Viceroy Homes announces third quarter results



    TSX: VHL.A

    PORT HOPE, ON, Feb. 13 /CNW/ - Viceroy Homes today announced financial
results for the nine months ended December 31, 2007. Further weakness in sales
to Japan in the third quarter was offset by increases in sales in Canada and
to other export markets.

    RESULTS OF OPERATIONS

    Total consolidated sales for the nine months ended December 31 decreased
18% to $57.3 million, from $69.7 million for the first nine months one year
ago. Sales units decreased 37% to 795 in the first nine months of fiscal 2008,
versus 1,257 one year ago, as a result of the drop in shipments to Japan.
Total consolidated sales for the third quarter increased 6% to $18.7 million,
from $17.7 million for the third quarter one year ago. Sales units decreased
16% to 241 in the third quarter, versus 286 one year ago.
    In the first nine months of fiscal 2008, sales to Japan decreased by 56%
to $14.8 million (26% of total sales), from $33.3 million (48% of total sales)
in the first nine months of fiscal 2007. Sales to Japan in the third quarter
decreased by 49% to $3.2 million (17% of total sales), from $6.3 million (36%
of total sales) in the third quarter of last year. Although there has been a
slight improvement in the Canadian Dollar/Japanese Yen cross rate, the
extremely unfavourable exchange rate continues to have a serious impact on
Viceroy's competitive position with Japanese customers. In addition, Japanese
housing starts hit a multi-decade low in 2007, further reducing opportunities
in that market.
    Sales to other countries outside of North America, in the first nine
months of fiscal 2008, were $5.2 million ($2.5 million in the most recent
quarter), compared to $304,000 in the first nine months of fiscal 2007
($113,000 in the third quarter one year ago). In the most recent periods, the
majority of these sales were to the Russian Federation with the balance to the
United Kingdom.
    Sales in Canada during the first nine months of fiscal 2008 increased by
6% to $27.1 million (47% of total sales), from $25.5 million (37% of total
sales) during the same period one year ago, as Canadian customers are tending
to order more elaborate, higher-priced packages. Sales to customers in the
United States decreased by 3% to $10.3 million (18% of total sales) in the
first nine months of fiscal 2008, from $10.6 million (15% of total sales) in
the first nine months of fiscal 2007. In the third quarter, sales in Canada
increased 19% to $9.6 million (52% of total sales), from $8.1 million (46% of
total sales) during the same period one year ago. Sales to the United States
in the third quarter increased 3% to $3.3 million (18% of total sales), from
$3.2 million (18% of total sales) during the same period one year ago. The
U.S. housing market is under severe pressure, due to the subprime mortgage
problems and is not expected to recover in the near term.
    In the first nine months of fiscal 2008, revenues included $588,000 of
expired (forfeited) North American customer deposits, versus $607,000 in the
first nine months of fiscal 2007. In the most recent third quarter, forfeited
deposits of $179,000 were recognized as income, versus $281,000 during the
third quarter of fiscal 2007.
    As a result of lower sales in the first nine months of fiscal 2008, gross
profit was $7.4 million (13% of total sales), compared to $8.5 million (12% of
total sales) in the first nine months one year ago. Third quarter gross profit
was $2.0 million (11% of total sales), versus $1.4 million (8% of total sales)
for the third 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. In the most recent quarter, Viceroy successfully
settled a claim against a supplier for a product failure. This resulted in a
reduction of warranty expense of $190,000.
    Manufacturing overheads were lower by $1.5 million in the first nine
months of fiscal 2008, compared to the first nine months of fiscal 2007 (lower
by $394,000 in the most recent quarter). The major contributor to the reduced
overheads was "manufacturing salaries, benefits and overtime premiums," lower
by $997,000 in the most recent nine months (lower by $112,000 in the most
recent quarter), primarily due to cost reduction efforts. Included in the
lower benefit costs, Workers' Compensation premiums were lower by $151,000 in
the most recent nine months (higher by $27,000 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 $504,000 in the most recent nine months
(lower by $144,000 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. Cost-cutting measures will
include further plant consolidations. Effective February 1, 2008, Viceroy will
be sub-letting the Richmond "No. 2 plant" to a third party, saving
approximately $400,000 (on an annualized basis), including all ancillary
costs. Machine parts and repairs were lower by $264,000 in the most recent
nine months (lower by $69,000 in the most recent quarter), compared to the
same period a year ago.
