Everyday Everyone Everywhere - Dorel · Dorel’s countless products are enjoyed every day by...

EverydayEveryone

Everywhere

2008 ANNUAL REPORT

1 2008 Highlights

2 Compelling Investment Reasons

3 Financial Highlights

4 Message to Shareholders

6 Juvenile Overview

8 Recreational/Leisure Overview

10 Home Furnishings Overview

12 Dorel in the Community

16 Management’s Discussion and Analysis

38 Consolidated Financial Statements

77 Board of Directors

78 Major Operations

79 Corporate Information

As a world class juvenile products and bicycle

company, we are proud to be able to say that

Dorel’s countless products are enjoyed every day

by everyone, just about everywhere. Dorel

creates style and excitement in equal measure to

safety, quality and value. The Company’s lifestyle

leadership position is pronounced in both its

Juvenile and Bicycle categories with an array of

trend-setting, powerfully branded products. The

Home Furnishings segment markets a wide

assortment of furniture products, both domestically

produced and imported. Dorel is a US$2 billion

company with 4700 employees, facilities in eighteen

countries, and sales worldwide.

EverydayEveryone

Everywhere

Contents

FirstSecondThirdFourth

1

Dorel acquires Cannondale Bicycle Corporation, a leading designer, developer and manufacturer

of high-end bicycles. The purchase also includes fitness apparel maker SUGOI.

Dorel announces first quarter revenue increased by 22% to US$556 million and net income

improved 26% to US$35 million.

2008 Highlights

Q1

Q2

Q3

Q4

Subsequent to year-end

Pacific Cycle acquires the assets of PTI Sports, a leading U.S. designer, manufacturer and

distributor of bicycle parts, helmets and other accessories.

Dorel implements a new senior management structure to maximize growth opportunities. The

post of Segment President is created for each of its three segments.

Dorel announces second quarter revenue increased by 29% to US$594 million and net income

improved 189% to US$31 million. Before restructuring, net income improved 62% to US$32 million

from US$20 million in 2007.

Schwinn Bicycles and Toshiba Corporation announce worldwide strategic collaboration involving

new battery technology to dramatically alter electric bike market.

Dorel announces third quarter revenue increased by 25.5% to US$552 million and net income

improved 3% to US$27.2 million.

Richard L. Markee, a highly regarded retail industry expert who served as Vice Chairman of

Toy ‘R’ Us, joins Dorel’s Board of Directors.

Dorel announces fourth quarter revenue increased 4.6% to US$480million and net income

decreased 14% to US$19.2 million. Full year results are the best ever with revenue up 20%

to US$2.2 billion and net income up 29% to US$113 million.

Dorel establishes juvenile platform in Brazil including capacity to manufacture car seats locally.

Dorel acquires Belgium-based BABY ART bvba, adding unique high-end items to the Juvenile

segment’s product portfolio.

2

� A consistent record of successful acquisitions

� A focus on Juvenile and Bikes where Dorel is a key player

� A strong performance in Home Furnishings

� A portfolio of known, premium brands

� Product development capabilities that drive growth

� A strategy of the right products and varied price points

� Dedicated quality control/customer service by solidAsian presence

� Established customer relationships

� Strong cash flow

� Payment of a quarterly dividend

Compelling reasons to invest in

TSX: DII.B, DII.A

3

'04 '05 '06 '07 '08 '04 '05 '06 '07 '08 '04 '05 '06 '07 '08

2008 2007 2006 2005 2004

Revenues 2,181,880 1,813,672 1,771,168 1,760,865 1,709,074

Cost of sales 1,651,137 1,375,418 1,363,421 1,367,217 1,315,921

Gross profit 530,743 438,254 407,747 393,648 393,153

as percent of revenues 24.3% 24.2% 23.0% 22.4% 23.0%

Operating expenses 398,004 317,117 303,802 279,753 286,180

Restructuring costs 726 14,509 3,671 6,982 –

Pretax earnings 132,013 106,628 100,274 106,913 106,973


Income taxes 19,158 19,136 11,409 15,591 6,897

Net earnings 112,855 87,492 88,865 91,322 100,076


Earnings per share

Basic* 3.38 2.63 2.70 2.78 3.06

Fully diluted* 3.38 2.63 2.70 2.77 3.04

Book value per share

at end of year** 30.38 28.08 24.33 20.46 19.15

* Adjusted to account for the weighted daily average number of shares outstanding.** Based on the number of shares outstanding at year end.

Financial Highlights (2004-2008)

Revenues(In thousands of U.S. dollars)

Net Income(In thousands of U.S. dollars)

Net Income perDiluted Share(In U.S. dollars)

1,70

9,07

4

1,76

0,86

5

1,77

1,168

1,81

3,67

2

2,18

1,88

0

100,

076

91,3

22

88,8

65

87,4

92

112,

855

3.04

2.77

2.70

2.63

3.38

4

DEAR FELLOW SHAREHOLDER:

I am proud to report that Dorel achieved most notable successes in 2008,

setting all-time records, with revenues reaching US$2.2 billion and net

income topping US$113 million. These results underscore the efforts of our

employees worldwide to successfully create and market branded products

that are highly popular and which consumers view as valued-added,

especially during these harsh economic times. Our performance also speaks

to the fact that many of our items are necessities, and to the strong relationships

we enjoy with leading mass merchants.

The fundamentals of our business remain solid. Dorel’s products have traditionally done well in recessionary times. Over

the years we have seen that despite difficult economic situations, consumers continue to purchase juvenile items and our

diverse product line matches their needs well. In Recreational/Leisure, we sell bicycles across all price points. The

bicycle/fitness industry as a whole is benefitting from recent attitudes towards the environment and personal health. In

addition, Dorel has always operated in the value priced home furnishings market. As shoppers look toward less

expensive furniture purchases, they increasingly turn to our ready-to-assemble furniture products.

As I discussed in this space a year ago, an aggressive strategic direction was established to further unlock value within

the Company. We have delivered on this plan and have diligently implemented a program focusing on our core Juvenile

and Recreational/Leisure segments.

Juvenile grows its global statusWe continued to build on our Juvenile segment’s base as the world’s largest juvenile products company in our categories.

Dorel Europe maintained its growth trend, building market share in many countries. In North America, product

development innovations,such as the Safety 1st Pro-Grade product line, were important factors in Juvenile’s progress.

Messageto Shareholders

“The fundamentals of our business remain

solid. Dorel’s products have traditionally

done well in recessionary times.”

5

Subsequent to year-end, we announced the formation of Dorel Brazil, a new operating division of the Juvenile segment.

Brazil holds tremendous promise and we are well positioned to benefit from the excellent market opportunities there.

We also acquired a Belgium company, whose talented founder has created a number of outstanding high-end juvenile

products. These moves will further secure Dorel’s dominance as a global leader in the juvenile products industry.

In Recreational/Leisure, the 2008 acquisitions of the Cannondale Bicycle Corporation, SUGOI Performance Apparel and

PTI Sports have been successfully integrated and have added to our year’s strong showing. They have also materially

enhanced our stature as a leading bicycle company and have positioned us solidly with both independent bicycle dealers

and mass merchants. We feel we can grow this business into a global force much as we have done in juvenile products.

We have continued to devote the necessary resources to Home Furnishings with extensive headway made in RTA

furniture. Ameriwood is back on track and has regained the confidence of its customers.

A strengthened Management structureA new senior management structure was implemented last year to maximize the growth opportunities we see ahead.

Three posts of Segment President were added; one each for Juvenile, Recreational/Leisure and Home Furnishings. Each

of these executives is focused strictly on their respective segments to ensure smooth and efficient operations as well as

to identify new product lines, new territories, and other opportunities.

We have already seen results. Programs are being developed more rapidly and are being implemented faster than in the

past. The structure also provides the ability to focus on all three segments simultaneously and sets the stage for a new

important chapter in Dorel’s evolution. I invite you to read the reports in the pages that follow.

Toward the end of 2008 Richard L. Markee was named to Dorel’s Board of Directors. He replaces Robert P. Baird

who relinquished his Board position to become President of Dorel’s Recreational/Leisure segment. Mr. Markee is a

highly regarded retail industry expert. He joined Toys “R” Us, Inc. in 1990 and served in various senior capacities in

the Kids “R” Us and Babies “R” Us divisions. In 2003 he was named Vice Chairman of Toys "R" Us, where he was

responsible for the growth and expansion of Babies "R" Us. He was also Chairman of Toys "R" Us, Japan. Prior to

joining the Toys "R" Us organization, Mr. Markee was a Vice President of Target Stores.

OutlookThe months ahead are unpredictable. However, there are several positives which are expected to benefit Dorel in 2009.

Our strong brands, value-priced products and excellent positioning at mass merchants leave us optimistic that

consumers will continue to choose Dorel’s products. We are supplied by financially strong, quality vendors with which

we have long-standing relationships. Our banking relationships are solid and our credit facilities are secured into 2010.

As we look to the longer term, recent declines in commodity prices and fuel costs should help mitigate some of the

economic uncertainties over the next few quarters.

Our employees have responded well to the widespread financial storm. As they say, when the going gets tough, the

tough get going. They have clearly proven that they can respond rapidly to retailers who rely on Dorel for solutions

and service, particularly during times such as these. It is this consistent proactive support that has earned us the solid

relationships we have with our customers and which sets Dorel apart.

Martin Schwartz

President & Chief Executive Officer

March 11, 2009

JuvenileSegment

New ventures showcase potentialOur new ventures in Brazil and in Belgium, announced

this January underline the momentum within the Juvenile

segment. As the largest global car seat manufacturer,

we are maximizing our expertise to quickly ramp up

the manufacture of car seats which became mandatory

in Brazil last year. Dorel already has the necessary car

seat moulds and thus we are saving both time and

significant cost.

Working with a known and respected operator in Brazil,

there are numerous sound reasons for a venture there. Competition is fragmented and the country has a young

population with a very high birth rate compared to the U.S. With over 196 million residents, Brazil is among the top-ranked

in world population. There is room for more contemporary designs in the market and Dorel has a proven track

record of providing a wide range of exciting branded products, some of which are already known in Brazil.

