million in the first six months of fiscal 2008, compared to $3.3 million in the first six months of fiscal 2007. In the first six months of fiscal 2008, the change in non-cash operating working capital provided funds of $3.2 million, due to: the reduction of accounts receivable of $1.2 million; the reduction of prepaid expenses and deposits of $363,000; the reduction of income taxes recoverable of $185,000; the increase in accounts payable and accrued liabilities of $1.2 million; and the increase in customer deposits of $1.1 million, net of the increase in inventory of $851,000. Accounts receivable were lower, as a result of the reduced sales to Japan. As the year progressed, lower prepaid property taxes and insurance represented the reduction in prepaid expenses. Inventories, as well as trade and other payables, increased with the higher level of activity at the end of the most recent six months, versus the end of March. Customer deposits increased, as the North American shipping season progressed. In the first six months last year, the change in non-cash working capital provided funds of $121,000, due to: the increase in trade and other payables of $3.0 million, and the increase in customer deposits of $1.2 million, net of the increase in trade and other receivables of $178,000; the increase in inventory of $946,000; the increase in prepaid expenses and other assets of $551,000; the increase in income taxes recoverable of $935,000; and the reduction of income taxes payable of $1.5 million. In the first six months a year ago, dividends were paid at the rate of $0.075 per share per quarter, amounting to $1.7 million. In conjunction with the Dividend Reinvestment Plan (DRIP), share capital was issued in the amount of $20,000 in the first six months one year ago. In the second quarter a year ago, share capital was issued in the amount of $25,000 upon the exercise of employee stock options, nil in the most recent six months. On February 10, 2006, the Company granted 25,000 employee stock options, and on April 27, 2005, the Company granted 20,000 employee stock options. In conjunction with these grants, the Company recorded compensation expenses of $8,000 in the most recent six months and $32,000 in the first six months one year ago. Effective October 13, 2006, The Toronto Stock Exchange approved the Company's Normal Course Issuer Bid, authorizing the repurchase of up to 602,001 Class A Shares within the twelve months ended October 17, 2007. Under this Bid, in the first six months of fiscal 2008, the Company repurchased for cancellation 160,400 of its Class A Subordinate Voting Shares (83,900 in the most recent quarter) at a cost of $494,000 ($255,000 in the most recent quarter), representing an average cost of $3.08 per share ($3.04 per share in the most recent quarter). A year ago, the Company had a Normal Course Issuer Bid, which expired on June 20, 2006. During the first six months of fiscal 2007, no shares were repurchased. In the first six months of fiscal 2008, proceeds of $20,000 were realized on the disposal of equipment and vehicles. In the first six months a year ago, proceeds of $7,000 were realized on the disposal of equipment and vehicles. In the second quarter of fiscal 2008, the Company sold its investment in the long-term lease in the Philippines for proceeds of $840,000, representing a loss of $29,000. The loss arose as a result of the strengthening Canadian dollar, compared to the Philippines Peso. In the first six months of fiscal 2008, $18,000 was expended on land and building improvements, $156,000 on display courts, $560,000 on machinery and equipment and $3,000 on vehicles. In the first six months of fiscal 2007, $23,000 was expended on land and building improvements, $376,000 on display courts, $860,000 on machinery and equipment and $37,000 on vehicles. As at March 31, 2007, the short-term investments consisted of money market instruments ("bankers' acceptances") with original maturities exceeding 120 days. As at September 30, 2007, the money market instruments had maturities not exceeding 60 days, and were classified as cash equivalents. The Company's primary source of liquidity is cash on-hand and short-term deposits. The Company has adequate cash resources to finance its working capital. When dividends are paid, they are paid out of surplus funds. The Company does not presently carry any short- or long-term debt, and is not subject to significant contractual commitments to purchase raw materials or finished goods, which specify any minimum quantities or set prices. The Company's needs for goods and services are fulfilled by its suppliers, on relatively short