    Selling costs were $4.4 million (8% of total sales) in the first nine
months of fiscal 2008, compared to $4.5 million (6% of total sales) in the
first nine months one year ago. For the most recent quarter, selling costs
were $1.5 million (8% of total sales), versus $1.6 million (9% of total sales)
for the third quarter one year ago. Reduced print media and promotional
materials resulted in advertising expenses being lower by $109,000 in the most
recent nine months (higher by $44,000 in the most recent quarter). Building
and equipment amortization expenses were higher by $83,000 in the nine months
($13,000 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 $3.5 million (6% of total sales)
in the first nine months of fiscal 2008, compared to $3.2 million (5% of total
sales) in the first nine months one year ago. For the most recent quarter,
general and administrative expenses were $1.5 million (8% of total sales),
versus $1.0 million (6% of total sales) for the third quarter one year ago. In
the most recent nine months, equipment rentals and travel costs were higher by
$102,000 ($10,000 higher for the most recent quarter), compared to the same
period one year ago. Communications expenses, company-wide, were lower by
$118,000 for the most recent nine months (lower by $34,000 for the most recent
quarter), due to lower charges for data lines, telephones and internet costs.
In the most recent nine months, shareholder relations expenses included
$714,000 ($579,000 in the most recent quarter) 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
Voting Shares by Joint Stock Company "Open Investments" ("OPIN"). Further
expenses relating to this review are estimated to approximate $153,000, and
are expected to be incurred in the fourth quarter.
    Other income was $73,000 in the first nine months of fiscal 2008
($358,000 in the third quarter), compared to $538,000 in the first nine months
($340,000 in the third quarter) one year ago. As summarized in Note 5 to the
consolidated interim financial statements, the other income was comprised
primarily of interest income, gains and losses on the translation of U.S.
currency and the loss on the sale of capital assets. In the most recent nine
months, interest income was higher than the same period a year ago by $82,000
(higher by $72,000 for the third quarter), due to the receipt of $56,000 (in
the third quarter) relating to interest on income tax refunds, as well as
higher rates on marketable securities and higher average balances. In the
first nine months of fiscal 2008, the translation of net U.S. assets resulted
in a loss of $484,000, compared to a gain of $38,000 one year ago (a negative
swing of $522,000). In the most recent quarter, the translation of net U.S.
assets resulted in a gain of $115,000, versus a gain of $169,000 in the third
quarter one year ago.
    The income tax recovery was $50,000 in the first nine months of fiscal
2008, compared to income tax expense of $292,000 in the first nine months one
year ago. In the third quarter, income tax recovery was $314,000, compared to
$318,000 in the same period one 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) has increased income tax expense by
approximately $456,000 for the most recent nine months, and increased income
tax expenses by $11,000 for the quarter, versus an increase in income tax
expense of $8,000 for the nine months and a reduction of $129,000 for the
quarter one year ago. Even though this currency exchange in the U.S. Company
creates an income tax exposure (and therefore income tax recoverable or
expense), it does not represent pre-tax income or expense for the consolidated
results.
    The net loss for the first nine months of fiscal 2008 was $488,000, or
$0.04 per share ($0.04 on a diluted basis, after giving effect to the
potential exercise of stock options), compared to net earnings of $1.0 million
or $0.09 per share ($0.09 on a diluted basis), for the same period one year
ago. For the most recent quarter, the net loss was $290,000, or $0.02 per
share ($0.02 on a diluted basis), versus a net loss of $549,000, or $0.05 per
share ($0.05 on a diluted basis), for the third quarter one year ago.