It is this variety of appealing, quality products that has created Dorel’s dominance in key categories. Our equity is in

our product development capability and respected brands. We will continue to invest in both these important assets.

Our acquisition of Belgium-based BABY ART bvba added unique high-end items

to our product portfolio. The Hoppop assortment is an innovative line featuring

outstanding modern designs, some of which received rave reviews at Europe’s

prestigious 2008 Cologne, Germany juvenile trade fair.

Dorel’s Juvenile segment is advantageously positioned to break

new ground by leveraging our proven competency, our assets

and our recognized brands. This allows us to enter markets

rapidly with a minimum of investment and will further enhance our

status as the world’s leading juvenile products company. We seek opportunities in geographies where time-to-market

can be accelerated by introducing product lines that would normally require extensive development periods. Our

priorities are aligned with our drive to increase shareholder value; growth and profitability.

6

JuvenileSegment

7

Dorel’s Juvenile divisions cover all basesSupported by a formidable team and advanced

product development, Dorel Europe extended its

market reach in many countries and set new revenue

and earnings records. Consumers abroad generally

favour specialty boutiques which carry higher margin

products, an area where Dorel Europe excels and has

established names such as Maxi-Cosi, Bébe Confort

and Quinny. Nonetheless as an alternate strategy,

particularly in view of the current state of the economy,

the popular Safety 1st brand has been positioned in

Europe to compete in the opening and mid price point

categories. This provides caregivers with a complete

range of juvenile products to meet all budgets.

In North America, where mass merchants account for the bulk of juvenile sales, Dorel Juvenile Group and Dorel

Distribution Canada enjoy enviable relationships with leading retailers. Our juvenile divisions have the ability to meet

even the most challenging needs of our customers.

During our second full year of operations in Australia we completed the integration of our brands and products. Their

product portfolio touches all price points and retail channels and Dorel’s international brands compliment the local

brands previously established there. In addition to the Juvenile categories, we have now repatriated the management of

the Recreation category with a specific focus on the bicycle needs of big box retailers. In addition to our sales initiatives,

we will accentuate the integration of our international sourcing and purchasing capabilities to further meet the needs of

the Australian markets.

The months ahead are expected to be challenging. In anticipation, we have initiated judicious cost controls and will

closely monitor all expenditures. Research and development is one area we will not comprise. In fact, several new,

exciting products are being developed, some with advanced technologies which will further set us apart from the

competition. We anticipate introducing a number of new products in 2010.

We see opportunity going forward. Some weaker players in the industry could face insurmountable issues, while the

power of Dorel’s resources, including a very sound balance sheet and the professionalism of our employees

worldwide, will once again make us a highly reliable choice for retailers. I am thoroughly confident of our ability to

remain a powerful industry player.

Hani Basile

Interim President

Dorel Juvenile Group

2008 was a very exciting year forDorel’s Recreational / Leisure Segment!

Since acquiring Pacific Cycle in 2004, whose impressive arsenal of

brands includes Schwinn, GT, Mongoose and InStep, we have established ourselves as the cycling leaders with big box

retailers, and significantly enhanced our commitment to the Independent Bicycle Dealers (IBD), who service the high-end

bicycling enthusiast segment. In 2008, Dorel made a stronger commitment to the premium portion of the market,

serviced by IBD’s, with the purchase of Cannondale and SUGOI for nearly $200 million. During the second quarter,

Pacific Cycle purchased the assets of PTI Sports, a leading North American bicycle parts and accessories company, to

further solidify our position in the mass merchant sector. Our leading brands are recognized as providing superior

athletic products to consumers seeking premium sports, athletic

and professional equipment. These acquisitions are the first of

many steps in our journey to create one of the world’s most

exciting and admired Sports and Recreation companies.

RecreationalSegment8

Recreational / LeisureSegment

As we move ahead with our ambitions, we have set a clear

strategic agenda against three key pillars that will accelerate

our success--Talent, Growth, and Focus/Simplify.

Talent is critical to win.Dorel has an amazing culture: authentic, passionate professionals

strongly committed to excellence. As we grow in scale, we are continuously developing our current talent and

seeking new talent to achieve our ambitions. In 2008, we restructured our organization to capture synergies, to be

more focused on delivering our management agenda, and to increase accountability.

Growth is our mandate. We continue to invest in innovation, the “life blood” of any successful consumer company. We are energized by

delivering exciting, high performance products to our professional athletes as well as to the recreational cyclist. Our

desired brands must be within arms-reach of our consumers, so we are committed to distribution expansion within our

current channels with an eye to accelerating international distribution. Next, our marketing programs are more focused,

9

more impactful, and we have begun instilling

more discipline and measurement against these

expenditures. We have dramatically increased our

investments in research and development, brand

marketing, and sales activation. Lastly, we will continue

to scale with the right, accretive acquisitions that fit

with our strategic road map.

Focus & Simplify is a passion. Our entire organization is charged with creating a

highly efficient operation. We seek to: 1) root-out

and eliminate complexity; 2) harmonize our processes

and systems; and 3) identify and scale with the world’s

best partners. This enables us to further invest in innovation, marketing, distribution, and talent.

Dorel’s Recreational/Leisure segment had a very good year

in 2008. Among many accomplishments, we successfully

integrated Cannondale and SUGOI as well as PTI Sports into

our operations, we captured back office synergies and

efficiencies, and we launched many innovative products and

marketing initiatives. While 2009 will hold many challenges

given these unprecedented economic times, the future is

bright, with excellent trends: consumer passion for health and

wellness, consumer interest in the environmental benefits of

cycling and in reducing reliance on expensive energy, and the

desire for fun, inspiring activities that our brands provide.

I thank our entire team for an excellent 2008, and their hard work and commitment to excellence. Stay tuned for

more exciting news to come!

Robert P. Baird Jr.

President

Recreational/Leisure

While the housing crisis had a major impact on the sales of

furniture in North America throughout 2008, Dorel’s Home

Furnishings divisions were successful in maintaining volume and

market share. Significant operational improvements through 2008

resulted in a marked turnaround in Home Furnishings’ major division, Ameriwood Industries, Dorel’s ready-to-assemble

(RTA) furniture unit. While dealing with protracted serious challenges, along with others in the RTA industry, giving up on

Ameriwood was never a consideration. The business is one we know well and a concerted effort to bring about the

necessary changes restored profitability, which had been elusive for the past few years. Cosco Home & Office was the

only division of the five within the segment to post a loss this past year and it is the subject of a major overhaul.

Home FurnishingsSegment10

Continued improvement in Dorel’s RTAfurniture businessesDorel’s RTA furniture operations are focused separately on

domestic production, through Ameriwood and on imports,

through Altra Furniture. Sales of both were strong through the

year despite the overall slowdown in the home furnishings

retail sector. RTA items have consistently been attractive

during economic downturns when consumers are particularly

cautious and seek value-added products.

Ameriwood is an established, long-term player in the ready-to-assemble furniture industry and big box retailers have

been turning to them in recent months for innovative solutions. Customers have been receptive to Ameriwood’s

offerings with new programs launched at key mass merchants. Noteworthy progress in efficiencies has been made at

the division’s two plants. Even with this capacity, the increased demand led to the third quarter ramp up of the

Dowagiac, Michigan facility, where operations had been suspended in mid 2007.

Altra has made excellent strides in the few years it has been in existence. A separate management team is dedicated to

building its import business and there has been steady progress, particularly with novel home office and entertainment

products. Further growth is foreseen through the current year, with a new line of commercial office furniture among the

opportunities planned.

Home FurnishingsSegment

11

Dorel Home Products (DHP) recorded solid sales of domestically

manufactured futons in 2008, long a staple of the division. We

anticipate that the combination of domestic and import futons will

continue to drive the DHP business in 2009. To round out its business,

DHP distributes a line of accent tables, bunk beds, casual seating, and

it will continue to grow its domestically manufactured baby crib

mattress business, which was new in 2008.

Among Dorel Asia‘s selected imported lines, the upholstery segment

and theatre seating continued to drive sales. Overall performance,

however, was slightly behind 2007’s. Based on product assortment at

retail and Dorel Asia’s market share, the sales outlook is stable for 2009.

The division is also well positioned for growth as the U.S. housing

market is expected to improve.

Several measures are being implemented at Cosco

Home & Office (Cosco) to right size the company. Sales

of most of its products were down this past year, to a

large degree due to high commodity prices, such as

steel, which rose dramatically during most of 2008.

Going forward, Cosco will return to its roots with a focus

on the categories where it has traditionally done well,

such as metal folding furniture, step stools and ladders.

Dorel Home Furnishings’ mix of domestically manufac-

tured and imported lines, as well as their lower

price-point products provide consumers with a wide

choice of value items during the difficult economy. The weaker Canadian dollar will also benefit the segment as it

operates two factories in Canada, one producing RTA furniture and the other futons.

Norman Braunstein

President

Home Furnishings

Dorel in theCommunity

A Letter We’d Like to Share

Two people died in Marion Township, Pennsylvania last November following a horrific head-on collision. The wife and

infant son of one of the victims survived. Despite the tragic loss of her son-in-law and the trauma of dealing with the

injuries of her daughter and year-old grandson, Amanda Nelson took the time to write and thank Dorel. Here is part of

her note to us:

My daughter had a sprained shoulder, a sprained wrist and a very bad bruised knee that filled with fluid since the

accident. My grandson sustained a broken femur and was in a body cast for weeks. My grandson’s dad died four hours

later at the hospital.

The car seat was strapped to the middle facing forward in the back seat. I want to thank you for this car seat because I

believe with all the padding and how it was built, it saved my grandson.

Thank you again.

Amanda Nelson

12

Dorel U.S. Makes a Difference with Make-A-Wish

The Dorel Juvenile Group (DJG) has embarked on a new and

exciting project - to make wishes come true for children facing

life-threatening medical conditions through the Make-A-Wish

Foundation. Every 40 minutes, the Make-A-Wish Foundation

grants a wish, making an important impact, not only on the wish

child and family, but on all who are involved. DJG is supporting

the Foundation with volunteers, frequent flyer mileage

donations to support travel wishes, wish-granting funds from

possible co-branding projects and liaisons for future promotions.