timetables. Management believes that the current cash and cash equivalents and cash generated from operations will be sufficient to satisfy the Company's operating requirements, including capital expenditures, for the next twelve months. LABOUR ORGANIZATION On September 24, 2007, the Company signed a three-year agreement, effective April 1, 2007, with the "Retail Wholesale Union", covering the hourly production workers in the Company's Richmond, B.C. manufacturing facilities. OUTLOOK Looking ahead, incoming orders indicate that the level of Japanese shipments will continue to deteriorate. On August 28, 2007, OPIN announced that it intends to make a proposal to pursue a Plan of Arrangement, under which an affiliate of OPIN would acquire all of the outstanding Class A Subordinate Voting Shares of Viceroy Homes Limited. The Company expects to deliver a further 26 house packages to Russia over the balance of the year, with the majority to be delivered in the third quarter. However, any further Russian house package orders could be contingent upon the proposal being approved by a vote by the Class A shareholders. In the North American market, incoming orders have fallen 23%, due primarily to the turmoil in the U.S. housing market. Management expects the softening of the U.S. orders to continue well into next year. QUARTERLY INFORMATION (in thousands, except per share amounts) 2008 2007 Q2 Q1 Q4 Q3 ------------------------------------------------------------------------- Net Sales $ 20,050 $ 18,558 $ 12,059 $ 17,738 Net Earnings (Loss) Total (238) 40 (2,310) (549) Per Share (0.02) 0.00 (0.21) (0.05) EPS Diluted (0.02) 0.00 (0.21) (0.05) 2007 2006 Q2 Q1 Q4 Q3 ------------------------------------------------------------------------- Net Sales $ 30,045 $ 21,892 $ 18,832 $ 27,342 Net Earnings (Loss) Total 1,461 91 247 866 Per Share 0.13 0.01 0.02 0.08 EPS Diluted 0.13 0.01 0.03 0.07 ADDITIONAL INFORMATION Information relating to the Company, including the Company's Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com. Management's Discussion and Analysis contains forward-looking statements regarding Viceroy Homes' expectations and beliefs with respect to future events and/or financial performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual events or results to differ materially from those expressed or implied in such forward-looking statements. The reader is referred to the documents that Viceroy Homes files from time to time with applicable Canadian securities and regulatory authorities for a discussion on certain risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. Viceroy Homes does not undertake to update forward-looking statements. Founded 52 years ago, Viceroy Homes is a leader in pre-engineered housing that offers high quality building designs and materials combined with lower cost and reduced on-site construction time. Viceroy is the largest supplier of Canadian housing technology to a growing export market providing superior housing solutions for builders and developers around the world. The Company has vertically integrated manufacturing facilities located in Ontario and British Columbia. Viceroy's Class A Subordinate Voting Shares trade on the Toronto Stock Exchange under the symbol VHL.A. NOTICE TO READER OF THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS: Six months ended September 30, 2007 (Unaudited) The financial statements of Viceroy Homes Limited and the accompanying interim consolidated balance sheets as at September 30, 2007 and March 31, 2007 and the interim consolidated statements of earnings, retained earnings and cash flows for the six-months ended September 30, 2007 and September 30, 2006 are the responsibility of the Company's management. These interim consolidated financial statements have not been reviewed on behalf of the shareholders by the independent external auditors of the Company, KPMG LLP, Chartered Accountants, Licensed Public Accountants. The interim consolidated financial statements have been prepared by management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these financial statements in accordance with Canadian generally accepted accounting principles. Viceroy Homes Limited Financial Highlights (In thousands of dollars except per share amounts) CONSOLIDATED STATEMENTS OF INCOME: Three Months Ended Six Months Ended September 30 September 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Sales $ 20,050 $ 30,045 $ 38,608 $ 51,937 Gross profit 2,880 4,632 5,307 7,104 Expenses 2,552 2,773 4,956 5,140 Other income (loss) (380) 165 (285) 198 Income tax 186 563 264 610 Net earnings (loss): Total (238) 1,461 (198) 1,552 Per share (0.02) 0.13 (0.02) 0.14 EPS diluted (0.02) 0.13 (0.02) 0.14 Dividends Class A $ - $ 0.075 $ - $ 0.150 Class B $ - $ 0.075 $ - $ 0.150 CONSOLIDATED BALANCE SHEETS: September 30 March 31 2007 2007 ------------------------------------------------------------------------- Working capital $ 16,295 $ 14,565 Property, plant and equipment 24,644 25,926 Total assets 56,055 54,182 Shareholders' equity 38,166 38,851 Viceroy Homes Limited Consolidated Statements of Earnings (unaudited) (In thousands of dollars, except per share amounts) Three Months Ended Six Months Ended September 30 September 30 ------------------------------------------------------------------------- 2007 2006 2007 2006 Sales $ 20,050 $ 30,045 $ 38,608 $ 51,937 Cost of sales 17,170 25,413 33,301 44,833 ------------------------------------------------------------------------- 2,880 4,632 5,307 7,104 Expenses: Selling 1,477 1,646 2,887 2,964 General and administrative 1,075 1,127 2,069 2,176 ------------------------------------------------------------------------- 2,552 2,773 4,956 5,140 ------------------------------------------------------------------------- Earnings (loss) from operations 328 1,859 351 1,964 Other income (loss) (note 5) (380) 165 (285) 198 ------------------------------------------------------------------------- Earnings (loss) before income tax (52) 2,024 66 2,162 Income tax (recovery): Current (86) 793 63 811 Future 272 (230) 201 (201) ------------------------------------------------------------------------- 186 563 264 610 ------------------------------------------------------------------------- Net earnings (loss) (238) 1,461 (198) 1,552 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per share: Basic $ (0.02) $ 0.13 $ (0.02) $ 0.14 Diluted (0.02) 0.13 (0.02) 0.14 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: 10,938,553 11,193,143 10,992,588 11,190,684 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Consolidated Statements of Retained Earnings (unaudited) (In thousands of dollars) Three Months Ended Six Months Ended September 30 September 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 1,243 $ 4,000 $ 1,203 $ 4,748 Net earnings (loss) (238) 1,461 (198) 1,552 Dividends Class A subordinate voting shares - (520) - (1,040) Class B multiple voting shares - (319) - (638) ------------------------------------------------------------------------- - (839) - (1,678) ------------------------------------------------------------------------- Retained earnings, end of period $ 1,005 $ 4,622 $ 1,005 $ 4,622 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Consolidated Balance Sheets (unaudited) (In thousands of dollars) ------------------------------------------------------------------------- September 30 March 31 2007 2007 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 16,896 $ 4,425 Short-term investments - 7,509 Accounts receivable 2,060 3,238 Inventories 8,125 7,274 Prepaid expenses and deposits 960 1,323 Income tax recoverable 2,680 2,865 ------------------------------------------------------------------------- 30,721 26,634 Property, plant and equipment (note 2) 24,644 25,926 Asset held for sale - 869 Other assets 690 753 ------------------------------------------------------------------------- $ 56,055 $ 54,182 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued liabilities $ 5,536 $ 4,287 Customer deposits 8,890 7,782 ------------------------------------------------------------------------- 14,426 12,069 Future income tax 3,463 3,262 Shareholders' equity: Capital stock (note 3) 33,494 34,284 Contributed surplus 3,667 3,364 Retained earnings 1,005 1,203 ------------------------------------------------------------------------- 38,166 38,851 Commitments (Note 7) ------------------------------------------------------------------------- $ 56,055 $ 54,182 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Consolidated Statements of Cash Flows (unaudited) (In thousands of dollars) Three Months Ended Six Months Ended September 30 September 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash provided by (used in) Operating activities: Net earnings (loss) $ (238) $ 1,461 $ (198) $ 1,552 Items not affecting cash: Amortization 1,011 963 2,001 1,948 Future income tax (recovery) 272 (230) 201 (201) Loss on disposal of long-lived assets 27 - 27 2 Stock option compensation cost 3 15 7 32 Change in non-cash operating working capital (303) 1,848 3,232 121 ------------------------------------------------------------------------- 772 4,057 5,270 3,454 Financing activities: Dividends paid - (826) - (1,658) Issue of capital stock - 25 - 25 Repurchase of capital stock (255) - (494) - ------------------------------------------------------------------------- (255) (801) (494) (1,633) Investing activities: Proceeds on disposal of long-lived assets 845 - 860 7 Purchase of property, plant and equipment (220) (753) (737) (1,296) Decrease in other assets 42 9 63 24 Decrease in short-term investments - - 7,509 9,626 ------------------------------------------------------------------------- 667 (744) 7,695 8,361 Increase in cash and cash equivalents 1,184 2,512 12,471 10,182 Cash and cash equivalents, beginning of period 15,712 13,073 4,425 5,403 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 16,896 15,585 16,896 15,585 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Net interest received $ 224 $ 135 $ 452 $ 385 Income tax received - - 58 - Income tax paid 9 894 9 3,262 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash equivalents consist of short-term deposits with maturities of less than three months at date of acquisition. See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Notes to Interim Consolidated Financial Statements (Unaudited) Six Months Ended September 30, 2007 and 2006 (Tabular amounts in thousands of dollars) 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS: The notes presented in these interim consolidated financial statements include only significant events and transactions and are not fully inclusive of all matters normally disclosed in the Company's annual audited financial statements. As a result, these interim consolidated financial statements should be read in conjunction with the Viceroy Homes Limited consolidated financial statements for the year ended March 31, 2007. 2. LONG-LIVED ASSETS: a) Property, Plant and Equipment: Accumulated Net book September 30, 2007 Cost amortization value --------------------------------------------------------------------- Land $ 2,746 $ - $ 2,746 Machinery and equipment 44,471 28,086 16,385 Buildings and paved areas 7,382 4,314 3,068 Display courts 4,211 2,072 2,139 Vehicles 1,241 1,078 163 Assets under development 143 - 143 --------------------------------------------------------------------- $ 60,194 $ 35,550 $ 24,644 --------------------------------------------------------------------- --------------------------------------------------------------------- Accumulated Net book March 31, 2007 Cost amortization value --------------------------------------------------------------------- Land $ 2,746 $ - $ 2,746 Machinery and equipment 43,469 26,453 17,016 Buildings and paved areas 7,364 4,174 3,190 Display courts 4,070 1,889 2,181 Vehicles 1,317 1,119 198 Assets under development 595 - 595 --------------------------------------------------------------------- $ 59,561 $ 33,635 $ 25,926 --------------------------------------------------------------------- --------------------------------------------------------------------- Assets under development will be amortized commencing in the year with the assets being put into production and includes predominantly machinery and equipment. b) Asset Held For Sale In fiscal 2008, the Company's investment in a long-term lease in the Philippines was listed for sale. In the second quarter of fiscal 2008, the Company completed the sale of the investment for proceeds of $840,000. The Philippines asset is disclosed separately in Segmented Information in note 4. 3. CAPITAL STOCK: (a) Authorized capital stock of the Company consists of an unlimited number of first preference shares, non-voting, issuable in series; Class A subordinate voting shares (the "Class A shares"); and Class B multiple voting shares (the "Class B shares"). The significant features attached to the Class A and the Class B shares are as follows: (i) The Class A shares carry one vote per share and the Class B shares carry 10 votes per share. (ii) Each Class B share is convertible into one Class A share at any time at the option of the holder. (b) Issued capital stock of the Company is as follows: --------------------------------------------------------------------- September 30 March 31 2007 2007 --------------------------------------------------------------------- 6,670,419 Class A shares (March 31, 2007 - 6,830,819) $ 32,871 $ 33,661 4,255,435 Class B shares (March 31, 2007 - 4,255,435) 623 623 --------------------------------------------------------------------- $ 33,494 $ 34,284 --------------------------------------------------------------------- --------------------------------------------------------------------- (c) The Company has an Employee Share Option Plan (the "Option Plan") to purchase Class A shares. At September 30, 2007, 736,276 (March 31, 2007 - 736,276) of these options have been