mb-2655-dorel ar 2005 en v11 · us operations include dorel juvenile group usa, which markets the...

strongbrands, products & relationshipsA GLOBAL CONSUMER PRODUCTS COMPANY2005 ANNUAL REPORT

profile 1 message to shareholders 2 at a glance 4 11-year financialretrospective 6 management's discussion and analysis 7 consolidatedfinancial statements 21 board of directors 50 major operations 51corporate information 52

TABLE OF CONTENTS

2005 ANNUAL REPORT 1

DOREL INDUSTRIES(TSX: DII.B, DII.A; NASDAQ: DIIB)

IS A GLOBAL CONSUMER PRODUCTS COMPANY ENGAGED IN THE DESIGNING, MANUFACTURING AND MARKETING OF A

DIVERSE PORTFOLIO OF POWERFUL CONSUMER BRANDS, SOLD THROUGH ITS JUVENILE, HOME FURNISHINGS,

AND RECREATIONAL/LEISURE SEGMENTS. HEADQUARTERED IN MONTREAL, DOREL EMPLOYS APPROXIMATELY 4,500 PEOPLE

IN FOURTEEN COUNTRIES. DOREL ALSO HAS EIGHT OFFICES IN CHINA, HEADQUARTERED IN SHANGHAI, WHICH OVERSEE THE

SOURCING, ENGINEERING AND LOGISTICS OF THE COMPANY’S ASIAN SUPPLIER CHAIN. 2005 SALES WERE US$1.8 BILLION.

US OPERATIONS INCLUDE DOREL JUVENILE GROUP USA, WHICH MARKETS THE COSCO AND SAFETY 1st BRANDS AS WELL EDDIE

BAUER AND DISNEY BABY LICENSED PRODUCTS; AMERIWOOD INDUSTRIES, WHICH MARKETS READY-TO-ASSEMBLE

PRODUCTS UNDER THE AMERIWOOD, CARINA, SYSTEMBUILD, ALTRA FURNITURE AND RIDGEWOOD/CHARLESWOOD BRANDS

AS WELL AS THE CALIFORNIA CLOSETS LICENSE; COSCO HOME & OFFICE, WHICH MARKETS HOME/OFFICE PRODUCTS UNDER

THE COSCO AND COSCO ABILITY ESSENTIALS AND ADEPTA BRANDS AND SAMSONITE LICENSE; AND PACIFIC CYCLE,

WHICH MARKETS THE SCHWINN, MONGOOSE, GT, INSTEP AND ROADMASTER BRANDS. IN CANADA, DOREL OPERATES

DOREL DISTRIBUTION CANADA, RIDGEWOOD INDUSTRIES AND DOREL HOME PRODUCTS. DOREL EUROPE MARKETS JUVENILE

PRODUCTS THROUGHOUT EUROPE, UNDER THE BÉBÉ CONFORT, MAXI-COSI, QUINNY, SAFETY 1ST, BABIDÉAL, MON BÉBÉ AND

BABY RELAX BRANDS. DOREL ASIA SOURCES AND IMPORTS HOME FURNISHINGS PRODUCTS.

400,000

800,000

1,200,000

1,600,000

2,000,000

1,76

0,86

5

1,709,074

1,180,777

992,073

916,769 20,000

40,000

60,000

80,000

100,000

91,3

22

100,076

74,200

61,595

25,504 0.50

1.00

1.50

2.00

2.50

3.00

2.77

3.04

2.29

2.00

0.89

REVENUES(in thousands of U.S. dollars)

NET INCOME(in thousands of U.S. dollars)

NET INCOME PER DILUTED SHARE(in U.S. dollars)

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

MESSAGE TO SHAREHOLDERS

Dear fellow shareholder,

The majority of our varied business units did well in 2005 and Dorel posted another profitable

year. Full year net income, adjusted for the Ameriwood restructuring costs, was US$97.5 million

or US$2.96 per diluted share compared to US$100 million or US$3.04 per diluted share last year.

Unadjusted, annual net income was US$91.3 million or US$2.77 per diluted share. Revenue for the

full year was US$1.8 billion, up slightly from last year’s US$1.7 billion.

Juvenile and Home Furnishing revenues increased by 9.1% and 4.8% respectively. Gains were

offset by the decline in Recreational/Leisure sales. As previously discussed, two issues affected

results. Inefficiencies in our ready-to-assemble (RTA) furniture division and a spectacular 2004

sales run for the Sting-Ray bicycle, which could not be repeated in 2005, minimized our overall

corporate performance. Both matters are being decisively dealt with.

Dorel’s revitalized RTA furniture division is delivering

Last year we initiated a plan to re-ignite the RTA furniture division. Important progress has been made. An enhanced new product development

capability has resulted in an exciting flow of new products; Ameriwood has widened its customer base; sourcing has increased significantly from China

and overheads have been reduced due to operational improvements at North American factories. As of this writing, the required turnaround was being

affected by industry-wide particle board shortages and steep price increases. Customer price increases are being implemented which will take effect

later this year. The rebuilding plan at Ameriwood included the December 2005 closure of the Wright City, Missouri factory.

In the first quarter this year orders were above expectations and beyond the immediate capabilities of the three remaining North American RTA

furniture plants, as the integration of the Wright City operations had not yet been completed. The insufficient level of finished goods inventory and a

tight particle board supply meant orders were either cancelled or delayed. This situation substantially improved in late March.

Traditionally Dorel has done well in RTA, even when some of our competitors have not. We firmly believe we will be a thriving survivor in an industry

which continues to consolidate. Dorel has the resources to see situations such as this through and we have made a commitment to make the necessary

adjustments to ensure that our RTA furniture operations deliver the required levels of profitability.

2 DOREL INDUSTRIES INC.

Home Furnishings’ successes

Our two other Home Furnishings divisions performed well as did Dorel Home Product’s futons. Dorel Asia had another record year. Strong 2006

juvenile and dining room programs, encompassing various imported items, are already in place at a number of mass merchants.

Cosco Home & Office repositioned its furniture business in 2005. Long known for its folding furniture, the division took significant steps to re-establish

itself as a leading supplier of fashion furniture. This focus is expected to provide greater revenue and margin growth. On the commercial front, use

of the successful Samsonite brand is being expanded to all furniture products within the business office market. The division also pursued its

development of a full line of both retail and commercial home health care products.

Juvenile continues to grow

The Juvenile segment had a very satisfying year. Numerous new product introductions drove revenues up 9% in North America and 8% in Europe.

Costs were well contained despite higher raw material prices.

DJG, USA has several new product launches planned this year. Among them are Safety 1st items, a new Disney-branded collection, an opening price

point travel system, and a series of Eddie Bauer travel safety items. Canada anticipates a successful 2006 with strong organic growth. The Quinny

brand will be expanded as will other select products from Dorel Europe.

There was progress in several European markets, particularly in the United Kingdom, Germany, Italy and Spain, driven by the introduction of new

travel systems under the Quinny brand. Dorel Europe also anticipates further progress through 2006 with new product introductions.

New opportunities in Recreational/Leisure

Pacific Cycle continues to sell more bikes than any other US bicycle company. With the leading mass merchant market share, it heads the industry both

in dollars generated (25%*) and units sold (30%*). Clearly, the Schwinn brand is as strong as ever.

Among the new products introduced in 2005 was a line of gas-powered motor scooters, a new business for Pacific. An impressive dealer network is

being established. The motor scooter market is the fastest growing in the motorcycle segment. With higher gasoline prices prompting many to be more

energy conscious, scooters are likely to become even more popular. Pacific also entered a new category, metal swing sets, under the Playsafe brand.

In April, Pacific launched its Mongoose bicycle program in China at the Shanghai Bike Show. Mongoose has signed with the Chinese National Cycling

Federation to be the exclusive supplier to the Chinese National team at the 2008 Beijing Summer Olympics.

Outlook

Considerable effort was expended in 2005 creating new products in all of our segments that the market wants and at the right prices. This includes

the marketing of higher margin items at higher price points, particularly in Europe. With the right products, our focus through the balance of 2006 is

to produce efficiently and deal with raw material supply and costs.

Two challenges face the RTA furniture industry, both with particle board. Supply is exceedingly tight. Board prices began increasing during the first

quarter and have continued to climb. Dorel Asia and Cosco Home & Office business is robust and a solid year is expected in both divisions. There have

been exciting new futon product additions and we also expect growth in Dorel Home Products. The Juvenile segment should continue to perform well,

although we are closely monitoring resin prices. In Recreational/Leisure sales of motor scooters and swing sets are expected to augment Pacific’s

bicycle revenues.

Acknowledgements

2005 was a year of change and adjustment for many. The positive spirit with which our employees faced their respective assignments was again a

reminder of the caliber of the Dorel workforce globally. To reinforce the strong relationships with our suppliers in China, the annual Far East Suppliers

Conference featured a first-ever awards banquet to appropriately recognize key supplier achievements.

I thank our Board of Directors for their wisdom and guidance and express sincere gratitude to our shareholders. I particularly want to express my

gratitude to Dr. Laurent Picard who will be stepping down from the Board this year. Laurent has been a close associate since shortly after our 1987 IPO.

His constant support and knowledge, both as a Director and friend, have been of immeasurable help through Dorel’s growth. We wish him well.

Martin SchwartzPresident and Chief Executive Officer

May 9, 2006


* Source: BMRI and Company estimates.

DIVISIONS PRODUCT RANGE

DOREL JUVENILE GROUP

DOREL DISTRIBUTION CANADA

DOREL EUROPE

INFANT CAR SEATS; STROLLERS;

HIGH CHAIRS; PLAYPENS;

TODDLER BEDS;

EARLY LEARNING/INFANT

HEALTH/SAFETY AIDS;

RIDE-ON-TOYS

AMERIWOOD

COSCO HOME & OFFICE

DOREL ASIA

READY-TO-ASSEMBLE; METAL

FOLDING FURNITURE; STEP

STOOLS; LADDERS; FUTONS;

IMPORTED FURNITURE ITEMS;

OFFICE/HOME OFFICE

FURNITURE; ENTERTAINMENT

UNITS; HOME HEALTHCARE

PRODUCTS

PACIFIC CYCLE

JUVENILE

HOME FURNISHINGS

RECREATIONAL / LEISURE BICYCLES; JOGGING STROLLERS;

ELECTRIC SCOOTERS;

GAS SCOOTERS;

OTHER RECREATIONAL

PRODUCTS

A T A G L A N C E


DESIGN/PRODUCT

DEVELOPMENT CENTRESOUR BRANDS OPERATING FACILITIES

CANTON, MASSACHUSETTS

COLUMBUS, INDIANA

CHOLET, FRANCE

HELMOND, HOLLAND

COLUMBUS, INDIANA

GREENWOOD, INDIANA

CHOLET, FRANCE

HELMOND, HOLLAND

LAUSANNE, SWITZERLAND

BOREHAMWOOD, UK

MONTREAL, QUEBEC

ONTARIO, CALIFORNIA

SABADELL, SPAIN

TELGATE, ITALY

VILA DO CONDE, PORTUGAL

KONIGSDORF, GERMANY

COLUMBUS, INDIANA

ST. LOUIS, MISSOURI

COLUMBUS, INDIANA

CORNWALL, ONTARIO

DOWAGIAC, MICHIGAN

MONTREAL, QUEBEC

ONTARIO, CALIFORNIA

TIFFIN, OHIO

MADISON, WISCONSIN

LAKE FOREST, CALIFORNIA

LONGMONT, COLORADO

MADISON, WISCONSIN

VACAVILLE, CALIFORNIA

OLNEY, ILLINOIS


annual results 1995-2005OPERATING RESULTS

(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)

2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Revenues 1,760,865 1,709,074 1,180,777 992,073 916,769 757,540 596,702 492,554 351,989 283,913 268,682

Cost of sales 1,367,217 1,315,921 874,763 760,423 718,123 582,741 452,974 381,826 264,789 212,078 205,417

Gross profit 393,648 393,153 306,014 231,650 198,646 174,799 143,728 110,729 87,200 71,835 63,265

as percent of sales 22.4 % 23.0 % 25.9 % 23.4 % 21.7 % 23.1 % 24.1 % 22.5 % 24.8 % 25.3 % 23.5 %

Operating expenses 279,753 286,180 206,663 145,956 147,353 127,356 85,996 74,635 61,024 55,161 52,081

Restructuring costs

and other one-time charges 6,982 – – – 20,000 12,037 – 10,066 – – –

Pretax earnings 106,913 106,973 99,351 85,694 31,293 35,406 57,732 26,027 26,176 16,674 11,184


Income taxes 15,591 6,897 25,151 24,099 4,731 5,432 17,756 8,330 8,862 5,991 3,716

Net earnings from continuing operations 91,322 100,076 74,200 61,595 26,562 29,974 39,977 17,697 17,314 10,683 7,468


Income (loss) from

discontinued operations – – – – (1,058) (12,668) (1,401) 1,000 225 85 –

Net earnings 91,322 100,076 74,200 61,595 25,504 17,306 38,576 18,697 17,539 10,768 7,468


Earnings per share

Basic * 2.78 3.06 2.33 2.05 0.91 0.62 1.38 0.69 0.71 0.46 0.32

Fully diluted * 2.77 3.04 2.29 2.00 0.89 0.61 1.36 0.69 0.70 0.44 0.30

Book value per share at end of year** 20.46 19.15 15.14 11.31 7.52 6.75 6.55 5.63 4.26 5.77 2.48

* Adjusted to account for the weighted daily average number of shares outstanding.

** Based on the number of shares outstanding at year end.

All per share amounts have been adjusted to give retroactive recognition to the two-for-one stock split that took place in 1998.

Figures for 1995 have not been restated for discontinued operations.


MANAGEMENT’S DISCUSSION ANDANALYSIS


This Management’s Discussion and Analysis of financial conditions and results of operations (“MD&A”) should be read in conjunction with the consolidated

financial statements for Dorel Industries Inc. (“Dorel” or “the Company”) for fiscal years ended December 30, 2005 and 2004 (“the Consolidated Financial

Statements”), as well as with the notes to the Consolidated Financial Statements. All financial information contained in this MD&A and in the Company’s

Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) using the U.S. dollar

as the reporting currency. Any non-GAAP financial measures referred to in this MD&A are clearly identified and reconciled to GAAP as necessary. The effect

of significant differences between Canadian and U.S. GAAP are discussed in Note 26 to the Company’s Consolidated Financial Statements. Unless otherwise

indicated, all figures are in U.S. dollars. This MD&A is current as of February 24, 2006.

Additional information relating to the Company filed with the Canadian securities regulatory authorities, including the Company’s Annual Information Form

(“AIF”), and with the U.S. Securities and Exchange Commission, including the annual report on form 40F, are to be available within the prescribed filing deadlines

on-line at www.sedar.com and www.sec.gov respectively.

CORPORATE OVERVIEW

The Company’s head office is based in Montreal, Quebec, Canada. In addition to the facilities described below, the Company’s subsidiaries have North American

showrooms in Toronto, Ontario and High Point, North Carolina. In total, the Company operates in fourteen countries with sales made throughout the world and employs

approximately 4,500 people. Dorel’s ultimate goal is to satisfy consumer needs while achieving maximum financial results for its shareholders.

The Company’s growth has resulted from both increasing sales of existing businesses and by acquiring businesses that management believe add value to the Company.

Strategy

Dorel’s goal is to be the premier consumer products company in its market segments in North America and Europe. Dorel is a global consumer products

company engaged in the design, manufacture and marketing of a diverse portfolio of strong consumer brands, sold through its Juvenile, Home Furnishings,

and Recreational/Leisure segments. Within each of these segments, there are several operating divisions or subsidiaries. Each is operated independently

by a separate group of managers. Senior management of the Company coordinates the businesses of all segments and maximizes cross-selling,

cross-marketing, procurement and other complementary business opportunities.

Dorel conducts its business through a variety of sales and distribution arrangements. These consist of salaried employees; individual agents who carry

the Company's products on either an exclusive or non-exclusive basis; individual specialized agents who sell products, including Dorel's, exclusively

to one customer such as a major discount chain; and sales agencies which themselves employ their own sales force. While retailers carry out the bulk

of the advertising of Dorel’s products, all of the segments advertise and promote their products through the use of advertisements in specific magazines,

multi-product brochures and other media outlets.