Dorel cares deeply about protecting children. The Make-A-Wish

Foundation is dedicated to bringing joy, hope and strength to

children in the same communities in which we work, live, play

and conduct business each day.

Dorel inthe Community

13

Helping to Promote the Benefits of Bikes

Cannondale Sports Group and Pacific Cycle have partnered with

notable U.S. organizations dedicated to spreading the word about

the health and environmental benefits of using a bicycle and how

bicycles can empower and improve entire communities. Included

are Bikes Belong, International Mountain Bicycling Association

(IMBA) and Wheels4Life.

Bikes Belong is an organization devoted to creating better places

to ride, promoting more frequent bike riding and making the world

a more bike-friendly place. The International Mountain Bicycling

Association (IMBA) helps to drive global efforts to create,

enhance and preserve trail opportunities for mountain bikers by

encouraging riding in areas with low environmental impact,

spearheading trailwork volunteer programs and providing

solutions for sustainable trail management.

Wheels4Life provides bicycles for people in need in Third World countries. They partner with local groups to help

identify persons who need a bike to be able to go to school or to work. Cannondale and Pacific Cycle are proud to be

associated with these most worthy groups.

Dorel Europe Gets Involved

Dorel Portugal has teamed with that country’s Red

Cross to provide car seats for children in need or in

emergency situations. All Red Cross vehicles will be

equipped with Creatis.fix and base/Axiss or Iseos Neo

and Rodi XR car seats. Vehicles will be marked with

the Bébé Confort logo. Dorel UK is a sponsor of the

International Tree Foundation, supporting their

overseas projects. Donations from each piece of

nursery furniture sold will permit the planting of new

trees and as such, will contribute to the establishment

of a sustainable local environment.

15

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Revenues 2,181,880 1,813,672 1,771,168 1,760,865 1,709,074 1,180,777 992,073 916,769 757,540 596,702 492,554

Cost of sales 1,651,137 1,375,418 1,363,421 1,367,217 1,315,921 874,763 760,423 718,123 582,741 452,974 381,826

Gross profit 530,743 438,254 407,747 393,648 393,153 306,014 231,650 198,646 174,799 143,728 110,729

as percent of revenues 24.3% 24.2% 23.0% 22.4% 23.0% 25.9% 23.4% 21.7% 23.1% 24.1% 22.5%

Operating expenses 398,004 317,117 303,802 279,753 286,180 206,663 145,956 147,353 127,356 85,996 74,635

Restructuring costs and

other one-time charges 726 14,509 3,671 6,982 – – – 20,000 12,037 – 10,066

Pretax earnings 132,013 106,628 100,274 106,913 106,973 99,351 85,694 31,293 35,406 57,732 26,027


Income taxes 19,158 19,136 11,409 15,591 6,897 25,151 24,099 4,731 5,432 17,756 8,330

Net earnings from

continuing operations 112,855 87,492 88,865 91,322 100,076 74,200 61,595 26,562 29,974 39,977 17,697


Income (loss) from

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

Net earnings 112,855 87,492 88,865 91,322 100,076 74,200 61,595 25,504 17,306 38,576 18,697


Earnings per share

Basic* 3.38 2.63 2.70 2.78 3.06 2.33 2.05 0.91 0.62 1.38 0.69

Fully diluted* 3.38 2.63 2.70 2.77 3.04 2.29 2.00 0.89 0.61 1.36 0.69

Book value per share

at end of year** 30.38 28.08 24.33 20.46 19.15 15.14 11.31 7.52 6.75 6.55 5.63

* 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.

Annual Results (1998-2008)

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DOREL INDUSTRIES INC.MANAGEMENT’S DISCUSSION AND ANALYSISThis Management’s Discussion and Analysis of financial conditions and results of operations (“MD&A”) should beread in conjunction with the consolidated financial statements for Dorel Industries Inc. (“Dorel” or “theCompany”) for fiscal years ended December 30, 2008 and 2007 (“the Consolidated Financial Statements”), aswell as with the notes to the Consolidated Financial Statements. All financial information contained in this MD&Aand in the Company’s Consolidated Financial Statements are in US dollars, unless indicated otherwise, and havebeen prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), using theUS dollar as the reporting currency. This MD&A is current as of March 10, 2009.

Forward-looking statements are included in this MD&A. See the "Caution Regarding Forward LookingInformation" included at the end of this MD&A for a discussion of risks, uncertainties and assumptions relatingto these statements. For a description of the risks relating to the Corporation, see the “Market Risks andUncertainties" section of this MD&A. Further information on Dorel’s public disclosures, including the Company’sAnnual Information Form (“AIF”), are to be available within the prescribed filing deadlines on-line atwww.sedar.com and Dorel’s website at www.dorel.com.

Corporate OverviewThe Company’s head office is based in Montreal, Quebec, Canada. In total, the Company operates in eighteencountries with sales made throughout the world and employs approximately 4,700 people. Dorel’s ultimate goalis to satisfy consumer needs while achieving maximum financial results for its shareholders. The Company’sgrowth has resulted from both increasing sales of existing businesses and by acquiring businesses thatmanagement believes add value to the Company.

StrategyDorel is a world class juvenile products and bicycle company. Established in 1962, Dorel creates style andexcitement in equal measure to safety, quality and value. The Company’s lifestyle leadership position ispronounced in both its juvenile and bicycle categories with an array of trend-setting products. In the Juvenilesegment, Dorel’s powerfully branded products such as Quinny, Maxi-Cosi, Safety 1st and Bébé Confort haveshown the way to safety, originality and fashion. Similarly, its highly popular brands such as Cannondale,Schwinn, GT and Mongoose as well SUGOI Apparel have made Dorel a principal player in the bicycle marketplace.Dorel’s Home Furnishings segment markets a wide assortment of furniture products, both domesticallyproduced and imported. The Company relies on innovation and marketing flair across all of its divisions.

Within each of the three segments, there are several operating divisions or subsidiaries. Each segment has itsown President and is operated independently by a separate group of managers. Senior management of theCompany coordinates the businesses of all segments and maximizes cross-selling, cross-marketing, procurementand other complementary business opportunities.

Dorel conducts its business through a variety of sales and distribution arrangements. These consist of salariedemployees; 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 majordiscount chain; and sales agencies which themselves employ their own sales force. While retailers carry out thebulk of the advertising of Dorel’s products, all of the segments advertise and promote their products through theuse of advertisements in specific magazines, multi-product brochures, on-line and other media outlets.

Dorel believes that its commitment to providing a high quality, industry-leading level of service has allowed it todevelop successful and mutually beneficial relationships with major retailers. A high level of customer satisfactionhas been achieved by fostering particularly close contacts between Dorel’s sales representatives and clients.Permanent, full-service agency account teams have been established in close proximity to certain majoraccounts. These dedicated account teams provide these customers with the assurance that inventory and supplyrequirements will be met and that any problems will be immediately addressed.

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In addition to quality products and dedicated customer service, strong recognized consumer brands are animportant element of Dorel’s strategy. As examples, in North America, Dorel’s Schwinn and Cannondale productlines are among the most recognized brand names in the sporting goods industry. Safety 1st is a highly regardedDorel brand in the North American juvenile products market. In Europe, Bébé Confort is universally recognizedand has superior brand awareness in France. Throughout Europe the Maxi-Cosi brand has become synonymouswith quality car seats. These brands, and the fact that Dorel has a wide range of other brand names, allows forproduct and price differentiation within the same product categories. Product development is the final elementof Dorel’s past and future growth. Dorel has invested heavily in this area, focusing on innovation, quality, safetyand speed to market with several design and product development centres. Over the past two years, Dorel hasspent over $53 million on new product development.

Operating SegmentsJuvenile Products The Juvenile Products (“Juvenile”) segment manufactures and imports products such as infant car seats,strollers, high chairs, toddler beds, cribs, playpens, swings and infant health and safety aids. In North America,the majority of juvenile sales are made to mass merchants, department stores and hardware/home centres,where consumers’ priorities are design oriented, but with a focus on safety and quality at reasonable prices.Therefore sales to this channel are focused on entry level to mid-price point products. Using innovative productdesigns, higher-end price points are also being serviced by these customers, representing additional salesopportunities for the segment. Dorel is among the three largest juvenile products companies in North Americaalong with Graco (a part of the Newell Group of companies) and Evenflo Company Inc.

In Europe, Dorel sells products across all price points from entry-level to high-end juvenile products. However,with its well recognized brand names and superior designs and product quality, the majority of European salesare made to major European juvenile product chains along with boutiques and smaller stores. Dorel is also oneof the largest juvenile products companies, competing with companies such as Britax, Peg Perego, Chicco,Bugaboo, Jane and Graco, as well as several smaller companies. In Australia, sales are made to both largeretailers and specialist stores. Globally, within its principal categories, Dorel’s combined juvenile operationsmake it the largest juvenile products company in the world.

The Juvenile segment operates in North America, Europe and Australia. In early 2009, Dorel established a newcompany in Brazil to expand sales within that country. Dorel Juvenile Group (“DJG”) USA’s operations in theUnited States are headquartered in Columbus, Indiana with facilities in Foxboro, Massachusetts and Ontario,California. As well as being the headquarters, all North American manufacturing and car seat engineering is basedin Columbus. Products are conceived, designed and developed at the Foxboro location. Dorel DistributionCanada is located in Montreal, Quebec and sells to customers throughout Canada. The principal brand names inNorth America are Cosco, Safety 1st , Maxi-Cosi and Quinny. In addition, several brand names are used underlicense, the most significant being the well-recognized Eddie Bauer brand used in North America.

Dorel Europe is headquartered in France and major product design facilities are located both in Cholet, Franceand Helmond, Holland. Sales operations along with manufacturing and assembly facilities are located in France,Holland and Portugal. In addition, sales and/or distribution subsidiaries are located in Italy, Spain, the UnitedKingdom, Germany, Belgium and Switzerland. In Europe, products are marketed under the brand namesBébé Confort, Maxi-Cosi, Quinny, Monbébé, Babidéal, Baby Relax and Safety 1st. In Australia, Dorel is themajority shareholder in IGC Dorel (“IGC”) which manufactures and distributes its products under several localbrands, the most prominent of which are Bertini and Mother’s Choice. IGC has done an exceptional job ofintroducing and integrating Dorel’s North American and European brands in Australia, broadening their salesrange. Dorel Asia sells cribs and other juvenile furniture to various retailers in North America. In addition, manyof Dorel’s divisions sell products to customers which are marketed under various house brand names. In 2008,the Juvenile segment accounted for 51% of Dorel’s revenues.