    LIQUIDITY AND CAPITAL RE

SOURCES Working capital was $16.7 million as at December 31, 2007, compared to $14.6 million as at March 31, 2007. The cash flow from operations, before changes in non-cash working capital, was $2.6 million in the first nine months of fiscal 2008, compared to $3.8 million for the same period one year ago. In the first nine months of fiscal 2008, the change in non-cash working capital provided funds of $1.7 million, due to: the reduction of accounts receivables of $1.4 million; the reduction of inventory of $991,000; the reduction of prepaid expenses and deposits of $88,000, and the reduction of income taxes recoverable of $404,000, net of the reduction of trade and other payables of $574,000; and the reduction of customer deposits of $626,000. 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 decreased, versus the end of March, in anticipation of the quieter winter season. Customer deposits also decreased, as the slower North American selling season approached. In the first nine months a year ago, the change in non-cash working capital provided funds of $167,000, due to: the reduction of trade and other receivables of $2.3 million; the reduction of inventory of $376,000, and the increase in customer deposits of $1.1 million, net of the increase in prepaid and other assets of $312,000; the increase in income taxes recoverable of $1.8 million; the reduction of trade and other payables of $52,000; and the reduction of income taxes payable of $1.5 million. In the first two quarters of fiscal 2007, dividends were paid at the rate of $0.075 per share per quarter, and in the third quarter at the rate of $0.05 per share, amounting to $2.2 million for the nine months. In light of the uncertainty in the near-term prospects, Viceroy's Board of Directors suspended the quarterly dividend, effective March 1, 2007. In the first nine months of fiscal 2007, in conjunction with the Dividend Reinvestment Plan (DRIP), share capital was issued in the amount of $28,000. In the first nine months of fiscal 2007 (in the second quarter), share capital was issued in the amount of $25,000 upon the exercise of employee stock options. On February 10, 2006, the Company granted 25,000 employee stock options, and on April 27, 2005, it granted 20,000 employee stock options. In conjunction with these grants, the Company recorded compensation expenses of $9,000 in the most recent nine months ($2,000 in the most recent quarter) and $49,000 in the first nine months ($17,000 for the quarter) one year ago. The Company had a 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 nine months of fiscal 2008, the Company repurchased for cancellation 160,400 of its Class A Subordinate Voting Shares (Nil in the most recent quarter) at a cost of $494,000, representing an average cost of $3.08 per share. A year ago, the Company had a Normal Course Issuer Bid, which expired on June 20, 2006. During the first nine months of fiscal 2007, no shares were repurchased. In the first nine months of fiscal 2008, proceeds of $20,000 were realized on the disposal of equipment and vehicles. In the first nine 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 nine months of fiscal 2008, $29,000 was expended on land and building improvements, $221,000 on display courts, $723,000 on machinery and equipment and $3,000 on vehicles. In the first nine months of fiscal 2007, $41,000 was expended on land and building improvements, $449,000 on display courts, $1.5 million on machinery and equipment and $37,000 on vehicles. As at December 31, 2007, the short-term investments consisted of money market instruments ("bankers' acceptances") with original maturities varying between 124 and 224 days. As at March 31, 2007, the short-term investments had original maturities varying between 133 and 181 days. 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 facility. OUTLOOK Looking ahead to the next quarter, the deterioration in the Japanese orders continues to accelerate. This will only partially be balanced by shipments to Russia and the United Kingdom. The Company is anticipating a reduction in shipments to the United States, in large measure due to the deep American housing slump. Heading into the seasonably slow fourth quarter, the Canadian housing market continues to look positive. On December 18, 2007, the Company announced the entering into of an arrangement agreement with Growth Technologies (Russia) Limited, a wholly-owned subsidiary of OPIN. Pursuant to the proposed Plan of Arrangement, which is subject to shareholder and court approval, all Class A Subordinate Voting Shares of Viceroy will be acquired by OPIN in an all-cash transaction in exchange for $5.00 per share. A proxy circular relating to the transaction has been mailed to securityholders for a special shareholders meeting to be held February 26, 2008. Closing of the transaction will occur shortly after the meeting, provided that requisite shareholder approval and all required court and other regulatory approvals have been obtained. Readers are referred to the Management Information and Proxy Circular dated January 21, 2008 for complete information in connection with the proposed Plan of Arrangement. A copy of the circular may be obtained upon request to the Secretary of the Company at 414 Croft Street East, Port Hope, Ontario L1A 4H1 or may be obtained online under the Company's profile on SEDAR at www.sedar.com. QUARTERLY INFORMATION (in thousands, except per share amounts) 2008 2007 2006 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 ------------------------------------------------------------------------- Net Sales $18,689 $20,050 $18,558 $12,059 $17,738 $30,045 $21,892 $18,832 Net Earnings (Loss): Total (290) (238) 40 (2,310) (549) 1,461 91 247 Per Share (0.02) (0.02) 0.00 (0.21) (0.05) 0.13 0.01 0.02 Per Share Diluted (0.02) (0.02) 0.00 (0.21) (0.05) 0.13 0.01 0.03 The lower sales in the fourth quarter typically result from the low North American activity during the January-to-March winter period. The drop in sales in the third quarter of fiscal 2007 and onward, was caused by the disappointing Japanese activity. 