Dorel believes that its commitment to providing a high quality, industry-leading level of service has allowed it to develop successful and mutually beneficial

relationships with major retailers. A high level of customer satisfaction has been achieved by fostering particularly close contacts between Dorel’s sales

representatives and clients. Permanent, full-service agency account teams dedicated exclusively to certain major accounts have been established.

These dedicated account teams provide these customers with the assurance that inventory and supply requirements will be met and that any problems

will be immediately addressed.

In addition to quality products and dedicated customer service, strong consumer brands are an important element of Dorel’s strategy. As examples,

in North America, Dorel’s Schwinn product line is one of the most recognized sporting goods brand names. Safety 1st is a highly regarded Dorel brand

in the North American juvenile products market. In Europe, Bébé Confort is universally recognized and has superior brand awareness in France.

These brands, and the fact that Dorel has a wide range of other brand names, allows for product and price differentiation within the same product categories.

Product development is the final element of Dorel’s past and future growth. As a growing consumer products company, Dorel has invested heavily in this area,

focusing on innovation, quality, safety and speed to market with several design and product development centres. Over the past two years, Dorel has spent

$34.0 million on new product development.

OPERATING SEGMENTS

Juvenile Products

The Juvenile Products (“Juvenile”) segment operates in both North America and Europe. Dorel Juvenile Group (DJG) USA’s operations in the United States are

headquartered from Columbus, Indiana with facilities in Canton, Massachusetts and Ontario, California. As well as being the headquarters, all North American

manufacturing and car seat product development is based in Columbus. Juvenile products, other than car seats, are conceived, designed and developed at the

Canton location. Dorel Distribution Canada is located in Montreal, Quebec and sells to customers throughout Canada. The principal brand names

in North America are Cosco and Safety 1st. In addition, DJG North America has a licensing agreement with the well-recognized Eddie Bauer brand name.

Dorel Europe is headquartered in Cholet, France and includes major manufacturing facilities in France, Italy and Portugal. In addition, sales and/or distribution

subsidiaries are located in Holland, Spain, the United Kingdom, Germany, Belgium, Austria and Switzerland. In Europe, products are marketed under the brand

names Bébé Confort, Maxi-Cosi, Quinny, Monbébé, Babidéal, Baby Relax and Safety 1st. In addition, many of Dorel’s divisions sell products to customers which

are marketed under various house brand names.



The Juvenile segment manufactures and imports products such as infant car seats, strollers, high chairs, toddler beds, playpens, swings and infant health

and safety aids. Dorel is among the three largest juvenile products companies in North America along with Graco (a part of the Newell Group of companies)

and Evenflo Company Inc. In Europe Dorel is also one of the largest juvenile products companies, competing with firms such as Britax, Peg Perego, Chicco,

as well as several smaller companies. Dorel’s combined juvenile operations make it the largest juvenile products company in the world, within its principal

categories.

In North America, Dorel manufactures and sells juvenile products at all price levels - from entry level to high-end price points – with products designed

for consumers whose priorities are safety and quality at reasonable prices. However as the majority of sales are through mass merchants, department stores

and hardware/home centres, the majority of sales are at lower to mid-price points. In recent years, licensing agreements with well-recognized brand names

have accelerated the entry into the higher priced juvenile products market. In addition, large retailers are beginning to enter this higher end market.

In Europe, Dorel sells higher-end juvenile products to boutiques and smaller stores along with major European chains. In 2005, this segment accounted

for 48% of Dorel’s revenues.

Home Furnishings

The Home Furnishings segment consists of Ameriwood Industries (“Ameriwood”), as well as Cosco Home & Office (“Cosco”) and Dorel Asia. Ameriwood

specializes in ready-to-assemble (RTA) furniture and futons and is headquartered in Wright City, Missouri. In addition, significant manufacturing

and distribution facilities are located in Michigan, Ohio, Ontario and Quebec. Brand names used by Ameriwood are Ameriwood, Ridgewood, Charleswood, Altra,

Dorel Home Products, Carina and SystemBuild. Also, Ameriwood has entered into several licensing arrangements, including one with California Closets which

provides additional branding opportunities. Cosco is located in Columbus, Indiana and in addition to selling under its own brand has a licensing agreement with

Samsonite. In 2004, Cosco entered the home healthcare market with its launch of Cosco Ability Care Essentials, a line of healthcare products aimed at the end

consumer. This line was augmented in 2005 with the launch of products under the Adepta brand name. Dorel Asia specializes in sourcing finished goods from

the Orient for sale in North America, and is becoming a proportionately larger piece of the segment.

The Home Furnishings segment produces RTA furniture for the home and office, metal folding furniture, futons, step stools, ladders and other imported furniture

items. RTA furniture is manufactured and packaged as component parts and is assembled by the consumer. RTA furniture, by its nature,

is a reasonably priced alternative to traditional wooden furniture. Home furnishings are sold mainly to mass merchants, office superstores

and hardware/home centres. Dorel believes it is now the second largest producer of RTA furniture in North America. The Company’s competitors include

Bush Industries, O’Sullivan Industries and Sauder. Besides these large RTA manufacturers, the Home Furnishings industry segment in which Dorel competes

is characterized by a large number of smaller competitors. As such, there is little market share information available that would help determine

the Company’s size or performance in relation to these competitors. In 2005, this segment accounted for 32% of Dorel’s revenues.

Recreational/Leisure

This segment consists of Pacific Cycle and is based in Madison, Wisconsin with distribution in California and Illinois. Pacific Cycle is a leader in the design,

marketing and distribution of high quality, branded bicycles and other recreational products. Best known for its Schwinn, Mongoose and GT bicycle brands, the

Company also markets products under the Roadmaster, InStep, Pacific, and Murray labels. Pacific Cycle combines these well-known brands with

long-established, efficient Asian sourcing. It distributes its brands through its strong relationships with high volume retailers, particularly in the mass merchant

channel. By capitalizing on the continued growth of this sales channel, Pacific Cycle has garnered an industry-leading share of total U.S. bicycle sales, including

a significant presence in the mass merchant sector. Pacific’s brand portfolio enables it to serve virtually all consumer demographics, price categories and

bicycling styles. Additionally, Pacific licenses its brand names internationally on bicycles, as well as in the United States on other products such as clothing and

bike accessories. In 2005, this segment accounted for 20% of Dorel’s revenues.

Pacific Cycle in the U.S. participates in the $75 billion recreational products industry comprised of sports and fitness equipment, footwear, apparel,

and recreational transport items including bicycles, pleasure boats and RVs. Within the recreational products market, the U.S. bicycle industry accounts

for an estimated $5.5 billion in retail sales annually, of which approximately $2.3 billion represents bicycles while the remainder represents parts and

accessories. Principal competitors include Huffy, Dynacraft, Trek, Derby, Giant, Specialized and Cannondale.

While sales have varied during certain periods with product trends, such as the rise in popularity of mountain bikes in the late 1990s, the overall market has

been stable. Between 16 and 18 million units have been sold annually since 1995 in the U.S. While the U.S. bicycle market has remained relatively flat over the

past five years, the mass merchant channel has captured market share. Purchasing patterns are generally influenced by economic conditions, weather

and seasonality. The mass merchant channel today represents over 75% of unit sales. During that same period, the average retail price of bicycles has fallen as

production has shifted almost entirely overseas.

OPERATING RESULTS

Part of Dorel’s growth strategy is through strategic acquisitions. In reviewing the results of the Company’s operating performance and its financial position,

the following acquisitions in 2003 and 2004 must be considered. In February 2003 Dorel acquired Ampa Development SAS (Ampafrance) of Cholet, France

a developer, manufacturer, marketer and distributor of juvenile products for a total consideration of $247.2 million. Now known as Dorel France, its brands

are extremely well-recognized throughout Europe and its products include prams, strollers, car seats, high chairs, beds, play yards, safety aids, apparel,

as well as feeding accessories.

In September 2003, the Company acquired all of the outstanding common shares of Carina Furniture Industries Ltd., a manufacturer of RTA furniture,

for a total consideration of $39.9 million. The addition of Carina broadened Dorel’s product line and helped make Dorel the number two RTA furniture producer

in North America. In February 2004 the Company acquired Pacific Cycle for total consideration of $311.0 million. Pacific Cycle is a leader in the design, marketing and

distribution of high quality, branded bicycles and other recreational products. With the acquisition of Pacific, the Company began reporting in three segments,

adding Recreational/Leisure to Juvenile and Home Furnishings.

On September 19, 2005 the Company announced a significant consolidation at Ameriwood Industries, the Company’s ready-to-assemble (RTA) furniture division.

Production ceased at its Wright City, Missouri facilities, the manufacturing premises were closed and these assets are being disposed of. The closure was necessitated

by excess capacity caused by a strategic shift away from exclusive domestic production to a combination of North American production and imported items. The

restructuring is part of an overall plan to improve the earnings of the Home Furnishings Segment. This plan encompasses an expanded marketing strategy,

realigning marketing into four distinct groups, each focused on developing products unique to their categories. This strategy will include expanding

into new designs and materials and aggressively growing the customer base. This product development process will encompass common defined processes

and methodologies to allow for exceptional speed to market, from conception to delivery.

It is expected that the closure of the Wright City plant will result in total pre-tax restructuring costs of approximately $10.4 million, the majority of which is recorded

in 2005. This estimate of $10.4 million is reduced slightly from the initial estimate of $11.3 million that was previously announced. The 2005 results include total

restructuring costs of $9.5 million, of which $2.5 million is grouped in cost of sales. A complete description of these costs is contained in Note 3

to the year end financial statements. Of this amount, $9.3 million is a non-cash cost representing the write-down of building and equipment as well as other items.

Annual pre-tax savings as a result of the closure are expected to exceed $5 million, commencing in 2006.

The Company is including in this MD & A the terms “adjusted gross margin”, “adjusted earnings from operations”, “adjusted pre-tax income” and “adjusted net income”,

non-GAAP financial measures, as it believes this permits more meaningful comparisons of its core business performance between the periods presented. As a result,

this MD & A contains these non-GAAP financial measures which do not have a standardized meaning prescribed by GAAP and therefore are unlikely to be

comparable to similar measures presented by other issuers. Below is a reconciliation of these non-GAAP financial measures to the most directly comparable

financial measures calculated in accordance with GAAP:

Results for the year ended December 30, 2005

As reported Restructuring Adjusted,Costs Excluding Costs

TOTAL REVENUE $ 1,760,865 $ – $ 1,760,865

EXPENSES

Cost of sales 1,367,217 ( 2,478 ) 1,364,739

Selling, general and administrative 200,159 – 200,159

Depreciation and amortization 38,999 – 38,999

Research and development costs 7,945 – 7,945

Restructuring costs 6,982 ( 6,982 ) –

Interest on long-term debt 31,240 – 31,240

Other interest 1,410 – 1,410

1,653,952 ( 9,460 ) 1,644,492

Income before income taxes 106,913 9,460 116,373

Income taxes 15,591 3,329 18,920

NET INCOME $ 91,322 $ 6,131 $ 97,453

EARNINGS PER SHARE

Basic $ 2.78 $ 0.19 $ 2.97

Diluted $ 2.77 $ 0.19 $ 2.96

SHARES OUTSTANDING

Basic - weighted average 32,836,733 32,836,733 32,836,733

Diluted - weighted average 32,927,701 32,927,701 32,927,701


Following is a selected summary of Dorel’s operating results on an annual and quarterly basis:

Selected Financial Information (all tabular figures are in thousands except per share amounts)

Operating Results for the Years ended December 30: 2005 2004 2003

$ % of $ % of $ % of revenues revenues revenues

Revenues $1,760,865 100.0 % $ 1,709,074 100.0 % $ 1,180,776 100.0 %

Net income $ 91,322 5.2 % $ 100,076 5.9 % $ 74,200 6.3 %

Earnings per share

Basic $ 2.78 $ 3.06 $ 2.33

Diluted $ 2.77 $ 3.04 $ 2.29

Operating Results for the Quarters Ended 31-Mar-05 30-Jun-05 30-Sep-05 30-Dec-05

Revenues $ 471,903 $ 435,375 $ 423,329 $ 430,258

Net income $ 27,205 $ 21,745 $ 19,826 $ 22,546

Earnings per share

Basic $ 0.83 $ 0.66 $ 0.60 $ 0.69

Diluted $ 0.83 $ 0.66 $ 0.60 $ 0.69

Operating Results for the Quarters Ended 31-Mar-04 30-Jun-04 30-Sep-04 30-Dec-04

Revenues $ 396,812 $ 409,352 $ 433,838 $ 469,072

Net income $ 19,400 $ 17,908 $ 28,046 $ 34,722

Earnings per share

Basic $ 0.59 $ 0.55 $ 0.86 $ 1.06

Diluted $ 0.59 $ 0.54 $ 0.85 $ 1.05

Seasonality

Though operating segments within Dorel may vary in their seasonality, for the Company as a whole variations between quarters are not significant

as illustrated below.

Revenues by quarter by segment


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR 4

2003 2003 2003 2003 2004 2004 2004 2004 2005 2005 2005 2005

Quarter

Recreational products

Home Furnishings

Juvenile

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es

INCOME STATEMENT - OVERVIEW

2005 versus 2004

For fiscal 2005, Dorel recorded revenues of $1,761 million, an increase of 3.0% from the $1,709 million last year. Increases in revenues occurred in both the Juvenile

and Home Furnishing segments, increasing by 9.1% and 4.8% respectively. The gains were offset by a decline in Recreational/Leisure sales in that 2004 included

exceptional sales of the Sting-Ray model of bicycle. In 2005, sales of these models were negligible as retailers were fully stocked throughout the year. It should be

noted that sales of non-Sting-Ray products in that segment actually increased by 9% over 2004 as the core business remains strong and is being expanded.

Gross margins for the year declined by 60 basis points to 22.4% for the year, from 23.0% last year. Margin improvements in the Juvenile segment were offset

by declines in the Home Furnishings and Recreational/Leisure segments. Selling, general and administrative expenses declined from 2004 levels by $11.2 million

to $200.2 million in 2005 from $211.4 million in 2004. This decrease was due to savings in product liability costs. The combined cost decrease in both the juvenile

and home furnishing segments was $22.3 million, of which $22.6 million was in the juvenile segment. The total cost was $33.1 million in 2004 and $10.8 million in

2005. These costs were offset by other increases. Excluding this decrease, these costs as a percentage of revenues were 12.7% in 2005 versus 12.4% in 2004.

Interest costs in 2005 decreased slightly from 2004. The benefit of lower average borrowings in 2005 were offset by higher interest rates incurred. The Company’s

average interest rate on its long-term borrowings and revolving facilities in 2005 was approximately 6%, 1 percentage point higher than in 2004.

For the year, the decrease in interest costs can be broken down as follows:

Higher interest rates in 2005 $ 5,600

Interest incurred in 2004 on product liability settlement ( 2,100 )

Benefit of lower average debt levels in 2005 ( 1,900 )

Other ( 463 )

$ 1,137

As a multi-national company, Dorel is resident in numerous countries and therefore subject to different tax rates in those various tax jurisdictions and by the

application of income tax treaties between various countries. As such, variations from year to year in the Company’s combined tax rate can occur. In 2005 the

Company’s effective tax rate is 14.6%. After removing the impact of the restructuring costs the Company’s tax rate for the year was 16.3%, which was in line

with expectations. The Company’s statutory tax rate is 33%. The variation from 33% to 14.6% can be explained as follows:

$ %

PROVISION FOR INCOME TAXES $ 35,281 33.0 %

ADD (DEDUCT) EFFECT OF:

Difference in effective tax rates of foreign subsidiaries ( 13,791 ) ( 12.9 % )

Recovery of income taxes arising from exempt items and the use of unrecorded tax benefits ( 6,461 ) ( 6.0 % )

Change in future income taxes resulting from changes in tax rates ( 249 ) ( 0.2 % )

Change in valuation allowance 698 0.6 %

Other – net 113 0.1 %

ACTUAL PROVISION FOR INCOME TAXES $ 15,591 14.6 %

Net income for the full year amounted to $91.3 million or $2.77 per share fully diluted, compared to 2004 net income of $100.1 million or $3.04 per diluted share.

Excluding restructuring costs, adjusted net income for the year was $97.5 million or $2.96 per share. Income before income taxes in 2005 was flat when compared

to the prior year at $106.9 million in 2005 versus $107.0 million in 2004. Adjusted income before taxes and restructuring costs was $116.4 million

in 2005 versus $107.0 million, an increase of $9.4 million or 8.8%.