On January 6, 2009 the Company announced it is establishing Companhia Dorel Brasil Produtos Infantis(Dorel Brazil), a new operating division of the Company’s Juvenile segment. A local well respected partner withestablished relations in Brazil’s retail channels and with solid experience in the juvenile sector will act asPresident of the new company. With the 7th ranked population in the world with over 196 million residents,Brazil is characterized by a young population with a high birth rate of 18.7 per 1000 inhabitants, compared tothe US rate of 14.2. Additionally, car seats became mandatory in Brazil in June 2008 and demand has escalated.The Company intends to establish the local manufacture of car seats as well as import existing Dorel productsthat meet local safety standards. The total investment is expected to be less than $4 million.

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sRecreational / LeisureThe Recreational / Leisure segment’s businesses participate in a marketplace that totals approximately $55 billion dollars in retail sales annually. This includes bicycles, bicycling and running footwear and apparel,jogging strollers and bicycle trailers, as well as related parts and accessories. The breakdown of bicycle salesaround the world is approximately 50% in Asia-Pacific, 22% in Europe, 12% in North America, with the balance inthe rest of the world. The bicycle market has remained stable over the past 15 years, with trends such as the risein popularity of mountain bikes in the late 1990s and the spike in road bike sales in the early 2000s offsettingother declines. In the US, over that same period the mass merchant channel has captured a greater share of themarket and today accounts for over 70% of unit sales.

Despite the growth of the mass merchant channel, the Independent Bicycle Dealer (IBD) distribution channelremains an important retail outlet in North America, but particularly so in Europe and other parts of the world.IBD retailers specialize in higher-end bicycles and deliver a level of service to its customers that the massmerchants cannot. Retail prices in the IBD’s are much higher, reaching up to over ten thousand dollars. Thiscompares to the mass market channel where the average retail price is less than $100. Finally the sporting goodschannel also sells bicycles, however in the US this channel accounts for less than 10% of total retail sales.

Brand differentiation is an important part of the bicycle industry with different brands being found in thedifferent distribution channels. High-end bicycles and brands would be found in IBD’s and some sporting goodschains, whereas the other brands can be purchased in mass market retailers. Consumer purchasing patterns aregenerally influenced by economic conditions, weather and seasonality. Principal competitors include Huffy,Dynacraft, Trek, Giant, Specialized, Scott and Raleigh. In Europe, the market is much more fragmented as thereis additional competition from much smaller companies that are popular in different regions.

The bicycle business is divided into two distinct divisions to clearly delineate the business between massmerchant customers and the Independent Bike Dealer (“IBD”) network of smaller bicycle stores. The IBD retailchannel is serviced by the Cannondale Sports Group (“CSG”) which focuses exclusively on this category with thepremium-oriented brands Cannondale, SUGOI, GT and others. Pacific Cycle has an exclusive focus on massmerchant customers, principally with the Schwinn and Mongoose brands used on bicycles, parts and accessories.An apparel and footwear group (“AFG”) is run under the leadership of SUGOI and sales are made through thebicycle IBD’s, various sporting good chains and specialty running stores. AFG competes with such brands asNike, Pearl Izumi, Adidas, among others, as well as some of the bicycle brands.

In North America, Recreational / Leisure is headquartered from Madison, Wisconsin and Bethel, Connecticut andhave significant operations in Vancouver, British Columbia and Bedford, Pennsylvania. In addition, distributioncenters are located in California and Illinois. Global operations include locations in the Netherlands, Switzerland,Australia and Japan. In 2008, the Recreational/Leisure segment accounted for 29% of Dorel’s revenues.

Home FurnishingsDorel’s Home Furnishings segment participates in the $80 billion North American furniture industry. Dorel ranksin the top ten of North American furniture manufacturers and marketers and has a strong foothold in both NorthAmerican manufacturing and importation of furniture, with a significant portion of its supply coming from its ownmanufacturing facilities and the balance through sourcing efforts in Asia. Dorel is also the number two manufacturerof Ready-to-Assemble (“RTA”) furniture in North America. Products are distributed from our North Americanmanufacturing locations as well as from several distribution facilities.

Dorel’s home furnishings segment consists of five operating divisions. They are Ameriwood Industries(“Ameriwood”), Altra Furniture (“Altra”), Cosco Home & Office (“Cosco”), Dorel Home Products (“DHP”) andDorel Asia. Ameriwood specializes in domestically manufactured RTA furniture and is headquartered in WrightCity, Missouri. Ameriwood’s manufacturing and distribution facilities are located in Tiffin, Ohio, Dowagiac,Michigan, and Cornwall, Ontario. Altra Furniture is also located in Wright City, Missouri and designs and importsfurniture mainly within the home entertainment and home office categories. Cosco is located in Columbus,Indiana and the majority of its sales are of metal folding furniture, step stools and specialty ladders. DHP, locatedin Montreal Quebec, manufactures futons and baby mattresses and imports futons, bunk beds and other accentfurniture. Dorel Asia specializes in sourcing upholstery and a full range of finished goods from Asia for distributionthroughout North America.

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While industry furniture sales declined in 2008 due to the significant drop in housing, Dorel sales in homefurnishings have increased. Dorel has significant market share within our product categories and has a strongpresence with our customer base. Sales are concentrated with mass merchandisers, warehouse clubs, homecenters, and office and electronic superstores. Dorel markets its products under generic retail house brands aswell as under a range of branded product including; Ameriwood, Altra, System Build, Ridgewood, Dorel FineFurniture, and Cosco. The Dorel Home Furnishings segment has many competitors including Sauder Mfg. in theRTA category, Meco in the folding furniture category, and Werner in ladders. In 2008, this segment accountedfor 20% of Dorel’s revenues.

Significant Events in 2008On February 4, 2008, the Company acquired all the outstanding shares of Cannondale Bicycle Corporation(“Cannondale”), a leading designer, developer and manufacturer of high-end bicycles. The total value of theall-cash transaction was $202.2 million. Headquartered in Bethel, Connecticut with significant operations in theUnited States and Holland, as well as locations in Switzerland, Japan and Australia, Cannondale is widely regardedas one of the bike industry's leading innovators. Cannondale’s handcrafted bicycles have won numerous designawards and are sold in over 70 countries. Additionally, forming part of Cannondale is the SUGOI PerformanceApparel division located in Canada. SUGOI products are used worldwide by runners, cyclists, tri-athletes and fitnessenthusiasts. Prior to its acquisition, Cannondale’s annual sales were approximately $200 million.

On April 1, 2008 the Company announced that it voluntarily filed a Form 15F with the US Securities andExchange Commission (“SEC”) to terminate the registration of its Class B Subordinate Voting Shares underthe Securities Exchange Act of 1934, as amended. This termination of registration became effective 90 daysafter its filing with the SEC. As a result of this filing, Dorel’s obligation to file certain reports with the SEC,including an annual report on Form 20-F and reports on Form 6-K, was suspended. As a TSX-listed reportingissuer, Dorel will continue to meet its Canadian continuous disclosure obligations by filing with the Canadiansecurities commissions.

In line with the Company’s strategy to aggressively grow its bicycle and juvenile products businesses, onJune 26, 2008 Dorel’s Pacific Cycle division acquired the assets of PTI Sports, a leading US designer, manufacturerand distributor of bicycle parts, helmets and other accessories. With a purchase price of $29.4 million, PTI recorded sales of $65 million in the 2007 fiscal year. Established in 1991, PTI Sports has widespread distributionat the key mass and sporting goods retailers throughout North America, including Category Manager positionsand 100% exclusive agreements with a number of its customers. With a dedication to product innovation, PTIsells product with powerful, recognizable brands used under license.

On August 19, 2008 the Company announced the re-opening of its Dowagiac, Michigan RTA furniture plantwhere operations had been suspended as part of a restructuring plan in 2007. A production line was opened toaccommodate the demand for RTA furniture product. It is anticipated that up to 100 manufacturing positionscould be created over time as demand dictates. Despite the overall slowdown in the home furnishings retailsector, demand for domestically produced product increased, allowing the Company’s two other factories to runmuch more efficiently and necessitating the need for additional capacity at Dowagiac.

Subsequent eventsOn January 27, 2009 Dorel announced a further strengthening of its successful high-end European juvenile lineswith the purchase of all of the outstanding shares of Belgium-based BABY ART bvba. Created in 2006, theCompany markets its products under the BABY ART and HOPPOP brands. The innovative baby products andaccessories, feature outstanding modern designs, are highly popular with consumers and received rave reviewsat Europe’s prestigious 2008 Cologne, Germany juvenile trade fair. It is expected that the BABY ART andHOPPOP lines will be quickly integrated into Dorel Europe’s existing marketing plans and that Dorel’s relationshipswith customers should result in meaningful synergies throughout the Company’s distribution networks. Thepurchase price was 4.1 million Euros, or $5.3 million. The transaction, which will be immediately accretive toearnings, is being financed through debt.