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: Nine months ended December 31, 2007 (Unaudited) The financial statements of Viceroy Homes Limited and the accompanying interim consolidated balance sheets as at December 31, 2007 and March 31, 2007 and the interim consolidated statements of earning, retained earnings and cash flows for the nine-month period then ended 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. 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 Nine Months Ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Sales $ 18,689 $ 17,738 $ 57,297 $ 69,675 Gross profit 2,047 1,387 7,354 8,491 Expenses 3,009 2,594 7,965 7,734 Other income 358 340 73 538 Income tax (314) (318) (50) 292 Net earnings (loss): Total (290) (549) (488) 1,003 Per share (0.02) (0.05) (0.04) 0.09 EPS diluted (0.02) (0.05) (0.04) 0.09 Dividends Class A $ - $ 0.050 $ - $ 0.200 Class B $ - $ 0.050 $ - $ 0.200 CONSOLIDATED BALANCE SHEETS: December 31 March 31 2007 2007 ------------------------------------------------------------------------- Working capital $ 16,714 $ 14,565 Property, plant and equipment 23,867 25,926 Total assets 52,086 54,182 Shareholders' equity 37,878 38,851 Viceroy Homes Limited Consolidated Statements of Earnings (unaudited) (In thousands of dollars, except per share amounts) Three Months Ended Nine Months Ended December 31 December 31 ------------------------------------------------------------------------- 2007 2006 2007 2006 Sales $ 18,689 $ 17,738 $ 57,297 $ 69,675 Cost of sales 16,642 16,351 49,943 61,184 ------------------------------------------------------------------------- 2,047 1,387 7,354 8,491 Expenses: Selling 1,541 1,564 4,428 4,528 General and administrative 1,468 1,030 3,537 3,206 ------------------------------------------------------------------------- 3,009 2,594 7,965 7,734 ------------------------------------------------------------------------- Earnings (loss) from operations (962) (1,207) (611) 757 Other income (note 5) 358 340 73 538 ------------------------------------------------------------------------- Earnings (loss) before income tax (604) (867) (538) 1,295 Income tax (recovery): Current (190) (307) (127) 504 Future (124) (11) 77 (212) ------------------------------------------------------------------------- (314) (318) (50) 292 ------------------------------------------------------------------------- Net earnings (loss) (290) (549) (488) 1,003 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per share: Basic $ (0.02) $ (0.05) $ (0.04) $ 0.09 Diluted (0.02) (0.05) (0.04) 0.09 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: 10,925,854 11,200,010 10,970,262 11,193,804 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Consolidated Statements of Retained Earnings (unaudited) (In thousands of dollars) Three Months Ended Nine Months Ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 1,005 $ 4,622 $ 1,203 $ 4,748 Net earnings (loss) (290) (549) (488) 1,003 Dividends Class A subordinate voting shares - (347) - (1,387) Class B multiple voting shares - (213) - (851) ------------------------------------------------------------------------- - (560) - (2,238) ------------------------------------------------------------------------- Retained earnings, end of period $ 715 $ 3,513 $ 715 $ 3,513 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes to interim consolidated financial statements. Viceroy Homes Limited Consolidated Balance Sheets (unaudited) (In thousands of dollars) ------------------------------------------------------------------------- ------------------------------------------------------------------------- December 31 March 31 2007 2007 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 5,710 $ 4,425 Short-term investments 10,048 7,509 Accounts receivable 1,846 3,238 Inventories 6,283 7,274 Prepaid expenses and deposits 1,235 1,323 Income tax recoverable 2,461 2,865 ------------------------------------------------------------------------- 27,583 26,634 Property, plant and equipment (note 2) 23,867 25,926 Asset held for sale - 869 Other assets 636 753 ------------------------------------------------------------------------- $ 52,086 $ 54,182 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current liabilities: Accounts payable and accrued liabilities $ 3,713 $ 4,287 Customer deposits 7,156 7,782 ------------------------------------------------------------------------- 10,869 12,069 Future income tax 3,339 3,262 Shareholders' equity: Capital stock (note 3) 33,494 34,284 Contributed surplus 3,669 3,364 Retained earnings 715 1,203 ------------------------------------------------------------------------- 37,878 38,851 Commitments (note 7) ------------------------------------------------------------------------- $ 52,086 $ 