Fourth quarter 2005 versus 2004

Revenues for the fourth quarter were $430.3 million compared to $469.1 million a year ago, a decline of 8.3%. Net income for the fourth quarter was

$22.5 million down from $34.7 million. Earnings per share for the final quarter were $0.69 fully diluted, compared to $1.05 per share in the fourth quarter the

previous year. Revenues within the Juvenile and Home Furnishing segments were up slightly over the prior year increasing by 1.5% and 2.0% respectively.

However, Recreational/Leisure revenues declined from $125.0 million to $80.2 million, a decrease of $44.8 million or 35.8%. This is attributable to the large amount

of Sting Ray bicycle sales in the fourth quarter of 2004. Excluding the Sting Rays sold in 2004, fourth quarter 2005 Recreational/Leisure revenues were actually

higher than the prior year by 10%, indicating that the segment’s core business and new product initiatives remain strong.


The fourth quarter net income decrease of $12.2 million was due to several factors. Lower earnings in the Recreational/Leisure segment, due to the decline

in sales described above, combined with lower earnings in Home Furnishings were offset by gains in Juvenile and a decrease in other costs, resulting in an overall

pre-tax decline in earnings of $8.3 million or 24.6%. This decline in pre-tax earnings was compounded by an increase in income taxes of $3.9 million as 2004

included several one time positive issues.

The 2004 full year tax rate of 6.4% was unusually low due to lower earnings in higher tax rate jurisdictions as well as a revaluation of long-term future tax

balances, the benefit of loss carry-forwards not previously recognized and other adjustments. To adjust the Company’s income tax rate to 6.4% from the

11% to 12% as at the end of the third quarter, a tax recovery of $0.8 million was recorded in the fourth quarter, explaining the majority of the 2005 fourth quarter

increase.

Tabular Summaries – 2005 versus 2004

The variations in revenue across the Company segments are as follows:

Fourth Quarter Year

2005 2004 Increase (decrease) 2005 2004 Increase (decrease)$ % $ %

Juvenile $ 201,215 $ 198,157 $ 3,058 1.5 % $ 846,856 $ 776,370 $ 70,486 9.1 %

Home Furnishings 148,847 145,940 2,907 2.0 % 569,347 543,219 26,128 4.8 %

Recreational/Leisure 80,196 124,975 ( 44,779 ) ( 35.8 %) 344,662 389,485 ( 44,823 ) ( 11.5 % )

Total Revenues $ 430,258 $ 469,072 $ ( 38,814 ) ( 8.3 %) $1,760,865 $1,709,074 $ 51,791 3.0 %

The principal changes in earnings are summarized as follows:

Fourth Quarter Year

Earnings from operations by Segment:

Juvenile increase $ 5,049 $ 33,718

Home Furnishings decrease (excluding restructuring costs) ( 5,996 ) ( 10,098 )

Restructuring costs ( 535 ) ( 9,460 )

Recreational / Leisure decrease ( 9,176 ) ( 14,569 )

Total earnings from operations decrease ( 10,658 ) ( 409 )

Lower interest costs 221 1,137

Impact of higher tax rate ( 3,845 ) ( 8,694 )

Other 2,106 ( 788 )

Total decrease in net income $ ( 12,176 ) $ ( 8,754 )

Detailed analyses of segmented annual results are presented within the discussions that follow this overview.

SEGMENT RESULTS

JUVENILE

2005 2004 Change

% of % of $ sales $ sales $ %

Revenues $ 846,856 100.0 % $ 776,370 100.0 % $ 70,486 9.1 %

Gross Profit 248,638 29.4 % 224,081 28.9 % 24,557 11.0 %

Selling, general and administrative 112,081 13.2 % 126,166 16.3 % ( 14,085 ) ( 11.2 % )

Depreciation and amortization 31,615 3.7 % 27,558 3.5 % 4,057 14.7 %

Research and Development 5,542 0.7 % 4,675 0.6 % 867 18.5 %

Earnings from operations $ 99,400 11.8 % $ 65,682 8.5 % $ 33,718 51.3 %


The Company’s Juvenile segment had the most profitable year in its history. Successes occurred in both North America and Europe, an accomplishment made even

more impressive in an environment of higher raw material costs. Revenues increased by 9.1% to reach $846.9 million versus $776.4 in 2004, with increases

occurring in both North America and Europe. In North America, Juvenile sales increased by 8%. In the United States, sales increased by 5% mainly due to

improved sales in categories where the Company expanded its product offering such as play yards, walkers and swings. Canadian sales were aided by new booster

seat legislation in Ontario and the strong Canadian dollar.

Juvenile success in Europe occurred in several markets, the most impressive of which were the United Kingdom, Germany, Italy and Spain. To a great extent,

the success was driven by the successful introduction of new travel systems under the Quinny brand, known as the Buzz and Zapp. Sales in Europe as a whole

increased by 9% over 2004. It should be noted that the average rate of exchange versus the U.S. dollar was similar in both 2005 and 2004. As such, revenue growth

in Europe was unaffected by exchange rate variances.

Gross margins for the segment improved slightly to 29.4% in 2005 compared to 28.9% in 2004, with gross margin improvements in Europe and Canada offsetting

declines in the United States. European margin improvements were made possible by the success of new products, which were able to attract higher margins.

These improvements totaled 270 basis points. Canadian margins were helped by a positive product mix as well as the strong Canadian dollar, as the majority of

its purchases are made in U.S. dollars. U.S. margins declined by 200 basis points due to higher raw material costs, principally resin, and a less profitable product

mix.

Earnings from operations were $99.4 million for the year versus $65.7 million in 2004. As a percentage of revenues this represents 11.7% in 2005 versus 8.5%

in 2004. European earnings improved by 35%. North American earnings improved by 80%. In Canada, higher earnings were driven by higher sales and higher

gross margins for the reasons listed above. Earnings in the U.S. rose as lower gross margins were offset by savings in product liability costs. The year-over-year

decline in product liability costs was $22.6 million comprising both insurance and settlement costs. This is the primary reason for the decrease in selling, general

and administrative costs of $14.1 million.

HOME FURNISHINGS

2005 2004 Change


Revenues $ 569,347 100.0 % $ 543,219 100.0 % $ 26,128 4.8 %

Gross Profit 73,855 13.0 % 83,320 15.3 % ( 9,465 ) ( 11.4 % )

Selling, general and administrative 34,410 6.1 % 31,842 5.9 % 2,568 8.1 %

Depreciation and amortization 6,318 1.1 % 6,433 1.1 % ( 115 ) (1.8 % )

Research and development 2,403 0.4 % 1,745 0.3 % 658 37.7 %

Restructuring costs 6,982 1.2 % – – 6,982 –

Earnings from operations $ 23,742 4.2 % $ 43,300 8.0 % $ ( 19,558 ) ( 45.2 % )

Reconciliation of non-GAAP financial measures

As Restructuring Adjusted,Year ended December 30, 2005 reported costs Excluding Costs

Revenues $ 569,347 $ – $ 569,347

Cost of sales 495,492 ( 2,478 ) 493,014

Gross Profit 73,855 2,478 76,333

Gross Margin % 13.0 % 13.4 %

Selling, general and administrative 34,410 34,410

Depreciation and amortization 6,318 – 6,318

Research and development costs 2,403 – 2,403

Restructuring costs 6,982 ( 6,982 ) –

Earnings from operations $ 23,742 $ 9,460 $ 33,202


Revenues in Home Furnishings were $569.3 million versus $543.2 million in 2004, an increase of 4.8%. Revenue increases occurred at all Home Furnishing

operations with the exception of ready-to-assemble (RTA) furniture sales by Ameriwood. Cosco sales of folding furniture and other imported home furnishings

increased by 7% over 2004, with gains coming mainly from sales of ladders and step stools. Successful new product placements in several categories by Dorel

Asia at new and existing customers helped revenues reach $133 million, a 65% increase from 2004. Ameriwood futon sales also rose, increasing by 28% over

the prior year. However, ready-to-assemble furniture sales declined by 17% from the prior year due to declines in sales to mass merchant customers.

Gross margins for the segment declined to 13% from the 15.3% recorded in 2004. Adjusted gross margins, after removing restructuring costs in cost of sales were

13.4%, a decline of 190 basis points. The principal reason for the decline is lower margins at Ameriwood. These margin declines were due principally

to lower efficiencies and higher overhead absorption due to lower sales levels. The stronger Canadian dollar also decreased earnings as two of the five

Ameriwood plants are located in Canada and have substantial sales into the U.S. As announced, one of the unit’s manufacturing facilities was closed in the year.

This closure alone is expected to save at least $5 million pre-tax in 2006. Over and above these savings, other efficiency initiatives have been undertaken to

improve margins. Selling, general and administrative costs remained in line with 2004 levels at 6.1% of revenues in 2005 versus 5.9% in 2004.

Earnings from operations, after all restructuring costs, declined by $19.6 million, or 45.2%, to $23.7 million in 2005 versus $43.3 million in 2004. Adjusted

earnings from operations excluding all restructuring costs were $33.2 million, a decline of $10.1 million from the prior year. Earnings from operations at

Ameriwood, including all restructuring costs, declined by $24.6 million from 2004 levels. Adjusted Ameriwood earnings declined by $15.1 million from 2004 levels,

offset by improved earnings at all other divisions within the segment. Of this decline, approximately $5 million was due to lower sales levels with the balance

due to decreased margins. The RTA division is undergoing several initiatives to re-ignite its earnings in an attempt to reach acceptable levels of profitability.

It has successfully broadened its customer base from the traditional mass merchants and has implemented an increasingly successful import program. However,

the required improved efficiencies at its manufacturing facilities remain to be realized.

RECREATIONAL/LEISURE

2005 2004 Change


Revenues $ 344,662 100.0 % $ 389,485 100.0 % $ ( 44,823 ) ( 11.5 % )

Gross Profit 71,155 20.6 % 85,752 22.0 % ( 14,597 ) ( 17.0 % )

Selling, general and administrative 35,289 10.2 % 35,755 9.2 % ( 466 ) ( 1.3 % )

Depreciation and amortization 987 0.3 % 549 0.1 % 438 79.8 %

Earnings from operations $ 34,879 10.1 % $ 49,448 12.7 % $ ( 14,569 ) ( 29.5 % )

Recreational / Leisure revenues decreased 11.5% to $344.7 million in 2005 compared to $389.5 million a year ago. Included in the 2005 year-to-date revenues

figure are January sales in the amount of $12.3 million. This is an extra month’s revenues versus 2004, as Pacific Cycle was acquired effective February 2004.

Therefore, organic revenues actually declined from the prior year by 14.7%. Excluding sales of the Sting-Ray bicycle, revenues increased by 9% over the prior

year. These revenue increases occurred in several product categories and brands. However, Sting-Ray sales in 2004 far exceeded those in 2005, more than

offsetting any increases. Earnings from operations decreased to $34.9 million from $49.5 million last year, a decrease of 29.5%.

Gross margins decreased by 140 basis points in the year. This is due to the fact that Sting-Ray sales in 2004 carried a higher average margin than the Company’s

other product offerings. For the year, excluding January 2005 operating costs of $2.9 million, comparable eleven month total operating costs declined from

$35.8 million to $32.4 million. Operating costs as a percentage of revenue increased to 10.2% versus 9.2% in 2004, due to substantially higher revenues

in the prior year. Higher commissions on sales to the mass merchant channel and some additional promotional costs were offset by savings in general

and administrative costs.

BALANCE SHEET

Selected Balance Sheet Data as at December 30: 2005 2004 2003

Total assets $ 1,542,668 $ 1,611,389 $ 1,128,963

Long-term Financial Liabilities, excluding current portion:

Long-term debt $ 439,634 $ 505,816 $ 282,421

Other long-term liabilities, including balance of sale amounts $ 6,321 $ 9,909 $ 10,580


As there were no business acquisitions in 2005, the Company’s balance sheet as at December 30, 2005 is comparable to that as at December 30, 2004.

However, the decrease in the value of the Euro against the U.S. dollar as at the year end did impact all line items, in some cases significantly reducing 2005

year end balances.

The decrease in total assets of $68.7 million in 2005 can be summarized as follows:

Conversion of Euro denominated assets at lower rate of exchange $ 71,558

Excess of amortization over capital additions during the year 8,574

Increase in trade accounts receivable in the year ( 12,220 )

Other 809

Total $ 68,721

Certain of the Company’s working capital ratios are as follows:

As at December 30, 2005 2004

Quick ratio 0.88 0.79

Current ratio 1.85 1.67

# of Days in receivables 57.37 55.45

# of Days in inventory 80.62 77.85

Borrowings, in the form of bank indebtedness and long-term debt, decreased by $62.9 million in the year as free cash flow generated by the business was used

to pay down debt. The change in debt level is summarized as follows:

Free cash flow generated in the year $ 71,124

Used to pay balances of sale ( 7,440 )

Other ( 754 )

Total $ 62,930

The Company’s subsidiaries are considered to be self-sustaining. As such, any foreign exchange fluctuations on conversion of non-U.S. functional currency

subsidiaries to the U.S. dollar are included in the cumulative translation adjustment (CTA) account as opposed to the income statement. In 2005, exchange

rates had a significant impact on the CTA account which decreased from $79.5 million to $28.1 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Free cash flow, a non-GAAP financial measure, is defined as cash flow from operations less capital expenditures and changes in funds held by ceding insurer,

was $71.1 million in 2005 versus $66.2 million in 2004, detailed as follows:

2005 2004 Change

Cash flow from operations before changes in non-cash working capital: $ 143,213 $ 133,715 $ 9,498

Change in:

Inventories 2,112 ( 28,769 ) 30,881

Accounts receivable ( 12,220 ) ( 34,816 ) 22,596

Accounts payable and other liabilities ( 35,741 ) 42,377 ( 78,118 )

Income taxes ( 544 ) 3,340 ( 3,884 )

Other 2,048 813 1,235

( 44,345 ) ( 17,055 ) ( 27,290 )

Cash flow from operations 98,868 116,660 ( 17,792 )

Plus (less):

Additions to capital assets - net ( 19,895 ) ( 32,600 ) 12,705

Deferred charges ( 7,909 ) ( 13,688 ) 5,779

Intangible assets ( 4,213 ) ( 3,029 ) ( 1,184 )

Funds held by ceding insurer 4,273 ( 1,117 ) 5,390

( 27,744 ) ( 50,434 ) 22,690

FREE CASH FLOW $ 71,124 $ 66,226 $ 4,898


During 2005, cash flow from operations, before changes in working capital, improved by $9.5 million. However, after changes in non-cash working capital items,

cash flow from operations declined by $17.8 million. The main reasons for the decline were higher accounts receivable balances and lower accounts payable

balances. The increase in accounts receivable is principally due to a slight increase in collection days from 55.45 in 2004 to 57.37 in 2005. Accounts payable

balances at the end of 2004 were unusually high due to substantial inventory purchases in late 2004. In 2005 accounts payable balances have returned to more

normal levels, thereby using cash in the year. Capital spending declined from 2004 as the juvenile “factory of the future” project that started in 2003 at the

Company’s Columbus, Indiana facility was completed in 2004 at a total cost of $24.0 million. Capitalized research and development costs were $8.1 million

in 2005 versus $12.1 million in 2004.

In 2005, the Company’s borrowing availability under its unsecured credit facility decreased to $425.0 million from $470.0 million as was disclosed in the

Company’s year-end financial statements dated December 30, 2004. This decreased availability is per the original terms negotiated in January 2004. As of

December 30, 2005, Dorel was compliant with all covenant requirements and expects to be so going forward. The Company continuously reviews its cash

management and financing strategy to optimize the use of funds and minimize its cost of borrowing. It is the Company policy not to pay dividends to its

shareholders in the belief that cash is best conserved to finance its ongoing growth strategy, though the Board of Directors will continue to evaluate the

merits of this policy going forward.

CONTRACTUAL OBLIGATIONS

The following is a table of significant contractual obligations of the Company as of December 30, 2005:

Contractual Obligations Total less than 1 1 - 3 4 - 5 After 5year years years years

Long-term debt repayments $ 447,708 $ 8,029 $ 339,581 $ 73,598 $ 26,500

Net operating lease commitments 77,620 21,327 30,673 14,310 11,310

Capital addition purchase commitments 405 405 – – –

Minimum payments under licensing agreements 6,223 3,968 2,255 – –

Total contractual obligations $ 531,956 $ 33,729 $ 372,509 $ 87,908 $ 37,810

The Company does not have significant contractual commitments beyond those reflected in the consolidated balance sheet, the commitments in Note 19

to the Consolidated Financial Statements or those listed in the table above.