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sOperating ResultsFollowing 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:

2008 2007 2006% of % of % of

$ revenues $ revenues $ revenuesRevenues $ 2,181,880 100.0% $ 1,813,672 100.0% $ 1,771,168 100.0%Net income $ 112,855 5.2% $ 87,492 4.8% $ 88,865 5.0%Cash dividends

declared per share $ 0.50 $ 0.375 NILEarnings per share:

Basic $ 3.38 $ 2.63 $ 2.70 Diluted $ 3.38 $ 2.63 $ 2.70

Amount of restructuring costs included in the year based on diluted earningsper share $ 0.02 $ 0.38 $ 0.10

Operating Results for the Quarters Ended

31-Mar-08 30-Jun-08 30-Sep-08 30-Dec-08

Revenues $ 556,034 $ 593,724 $ 552,242 $ 479,880Net income $ 35,133 $ 31,347 $ 27,208 $ 19,167Earnings per share:

Basic $ 1.05 $ 0.94 $ 0.82 $ 0.57 Diluted $ 1.05 $ 0.94 $ 0.82 $ 0.57

Amount of restructuring costs (recovery)included in the quarter based on dilutedearnings per share $ 0.02 $ 0.02 $ 0.00 $ (0.02)

Operating Results for the Quarters Ended

31-Mar-07 30-Jun-07 30-Sep-07 30-Dec-07

Revenues $ 455,669 $ 459,035 $ 440,115 $ 458,853 Net income $ 27,939 $ 10,845 $ 26,360 $ 22,348 Earnings per share:

Basic $ 0.85 $ 0.32 $ 0.79 $ 0.67 Diluted $ 0.85 $ 0.32 $ 0.79 $ 0.67

Amount of restructuring costs included in the quarter based on diluted earnings per share $ 0.04 $ 0.27 $ 0.02 $ 0.05

Income Statement – Overview2008 versus 2007Tabular Summaries

Variations in revenue across the Company segments:

Fourth Quarter Year

2008 2007 Increase (decrease) 2008 2007 Increase (decrease)$ % $ %

Juvenile $ 228,694 $ 257,584 $ (28,890) (11.2%) $ 1,109,174 $1,016,645 $ 92,529 9.1%Recreational / Leisure 153,834 85,836 67,998 79.2% 643,985 374,783 269,202 71.8%Home Furnishings 97,352 115,433 (18,081) (15.7%) 428,721 422,244 6,477 1.5%Total Revenues $ 479,880 $ 458,853 $ 21,027 4.6% $ 2,181,880 $1,813,672 $ 368,208 20.3%

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Principal changes in earnings:

4th Qtr Year-to-DateEarnings from operations by Segment:Juvenile increase (decrease) - excluding restructuring costs $ (2,967) $ 7,555 Recreational / Leisure increase (decrease) (2,506) 10,360 Home Furnishings increase (decrease) - excluding restructuring costs (8,199) (11,353)Restructuring costs decrease 3,170 18,240 Total earnings from operations increase (decrease) (10,502) 24,802 Variation in interest costs (984) 1,343 Variation in income taxes 5,845 (22)Other 2,460 (760)Total increase (decrease) in net income $ (3,181) $ 25,363

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

For fiscal 2008, Dorel recorded revenues of $2,182 million an increase of 20.3% over 2007. The most substantialincrease came in the Recreational / Leisure segment which increased by 71.8% over 2007, benefitting from boththe Cannondale and PTI acquisitions in the year. Increases in revenues also occurred in the Juvenile and HomeFurnishings segments by 9.1% and 1.5% respectively. Foreign exchange rate variations in the Euro, PoundSterling and the Canadian dollar versus the US dollar can significantly affect revenue figures. As compared to 2007,throughout most of 2008 the US dollar was weaker versus the Euro and the Canadian dollar, yet stronger againstthe pound. The net impact of these exchange rate variations was to positively impact 2008 revenues by $24 million. Additionally, 2008 includes an additional two months of sales from IGC Dorel, the Australiancompany that was acquired at the end of February 2007. Therefore, excluding these two factors, organic salesactually increased by 6%.

Gross margins for the year were 24.3%, consistent with the 24.2% recorded last year. The 2008 year was characterized by a steep increase in commodities throughout the first half of the year. This resulted in higherraw material costs for Dorel, as well as costing pressure from its finished goods suppliers as they attempted tomanage these higher input costs. These cost increases were across all segments and while Dorel wassuccessful in negotiating certain price increases with customers, it was not possible to recover all of thesehigher costs due either to the timing of achieving these increases or retailer resistance. Helping to offsetthese cost increases was the impact of variations in foreign exchange rates versus the US dollar. As anexample, one Euro was worth an average of $1.47 US in 2008 versus $1.37 US in 2007, thus helping marginsin Europe. In addition, the Company recognized unrealized gains on foreign exchange hedging instruments inthe year, which also helped offset these higher costs and keep margins consistent with the prior year.

Selling, general and administrative (“S, G & A”) expenses increased from 2007 levels by $74.3 million to$319.1 million. The major reason for the increase was the business acquisitions in the year. These addedapproximately $55 million in costs. The conversion of Euro denominated expenses accounts for another $6 million of the increase with the balance of the S, G & A increase being in line with the Company’s 6%organic sales growth.

Despite higher average borrowings as a result of the two business acquisitions in the year, total interest costs in2008 were $22.1 million versus $23.5 million in 2007 as the Company’s average interest rate on its long-termborrowings and revolving facilities in 2008 was approximately 4.6%, versus 6.4% in 2007. Income before incometaxes was $132.0 million in 2008 versus $106.6 million in 2007, an increase of $25.4 million or 23.8%.

As a multi-national company, Dorel is resident in numerous countries and therefore subject to different tax ratesin those various tax jurisdictions and by the interpretation and application of these tax laws, as well theapplication of income tax treaties between various countries. As such, significant variations from year to year inthe Company’s combined tax rate can occur. In 2008 the Company’s effective tax rate was 14.5% as compared to17.9% in 2007. The principal reason was that 2007 included a valuation allowance that increased the rate in thatyear by 3.6%.

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sThe Parent Company’s statutory tax rate is 31.2%. The variation from 31.2% to 14.5% can be explained as follows:

$ %PROVISION FOR INCOME TAXES $ 41,188 31.2%ADD (DEDUCT) EFFECT OF: Difference in effective tax rates of foreign subsidiaries (20,666) (15.7%)Recovery of income taxes arising from the use of unrecorded tax benefits (5,498) (4.1%)Change in valuation allowance 1,100 0.8%Non-deductible items 3,333 2.5%Change in future income taxes resulting from changes in tax rates 179 0.1%Effect of foreign exchange (1,221) (0.9%)Other – net 743 0.6%ACTUAL PROVISION FOR INCOME TAXES $ 19,158 14.5%

Operating results in the prior year include significant costs related to the closure of production facilities necessitatedby a strategic shift of domestic production to overseas suppliers. Specifically, in the Home Furnishings segment,production at the Company’s Dowagiac, Michigan RTA furniture manufacturing facility was suspended. In theJuvenile segment, production facilities in Telgate, Italy and Cholet, France underwent significant operationalchanges. As such, results for 2007 include the following amounts pertaining to these closures:

Home Furnishings2007(‘000)

Building and equipment write-downs $ 5,727Employee severance and termination benefits 613Contract termination costs 534Other associated costs 60Recorded as Restructuring costs 6,934Move of inventory, equipment and other expenses (in Cost of sales) 130Inventory markdowns (in Cost of sales) 3,877Total $ 10,941

Juvenile2007(‘000)

Employee severance and termination benefits $ 6,887Building, machinery and equipment write-downs 1,052Net curtailment losses on defined benefit pension plans 264Curtailment gain on compensation liabilities (318)Gains on sale of machinery & equipment (432)Other associated costs 122Recorded as restructuring costs 7,575Inventory markdowns (in Cost of sales) 668Total $ 8,243

2008 includes an insignificant amount of related costs that totaled $0.9 million pre-tax, or $0.6 million after-tax,the equivalent of $0.02 per share.

Net income for the full year amounted to $112.9 million or $3.38 per share fully diluted, compared to 2007 netincome of $87.5 million or $2.63 per diluted share. Excluding restructuring costs in 2007 income before taxeswas $125.8 million and net income was $100.1 million, or $3.01 per diluted share.

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Fourth quarter 2008 versus 2007

The economic events of the last three months of 2008 were in many ways unprecedented. As examples, thebanking industry continued to struggle despite governmental aid, the major car manufacturers in the United Statesappeared to be on the brink of bankruptcy, oil prices plummeted and commodity prices and currency valuesagainst the US dollar fell dramatically. The unemployment rate in the United States jumped and consumerconfidence fell to record lows. Retailers around the world reacted by halting orders from suppliers almost acrossthe board to reduce their in-stock levels. Though in some market segments this reaction may have been warranted,in the case of Dorel’s product lines, the level of orders did not represent what sales levels were at retail. As anexample, sales at Dorel Home Products fell in the quarter by 50% versus 2007 despite retail sales remaining steadyas compared to the prior year. In fact, since the beginning of 2009, point-of-sale figures for Dorel’s productscontinue to be only moderately affected and in some cases are actually up over prior year comparatives.

Despite steady sales of Dorel’s product at the retail level, the retailers’ reaction to the economic situation hadthe impact of reducing sales and increasing Dorel’s inventory levels in the quarter. Specifically, the Juvenile andHome Furnishings segments experienced steep sales declines in the fourth quarter, as compared to the prioryear. In Juvenile, compounding this was the strengthening of the US dollar in the fourth quarter which had theimpact of reducing European sales upon conversion. Throughout the fourth quarter the Euro and the BritishPound versus the US dollar was worth approximately 10% and 23% less respectively, than in the prior year. TheRecreational / Leisure segment was able to grow sales organically in this environment, but were still lower thanexpectations. As such despite the sales increase, inventories rose to record levels.

Revenues for the fourth quarter were $479.9 million compared to $458.9 million a year ago, an increase of4.6%. Revenues in the fourth quarter within the Recreational / Leisure segment were up in 2008, increasingby 79.2% over 2007. Therefore the Recreational / Leisure segment increase more than offset declines inJuvenile and Home Furnishings.

Lower sales volumes and a slightly less favourable product mix caused gross margins to decrease from 24.1% in 2007to 22.7% in 2008. Selling, general and administrative (“S, G & A”) costs increased in the quarter to $70.7 millionfrom $62.0 million in 2007, an increase of 13.9%. This was due to additional costs from the Cannondale andPTI acquisitions, offset by a lower rate of exchange on European and Canadian dollar expenses as well as lowerproduct liability costs in the quarter. The 2007 quarter also included $2.5 million of restructuring costs.

The Juvenile revenue decline in the fourth quarter was 11.2% and occurred in both North America and Europe. Asstated orders from retailers dropped to unprecedented levels as they began to adjust their inventories to whatthey believed were appropriate levels heading into 2009. In many cases, these order reductions were excessive assales at retail continued at a reasonable pace. Sales in continental Europe declined by 6.5% organically butincreased by over 35% in the United Kingdom. However, the increase in the value of the US dollar versus both theEuro and Pound Sterling meant reported revenues declined by 12.3% for Europe as whole.