reserved for future issuance, of which 307,000 options have been issued and are outstanding. Under the terms of the Option Plan, each option vests as to 20% of the optioned shares one year after the date of grant and 20% in each twelve-month period thereafter. The options will expire on the tenth anniversary of the date of grant unless exercised before such anniversary. The latest date for the expiry of the options outstanding at September 30, 2007 is February 10, 2016. The weighted average exercise price of the outstanding options is $3.84. (d) The Company has a Dividend Reinvestment Plan. The Plan enables eligible holders of shares of Viceroy Homes Limited who are residents of Canada to purchase additional Class A Shares of Viceroy Homes Limited. Eligible shareholders have the choice of either receiving cash dividends or automatically reinvesting all of their cash dividends in Class A Shares of the Company. At the option of Viceroy Homes Limited, the additional Class A Shares will either be treasury shares purchased directly from the Company or will be purchased on The Toronto Stock Exchange. In the six months ended September 30, 2006, the Company issued 3,877 shares under the Dividend Reinvestment Plan with a value of $20,000. (e) The Toronto Stock Exchange has approved a Normal Course Issuer Bid for the Company. It authorizes the repurchase of up to 602,001 Class A Shares within the twelve months ending October 17, 2007. In the six months ended September 30, 2007, under this Normal Course Issuer Bid, the Company repurchased for cancellation, 160,400 shares at an average price of $3.08. The Company had a Normal Course Issuer Bid that expired on June 20, 2006. In the six months ended September 30, 2006, the company did not repurchase or cancel any shares. 4. SEGMENTED INFORMATION: The design, manufacture and distribution of pre-engineered packaged homes are considered to be a single industry segment. These products are manufactured in Canada and sold in Canada, the United States, Europe and Southeast Asia. For the six months ended September 30, 2007, sales to one large consortium of Japanese builders represented $11,499,000 ($26,957,000 for the six months ended September 30, 2006). Sales to the consortium for the three months ended September 30, 2007 were $4,607,000. ($13,105,000 for the three months ended September 30, 2006.) Sales, based on the location of the customer, are as follows: Three months ended Six months ended September 30 September 30 2007 2006 2007 2006 --------------------------------------------------------------------- Canada $ 10,557 $ 11,229 $ 17,419 $ 17,419 United States 3,343 5,566 6,983 7,317 Japan 4,607 13,107 11,529 27,010 Other 1,543 143 2,677 191 --------------------------------------------------------------------- $ 20,050 $ 30,045 $ 38,608 $ 51,937 --------------------------------------------------------------------- --------------------------------------------------------------------- The Company's property, plant and equipment are located in the following countries: September 30, March 31, 2007 2007 --------------------------------------------------------------------- Canada $ 23,636 $ 24,952 United States 1,008 974 Philippines - 869 --------------------------------------------------------------------- $ 24,644 $ 26,795 --------------------------------------------------------------------- --------------------------------------------------------------------- 5. OTHER INCOME (LOSS): Three months ended Six months ended September 30 September 30 2007 2006 2007 2006 --------------------------------------------------------------------- Interest income $ 187 $ 186 $ 341 $ 331 Foreign currency exchange loss (540) (21) (599) (131) Gain (loss) on sale of property, plant and equipment 2 - 2 (2) Loss on disposal of asset held for sale (29) - (29) - --------------------------------------------------------------------- $ (380) $ 165 $ (285) $ 198 --------------------------------------------------------------------- --------------------------------------------------------------------- 6. FAIR VALUES OF FINANCIAL INSTRUMENTS: The carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of these financial instruments. 7. COMMITMENTS: The Company has commitments to lease premises in British Columbia, Massachusetts and Michigan, as well as certain office equipment and vehicles.

For further information:

For further information: William R. Simpson, Vice-President, Finance,
Secretary-Treasurer and CFO, (905) 885-8600 Ext. 220, www.viceroy.com

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VICEROY HOMES LIMITED

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