For purposes of this table, contractual obligations for the purchases of goods or services are defined as agreements that are enforceable and legally binding

on the Company and that specify all significant terms, including: fixed or variable price provisions; and the approximate timing of the transaction. The Company

does not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed its short term

expected requirements. Therefore, not included in the above table are Dorel’s outstanding purchase orders for raw materials, finished goods or other goods and

services which are based on current needs and are fulfilled by our vendors on relatively short timetables.

As new product development is vital to the continued success of Dorel, the Company must make capital investments in research and development, moulds and

other machinery, equipment and technology. It is expected that the Company will invest at least $25.0 million over the course of 2006 to meet its new product

development and other growth objectives. The Company expects its existing operations to be able to generate sufficient cash flow to provide for this and other

requirements as they arise throughout the year.

Over and above long-term debt in the contractual obligation table, included in the Company’s long-term liabilities are the following amounts:

Pension and post-retirement benefit obligations: As detailed in Note 15 of the Consolidated Financial Statements, this amount of $19.1 million pertains

to the Company pension and post-retirement benefit plans. Contributions expected to be made and benefits expected to be paid under these plans in 2006

approximate $2.4 million.

Other long-term liabilities consist of:

Government mandated employee savings plans in Europe, the majority of which are due after five years $ 3,039

A non-interest-bearing State government loan due in equal instalments of $167 over the next three years 500

Other liabilities due in more than one year 2,117

$ 5,656


DERIVATIVE FINANCIAL INSTRUMENTS

As a result of its global operating activities, Dorel is subject to various market risks relating primarily to foreign currency exchange rate risk. In order to reduce

or eliminate the associated risks, the Company uses various derivative financial instruments such as options, futures and forward contracts to hedge against

adverse fluctuations in currency. The Company’s main source of foreign currency exchange rate risk resides in sales and purchases of goods denominated in

currencies other than the functional currency of each of Dorel’s subsidiaries. In fact, the Company’s financial debt mainly consists of notes issued exclusively

in U.S. dollars, for which no foreign currency hedging is required. Short-term credit lines and overdrafts commonly used by Dorel’s subsidiaries are in the currency

of the borrowing entity and therefore carry no exchange-rate risk. Inter-company loans/borrowings are economically hedged as appropriate, whenever they

present a net exposure to exchange-rate risk.

As such, derivative financial instruments are used as a method for meeting the risk reduction objectives of the Company by generating offsetting cash flows

related to the underlying position in respect of amount and timing of forecasted transactions. Dorel does not hold or use derivative financial instruments for

trading or speculative purposes.

The Company does not apply hedge accounting to foreign exchange contracts where hedging relationships have not been formally documented. The fair values

and notional amounts of derivatives and the fair values and carrying amounts of financial instruments are disclosed in Note 13 of the Consolidated Financial

Statements. The Company recorded net foreign exchange gains in the amount of $4.5 million in 2005 and $3.8 million in 2004.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. The preparation of these financial statements requires estimates

and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. A complete

list of all relevant accounting policies is listed in Note 2 to the Consolidated Financial Statements.

The Company believes the following are the most critical accounting policies that affect Dorel’s results as presented herein and that would have the most material

effect on the financial statements should these policies change or be applied in a different manner:

>>> Goodwill and certain other indefinite life intangible assets: Goodwill and certain other intangible assets have indefinite useful lives and as such,

are not amortized to income. Instead, the Company must determine at least once annually whether the fair values of these assets are less than their carrying

value, thus indicating impairment. The Company uses either the discounted cash flows valuation method or valuations based on a market approach and

makes assumptions and estimates in a number of areas, including future cash flows, appropriate multiples of earnings of comparable companies and

discount rates.

>>> Product liability: The Company is insured for product liability by the use of both traditional and self-funded insurance to mitigate its product liability

exposure. The estimated product liability exposure is calculated by an independent actuarial firm based on historical sales volumes, past claims history and

management and actuarial assumptions. The estimated exposure includes incidents that have occurred, as well as incidents anticipated to occur on units

sold prior to December 30, 2005. Significant assumptions used in the actuarial model include management’s estimates for pending claims, product life cycle,

discount rates, and the frequency and severity of product incidents.

>>> Pension plans and post retirement benefits: The costs of pension and other post-retirement benefits are calculated based on assumptions determined

by management, with the assistance of independent actuarial firms and consultants. These assumptions include the long-term rate of return on pension

assets, discount rates for pension and other post-retirement benefit obligations, expected service period, salary increases, retirement ages of employees and

health care cost trend rates.

>>> Allowances for sales returns and other customer programs: At the time revenue is recognized certain provisions may also be recorded, including returns

and allowances, which involve estimates based on current discussions with applicable customers, historical experience with a particular customer and/or

product, and other relevant factors. Historical sales returns, allowances, write-offs, changes in our internal credit policies and customer concentrations

are used when evaluating the adequacy of our allowance for sales returns. In addition, the Company records estimated reductions to revenue for customer

programs and incentive offerings, including special pricing agreements, promotions, advertising allowances and other volume-based incentives. Historical

sales data, agreements, customer vendor agreements, changes in internal credit policies and customer concentrations are analyzed when evaluating the

adequacy of our allowances.

CHANGES IN ACCOUNTING POLICIES

>>> Variable Interest Entities: The Canadian Institute of Chartered Accountants Guideline 15, “Consolidation of Variable Interest Entities”, provides clarification

on the application of consolidation to entities defined as “variable interest entities”, when equity holders are not considered to have

a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial

support provided by any parties, including the equity holders. The guideline is effective for fiscal years and periods beginning on or after November 1, 2004.

This change in accounting policy did not have a material impact on the Company’s results.


MARKET RISKS AND UNCERTAINTIES

Product Costs

Dorel purchases raw materials, component parts, and finished goods. The main commodity items purchased for production include particleboard and plastic

resins. Key component parts include car seat and futon covers, hardware, buckles and harnesses, and futon frames. These parts are derived from textiles,

and a wide assortment of metals, plastics, and wood. Plastic resin prices were on average 20% higher in 2005 than in 2004, while steel prices were on average

10% higher in 2005 versus 2004. These higher raw material costs were a significant contributor to decreased margins in 2005. Furthermore, rising energy

costs contributed to increased costs in operating facilities, as well as in shipping the Company’s products.

The Company's purchased finished goods are largely produced from steel, aluminum, resins, textiles, rubber, and wood. Prices of these commodities increased

during 2005, causing purchase price increases in finished goods. In addition, Dorel is among the world’s largest 15 purchasers of ocean freight container transport

from the Far East. Container freight costs were higher in 2005 relative to 2004 as supply continued to be tight in both eastbound trans-pacific and Asia-Europe

lanes and due to higher fuel costs.

The higher costs experienced in 2005 are for the most part expected to remain in place throughout most of 2006. Further increases in these costs could affect

earnings negatively going forward.

Concentration of Revenues

For the year ended December 30, 2005, approximately 59.1% of Dorel’s revenues came from its three largest customers. In 2004, there were two major customers

representing 51.4% of total revenues. Dorel does not have long-term contracts with its customers, and as such revenues are dependent upon Dorel’s continuing

ability to deliver attractive products at a reasonable price, combined with high levels of service. There can be no assurance that Dorel will be able to sell to such

customers on an economically advantageous basis in the future or that such customers will continue to buy from Dorel.

Credit Risk

A substantial portion of Dorel’s revenues are to major retail chains. If certain of these major retailers cease operations, there could be a material adverse effect

on the Company’s consolidated results of operations. It should be noted that the Company conducts ongoing credit reviews and maintains credit insurance on

selected accounts to minimize this risk.

Product Liability

As with all manufacturers of products designed for use by consumers, Dorel is subject to numerous product liability claims, particularly in the U.S. At Dorel, there

is an ongoing effort to improve quality control and to ensure the safety of its products. The Company is insured for product liability, by the use of both traditional

insurance and by the Company's wholly owned subsidiary, Dorel Insurance Corporation, which functions as a captive insurance company, providing a self funded

insurance program to mitigate its product liability exposure. No assurance can be given that a judgment will not be rendered against it in an amount exceeding

the amount of insurance coverage or in respect of a claim for which Dorel is not insured.

Foreign Currency

As a multinational company that uses the U.S. dollar as its reporting currency, Dorel is subject to variations in currency values against the U.S. dollar.

The functional currency of Dorel’s European operations is the Euro, with all other significant subsidiaries using the U.S. dollar as its functional currency.

As a result, Dorel’s operating units outside of the U.S. assume the majority of the Company’s foreign exchange risk.

Dorel’s Canadian operations benefit from a stronger U.S. dollar as large portions of its revenues are generated in the U.S. and the majority of its costs are in

Canadian dollars. This situation is mitigated by Dorel Canada’s juvenile operations that import U.S. dollar denominated goods. Dorel’s European operations are

negatively effected by a stronger U.S. dollar as portions of its purchases are in U.S. dollars while its revenues are not. Where advantageous, the Company uses

options, futures and forward contracts to hedge against these adverse fluctuations in currency. While the Canadian operations and European operations offset

the possible negative impact of changes in the U.S. dollar, a significant change in the value of the U.S. dollar could affect future earnings.

Valuation of Goodwill and other Intangible Assets

As part of annual impairment tests, the value of goodwill and other indefinite life intangible assets are subject to significant assumptions, such as future expected

cash flows, comparable market transaction multiples and assumed discount rates. In addition, the value of customer relationship intangible assets recognized

includes significant assumptions in reference to customer attrition rates and useful lives. Changes in these assumptions could materially affect these valuations.

Income Taxes

The Company’s current organizational structure has resulted in a comparatively low effective income tax rate. This structure and the resulting tax rate are

supported by current domestic tax laws in which the Company operates and by the application of income tax treaties between various countries. Unanticipated

changes to either these current domestic tax laws or rates, or to these tax treaties, could impact the effective income tax rate of the Company.


Product and Brand Development

To support continued revenue growth, the Company must continue to update existing products, design innovative new items, develop strong brands and make

significant capital investments. The Company has invested heavily in product development and plans to keep it at the centre of its focus. In addition, the Company

must continue to maintain, develop and strengthen our end-user brands. Should the Company invest in or design products that are not accepted in the

marketplace, or if its products are not brought to market in a timely manner, and in certain cases, fail to be approved by the appropriate regulatory authorities,

this could negatively impact future growth.

OTHER INFORMATION

The designation, number and amount of each class and series of its shares outstanding as of December 30, 2005 are as follows:

An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any time at the option

of the holder into Class "B" Subordinate Voting Shares on a one-for-one basis, and;

An unlimited number of Class "B" Subordinate Voting Shares without nominal or par value, convertible into Class "A" Multiple Voting Shares,

under certain circumstances, if an offer is made to purchase the Class "A" shares.

Details of the issued and outstanding shares are as follows:

Class A Class B Total

Number Amount Number Amount Amount

4,473,244 $ 1,939 28,385,698 $ 160,564 $ 162,503

Outstanding stock options and Deferred Share Unit items are disclosed in Note 17 to the financial statements. There were no significant changes to these values

in the period between the year end and the date of the preparation of this MD & A.

DISCLOSURE CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management,

including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public

disclosure. As at December 30, 2005, the CEO and the CFO have evaluated the effectiveness of Dorel’s disclosure controls and procedures as defined in Multilateral

Instrument 52-109 of the Canadian Securities Administrators and have concluded that such disclosure controls and procedures are effective.

FORWARD LOOKING INFORMATION

Certain statements included in this MD&A may constitute “forward looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of

1995. Forward looking statements generally can be identified by the use of forward looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”,

“anticipate”, “plan”, “foresee”, “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. We refer you to the Company’s

filings with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission for a discussion of the various factors that may affect

the Company’s future results.

Readers are cautioned, however, not to place undue reliance on forward looking statements as there can be no assurance that the plans, intentions or expectations

upon which they are based will occur. By their nature, forward looking statements involve numerous assumptions, known and unknown risks and uncertainties,

both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward looking statements will not occur. This

may cause the Company’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance

or results expressed or implied by such forward looking statements.

We believe that the expectations represented by such forward looking statements are reasonable, yet there can be no assurance that such expectations will prove

to be correct. Furthermore, the forward looking statements contained in this report are made as of the date of this report, and we do not undertake any obligation

to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise. The forward

looking statements contained in this report are expressly qualified by this cautionary statement.


CONSOLIDATED FINANCIAL STATEMENTS

AS AT DECEMBER 30, 2005 AND 2004


MANAGEMENT’S REPORT

Dorel Industries Inc.’s Annual Report for the year ended December 30, 2005, and the financial statements included herein, were prepared by the Corporation’s

Management and approved by the Board of Directors. The Audit Committee of the Board is responsible for reviewing the financial statements in detail and for

ensuring that the Corporation’s internal control systems, management policies and accounting practices are adhered to.

The financial statements contained in this Annual Report have been prepared in accordance with the accounting policies which are enunciated in said report and

which Management believes to be appropriate for the activities of the Corporation. The external auditors appointed by the Corporation’s shareholders, KPMG, LLP

have audited these financial statements and their report appears below. All information given in this Annual Report is consistent with the financial statements

included herein.

Martin Schwartz Jeffrey Schwartz

President and Chief Executive Officer Chief Financial Officer

AUDITORS' REPORT TO THE SHAREHOLDERS OF DOREL INDUSTRIES INC.

We have audited the consolidated balance sheet of Dorel Industries Inc. as at December 30, 2005 and the consolidated statements of income, retained earnings and cash flows

for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial

statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable

assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures

in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 30, 2005 and the results

of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

The consolidated financial statements as at December 30, 2004 and for the year then ended were audited by other auditors, who expressed an opinion without reservation on

those statements in their report, dated February 4, 2005 (except as to Note 25 which is as of February 11, 2005).

Chartered Accountants

Montreal, Canada

February 24, 2006


CONSOLIDATED BALANCE SHEETAS AT DECEMBER 30, 2005 AND 2004 (All figures in thousands of U.S. dollars)

2005 2004

ASSETS

CURRENT ASSETS

Cash $ 12,345 $ 11,288

Accounts receivable (Note 5) 287,225 285,207

Income taxes receivable 14,817 7,587

Inventories (Note 6) 279,265 292,991

Prepaid expenses 10,288 12,756

Funds held by ceding insurer (Note 21) 3,647 7,920

Future income taxes (Note 22) 26,060 22,650

633,647 640,399

PROPERTY, PLANT AND EQUIPMENT (Note 7) 144,248 163,707

DEFERRED CHARGES (Note 8) 15,561 20,983

INTANGIBLE ASSETS (Note 9) 253,245 262,968

GOODWILL (Note 25) 481,518 512,546

OTHER ASSETS (Note 15) 10,750 10,786

ASSETS HELD FOR SALE (Note 3) 3,699 –

$ 1,542,668 $ 1,611,389

LIABILITIES

CURRENT LIABILITIES

Bank indebtedness (Note 10) $ 4,828 $ 1,915

Accounts payable and accrued liabilities (Note 11) 305,922 353,229

Income taxes payable 18,483 12,105

Balance of sale payable (Note 4) 4,946 7,773

Current portion of long-term debt (Note 12) 8,025 7,686

342,204 382,708

LONG-TERM DEBT (Note 12) 439,634 505,816

BALANCE OF SALE PAYABLE (Note 4) 665 5,278

PENSION & POST-RETIREMENT BENEFIT OBLIGATIONS (Note 15) 19,081 19,357

FUTURE INCOME TAXES (Note 22) 62,986 65,320

OTHER LONG-TERM LIABILITIES (Note 13) 5,656 4,631

SHAREHOLDERS' EQUITY

CAPITAL STOCK (Note 16) 162,503 160,876

CONTRIBUTED SURPLUS (Note 17) 3,639 1,081

RETAINED EARNINGS 478,155 386,833

CUMULATIVE TRANSLATION ADJUSTMENT (Note 18) 28,145 79,489

672,442 628,279

$ 1,542,668 $ 1,611,389

COMMITMENTS (Note 19)

CONTINGENT LIABILITIES (Note 20)

See accompanying notes.