Juvenile gross margins were also negatively affected by lower sales levels, a less profitable product mix, andother higher input costs at the majority of the segment’s divisions. Counteracting these negatives was the factthat the segment recorded operational foreign exchange gains of approximately $3 million. These gains were acombination of losses due to the surge in the value of the US dollar, offset by the recognition of unrealized gainson foreign exchange contracts. Another negative impact on margins was the recording of $2.1 million in thequarter as an estimate of the costs to comply with recent US legislation that regulates the use of lead andphthalates in children's products. These new laws outline maximum levels of these substances that can beincluded in products sold to consumers.

Selling, general and administrative costs in the Juvenile segment were $27.9 million a decline of $8.7 millionfrom the fourth quarter of 2007. Of this decline, $3.6 million was due to a decrease in product liability expenseswith the balance explained by a lower rate of exchange on Euro and Pound Sterling denominated expenses.

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sRecreational / Leisure segment revenues in the fourth quarter of 2008 increased by 79.2%. The majority of theincrease is due to the acquisitions of Cannondale/SUGOI and PTI Sports in February and June of this yearrespectively. Organic sales growth also occurred at the segment’s mass merchant customers in the quarter.Earnings, however, were hampered by several factors. Product mix had a negative impact on margins as did thefact that the apparel component of this segment has a unique seasonality that usually results in the fourthquarter operating at a loss and this occurred in 2008. Additionally as Dorel focuses on building the rightorganization and re-engineers certain aspects of its operations, higher costs were incurred. Finally, selling andmarketing costs were higher due to the timing of certain promotional expenses and warranty costs rose drivenby higher sales volumes. Also, the excess purchase price allocation was completed for both the Cannondale andPTI acquisitions and as such depreciation and amortization increased by $2.0 million versus the prior year.

Home Furnishings revenues were affected by retailer order reductions resulting in a 15.7% reduction in revenuesversus last year’s fourth quarter. The declines were steepest at the segment’s metal folding furniture and futondivisions. Sales of domestically produced ready-to-assemble (RTA) product improved in 2008, with a resultantincrease in earnings. Unfortunately these improvements were not enough to offset the declines at the segment’sother divisions. In particular, the downward trend in the sales and extremely low margins at Cosco Home & Officethat was experienced in the first nine months of 2008 continued into the fourth quarter. Of the earnings declinein the quarter, the majority was due to lower earnings at this division.

Due to Dorel’s multi-national operations, foreign exchange rates can have a significant impact on earnings. Overthe past several years Dorel has generally benefitted from the weakness of the US dollar versus other currencies.This trend was reversed in the fourth quarter with the sudden surge in the value of the US dollar againstpractically all foreign currencies. The Company uses hedging instruments such as foreign exchange contracts inan attempt to stabilize the impact of foreign exchange rates, especially in Europe and has some contracts inplace for 2009 US dollar requirements. At current exchange rates, this proved to be an excellent businessdecision. As the Company does not apply hedge accounting, the benefit of these contracts was recognizedin 2008 as opposed to 2009 in the amount of $10.5 million pre-tax or $7.4 million after-tax.

Interest costs were higher in 2008 by $1.0 million as a result of higher borrowings, offset by a lower averageborrowing rate in 2008. The Company’s income tax expense was $0.4 million in the fourth quarter of 2008 ascompared to $6.2 million in 2007. The causes of the unusually low tax rate in the quarter were that the quarter’searnings were generated in certain lower tax rate jurisdictions. Additionally, the Company recognized a taxbenefit of $1.8 million pertaining to a prior year’s estimated tax position. Excluding this out-of-period benefit,the Company’s tax rate for the quarter would have been 11.0%. As a result, net income for the fourth quarterwas $19.2 million, a decrease from $22.3 million in 2007. Earnings per share for the quarter were $0.57 fullydiluted, compared to $0.67 per share in the fourth quarter the previous year.

Segment ResultsEffective January 2008, the Company has re-classified certain figures from the Home Furnishings segment to theJuvenile segment. This change, based principally on product type and customers served, was made to moreaccurately reflect the way in which this division’s results are reported internally. To allow for better year-over-yearcomparability, prior year comparative segmented figures have been re-stated. For the quarter revenues of$7.4 million and earnings from operations of $0.5 million have been reclassified. For the year, these figures were$45.4 million and $7.1 million respectively.

SeasonalityThough revenues at the operating segments within Dorel may vary in their seasonality, for the Company as awhole variations between quarters are not significant as illustrated below. With the growth in theRecreational / Leisure segment, revenues in the second quarter were the highest of all the quarters.However, even with the increase in that segment, the proportion of annual sales in the second quarterremains at less than 30% of the annual total.

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Juvenile2008 2007 Change

Juvenile $ ('000) % of sales $ ('000) % of sales $ ('000) %Revenues $ 1,109,174 100.0% $ 1,016,645 100.0% $ 92,529 9.1%Gross margin 323,901 29.2% 309,236 30.4% 14,665 4.7%Selling, general

and administrative expenses 154,140 13.9% 149,838 14.7% 4,302 2.9%

Depreciation andamortization 32,900 3.0% 32,174 3.2% 726 2.3%

Research and development 7,928 0.7% 6,364 0.6% 1,564 24.6%

Restructuring costs 710 0.1% 7,575 0.7% (6,865) (90.7%)Earnings from

operations $ 128,223 11.6% $ 113,285 11.2% $ 14,938 13.2%

The Company’s Juvenile segment continued its growth and had the most successful year in its history asrevenues reached $1.1 billion and earnings from operations were $128.2 million. As a percentage of revenues,earnings were 11.6%, an improvement from 11.2% in 2007. However, 2007 did include restructuring costsincurred as a result of the closure of facilities in Italy and France. Excluding these restructuring costs, earnings in 2008were 11.6% as compared to 12.0% in the prior year. Sales growth was seen in all markets and was furtherincreased by the effect of exchange on non-US denominated sales. Excluding this foreign exchange benefit,organic sales growth was 5% in North America and 7% in Europe.

In North America, sales growth was fueled by sales of travel systems, car seats and strollers. Sales increased at themajority of the Company’s largest customers indicating good acceptance of new product and continued strengthin service to customers. The sales growth in Europe was due to continued gains in car seats and strollers, the twomajor product categories. Importantly, Dorel Europe also posted sales gains in some of its other categories likesafety items. The majority of these increases were in the United Kingdom and Germany as well as export sales toseveral smaller European countries in which Dorel does not have permanent establishments. Sales in France, theCompany’s largest European market, also improved over 2007 levels.

0

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Home Furnishings Juvenile Recreational/Leisure

Revenues by Quarter by Segment

2006 2007 2008

QTR1 QTR2 QTR3 QTR4 QTR1 QTR2 QTR3 QTR4 QTR1 QTR2 QTR3 QTR4

Total Revenues

Qua

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s

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sGross margins for the segment were 29.2% in 2008 as compared to 30.4% in 2007. Higher product costs anda less profitable product mix were to blame for the decline at virtually all divisions. However, as in the fourth quarter,full year results include the benefit of the recognition of unrealized gains on foreign exchange hedginginstruments. As the Company does not apply hedge accounting, gains on contracts in place for 2009 wererecognized in 2008. These gains totaled $8.9 million in the year and had the impact on the segment ofincreasing 2008 margins for the year from 28.4% to 29.2%. Selling, general, and administrative costsincreased over 2007 levels from $149.8 million to $154.1 million. Excluding the impact of foreign exchangeon expenses incurred in Euro, the figure for 2008 is $148.5 million, a decline from 2007. The segment againincurred lower product liability related costs for the third straight year. In 2008 these costs totaled $13.0 millionversus $16.6 million in the prior year.

Recreational / Leisure

2008 2007 ChangeRecreational / Leisure $ ('000) % of sales $ ('000) % of sales $ ('000) %Revenues $ 650,655 100.0% $ 374,783 100.0% $ 275,872 73.6%Gross margin 152,502 23.4% 72,948 19.5% 79,554 109.1%Selling, general

and administrativeexpenses 102,226 15.7% 38,260 10.2% 63,966 167.2%

Depreciation andamortization 6,964 1.1% 1,736 0.5% 5,228 301.2%

Earnings fromoperations $ 43,312 6.7% $ 32,952 8.8% $ 10,360 31.4%

Recreational / Leisure revenues increased 73.6% to $650.7 million in 2008 compared to $374.8 million a yearago. This increase was principally due to the acquisitions of Cannondale/SUGOI and PTI in the year. Howeverexcluding these, organic sales growth was also substantial at 8%. The sales increase was driven by the corebicycle business with sales gains at the majority of the mass merchant customers. Gross margins increased to23.4% from 19.5% in the prior year due principally to the contribution of higher margin products sold byCannondale and SUGOI. The parts and accessories now sold by the segment to its mass merchant customersalso attract higher margins than bicycles which also contributed to the improved margins.

The selling costs required to support the Cannondale Sports Group’s higher margins had the impact ofincreasing selling, general and administrative costs as a percentage of revenue to 15.7% as compared to 10.2%in 2007. At Pacific Cycle, the segment’s mass merchant supplier, an additional $2 million was spent in the year onadvertising and promotional activities to support its brands. In general the Company is investing in thesegment’s infrastructure and this had the impact of increasing costs in categories such as salaries, informationtechnology and other administrative areas. These investments were made in 2008 and to a great extent willprovide benefits going forward.

The segment’s depreciation and amortization expense in 2008 is much higher than in 2007 also due to theaddition of Cannondale, SUGOI and PTI. This increase is from the depreciation of manufacturing assets atCannondale and SUGOI as well as the amortization of various intangible assets acquired as part of the businessacquisitions. These are the principal factors for the increase in earnings from operations from $33.0 million in 2007to $43.3 million in 2008, an increase of $10.4 million or 31.4%.