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 Nine Months Ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash provided by (used in) Operating activities: Net earnings (loss) $ (290) $ (549) $ (488) $ 1,003 Items not affecting cash: Amortization 1,016 1,001 3,017 2,949 Future income tax (recovery) (124) (11) 77 (212) Loss on disposal of long-lived assets - - 27 2 Stock option compensation cost 2 17 9 49 Change in non-cash operating working capital (1,557) 46 1,675 167 ------------------------------------------------------------------------- (953) 504 4,317 3,958 Financing activities: Dividends paid - (552) - (2,210) Issue of capital stock - - - 25 Repurchase of capital stock - (282) (494) (282) ------------------------------------------------------------------------- - (834) (494) (2,467) Investing activities: Proceeds on disposal of long-lived assets - - 860 7 Purchase of property, plant and equipment (239) (708) (976) (2,004) Decrease (increase) in other assets 54 (16) 117 8 Decrease (increase) in short-term investments (10,048) (7,531) (2,539) 2,095 ------------------------------------------------------------------------- (10,233) (8,255) (2,538) 106 Increase (decrease) in cash and cash equivalents (11,186) (8,585) 1,285 1,597 Cash and cash equivalents, beginning of period 16,896 15,585 4,425 5,403 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 5,710 7,000 5,710 7,000 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Net interest received $ 192 $ 205 $ 644 $ 590 Income tax received 440 168 498 168 Income tax paid 8 471 17 3,733 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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) Nine Months Ended December 31, 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 December 31, 2007 Cost amortization value --------------------------------------------------------------------- Land $ 2,749 $ - $ 2,749 Machinery and equipment 44,537 28,917 15,620 Buildings and paved areas 7,390 4,385 3,005 Display courts 4,276 2,172 2,104 Vehicles 1,241 1,092 149 Assets under development 240 - 240 --------------------------------------------------------------------- $ 60,433 $ 36,566 $ 23,867 --------------------------------------------------------------------- --------------------------------------------------------------------- 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: --------------------------------------------------------------------- --------------------------------------------------------------------- December 31, 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 December 31, 2007, 795,276 (March 31, 2007 - 736,276) of these options have been reserved for future issuance, of which 248,000 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 December 31, 2007 is February 10, 2016. The weighted average exercise price of the outstanding options is $3.77. (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 nine months ended December 31, 2006, the Company issued 5,855 shares under the Dividend Reinvestment Plan with a value of $28,000. (e) The Company had a Normal Course Issuer Bid that expired on October 17, 2007. In the nine months ended December 31, 2007, under this Normal Course Issuer Bid, the Company repurchased for cancellation 160,400 shares at an average price of $3.08 per share. 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 nine months ended December 31, 2007, sales to one large consortium of Japanese builders represented $14,721,000 ($33,237,000 for the nine months ended December 31, 2006). Sales to the construction for the three months ended December 31, 2007 were $3,222,000. ($6,280,000 for the three months ended December 31, 2006). Sales, based on the location of the customer, are as follows: Three months ended Nine months ended December 31 December 31 2007 2006 2007 2006 --------------------------------------------------------------------- Canada $ 9,643 $ 8,086 $ 27,062 $ 25,505 United States 3,319 3,235 10,302 10,552 Japan 3,226 6,304 14,755 33,314 Other 2,501 113 5,178 304 --------------------------------------------------------------------- $ 18,689 $ 17,738 $ 57,297 $ 69,675 --------------------------------------------------------------------- --------------------------------------------------------------------- The Company's property, plant and equipment are located in the following countries: December 31, March 31, 2007 2007 --------------------------------------------------------------------- Canada $ 22,875 $ 24,952 United States 992 974 Philippines - 869 --------------------------------------------------------------------- $ 23,867 $ 26,795 --------------------------------------------------------------------- --------------------------------------------------------------------- 5. OTHER INCOME: Three months ended Nine months ended December 31 December 31 2007 2006 2007 2006 --------------------------------------------------------------------- Interest income $ 243 $ 171 $ 584 $ 502 Foreign currency exchange gain (loss) 115 169 (484) 38 Gain (loss) on sale of property, plant and equipment - - 2 (2) Loss on disposal of asset held for sale - - (29) - --------------------------------------------------------------------- $ 358 $ 340 $ 73 $ 538 --------------------------------------------------------------------- --------------------------------------------------------------------- 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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