ON BEHALF OF THE BOARD

DIRECTOR DIRECTOR


CONSOLIDATED STATEMENT OF RETAINED EARNINGSFOR THE YEARS ENDED DECEMBER 30, 2005 AND 2004 (All figures in thousands of U.S. dollars)

2005 2004

Balance, beginning of year $ 386,833 $ 286,757

Net income 91,322 100,076

BALANCE, END OF YEAR $ 478,155 $ 386,833


CONSOLIDATED STATEMENT OF INCOMEFOR THE YEARS ENDED DECEMBER 30, 2005 AND 2004 (All figures in thousands of U.S. dollars, except per share amounts)

2005 2004

Sales $ 1,740,693 $ 1,690,952

Licensing and commission income 20,172 18,122

TOTAL REVENUE 1,760,865 1,709,074

EXPENSES

Cost of sales 1,367,217 1,315,921

Selling, general and administrative expenses 200,159 211,362

Depreciation and amortization 38,999 34,611

Research and development costs 7,945 6,420

Restructuring costs (Note 3) 6,982 –

Interest on long-term debt 31,240 30,594

Other interest 1,410 3,193

1,653,952 1,602,101

INCOME BEFORE INCOME TAXES 106,913 106,973

Income taxes (Note 22)

Current 15,548 11,336

Future 43 ( 4,439 )

15,591 6,897

NET INCOME $ 91,322 $ 100,076

EARNINGS PER SHARE (Note 23)

Basic $ 2.78 $ 3.06

Diluted $ 2.77 $ 3.04



CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 30, 2005 AND 2004 (All figures in thousands of U.S. dollars)

2005 2004

CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES

Net income $ 91,322 $ 100,076

Items not involving cash:

Depreciation and amortization 38,999 34,611

Amortization of deferred financing costs 1,592 1,578

Future income taxes 43 ( 4,439 )

Restructuring costs (Note 3) 9,335 –

Stock compensation expense 2,602 1,081

Loss (gain) on disposal of assets ( 680 ) 808

143,213 133,715

Changes in non-cash working capital (Note 24) ( 44,345 ) ( 17,055 )

CASH PROVIDED BY OPERATING ACTIVITIES 98,868 116,660

FINANCING ACTIVITIES

Bank indebtedness 3,061 1,005

Long-term debt ( 65,713 ) 223,892

Issuance of capital stock 1,417 3,908

CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 61,235 ) 228,805

INVESTING ACTIVITIES

Acquisition of subsidiary companies (Note 24) ( 7,440 ) ( 296,504 )

Additions to property, plant and equipment - net ( 19,895 ) ( 32,600 )

Deferred charges ( 7,909 ) ( 13,688 )

Intangible assets ( 4,213 ) ( 3,029 )

Funds held by ceding insurer 4,273 ( 1,117 )

CASH USED IN INVESTING ACTIVITIES ( 35,184 ) ( 346,938 )

Effect of exchange rate changes on cash ( 1,392 ) ( 1,116 )

INCREASE (DECREASE) IN CASH 1,057 ( 2,589 )

Cash, beginning of year 11,288 13,877

CASH, END OF YEAR $ 12,345 $ 11,288



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS AT DECEMBER 30, 2005 AND 2004 (All figures in thousands of U.S. dollars, except per share amounts)

NOTE 1 >>> NATURE OF OPERATIONS

Dorel Industries Inc. is a global consumer products company which designs, manufactures or sources, markets and distributes a diverse portfolio of powerful

product brands, marketed through its juvenile, home furnishings, and recreational/leisure segments. The principal markets for the Company’s products are the

United States, Canada and Europe.

NOTE 2 >>> SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) using the U.S. dollar as the reporting

currency. The U.S. dollar is the functional currency of the Canadian parent company. The material differences between Canadian GAAP and United States GAAP

are described and reconciled in Note 26. Certain comparative figures have been reclassified to conform to the 2005 financial statement presentation including

freight costs incurred when shipping to customers previously grouped against sales that have been reclassified to cost of sales in the 2004 results. This change

had the impact of increasing both sales and cost of sales by $24,499 for the year ended December 30, 2004.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries from the date of their acquisition. All significant

inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenue

and expenses during the period reported. Significant estimates and assumptions were used to evaluate the carrying value of long-lived assets, assets held for

sale and goodwill, valuation allowances for accounts receivable, inventories and future income taxes, restructuring reserves, liabilities for potential litigation

claims and settlements including product liability and assets and obligations related to employee pension and post-retirement benefits. Estimates and

assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined

to be necessary. Actual results could differ from those estimates.

Revenue Recognition

Sales, licensing and commission income are recognized upon shipment of product and transfer of ownership to the customer. Provisions for customer incentives

and provisions for sales and return allowances are made at the time of product shipment.

Inventories

Raw material inventories are valued at the lower of cost and replacement cost. Finished goods inventories are valued at the lower of cost and net realizable value.

Cost is determined on a first-in; first-out basis.

Depreciation

Property, plant and equipment are depreciated as follows:

Method Rate

Buildings and improvements Straight-line 40 years

Machinery and equipment Declining balance 15%

Moulds Straight-line 3 to 5 years

Furniture and fixtures Declining balance 20%

Vehicles Declining balance 30%

Computer equipment Declining balance 30%

Leasehold improvements Straight-line Over the lesser of the useful life

and the term of the lease


NOTE 2 >>> SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Deferred charges

Deferred charges are carried at cost less accumulated amortization.

Research and Development Costs:

The Company incurs costs on activities which relate to research and development of new products. Research costs are expensed as they are incurred.

Development costs are also expensed as incurred unless they meet specific criteria related to technical, market and financial feasibility. Deferred development

costs are amortized on a straight-line basis over a period of two years.

Financing Costs:

The Company incurred certain costs related to the issue of long-term debt. These amounts are amortized as interest expense on a straight-line basis

over the term or life of the related long-term debt.

Goodwill

Goodwill represents the excess of the purchase price over the fair values assigned to identifiable net assets acquired of subsidiary companies. Goodwill, which

is not amortized, is tested for impairment annually or more frequently when an event or circumstance occurs that more likely than not reduces the fair value

of a reporting unit below its carrying amount.

A two-step impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. The

fair value of a reporting unit is first compared with its carrying amount, including goodwill, in order to identify a potential impairment. When the fair value of a

reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is

unnecessary. When the carrying amount of a reporting unit exceeds its fair value, the implied fair value of the reporting unit's goodwill is then compared with

its carrying amount to measure the amount of the impairment loss, if any. The fair value of a reporting unit is calculated based on discounted cash flows or

valuations based on a market approach. When the carrying amount of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss

is recognized in an amount equal to the excess.

Intangible Assets

Intangible assets are recorded at cost:

Trademarks

Trademarks acquired as part of business acquisitions are considered to have an indefinite life and are therefore not subject to amortization. They are tested

annually for impairment or more frequently when events or changes in circumstances indicate that the trademarks might be impaired. The impairment test

compares the carrying amount of the trademarks with its fair value.

Customer Relationships

Customer relationships acquired as part of business acquisitions are amortized on a straight-line basis over a period of 20 to 25 years.

Patents

Patents are amortized on a straight-line basis over their expected useful lives ranging from 1 year to 25 years.

Licences

Certain licences are amortized in proportion to sales of products for which the licences have been acquired, while others are amortized on a straight-line basis

over their weighted average expected useful lives of 3 years.

Impairment of Long-Lived Assets

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Each quarter-end, the Company assesses its long-lived assets for potential impairment and considers projected future operating results, trends and other

circumstances in making such assessments. Impaired assets are written down to estimated fair value, being determined based on discounted cash flows.



Foreign Currency

The financial statements of self-sustaining operations whose functional currency is other than the United States dollar are translated from such functional

currency to the United States dollars using the current rate method. Under this method, assets and liabilities are translated at the rates in effect at the balance

sheet date. Income and expenses are translated at average rates of exchange for the period. Resulting unrealized gains or losses are accumulated as a separate

component of shareholders’ equity.

Foreign currency transactions and balances are recorded as follows: all monetary assets and liabilities are translated at the exchange rates prevailing at the

balance sheet date. Non-monetary assets and liabilities are translated at historical exchange rates. Income and expenses are translated at the average exchange

rates for the period. Foreign exchange gains and losses are reflected in net income.

Derivative Financial Instruments

Derivative financial instruments are utilized by the Company in the management of its foreign currency exposures. These derivative financial instruments are

used as a method for meeting the risk reduction objectives of the Company by generating offsetting cash flows related to the underlying position in respect of

amount and timing of forecasted foreign currency cash flows. The Company's policy is not to utilize derivative financial instruments for trading or speculative

purposes. To meet its objective, the Company uses foreign exchange contracts, including futures, forwards and options.

The Company does not apply hedge accounting to foreign exchange contracts where hedging relationships have not been formally documented. Foreign exchange

contracts are marked to market. Unrealized gains and losses associated with derivative instruments are recorded in cost of sales.

Pension Plans and Post-Retirement Benefits

Pension Plans:

The Company's subsidiaries maintain defined benefit plans and defined contribution plans for their employees. Pension benefit obligations under the defined

benefit plans are determined annually by independent actuaries using management's assumptions and the accumulated benefit method for plans where future

salary levels do not affect the amount of employee future benefits and the projected benefit method for plans where future salaries or cost escalation affect the

amount of employee future benefits. The plans provide benefits based on a defined benefit amount and length of service.

Plan assets are measured using the fair value method. Actuarial gains or losses arise from the differences between the actual and expected long-term rate

of return on plan assets for a period or from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulated

actuarial gain or loss over 10 percent of the greater of the benefit obligation and the fair value of plan assets is amortized over the expected average remaining

service period. The weighted average remaining service period of active employees covered by all pension plans is ten years. Prior service costs arising from plan

amendments are deferred and amortized on a straight-line basis over the average remaining service period of employees active

at the date of amendment.

Pension expense consists of the following:

>>> the cost of pension benefits provided in exchange for employees' services rendered in the period;

>>> interest on the actuarial present value of accrued pension benefits less earnings on pension fund assets;

>>> amounts which represent the amortization of the unrecognized net pension assets that arose when accounting policies were first applied and

subsequent gains or losses arising from changes in actuarial assumptions, and experience gains or losses related to return on assets on the straight-line

basis, over the expected average remaining service life of the employee group.

Post-Retirement Benefits Other Than Pensions:

Post-retirement benefits other than pensions, include health care and life insurance benefits for retired employees. The costs of providing these benefits are

accrued over the working lives of employees in a manner similar to pension costs. Actuarial gains or losses are treated in a similar manner to those relating

to pension plans. The average remaining service period of employees covered by the post-retirement benefit plan is 11 years.

Significant elements in determining the assets or liabilities and related income or expense for these plans are the expected return on plan assets, the discount

rate used to value future payment streams, expected trends in health care costs, and other actuarial assumptions. Annually, the Company evaluates the significant

assumptions to be used to value its pension and post-retirement plan assets and liabilities based on current market conditions and expectations

of future costs.



Future Income Taxes

Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding

tax values using the enacted or substantively enacted income tax rate in effect at the balance sheet date. Future income tax assets are recognized only to the

extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. Future income tax assets and liabilities are

adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment.

Stock-Based Compensation

In 2003, the Canadian Institute of Chartered Accountants (CICA) modified Handbook Section 3870 “Stock Based Compensation and other Stock Based Payments”,

which the Company has adopted on a prospective basis. As a result, effective for the fiscal year beginning December 31, 2003, the Company recognizes

as an expense, all stock options granted, modified or settled using the fair value based method. As the Company has elected prospective treatment of this

standard, only options granted in fiscal 2004 or later have an impact on operating results. In addition, pro forma disclosure is presented for all options granted

between January 1, 2002, the Company’s original adoption date of CICA Handbook Section 3870, and the year ended December 30, 2003.

Stock options awards to employees are measured based on the fair value of the options at the grant date and a compensation expense is recognized over the

vesting period of the options, with a corresponding increase to contributed surplus. When the stock options are exercised, capital stock is credited by the sum

of the consideration paid, together with the related portion previously recorded to contributed surplus. The Company’s stock option plan and other disclosures

are outlined in Note 17.

Change in Accounting Policies

Variable Interest Entities

The CICA Handbook Guideline 15, “Consolidation of Variable Interest Entities”, provides clarification on the application of consolidation to entities defined as

“variable interest entities”, when equity holders are not considered to have a controlling financial interest or they have not invested enough equity to allow the

entity to finance its activities without additional subordinated financial support provided by any parties, including the equity holders. The guideline is effective

for fiscal years and interim periods beginning on or after November 1, 2004. This change in accounting policy did not have a material impact on the Company’s

results.

NOTE 3 >>> RESTRUCTURING COSTS

On September 19, 2005, the Company announced a plan for the consolidation of its four North American ready-to-assemble (RTA) furniture manufacturing plants

with the closure of its Wright City, Missouri facilities. The closure is necessitated by excess capacity caused by a strategic shift away from exclusive domestic

production to a combination of North American production and imported items. The restructuring is part of an overall plan to improve the earnings

of the Home Furnishings Segment. The Wright City facilities consist of three separate buildings, of which manufacturing operations have ceased as at

December 30, 2005 with product shipments and the move of useful equipment to other RTA plants continuing through 2006.

The total pre-tax cost of the restructuring plan is expected to be approximately $10,370. Of this amount, the Company recorded a charge of $9,460 in the year,

of which $9,335 was non-cash, consisting of the following:

Buildings held-for-sale write-downs $ 4,359

Equipment held-for-sale write-downs 2,030

Employee severance and termination benefits 374

Contractual obligations 169

Legal fees 50

Recorded as restructuring costs 6,982

Inventory markdowns (in Cost of sales) 2,353

Move of inventory, equipment and other expenses (in Cost of sales) 125

Total $ 9,460

The restructuring provision included in accrued liabilities amounts to $594 as at December 30, 2005 and includes $313 for employee severance and termination

benefits, the amount of legal fees and contractual obligations expenses incurred to date and $62 of other expenses. In accordance with EIC-134 “Accounting for

Severance and Termination Benefits”, where future services are required beyond the minimum retention period, the liability for employee termination benefits

and stay bonus is recognized ratably over the future service period. In accordance with EIC-135 “Accounting for Costs Associated with Exit or Disposal Activities

(Including Costs Incurred in a Restructuring)”, the restructuring provision is recognized when the liability is incurred. The consolidation plan is expected to be

completed by the fourth quarter of 2006, with an additional $910 of restructuring costs to be incurred, including $62 in severance and other employee related

expenses, $9 in contract termination costs and $839 mainly for moving and reset expenses for equipment and inventory and other associated costs.


NOTE 3 >>> RESTRUCTURING COSTS (Cont’d)

Buildings and equipment write-downs

As at December 30, 2005, Ameriwood Industries ceased its manufacturing operations in the three buildings and entered into an agreement with a licensed real

estate firm to actively locate a buyer. Similarly, certain equipment was put up for sale. All three buildings and the equipment are available for immediate sale

in their present condition and management believes that they meet all of the criteria for classification as held for sale in accordance with the recommendations

of the CICA Handbook Section 3475 “Disposal of Long-Lived Assets and Discontinued Operations”. During the year, impairment losses amounting to $4,359

and $2,030 were recognized to write down the carrying amount of these buildings and equipment respectively, to their expected fair value less selling costs.

Assets held for sale thus comprise buildings of $3,438 and equipment of $261. These assets are no longer depreciated; their fair values less costs to sell are

monitored each quarter.

The fair value of the buildings and equipment was determined based on expected proceeds from disposal, real estate market information, prices for similar assets

in the area and an independent appraisal on the property.

Contractual Obligations

The Company is under contract for several operating leases which will be terminated before the end of their term. Related costs are recognized at the

cease-use date or when the contract is terminated, in accordance with the contract terms.

NOTE 4 >>> BUSINESS ACQUISITION

On February 3, 2004, the Company acquired all the outstanding shares of Pacific Cycle, LLC, a designer and supplier of bicycles and other recreational products

for a total consideration of $310,976. During the first quarter of 2005, the Company completed its valuation of identifiable assets and liabilities. In particular,

customer relationships intangible assets were revalued and were recognized. As a result of this and other adjustments, goodwill has been reduced to $143,087,

a reduction of $4,506 from the goodwill figure originally established. The majority of the acquisition cost was financed through long-term debt in the amount of

$288,000, with the balance being paid in cash. A balance of sale of $5,611 remains to be paid and is presented separately on the consolidated balance sheet.