Home Furnishings

2008 2007 ChangeHome Furnishings $ ('000) % of sales $ ('000) % of sales $ ('000) %Revenues $ 438,871 100.0% $ 429,893 100.0% $ 8,978 2.1%Gross margin 54,340 12.4% 56,070 13.0% (1,730) (3.1%)Selling, general

and administrativeexpenses 35,861 8.2% 30,563 7.1% 5,298 17.3%

(fowards)

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2008 2007 ChangeHome Furnishings $ ('000) % of sales $ ('000) % of sales $ ('000) %

(brought foward)Depreciation and

amortization 5,895 1.3% 5,845 1.4% 50 0.9%Research and

development 2,981 0.7% 2,645 0.6% 336 12.7%Restructuring costs 16 0.0% 6,934 1.6% (6,918) (99.8%)Earnings from

operations $ 9,587 2.2% $ 10,083 2.3% $ (496) (4.9%)

For the year, Home Furnishings revenues increased by 2.1%, reaching $438.9 million up from $429.9 million inthe prior year. Sales of furniture at Ameriwood, Altra and Dorel Asia, both domestic and imported, increasedover last year. The fact that these furniture sales increased in a year characterized by recession and a dramaticdecline in housing starts and new home sales is due to Dorel’s focus on reasonably priced furniture sold atnon-traditional furniture stores. However sales of metal folding furniture, ladders and futons decreased in thelow to mid-single digits, tempering the impressive sales gains. The downward trend in the sale of metal foldingfurniture and ladders at Cosco Home & Office that was experienced in the first nine months of 2008 continuedinto the fourth quarter, whereas the futon sales reduction was a fourth quarter event, due to a severe reductionin orders by one major customer.

Gross margins in 2008 were 12.4% versus 13.0% recorded in the prior year. Included in cost of sales in 2007 wererestructuring charges offset by an insurance recovery pertaining to a prior year. The net impact of these twoevents was to increase cost of sales by $1.8 million. Excluding this amount, comparative margins would be 13.5%as opposed to the 13.0% recorded. Combined gross margins at segments’ furniture businesses improved overthe prior year. However declines at Cosco more than offset these improvements. Of all of Dorel’s business units,Cosco was the one most affected by the steep rise in commodity prices and other cost pressures in 2008. Theinability to pass on these cost increases meant that on some items margins were extremely low. Some of theproduct lines that Cosco sells in are highly competitive and brand differentiation is difficult, making priceincreases harder to implement.

Selling, general and administrative costs increased by $5.3 million to $35.9 million in 2008. As a percentage ofrevenues these costs increased from 7.1% to 8.2%. The principal reason for the increase was a $1.1 million dollarincrease in product liability costs and increases in employee incentives. Depreciation and amortization expenseand research and development costs remained consistent with prior years. Including $4.0 million grouped in costof sales, the prior year also included $10.9 million of restructuring costs. In 2008 these costs were negligible. Assuch earnings from operations for the year were $9.6 million compared to $10.1 million in 2007.

Balance SheetSelected Balance Sheet Data as at December 30:

2008 2007 2006Total assets $ 2,030,473 $ 1,657,904 $ 1,627,406 Long-term Financial Liabilities, excluding current portion:Long-term debt $ 450,704 $ 192,385 $ 375,135Other long-term liabilities $ 6,010 $ 6,848 $ 7,719

The Company made two business acquisitions in the year that had a substantial impact on total assets and long-termdebt as indicated above. On February 4, 2008, the Company acquired all the outstanding shares of theCannondale Bicycle Corporation, a leading designer, developer and manufacturer of high-end bicycles. Theaggregate purchase price was $202.2. On June 26, 2008, the Company acquired the assets of PTI Sports, aleading US designer, manufacturer and distributor of bicycle parts, helmets and other accessories. The purchaseprice was $29.4 million and there remains a balance of sale of $1.1 million to be paid. Both acquisitions havebeen recorded under the purchase method of accounting with the results of operations of the acquiredbusinesses being included in the accompanying consolidated financial statements since the date of acquisition.

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sThe nets assets acquired as a part of the acquisitions were:

Cannondale

AssetsCash and cash equivalents $ 4,493Accounts receivable 52,452Inventories 67,940Prepaid expenses 4,858Short-term future income taxes 1,910Property, plant and equipment 20,991Trademarks 59,600Customer relationships 27,100Goodwill 21,343Long-term future income taxes 8,515

269,202

LiabilitiesAccounts payable and accrued liabilities 27,997Income taxes payable 640Short-term future income taxes 110Other long-term liabilities 3,582Long-term future income taxes 34,653

66,982Net assets acquired $ 202,220

PTI

AssetsAccounts receivable $ 14,455Inventories 9,630Prepaid expenses 634Property, plant and equipment 600Customer relationships 14,600Supplier relationship 1,500Goodwill 1,302Other long term assets 83

42,804

LiabilitiesAccounts payable and accrued liabilities 13,433Net assets acquired $ 29,371

Certain of the Company’s working capital ratios are as follows:As at December 30,

2008 2007Quick ratio 0.78 0.74Current ratio 2.15 1.63# of Days in receivables 55 58# of Days in inventory 107 85

To make certain of the ratios more meaningful, certain ratios excluding business acquisitions would be:

# of Days in receivables 49 58# of Days in inventory 96 85

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The increase in the current ratio is due principally to increases in inventory levels. This increase is also reflected inthe increase in the number of days in inventory figure of 107 versus 85 in the prior year. The causes werethreefold. Firstly, the Cannondale and SUGOI businesses acquired generally turn their inventories more slowlythan Dorel’s other businesses. Secondly, the dramatic slowdown experienced in the fourth quarter meant thatinventories that were expected to be shipped to customers were not. Thirdly, when comparing inventories yearover year, there is a substantial portion that can be attributed to higher input costs in 2008 versus 2007. Theincrease in inventory is being addressed by the Company, and it is expected that during 2009, these levels willfall generating cash in the year ahead.

The Company’s major subsidiaries are considered to be self-sustaining. As such, any foreign exchange fluctuationson conversion of non-US functional currency subsidiaries to the US dollar are reflected in the increase in theCompany’s Accumulated Other Comprehensive Income account, which is grouped in Shareholders’ Equity. Withthe increase in value of the US dollar at the end of 2008 versus 2007, this value decreased from $106.9 million asat December 30, 2007 to $83.1 million as of December 30, 2008.

Liquidity and Capital ResourcesCash FlowFree cash flow, a non-GAAP financial measure, was $15.7 million in 2008 versus $116.2 million in 2007, detailedas follows:

2008 2007 ChangeCash flow from operations before changes

in non-cash working capital: $ 158,390 $ 142,858 $ 15,532 Change in:

Accounts receivable 28,223 19,811 8,412 Inventories (121,027) 13,137 (134,164)Prepaid expenses 677 (126) 803 Accounts payable and other liabilities 22,105 (23,707) 45,812 Income taxes (8,485) 15,367 (23,852)

Cash provided by operating activities 79,883 167,340 (87,457)Plus (less):

Dividends paid (16,707) (12,524) (4,183)Additions to property, plant & equipment – net (26,518) (22,269) (4,249)Deferred development costs (19,069) (14,470) (4,599)Intangible assets (1,860) (1,871) 11

FREE CASHFLOW (1) $ 15,729 $ 116,206 $ (100,477)

(1) “Free cash flow” is a non-GAAP financial measure and is defined as cash provided by operating activities less dividends paid, additionsto property, plant & equipment, deferred development costs and intangibles.

During 2008, cash flow from operations, before changes in working capital, increased by $15.5 million. Afterchanges in non-cash working capital items, cash flow from operations decreased by $87.5 million. As describedabove, the majority of this decline was due to an increase in inventory. The other variations in working capitalbalances, such as accounts receivable, accounts payable and income taxes were a function of timing as opposedto significant changes in trends. Capital expenditures on property, plant and equipment, deferred developmentcosts and intangible assets totalled $47.4 million in 2008, compared to $38.6 million in 2007. The majority of theincrease was due to increased spending in the area of new product development.

As of December 30, 2008, Dorel was compliant with all covenant requirements and expects to be so goingforward. The Company’s existing borrowing facility is in place until July 1, 2010 and provides for an annual one-yearextension. Under this facility, the credit agreement allows for borrowing availability of up to $475 million, plus anadditional $50 million accordion feature, if required.

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sContractual ObligationsThe following is a table of a summary of the contractual obligations of the Company as of December 30, 2008:

less than 1 - 3 After 5 Contractual Obligations Total 1 year years 4 - 5 years yearsLong-term debt repayments $ 459,583 $ 8,879 $ 434,217 $ 16,487 – Interest payments (1) 20,500 11,717 7,660 1,122 – Net operating lease commitments 90,062 25,312 35,632 19,748 9,370 Capital addition purchase commitments 13,776 13,776 – – – Minimum payments under

licensing agreements 4,209 2,031 2,178 – – Balance of sale 1,100 1,100 – – – Total contractual obligations $ 589,230 $ 62,815 $ 479,687 $ 37,357 $ 9,370

(1) Interest payments on revolving bank loans assume no debt reduction other than the balance due in full in July 2010 and arecalculated using the interest rate in effect as at December 30, 2008. Interest payments on the Company’s notes are as specified inthe related note agreements.

The Company does not have significant contractual commitments beyond those reflected in the consolidatedbalance sheet, the commitments in Note 18 to the Consolidated Financial Statements or those listed in thetable above.

For purposes of this table, contractual obligations for the purchases of goods or services are defined asagreements 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. With the exceptionof those listed above, the Company does not have significant agreements for the purchase of raw materials orfinished 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, finishedgoods or other goods and services which are based on current needs and are fulfilled by our vendors onrelatively short timetables.