In addition, as part of the acquisition agreement, certain members of Pacific Cycle's management group are party to a deferred purchase price payment plan.

Under the terms of this plan, additional consideration is contingent upon achieving specified earnings objectives over a period of three years following the date

of acquisition. When the contingency is resolved, if earnings objectives are met, a maximum of $10,423 would be recorded as an additional element of purchase

price and would increase goodwill. Additionally, if earnings exceed specified objectives and current members of management are still employed by the Company,

additional amounts would become payable at the end of the three-year period. These amounts would be recorded as compensation expense in the period in

which it is probable they will be incurred.

The combination has been recorded under the purchase method of accounting with the results of operations of the acquired business being included in the

accompanying consolidated financial statements since the date of acquisition. Goodwill is deductible for income tax purposes. The total goodwill amount is

included in the Company’s Recreational/Leisure segment as reported in Note 25 of the financial statements.

The final assets acquired and liabilities assumed consist of the following:

ASSETS

Cash $ 3,734

Accounts receivable 32,709

Inventories 51,685

Property, plant and equipment 1,590

Trademarks 127,000

Customer relationships 3,900

Other 2,385

Goodwill 143,087

366,090

LIABILITIES

Accounts payable and other current liabilities 55,114

Total purchase price $ 310,976


NOTE 5 >>> ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

2005 2004

Accounts receivable $ 334,312 $ 337,411

Allowance for anticipated credits ( 41,320 ) ( 43,933 )

Allowance for doubtful accounts ( 5,767 ) ( 8,271 )

$ 287,225 $ 285,207

NOTE 6 >>> INVENTORIES

Inventories consist of the following:

2005 2004

Raw materials $ 61,039 $ 56,138

Work in process 8,392 7,998

Finished goods 209,834 228,855

$ 279,265 $ 292,991

NOTE 7 >>> PROPERTY, PLANT AND EQUIPMENT

2005

AccumulatedCost Depreciation Net

Land $ 9,931 $ – $ 9,931

Buildings and improvements 51,024 9,638 41,386

Machinery and equipment 81,205 47,540 33,665

Moulds 97,132 71,733 25,399

Furniture and fixtures 4,652 2,588 2,064

Computer equipment 20,000 10,262 9,738

Leasehold improvements 5,748 3,448 2,300

Construction in progress 13,783 – 13,783

Assets under capital leases 6,267 1,040 5,227

Vehicles 1,528 773 755

$ 291,270 $ 147,022 $ 144,248

2004

AccumulatedCost Depreciation Net

Land $ 11,559 $ – $ 11,559

Buildings and improvements 63,664 12,111 51,553

Machinery and equipment 88,689 48,356 40,333

Moulds 89,623 63,246 26,377

Furniture and fixtures 4,730 2,464 2,266

Computer equipment 19,420 8,612 10,808

Leasehold improvements 5,476 3,045 2,431

Construction in progress 11,888 – 11,888

Assets under capital lease 5,975 286 5,689

Vehicles 1,472 669 803

$ 302,496 $ 138,789 $ 163,707


NOTE 7 >>> PROPERTY, PLANT AND EQUIPMENT (Cont’d)

Construction in progress consists of the following major categories:

2005 2004

Buildings and improvements $ 415 $ 454

Machinery and equipment 1,221 2,127

Moulds 8,528 7,903

Computer equipment 3,619 1,404

$ 13,783 $ 11,888

Depreciation of property, plant and equipment amounted to $23,818 (2004 - $21,084).

NOTE 8 >>> DEFERRED CHARGES2005 2004

Development costs $ 14,402 $ 17,743

Financing costs 843 2,435

Other 316 805

$ 15,561 $ 20,983

The Company incurred $16,086 (2004 - $18,563) of research and development costs of which $7,945 (2004 - $6,420) were expensed and $8,141 (2004 - $12,143)

were deferred. Amortization of deferred development costs and other deferred charges amounted to $10,513 (2004 - $10,105) and $489 (2004 - $138) respectively.

The amortization of financing costs included in interest on long-term debt is $1,592 (2004 – $1,578).

NOTE 9 >>> INTANGIBLE ASSETS2005

AccumulatedCost Amortization Net

Trademarks $ 199,666 $ – $ 199,666

Customer relationships 49,203 5,114 44,089

Patents 16,116 6,960 9,156

Licences 1,000 666 334

$ 265,985 $ 12,740 $ 253,245

2004

AccumulatedCost Amortization Net

Trademarks $ 210,658 $ – $ 210,658

Customer relationships 44,897 3,374 41,523

Patents 15,076 5,100 9,976

Licences 1,000 189 811

$ 271,631 $ 8,663 $ 262,968

The aggregate amount of amortizable intangible assets acquired amounted to $6,968 (2004 - $3,029) of which $2,755 (2004 – nil) is unpaid at year-end.

The aggregate amortization expense of intangible assets amounted to $4,668 (2004 - $3,422).


NOTE 10 >>> BANK INDEBTEDNESS

The average interest rates on the outstanding borrowings for 2005 and 2004 were 2.14% and 3.24% respectively. As at December 30, 2005, the Company had

unused and available bank lines of credit amounting to approximately $20,119 (2004 - $27,719) which are renegotiated annually.

NOTE 11 >>> ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

2005 2004

Trade creditors and accruals $ 223,586 $ 273,664

Salaries payable 21,211 24,016

Product liability (Note 21) 37,216 35,250

Other accrued liabilities 23,909 20,299

$ 305,922 $ 353,229

NOTE 12 >>> LONG-TERM DEBT

2005 2004

Series “A” Senior Guaranteed Notes

Bearing interest at 6.80 % per annum with principal repayments as follows:

>>> 3 annual instalments of $1,000 ending in July 2008

>>> 1 instalment of $8,500 in July 2009

>>> 2 annual instalments of $10,000 ending in July 2011

>>> 1 final instalment of $16,500 in July 2012 $ 48,000 $ 49,000

Bearing interest at 5.09% per annum repayable in February 2008 55,000 55,000

Series “B” Senior Guaranteed Notes

Bearing interest at 5.63% per annum repayable in February 2010 55,000 55,000

Term Notes

Bearing interest at 7.00% per annum with principal repayments

in 3 annual instalments of $4,800 ending in April 2008 14,400 19,200

Bearing interest at 7.13% per annum with principal repayments

in 3 annual instalments of $1,600 ending in June 2008 4,800 6,400

Revolving Bank Loans

Bearing interest at various rates per annum, averaging 5.96% based on LIBOR or U.S. bank rates,

total availability of $425,000 (2004 - $470,000) due to mature in March 2007 269,136 327,604

Other 127 209

Obligations under capital leases 1,196 1,089

447,659 513,502

Current portion 8,025 7,686

$ 439,634 $ 505,816


NOTE 12 >>> LONG-TERM DEBT (Cont’d)

The aggregate repayments in subsequent years of existing long-term debt will be:

Fiscal Year Ending Amount

2006 $ 8,029

2007 276,957

2008 62,624

2009 8,598

2010 65,000

Thereafter 26,500

447,708

Less: Amounts representing interest ( 49 )

$ 447,659

Under the long-term debt agreements, the Company is subject to certain covenants, including maintaining certain financial ratios. As at December 30, 2005,

the Company is in compliance with these covenants.

NOTE 13 >>> OTHER LONG-TERM LIABILITIES

2005 2004

Employee compensation $ 3,039 $ 2,509

Other 2,617 2,122

$ 5,656 $ 4,631

Employee compensation includes bonuses based on length of service and profit sharing offered by one of the Company’s subsidiaries.

NOTE 14 >>> FINANCIAL INSTRUMENTS

In the normal course of business, the Company uses various financial instruments, including derivative financial instruments, for purposes other than trading.

The Company uses derivative financial instruments as outlined in Note 2, to reduce exposure to fluctuations in foreign exchange rates. The derivative financial

instruments consist of foreign exchange contracts, including futures, forwards and options. The non-derivative financial instruments include those as outlined

below. By their nature, all such instruments involve risk, including market risk and the credit risk of non performance by counterparties. These financial

instruments are subject to normal credit standards, financial controls, risk management as well as monitoring procedures.

Foreign Exchange Risk Management

The Company enters into various types of foreign exchange contracts to manage its exposure to foreign currency risk as indicated in the following table:

December 30, 2005

Notional Fair Amount Value

Forward exchange contracts $ 26,933 $ 939

Options $ 19,550 $ 291


NOTE 14 >>> FINANCIAL INSTRUMENTS (Cont’d)

Fair values of futures and forwards are based on listed market prices, where possible. If listed market prices are not available, fair value is based on other relevant

factors, including price quotations for similar instruments traded in different markets.

Fair values of option contracts are derived from pricing models that consider current market and contractual prices for the underlying financial instruments,

as well as time value and yield curve or volatility factors underlying the positions.

The term of the currency derivatives ranges from three to twelve months. The Company's market risk with respect to foreign exchange contracts is limited

to the exchange rate differential.

During the year, the Company recorded net foreign exchange gains in the amount of $4,516 (2004 - $3,809).

Fair Value Disclosure

Fair value estimates are made as of a specific point in time using available information about the financial instrument. These estimates are subjective in nature

and often cannot be determined with precision.

The Company has determined that the carrying amount of its short-term financial assets and liabilities approximates fair values as at the balance sheet dates

because of the short-term maturity of those financial instruments.

The fair value of long-term debt is $446,839 (2004 - $516,655) compared to a carrying amount of $447,659 (2004 – 513,502) as at December 30, 2005. The fair value

of long-term debt is estimated based on discounting expected future cash flows at the discount rates which represent borrowing rates presently available to the

Company for loans with similar terms and maturity. For long-term debt bearing interest at variable rates, the fair value is considered to approximate the carrying

amount.

As at December 31, 2005 and 2004, the fair value of balance of sale payable was equivalent to the carrying amount because it bears a variable-rate interest.

The fair value of other long-term liabilities is comparable to their carrying value.

As described in Note 19, the Company has certain letter of credit facilities. Management does not expect any material losses to result from these instruments.

Concentrations of Credit Risk

Substantially all accounts receivable arise from sales to the retail industry. Sales to three major customers represented 59.1% of total revenue. Accounts

receivable from these customers comprised 54.4% of the total as at December 30, 2005. In 2004, there were two major customers representing 51.4% of total

revenues. Accounts receivable from these two customers comprised 36.3% of the total at December 30, 2004.


NOTE 15 >>> PENSION & POST RETIREMENT BENEFIT PLANS

Pension Benefits

The Company's subsidiaries maintain defined benefit plans and defined contribution plans for their employees. Pension benefit obligations under the defined

benefit plans are determined annually by independent actuaries using management's assumptions and the accumulated benefit method for the plan where future

salary levels do not affect the amount of employee future benefits and the projected benefit method for plans where future salaries or cost escalation affect the

amount of employee future benefits.

Information regarding the Company’s defined benefit pension plans is as follows:

2005 2004

Accrued benefit obligations:


Current service cost 1,423 1,203

Interest cost 1,717 1,605

Participant contributions 127 165

Benefits paid ( 1,591 ) ( 1,421 )

Effect of exchange rates ( 1,501 ) 891

Actuarial (gain) / loss ( 180 ) 2,296

Balance, end of year 32,684 32,689

Plan assets:

Fair value, beginning of year $ 25,032 $ 22,443

Actual return on plan assets 1,293 2,435

Employer contributions 1,373 1,383

Participant contributions 127 165

Benefits paid ( 1,591 ) ( 1,421 )

Effect of exchange rates ( 433 ) 256

Additional charges ( 141 ) ( 229 )

Fair value, end of year 25,660 25,032

Funded status - plan deficit ( 7,024 ) ( 7,657 )

Unamortized actuarial loss 11,742 12,581

Unamortized transitional obligation 110 136

Unamortized prior service cost 935 1,045

Net amount recognized $ 5,763 $ 6,105

The net amount recognized consists of the following:

Accrued benefit asset $ 10,750 $ 10,786

Accrued benefit liability ( 4,987 ) ( 4,681 )

Net amount recognized $ 5,763 $ 6,105

The accrued benefit asset relating to pension benefits is included in other assets and the accrued benefit liability is included in pension & post-retirement benefit

obligations on the Company’s balance sheet.


NOTE 15 >>> PENSION & POST RETIREMENT BENEFIT PLANS (Cont’d)

The accrued benefit obligation at the end of the period and the fair value of plan assets at the end of the period for the aggregate of plans with accrued benefit

obligations in excess of plan assets are the following:

2005 2004

Accrued benefit obligation, end of year $ 10,101 $ 10,999

Fair value of plan assets, end of year $ 3,007 $ 3,120

Net pension costs for the defined benefit plans comprise the following:

2005 2004

Current service cost $ 1,423 $ 1,203

Interest cost 1,717 1,605

Actual return on plan assets ( 1,293 ) ( 2,435 )

Actuarial (gain) / loss ( 180 ) 2,296

Benefit cost before adjustments to recognize the long-term nature of the plans 1,667 2,669

Difference between actual and expected return on plan assets ( 717 ) 726

Difference between actuarial (gain) / loss on accrued benefit obligation and the amount recognized 1,158 ( 1,245 )

Difference between amortization of past service costs and actual amendments for the year 136 136

Amortization of transition obligation 9 9

Pension expense $ 2,253 $ 2,295

Under the Company’s defined contribution plans, total expense was $1,653 (2004 - 1,580). Total cash payments for employee future benefits for 2005, consisting

of cash contributed by the Company to its funded plans, cash contributed to its defined contribution plans and benefits paid directly to beneficiaries for unfunded

plans, was $3,620 (2004 - $3,714).

Post-Retirement Benefits

One of the Company’s subsidiaries maintains a defined benefit post-retirement benefit plan for substantially all its employees.

Information regarding this Company’s post-retirement benefit plan is as follows:

2005 2004

Accrued benefit obligation:


Current service cost 274 1,042

Interest cost 837 680

Amendments 372 –

Benefits paid ( 584 ) ( 710 )

Actuarial (gains)/losses 1,489 ( 283 )

Balance, end of year 14,998 12,610

Plan assets:

Employer contributions 584 710

Benefits paid ( 584 ) ( 710 )

Fair value, end of year – –

Funded status-plan deficit ( 14,998 ) ( 12,610 )

Unamortized actuarial (gain)/loss 426 ( 1,063 )

Unamortized prior service costs 478 ( 1,003 )

Accrued benefit liability $ ( 14,094 ) $ ( 14,676 )



Net costs for the post-retirement benefit plan comprise the following:

2005 2004

Current service cost $ 274 $ 1,042

Interest cost 837 680

Plan amendments 372 –

Actuarial (gain)/loss 1,489 ( 283 )

Benefit cost before adjustments to recognize the long-term nature of the plans 2,972 1,439

Difference between actuarial (gain)/loss on accrued benefit obligation and the amount recognized ( 1,489 ) 276

Difference between amortization of past service costs and actual amendments for the year ( 1,481 ) ( 146 )

Net benefit plan expense $ 2 $ 1,569

Assumptions

Weighted-average assumptions used to determine benefit obligations as at December 30:

Pension Post-RetirementBenefits Benefits

2005 2004 2005 2004

Discount rate 5.29 % 5.30 % 5.75 % 6.00 %

Rate of compensation increase 2.28 % 2.26 % n/a n/a

Weighted-average assumptions used to determine net periodic cost for the years ended December 30:

Pension Post-RetirementBenefits Benefits

2005 2004 2005 2004

Discount rate 5.30 % 5.58 % 6.00 % 6.25 %

Expected long-term return on plan assets 7.94 % 8.13 % n/a n/a

Rate of compensation increase 2.26 % 2.30 % n/a n/a

The measurement date used for plan assets and pension benefits and the measurement date used for post-retirement benefits was December 30 for both 2005

and 2004. The most recent actuarial valuations for the pension plans and post-retirement benefit plans are dated January 1, 2005. The most recent actuarial

valuation of the pension plans for funding purposes was as of January 1, 2005, and the next required valuation will be as of January 1, 2006.

Plan assets are held in trust and their weighted average allocations were as follows as at the measurement date:

2005 2004

Equity securities 58 % 66 %

Debt securities 30 % 18 %

Other 12 % 16 %

100 % 100 %



The Company’s health benefit costs were estimated to increase at an annual rate of 10% during 2005 (2004 - 10%) decreasing gradually to the ultimate annual

growth rate of 5% reached in 2010. Assumed health care cost trends have a significant effect on the amounts reported for health care plans. A one percentage

point change in assumed health care cost rates would have the following effects:

1 Percentage 1 PercentagePoint Increase Point Decrease

Effect on total of service and interest cost $ 280 $ ( 225 )

Effect on post-retirement benefit obligation $ 2,199 $ ( 1,800 )

Other

Certain of the Company’s subsidiaries have elected to act as self-insurer for certain costs related to all active employee health and accident programs.

The expense for the year ended December 30, 2005 was $11,535 (2004 - $10,730) under this self-insured benefit program.

Certain of the Company’s subsidiaries maintain a non-qualified deferred compensation plan for certain highly compensated employees, which provides for

employer contributions, and are held in a trust. The total contributions made under these plans for the year ended December 30, 2005 was $15 (2004 - $41).

NOTE 16 >>> CAPITAL STOCK

The capital stock of the Company is as follows:

Authorized

An unlimited number of preferred shares without nominal or par value, issuable in series.

An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any time at the option of the holder into Class "B"

Subordinate Voting Shares on a one-for-one basis.

An unlimited number of Class "B" Subordinate Voting Shares without nominal or par value, convertible into Class "A" Multiple Voting Shares, under certain

circumstances, if an offer is made to purchase the Class "A" shares.

Details of the issued and outstanding shares are as follows:

2005 2004

Number Amount Number Amount

Class “A” Multiple Voting Shares

Balance, beginning of year 4,706,294 $ 2,059 4,872,560 $ 2,139

Converted from Class “A” to Class “B” (1) ( 233,050 ) ( 120 ) ( 166,266 ) ( 80 )

Balance, end of year 4,473,244 $ 1,939 4,706,294 $ 2,059

Class “B” Subordinate Voting Shares

Balance, beginning of year 28,093,898 $ 158,817 27,746,382 $ 154,135

Converted from Class “A” to Class “B” (1) 233,050 120 166,266 80

Issued under stock option plan (2)(3) 58,750 1,627 181,250 4,602

Balance, end of year 28,385,698 $ 160,564 28,093,898 $ 158,817

TOTAL CAPITAL STOCK $ 162,503 $ 160,876

1. During the year, the Company converted 233,050 (2004 -166,266) Class “A” Multiple Voting Shares into Class “B” Subordinate Voting Shares at an average rate

of $0.51 per share (2004 - $0.48 per share).

2. During the year, the Company realized tax benefits amounting to $166 (2004 - $694) as a result of stock option transactions. The benefit has been credited to capital

stock and is not reflected in the current income tax provision.

3. During the year, capital stock was credited by the sum of consideration paid following exercise of stock options, together with the related portion previously recorded

to contributed surplus amounting to $44 (2004 – nil).


NOTE 17 >>> STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Stock option plans

Under various plans, the Company may grant stock options on the Class "B" Subordinate Voting Shares at the discretion of the board of directors, to senior

executives and certain key employees. The exercise price is the market price of the securities at the date the options are granted. Of the 6,000,000 Class “B”

Subordinate Voting Shares initially reserved for issuance, 2,988,750 were available for issuance under the share option plans as at December 30, 2005. Options

granted vest according to a graded schedule of 25% per year commencing a day after the end of the first year, and expire no later than the year 2010.

The Company’s stock option plan is as follows:

2005 2004

Weighted Average Weighted AverageOptions Exercise Price Options Exercise Price

Options outstanding, beginning of year 1,615,750 $ 26.95 1,099,750 $ 21.52

Granted 262,000 34.03 752,500 32.90

Exercised ( 58,750 ) 24.45 ( 181,250 ) 21.31

Cancelled ( 362,500 ) 31.93 ( 55,250 ) 25.55

Options outstanding, end of year 1,456,500 $ 30.88 1,615,750 $ 26.95

Total exercisable, end of year 593,375 $ 29.14 361,750 $ 21.95

A summary of options outstanding at December 30, 2005 is as follows:

Total Outstanding Total Exercisable

Range of Weighted Average Weighted Average Weighted AverageExercise Prices Options Exercise Price Remaining Contractual Life Options Exercise Price

$16.95 - $27.32 556,750 $ 27.27 1.25 399,000 $ 27.32

$29.27 - $31.94 142,000 $ 29.94 3.59 35,500 30.22

$32.13 - $34.49 757,750 $ 33.72 3.34 158,875 33.48

$16.95 - $34.49 1,456,500 $ 30.88 2.57 593,375 $ 29.14

Total compensation cost recognized in income for employee stock options for the year amounts to $2,433 (2004 - $1,006), and was credited to contributed surplus.

If the Company had elected to recognize compensation costs based on the fair value at the date of grant for options granted since January 1, 2002,

the Company’s net income and earnings per share would have been reduced to the following pro-forma amounts:

2005 2004

Net income As reported $ 91,322 $ 100,076

Pro forma $ 89,444 $ 98,601

Basic earnings per share As reported $ 2.78 $ 3.06

Pro forma $ 2.72 $ 3.01

Fully diluted earnings per share As reported $ 2.77 $ 3.04

Pro forma $ 2.72 $ 3.00

Weighted-average fair value of options granted during the year $ 11.05 $ 10.94


NOTE 17 >>> STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS (Cont’d)

The above pro-forma net income and earnings per share as well as compensation cost recognized in income were computed using the fair value of granted options

as at the date of grant as calculated by the Black-Scholes option method. In order to perform the calculation, the following weighted average assumptions were

made:

2005 2004

Risk-free interest rate 3.53 % 3.69 %

Dividend yield Nil Nil

Expected volatility 32.5 % 32.7 %

Expected life 4.37 4.39

Deferred Share Unit Plan

The Company has a Deferred Share Unit Plan (the “DSU Plan”) under which an external director of the Company may elect annually to have his or her director’s

fees and fees for attending meetings of the Board of Directors or committees thereof paid in the form of deferred share units (“DSU’s”). The number of DSU’s

received by a director is determined by dividing the amount of the remuneration to be paid in the form of DSU’s on that date (the “Award Date”) by the fair market

value of the Company’s Class “B” Subordinate Voting Shares on the Award Date. Upon termination of a director’s service, a director may receive,

at the discretion of Board of Directors, either:

(a) cash equal to the number of DSU’s credited to the director’s account multiplied by the fair market value of the Class “B” Subordinate Voting Shares on the date a

notice of redemption is filed by the director; or

(b) the number of Class “B” Subordinate Voting Shares equal to the number of DSU’s in the director’s account.

(c) a combination of cash and Class “B” Subordinate Voting Shares

Of the 75,000 DSU’s authorized for issuance under the plan, 66,520 were available for issuance under the DSU plan as at December 30, 2005. During the year,

6,191 additional DSU’s were issued (2004 – 2,289) with $169 credited to contributed surplus (2004 - $75), for a total issued and outstanding of 8,480 DSU’s

and $244 at December 30, 2005.

NOTE 18 >>> CUMULATIVE TRANSLATION ADJUSTMENT

An analysis of the cumulative translation adjustment included in shareholders' equity is as follows:

2005 2004


Translation of self-sustaining foreign operations ( 51,344 ) 28,541

Balance, end of year $ 28,145 $ 79,489

The changes in the translation adjustment included in shareholders’ equity is the result of the exchange rates fluctuation on translation of net assets

of self-sustaining foreign operations and exchange gains or losses of intercompany account balances that form part of the net investments.

NOTE 19 >>> COMMITMENTS

a) The Company has entered into long-term operating lease agreements with various expiry dates to the year 2016. The minimum annual lease payment amounts

exclusive of additional charges will be as follows:

Total Lease Recovered from NetFiscal Year Ending Payment Amounts sub-leases Commitment

2006 $ 23,416 $ ( 2,089 ) $ 21,327

2007 19,044 ( 1,918 ) 17,126

2008 15,509 ( 1,962 ) 13,547

2009 10,187 ( 2,073 ) 8,114

2010 8,372 ( 2,176 ) 6,196

Thereafter 24,721 ( 13,411 ) 11,310

$ 101,249 $ ( 23,629 ) $ 77,620


NOTE 19 >>> COMMITMENTS (Cont’d)

b) As of December 30, 2005, the Company has commercial letters of credit outstanding totalling $281 and standby letters of credit outstanding totalling $15,053

to guarantee payment of a portion of the product liability, lease agreements and workers compensation claims.

c) The Company has entered into various licensing agreements for the exclusive use of certain brand names on its products. Under these agreements, the Company

is required to pay royalties as a percentage of sales with minimum royalties of $3,968 due in fiscal 2006 and $2,255 due in fiscal 2007 and 2008 combined.

d) As at December 30, 2005, the Company has capital expenditure commitments of approximately $405.

NOTE 20 >>> CONTINGENT LIABILITIES

The Company is involved in various legal actions and party to a number of other claims or potential claims that have arisen in the normal course of business,

the outcome of which is not yet determinable. In the opinion of management, based on information presently available, any monetary liability or financial impact

of such lawsuits, claims or potential claims to which the Company might be subject would not be material to the consolidated financial position of the Company

and the consolidated results of operations.

Additionally, under the terms of the Pacific Cycle’s acquisition agreement, contingent consideration based on earnings may become payable at the end of 2006,

refer to Note 4 to these financial statements.

NOTE 21 >>> PRODUCT LIABILITY

The Company is insured for product liability, by the use of both traditional insurance and by the Company's wholly owned subsidiary, Dorel Insurance Corporation,

which functions as a captive insurance company, providing a self funded insurance program to mitigate its product liability exposure. The self-funded insurance

program includes third party insurance coverage which is limited to the fair value of the assets held by the captive insurance company.

The estimated product liability exposure was calculated by an independent actuary based on historical sales volumes, past claims history and management

and actuarial assumptions. The estimated exposure includes incidents that have occurred, as well as incidents anticipated to occur on units sold prior to

December 30, 2005. Significant assumptions used in the actuarial model include management’s estimates for pending claims, product life cycle, discount

rates, and the frequency and severity of product incidents.

As at December 30, 2005, the Company’s recorded liability amounts to $37,216 (2004 - $35,250), which represents the Company’s total estimated exposure related

to current and future product liability incidents.

Funds Held by Ceding Insurer

Dorel Insurance Corporation, the captive insurance company, has entered into a reinsurance agreement whereby funds are withheld by the ceding insurer,

for the purpose of payment of net losses related to product liability claims. These funds bear interest at a rate of 3.55% per annum (2004 – 2.72%).


NOTE 22 >>> INCOME TAXES

Variations of income tax expense from the basic Canadian Federal and Provincial combined tax rates applicable to income from operations before income

taxes are as follows:

2005 2004

PROVISION FOR INCOME TAXES $ 35,281 33.0 % $ 35,301 33.0 %

ADD (DEDUCT) EFFECT OF:

Difference in effective tax rates of foreign subsidiaries ( 13,791 ) ( 12.9 ) ( 17,264 ) ( 16.1 )

Recovery of income taxes arising from exempt items

and the use of unrecorded tax benefits ( 6,461 ) ( 6.0 ) ( 8,999 ) ( 8.5 )

Change in future income taxes resulting from changes in tax rates ( 249 ) ( 0.2 ) ( 1,184 ) ( 1.1 )

Change in valuation allowance 698 0.6 – –

Recognition of previously unrecognized losses – – ( 725 ) ( 0.7 )

Other – net 113 0.1 ( 232 ) ( 0.2 )

ACTUAL PROVISION FOR INCOME TAXES $ 15,591 14.6 % $ 6,897 6.4 %

The following presents the Canadian and foreign components of income from operations before income taxes and income tax expense for the years ended

December 30:

2005 2004

Details of income from operations:

Domestic $ ( 9,017 ) $ ( 11,850 )

Foreign 115,930 118,823

Income from operations before income taxes $ 106,913 $ 106,973

Details of income tax expense:

Current

Domestic $ ( 4,088 ) $ ( 4,931 )

Foreign 19,636 16,267

15,548 11,336

Future

Domestic 1,466 ( 585 )

Foreign ( 1,423 ) ( 3,854 )

43 ( 4,439 )

Total Income Taxes $ 15,591 $ 6,897


NOTE 22 >>> INCOME TAXES (Cont’d)

The tax effects of significant items comprising the Company’s net future income tax liabilities are as follows:

2005 2004

Operating loss carry forwards $ 4,354 $ 8,291

Share issue costs 223 387

Employee pensions and post-retirement 2,143 1,368

Other long-term liabilities 304 1,023

Accounts receivable 5,451 2,778

Inventories 6,047 1,832

Accrued expenses 15,233 17,681

Derivatives ( 412 ) –

Property, plant and equipment ( 20,416 ) ( 21,719 )

Intangible assets ( 37,718 ) ( 45,063 )

Goodwill ( 6,545 ) ( 3,410 )

Deferred development costs ( 4,059 ) ( 4,858 )

Prepaid expenses ( 1,356 ) ( 728 )

Valuation allowance ( 698 ) –

Other 523 ( 252 )

$ ( 36,926 ) $ ( 42,670 )

The current and long-term future income tax assets and liabilities are as follows:

2005 2004

Current future income taxes assets $ 26,060 $ 22,650

Long-term future income taxes liabilities ( 62,986 ) ( 65,320 )

$ ( 36,926 ) $ ( 42,670 )

As at December 30, 2005, the Company had $21,702 of operating loss carryforwards, of which $11,287 will expire between 2006 and 2010 and $65 will expire

between 2022 and 2025. The remaining $10,350 have no expiration. The Company recognized a future income tax asset for all these unused tax losses but used

a valuation allowance to reduce the related future income tax asset to the amount that is more likely than not to be realized. The valuation allowance relates

to a portion of the operating loss carryforwards expiring between 2006 and 2010.

The Company has not recognized a future income tax liability for the undistributed earnings of its subsidiaries in the current or prior years since the Company

does not expect to sell or repatriate funds from those investments, in which case the undistributed earnings may become taxable. Any such liability cannot

reasonably be determined at the present time.

NOTE 23 >>> EARNINGS PER SHARE

The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:

2005 2004

Weighted daily average number of Class “A” Multiple and Class “B” Subordinate Voting Shares 32,836,733 32,728,727

Dilutive effect of stock options 90,968 186,505

Weighted average number of diluted shares 32,927,701 32,915,232

Number of anti-dilutive stock options excluded from fully diluted earnings per share calculation 872,881 618,500


NOTE 24 >>> STATEMENT OF CASH FLOWS

Net changes in non-cash working capital balances relating to continuing operations are as follows:

2005 2004

Accounts receivable $ ( 12,220 ) $ ( 34,816 )

Inventories 2,112 ( 28,769 )

Prepaid expenses 2,048 813

Accounts payable and accrued liabilities ( 35,741 ) 42,377

Income taxes ( 544 ) 3,340

Total $ ( 44,345 ) $ ( 17,055 )

Supplementary disclosure:

2005 2004

Interest paid $ ( 30,506 ) $ ( 26,128 )

Income taxes paid ( 19,045 ) ( 13,002 )

Income taxes received 4,373 3,017

Details of acquisition of subsidiary companies:

2005 2004

Acquisition of subsidiary companies $ – $ ( 310,976 )

Cash acquired – 3,734

– ( 307,242 )

Balance of sale (paid) payable ( 7,440 ) 10,738

$ ( 7,440 ) $ ( 296,504 )


NOTE 25 >>> SEGMENTED INFORMATION

The Company’s significant business segments include:

>>> Juvenile Products Segment: Engaged in the design, sourcing, manufacturing and distribution of children’s furniture and accessories which includes infant

car seats, strollers, high chairs, toddler beds, cribs and infant health and safety aids.

>>> Home Furnishings Segment: Engaged in the design, sourcing, manufacturing and distribution of ready-to-assemble furniture and home furnishings which includes

metal folding furniture, futons, step stools, ladders and other imported furniture items.

>>> Recreational/Leisure Segment: Engaged in the design, sourcing and distribution of recreational and leisure products and accessories which includes bicycles,

jogging strollers, and other recreational products.

The accounting policies used to prepare the information by business segment are the same as those used to prepare the consolidated financial statements

of the Company as described in Note 2.

The Company evaluates financial performance based on measures of income from segmented operations before interest and income taxes. Inter-segment sales

were immaterial for the years ended December 30, 2005 and 2004.

Geographic Segments

Property, plant and Total Revenues – Origin equipment and Goodwill

2005 2004 2005 2004

Canada $ 187,029 $ 167,571 $ 40,692 $ 41,798

United States 1,071,605 1,124,944 360,053 374,958

Europe 369,649 336,493 224,735 259,454

Other foreign countries 132,582 80,066 286 43

Total $ 1,760,865 $ 1,709,074 $ 625,766 $ 676,253

Industry Segments

Total Juvenile Home Furnishings Recreational/Leisure

2005 2004 2005 2004 2005 2004 2005 2004

Total Revenues $ 1,760,865 $ 1,709,074 $ 846,856 $ 776,370 $ 569,347 $ 543,219 $ 344,662 $ 389,485

Cost of sales 1,367,217 1,315,921 598,218 552,289 495,492 459,899 273,507 303,733

Selling, administrative and

general expenses 181,780 193,763 112,081 126,166 34,410 31,842 35,289 35,755

Depreciation and amortization 38,920 34,540 31,615 27,558 6,318 6,433 987 549

Research and development costs 7,945 6,420 5,542 4,675 2,403 1,745 – –

Restructuring costs 6,982 – – – 6,982 – – –

Earnings from Operations 158,021 158,430 $ 99,400 $ 65,682 $ 23,742 $ 43,300 $ 34,879 $ 49,448

Interest 32,650 33,787

Corporate expenses 18,458 17,670

Income taxes 15,591 6,897

Net income $ 91,322 $ 100,076

Total Assets $ 1,526,481 $ 1,593,113 $ 962,009 $ 938,484 $ 177,735 $ 244,776 $ 386,737 $ 409,853

Additions to property,

plant and equipment $ 19,434 $ 32,517 $ 17,321 $ 27,383 $ 1,185 $ 3,849 $ 928 $ 1,285


NOTE 25 >>> SEGMENTED INFORMATION (Cont’d)

Goodwill

The continuity of goodwill by industry segment is as follows:

Total Juvenile Home Furnishings Recreational/Leisure

2005 2004 2005 2004 2005 2004 2005 2004

Balance, beginning of year $ 512,546 $ 353,316 $ 333,781 $ 318,822 $ 31,172 $ 34,494 $ 147,593 $ –

Additions – 147,593 – – – – – 147,593

Adjustments ( 4,506 ) ( 3,322 ) – – – ( 3,322 ) ( 4,506 ) –

Foreign exchange ( 26,522 ) 14,959 ( 26,522 ) 14,959 – – – –

Balance, end of year $ 481,518 $ 512,546 $ 307,259 $ 333,781 $ 31,172 $ 31,172 $ 143,087 $ 147,593

Total

2005 2004

Total Assets

Total assets for reportable segments $ 1,526,481 $ 1,593,113

Corporate assets 16,187 18,276

Total assets $ 1,542,668 $ 1,611,389

Concentration of Credit Risk

Sales to the Company’s major customers as described in Note 14 were concentrated as follows:

Canada United States Foreign

2005 2004 2005 2004 2005 2004

Juvenile 2.5 % 1.1 % 19.3 % 16.3 % 0.5 % 0.4 %

Home furnishings 4.7 % 2.7 % 12.8 % 12.9 % 7.1 % 3.1 %

Recreational/Leisure – – 12.2 % 14.9 % – –

NOTE 26 >>> UNITED STATES ACCOUNTING PRINCIPLES

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP)

which, in the case of the Company, conform in all material respects with those in the United States (U.S. GAAP), except as follows:

Deferred Charges

Canadian GAAP allows for the deferral and amortization of development costs if specific criteria are met. Under U.S. GAAP all costs classified as development

costs are expensed as incurred.

Pension Plans and Post Retirement Benefits Other than Pensions

Under U.S. GAAP, if the accumulated benefit obligation exceeds the fair value of plan assets, a minimum liability for the excess is recognized to the extent that

the liability recorded in the balance sheet is less than the minimum liability. Any portion of this additional liability that relates to unrecognized past service cost

is recognized as an intangible asset and the remainder is charged to other comprehensive income. Canadian GAAP has no such requirement to record a minimum

liability.

Additionally, for the benefit obligation in Italy, the Company applies the first approach of Emerging Issues Task Force Abstract 88-1, “Determination of Vested

Benefit Obligation to a Defined Benefit Pension Plan” ("EITF 88-1"), not SFAS No. 87, “Employer’s Accounting for Pensions”. Under this U.S. GAAP methodology,

the vested benefit obligation represents the actuarial present value of the vested benefits to which the employee is entitled if the employee separates

immediately.


NOTE 26 >>> UNITED STATES ACCOUNTING PRINCIPLES (Cont’d)

Accounting for Derivative Instruments and Hedging Activities

SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” requires that all derivative instruments, including those embedded in other

contracts, be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in income from operations

or other comprehensive income depending on the intended use of the derivative, its resulting designation and its effectiveness. If a derivative instrument

is designated as a hedge and meets the criteria for hedge effectiveness, an offset to income from operations is available but only to the extent that the hedge

is effective. The ineffective portion of the change in fair value of a derivative instrument that meets the hedge criteria is recognized in current income from

operations. Under Canadian GAAP, contracts that qualify for hedge accounting are maintained off-balance sheet and contracts that do not qualify for hedge

accounting are reported on a mark-to-market basis in income.

Retained Earnings

Under Canadian GAAP, stock issue costs were shown as an adjustment to retained earnings. Under U.S. GAAP, the carrying amount of capital stock is shown

net of issue costs.

Reconciliation of net income

The following table reconciles the net income as reported on the consolidated statement of income to the net income that would have been reported had the

financial statements been prepared in accordance with the United States Generally Accepted Accounting Principles:

2005 2004

Net income in accordance with Canadian GAAP $ 91,322 $ 100,076

Adjustments to reconcile financial statements to U.S. GAAP:

Deferred product development costs 2,196 ( 2,176 )

Accounting for derivatives ( 40 ) 2,755

Accounting for pensions ( 15 ) ( 160 )

Income taxes ( 825 ) ( 168 )

1,316 251

Net income in accordance with U.S. GAAP $ 92,638 $ 100,327

Earnings per share:

Basic $ 2.82 $ 3.07

Fully Diluted $ 2.81 $ 3.05

The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported under Canadian GAAP

in 2005 and 2004:

2005 2004

Accounts receivable $ 287,225 $ 286,493

Deferred tax asset – current 26,060 22,699

Deferred charges 1,159 3,421

Accounts payable and accrued liabilities 305,922 354,585

Pension and post-retirement benefit obligations 20,061 20,345

Deferred tax liability – long-term 57,278 58,435

Capital stock 158,724 157,097

Retained earnings 473,066 380,458

Accumulated other comprehensive income (loss):

Cumulative translation adjustment 27,870 78,534

Minimum pension liability adjustment ( 532 ) ( 532 )

Unrealized derivatives gain (loss) on cash flow hedges – ( 47 )

Total accumulated other comprehensive income 27,338 77,955


NOTE 26 >>> UNITED STATES ACCOUNTING PRINCIPLES (Cont’d)

The Company’s Statement of Cash Flows determined in accordance with U.S. GAAP would be as follows:

2005 2004

Operating activities $ 90,555 $ 104,584

Financing activities ( 61,235 ) 228,805

Investing activities ( 26,871 ) ( 334,862 )

Effect of exchange rates on cash ( 1,392 ) ( 1,116 )

Increase (decrease) in cash $ 1,057 $ ( 2,589 )

Comprehensive Income

The United States Financial Accounting Standards Board has issued, SFAS No. 130, “Reporting Comprehensive Income”. For the Company, the principal differences

between net income, as historically reported in the consolidated statement of income and comprehensive income, are foreign currency translation recorded in

shareholders’ equity and minimum pension liability not yet recognized as a net periodic pension cost. Comprehensive income is as follows:

2005 2004

Net income in accordance with U.S. GAAP $ 94,987 $ 100,327

Other comprehensive income, net of taxes:

Foreign currency translation adjustments ( 50,664 ) 28,213

Minimum pension liability adjustments – ( 532 )

Unrealized derivatives loss on cash flow hedges 47 ( 47 )

Comprehensive income $ 44,370 $ 127,961


Board of DirectorsMartin Schwartz, President and Chief Executive Officer

Martin Schwartz is a co-founder of Ridgewood Industries Ltd., which was merged with Dorel Industries Inc. and several other associated companies to create

the Company. Martin has been President and CEO of Dorel since 1992.

Jeffrey Schwartz, Executive Vice-President and Chief Financial Officer

Jeffrey Schwartz, previously Vice President of the Juvenile Division of the Company, has been the Company’s Vice-President, Finance since 1989.

In 2003, Jeffrey’s title was changed to Executive Vice President and CFO.

Jeff Segel, Executive Vice-President, Sales & Marketing

Jeff Segel is a co-founder of Ridgewood Industries Ltd. Jeff has held the position of Vice-President, Sales & Marketing since 1987. In 2003, Jeff’s title changed

to Executive Vice-President, Sales & Marketing.

Alan Schwartz, Executive Vice-President, Operations

Alan Schwartz is a co-founder of Ridgewood Industries Ltd. Alan has held the position of Vice-President, Operations since 1989. In 2003, Alan’s title was changed

to Executive Vice-President, Operations.

Maurice Tousson*, Lead Director

Since January 2000, Maurice Tousson has been President and CEO of CDREM Inc., a retail chain known as Centre du Rasoir/Personal Edge. He previously held

executive positions at Chateau Stores of Canada, Consumers’ Distributing and Sports Experts. Currently Mr. Tousson sits on the board of Le Chateau Inc.

and several privately held companies. Mr. Tousson holds an MBA from Long Island University in New York.

Harold “Sonny” Gordon*, Director

Harold “Sonny” Gordon has been Chairman of Dundee Corporation (formerly Dundee Bancorp Inc.) since November 2001. Previously, he was Vice-Chairman

of Hasbro Inc., a special assistant to a Minister of the Government of Canada, and managing partner of Stikeman Elliot LLP. Mr. Gordon serves as a director

of Dundee Corporation, Transcontinental Inc., Alliance Atlantis Communications Inc., Pethealth Inc. and Madacy Holding Inc. and is chairman of the Sauvé

Scholars Foundation, as well as several private corporations.

Dr. Laurent Picard, Director

Retired management professor Dr. Laurent Picard is the former Dean of the Faculty of Management of McGill University and Director of the Management

Department of the Université de Montreal (HEC). Dr. Picard also served as President of the CBC. He is a Companion of the Order of Canada.

Dian Cohen**, Director

Dian Cohen is a well-known broadcaster and author, recipient of the Order of Canada and other awards for economic communications excellence. In addition

to serving on the Dorel Board of Directors, Cohen is a director of Norbord Industries and Fraser Papers, and is a trustee of Great Lakes Hydro Income Fund.

Alain Benedetti***, Director

Alain Benedetti, FCA, is the retired Vice-Chairman of Ernst & Young LLP, where he worked for 34 years. Alain has extensive public and private company

experience. He is currently the Vice-Chair of the Canadian Institute of Chartered Accountants. Mr. Benedetti currently serves on the Board of two other Canadian

public companies.

Robert P. Baird Jr., Director

Robert Baird is President and Chief Executive Officer of Philips Domestic Appliances and Personal Care, located in Stamford, Connecticut. Prior thereto,

Mr. Baird was a consultant in the New York office of Egon Zehnder International, with practice specialties in the consumer products industry and marketing

management.

*Members of the Audit Committee and the Human Resources and Corporate Governance Committee

**Member of the Human Resources and Corporate Governance Committee

***Member of the Audit Committee

OfficersMartin Schwartz President and Chief Executive Officer

Camillo Lisio Vice-President, Chief Operating Officer

Alan Schwartz Executive Vice-President, Operations

Jeff Segel Executive Vice-President, Sales and Marketing

cJeffrey Schwartz Executive Vice-President, Chief Financial Officer and Secretary

Frank Rana Vice-President, Finance and Assistant-Secretary

Ed Wyse Vice-President, Global Procurement



JUVENILE

NORTH AMERICA

Dorel Juvenile Group, Inc.

2525 State Street

Columbus, Indiana, USA 47201

Canton Commerce Centre

45 Dan Road

Canton, Massachusetts, USA 02021

Dorel Distribution Canada

Hani Basile, CEO

873 Hodge Street

Montreal, Quebec, Canada H4N 2B1

EUROPE

Jean-Claude Jacomin, President

Dorel France SA

9 Boulevard du Poitou, Zone Industrielle

49309 Cholet

Cedex France

Dorel Italia SpA

Via verdi, 14

24060 Telgate (Bergamo) Italy

Dorel Portugal LdA

Lugar de Varziela

Arvore

4480 Vila do Conde, Portugal

Dorel Hispania SA

C/Pare Rodés no 26

Edificio Del Lac Center

Torre A 4o 2a

08208 Sabadell (Barcelona)

Spain

Dorel Juvenile Switzerland SA

Rue de Genève 77 bis

1004 Lausanne

Switzerland

Maxi Miliaan BV

Korendijk 5

5704RD Helmond, Holland

Dorel Germany GMBH

Augustinusstrasse 11b

D-50226 Frechen – Konigsdorf

Germany

Dorel (U.K.) Limited

Hertsmere House, Shenley Road

Borehamwood, Hertfordshire

WD6 1TE United Kingdom

HOME FURNISHINGS

Ameriwood Industries Inc.

Gregory Carlson, President and CEO

305 East South First Street

Wright City, Missouri, USA 63390

202 Spaulding Street

Dowagiac, Michigan, USA 49047

458 Second Avenue

Tiffin, Ohio, USA 44883

3305 Loyalist Street

Cornwall, Ontario, Canada K6H 6W6

12345 Albert-Hudon Blvd., Suite 100

Montreal, Quebec, Canada H1G 3K9

Cosco Home & Office

Jeff Cartwright, President

2525 State Street

Columbus, Indiana, USA 47201

Dorel Asia SRL

Oren

St.Lawrence Main Road

Christchurch, Barbados

RECREATIONAL/LEISURE

Pacific Cycle Inc.

Chris Hornung, CEO

4902 Hammersley Road

Madison, Wisconsin, USA 53711

4730 E. Radio Tower Lane

P.O. Box 344

Olney, Illinois, USA 62450-0344

2041 Cessna Drive

Vacaville, California, USA 95688-8712

Dorel – Asian office

Jenny Chang, Vice-President

of Far Eastern Operations

Room 205, No. 3203, Hong Mei Road

Minghang District, Shanghai 201103

P.R. China

SHOWROOMS

1365 Midway Blvd., Unit 27, Suite 100

Mississauga, Ontario, Canada L5T 2J5

Commerce and Design Building

201 West Commerce Street, 9th Floor

High Point, North Carolina, USA 27260

Major Operations

HEAD OFFICE

Dorel Industries Inc.

1255 Greene Avenue, Suite 300

Montreal, Quebec, Canada H3Z 2A4

LAWYERS

Heenan Blaikie LLP

1250 René-Lévesque Blvd. West

Suite 2500

Montreal, Quebec, Canada H3B 4Y1

AUDITORS

KPMG LLP

600 de Maisonneuve Blvd. West

Suite 1500

Montreal, Quebec, Canada H3A 0A3

TRANSFER AGENT & REGISTRAR

Computershare Investor Services Inc.

100 University Avenue, 9th Floor

Toronto, Ontario, Canada M5J 2Y1

[email protected]

INVESTOR RELATIONS

MaisonBrison

Rick Leckner

1320 Graham Blvd., Suite 132

T.M.R., Quebec, Canada H3P 3C8

Tel.: (514) 731-0000

Fax: (514) 731-4525

email: [email protected]

STOCK EXCHANGE LISTING

Share Symbols

TSX – DII.A; DII.B

NASDAQ – DIIB

ANNUAL MEETING OF SHAREHOLDERS

Wednesday, June 21, 2006, at 10 am

Ritz-Carlton Hotel

Oval Ballroom

1228 Sherbrooke Street West

Montreal, Quebec

Corporate Information


Dorel Industries Inc.1255 Greene Avenue, Suite 300, Montreal, Quebec, Canada H3Z 2A4T: 514.934.3034 F: 514.934.9932 www.dorel.com

mb-2655-dorel ar 2005 en v11 · us operations include dorel juvenile group usa, which markets the...

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