As new product development is vital to the continued success of Dorel, the Company must make capitalinvestments in research and development, moulds and other machinery, equipment and technology. It isexpected that the Company will invest at least $25.0 million over the course of 2009 to meet its new productdevelopment and other growth objectives. The Company expects its existing operations to be able to generatesufficient 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-termliabilities are the following amounts:

Pension and post-retirement benefit obligations: As detailed in Note 15 of the Consolidated FinancialStatements, this amount of $20.1 million pertains to the Company's pension and post-retirement benefit plans.In 2009, contributions expected to be made for funded plans and benefits expected to be paid for unfundedplans under these plans will amount to approximately $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 $ 4,121Other liabilities due in more than one year 1,889

$ 6,010

Off-Balance Sheet ArrangementsIn addition to the contractual obligations listed above, the Company has certain off-balance sheet arrangementsand commitments that have financial implications, specifically contingent liabilities, guarantees, and commercialand standby letters of credit. The Company’s off-balance sheet arrangements are described in Notes 18 and 19to the Consolidated Financial Statements for the year ended December 30, 2008.

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Requests for providing commitments to extend credit and financial guarantees are reviewed and approved bysenior management. Management regularly reviews all outstanding commitments, letters of credit and financialguarantees and the result of these reviews are considered in assessing the adequacy of Dorel’s reserve forpossible credit and guarantee losses.

Derivative Financial InstrumentsAs a result of its global operating activities, Dorel is subject to various market risks relating primarily to foreigncurrency exchange rate risk. In order to reduce or eliminate the associated risks, the Company uses variousderivative financial instruments such as options, futures and forward contracts to hedge against adverse fluctuationsin currency. The Company’s main source of foreign currency exchange rate risk resides in sales and purchases ofgoods denominated in currencies other than the functional currency of each of Dorel’s subsidiaries. In fact, theCompany’s financial debt is mainly denominated in US 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 theborrowing entity and therefore carry no exchange-rate risk. Inter-company loans/borrowings are economicallyhedged 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 ofthe Company by generating offsetting cash flows related to the underlying position in respect of amountand timing of forecasted transactions. Dorel does not hold or use derivative financial instruments for tradingor speculative purposes.

The Company does not apply hedge accounting to foreign exchange contracts. The fair values, average ratesand notional amounts of derivatives and the fair values and carrying amounts of financial instruments aredisclosed in Note 14 of the Consolidated Financial Statements.

Critical Accounting Estimates The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. Thepreparation of these financial statements requires estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. A completelist 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 aspresented herein and that would have the most material effect on the financial statements should these policieschange or be applied in a different manner:

• Goodwill and certain other indefinite life intangible assets: Goodwill and certain other intangible assetshave indefinite useful lives and as such, are not amortized to income. Instead, the Company mustdetermine 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 orexternal valuations based on a market approach and makes assumptions and estimates in a number ofareas, including future cash flows, appropriate multiples of earnings of comparable companies anddiscount rates.

• Product liability: The Company is insured for product liability by the use of both traditional and self-fundedinsurance to mitigate its product liability exposure. The estimated product liability exposure is calculated by anindependent actuarial firm based on historical sales volumes, past claims history and management andactuarial assumptions. The estimated exposure includes incidents that have occurred, as well as incidentsanticipated to occur on units sold prior to December 30, 2008. Significant assumptions used in the actuarialmodel include management’s estimates for pending claims, product life cycle, discount rates, and thefrequency and severity of product incidents.

• Pension plans and post retirement benefits: The costs of pension and other post-retirement benefits arecalculated based on assumptions determined by management, with the assistance of independentactuarial 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, salaryincreases, retirement ages of employees and health care cost trend rates.

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s• Future Income Taxes: The Company follows the asset and liability method of accounting for income taxes.

Under this method, future income taxes relate to the expected future tax consequences of differencesbetween the carrying amount of balance sheet items and their corresponding tax values using the substantivelyenacted income tax rate, which will be in effect for the year in which the differences are expected toreverse. A valuation allowance is recorded to reduce the carrying amount of future income tax assets to theextent that, in the opinion of management, it is more likely than not that the future income tax assets willnot be realized. The ultimate realization of future tax assets is dependent upon the generation of futuretaxable income and tax planning strategies. Future income tax assets and liabilities are adjusted for theeffects of changes in tax laws and rates on the date of substantive enactment.

• Allowances for sales returns and other customer programs: At the time revenue is recognized certainprovisions may also be recorded, including returns and allowances, which involve estimates based on currentdiscussions with applicable customers, historical experience with a particular customer and/or product, andother relevant factors. Historical sales returns, allowances, write-offs, changes in our internal credit policiesand customer concentrations are used when evaluating the adequacy of our allowance for sales returns. Inaddition, the Company records estimated reductions to revenue for customer programs and incentiveofferings, including special pricing agreements, promotions, advertising allowances and other volume-basedincentives. Historical sales data, agreements, customer vendor agreements, changes in internal credit policiesand customer concentrations are analyzed when evaluating the adequacy of our allowances.

Future Accounting ChangesInventoriesIn June 2007, the CICA issued Section 3031 “Inventories” which replaces Section 3030 “Inventories” andharmonizes the Canadian standards related to inventories with International Financial Reporting Standards(“IFRS”). This Section provides changes to the measurement and more extensive guidance on the determinationof the cost, including allocation of overheads and other costs to inventories; prohibits the use of the last-in,first-out (LIFO) method; requires the reversal of previous write-downs when there is a subsequent increase inthe value of inventories; and expands the disclosure requirements regarding inventories and cost of sales toincrease transparency. This Section applies to interim and annual financial statements beginning on or afterJanuary 1, 2008. The Company will apply these new standards in the first quarter of 2009.

As a result of the more restrictive guidance on the determination of costs, the Company changed some of itsoverhead allocation policy, whereby some overheads costs will be expensed. In accordance with Section 3031,the Company will apply these changes in accounting policies by adjusting the opening retained earnings asat December 31, 2008 (prior fiscal year periods were not restated). Accordingly, effective as of the beginningof our 2009 fiscal year, the impact of measuring the inventories under the new standard is a decrease of thecarrying amount of inventories of $3,511. Opening retained earnings at the beginning of the fiscal year 2009were decreased by $2,096, equal to the change in opening inventories net of tax of $1,415. Section 3031requires depreciation expense related to manufacturing activities to be included in Cost of sales. The newdisclosure requirements will be reflected in the Company’s interim consolidated financial statements for thefirst quarter of 2009.

Goodwill and Intangible AssetsThe CICA issued Section 3064, “Goodwill and Intangible Assets”, which will replace Section 3062, “Goodwilland Other Intangible Assets” and Section 3450 “Research and development costs”. The standard providesguidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria forasset recognition as well as clarifying the concept of matching revenues and expenses, whether these assets areseparately acquired or internally developed. This standard applies to interim and annual financial statementsrelating to fiscal years beginning on or after October 1, 2008. For the Company, this Section is effective in thefirst quarter of 2009. The Company has evaluated the new section and determined that there is no impact of itsadoption on its financial statements except the deferred development costs will be presented with theintangible assets as opposed to with the other assets. The reclassification will be reflected in the Company’sinterim consolidated financial statements for the first quarter of 2009.

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General Standards of Financial Statement PresentationIn June 2007, the CICA amended Section 1400 “General Standards of Financial Statement Presentation”, which iseffective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008,and which includes requirements to assess and disclose the Company’s ability to continue as a going concern. Theadoption of the amended Section will have no impact on the consolidated financial statements of the Company.

International Financial Reporting Standards The Accounting Standards Board of Canada (“AcSB”) announced that accounting standards in Canada are toconverge with IFRS. The changeover date from current Canadian GAAP to IFRS has been established asJanuary 1, 2011. While IFRS uses a conceptual framework similar to Canadian GAAP, there are significantdifferences on recognition, measurement and disclosures which must be addressed. As a result, the Companyis currently developing its detailed IFRS conversion plan and evaluating the effect of these new standards onits consolidated financial statements. Determination of the key differences between IFRS and the Company’saccounting policies is in progress with an evaluation of the main potential impact on its business practices,systems, disclosure controls and procedures, and internal controls over financial reporting.

The Company has a dedicated project manager to lead the conversion to IFRS. Members of the finance team areworking closely with senior management in a number of different business areas to ensure that the impact of theconversion throughout the business is managed in a timely and efficient manner. Training and additionalresources will be engaged as required to ensure the timely conversion to IFRS.

Market Risks and UncertaintiesGeneral Economic ConditionsThe current economic conditions have worsened over the course of 2008 and into the early part of 2009. Recenteconomic projections by various governmental and other agencies have predicted that these negativeconditions are likely to extend into 2009 and perhaps 2010. With higher unemployment and worseningconsumer sentiment, it is likely that available discretionary income will decline and reduce consumer spending atthe retail level. While Dorel is not immune to these conditions, the nature of the great majority of the Company’sproducts, and the customers to which Dorel’s products are sold, protect the Company to a certain extent. Overthe course of Dorel’s 47 year history, the Company has experienced several economic downturns and itsproducts have proven to be ones that consumers continue to purchase.

In the Juvenile segment, the Company believes that demand for its products remains steady as child safety isa constant priority and parents require products that fill that need regardless of economic conditions. InHome Furnishings, Dorel concentrates exclusively on value priced items and sells the majority of its productsthrough the mass merchant distribution channel. During difficult economic times, when shopping for furniture,consumers are likely to spend less and tend to eschew furniture store outlets and shop at the mass merchants forreasonably priced items. In Recreational / Leisure, the Company’s newest segment, the Company believes thatrecent consumer trends that consider health and environmental concerns will also help buffer this segmentagainst possible declines in overall consumer spending. In addition, Dorel offers a great deal of product in thevalue priced product category available at its mass merchant customers. This means that should consumers electto spend less on a particular recreational product, Dorel has alternatives to higher priced items.

Product Costs and SupplyDorel purchases raw materials, component parts and finished goods. The main commodity items purchased forproduction include particleboard and plastic resins, as well as corrugated cartons. Key component parts includecar seat and futon covers, hardware, buckles and harnesses, and futon frames. These parts are derived fromtextiles, and a wide assortment of metals, plastics, and wood. The Company’s finished goods purchases arelargely derived from steel, aluminum, resins, textiles, rubber, and wood.

In 2008, all raw material prices increased significantly in the first half of the year followed by decreases in thesecond half. Resin prices increased by as much as 30% in North America and 10% in Europe in the first threequarters, before declining in the fourth quarter. Particleboard pricing in North America increased close to 15% inthe first nine months of the year before beginning to decline. However, unlike other commodities, the declinein particleboard pricing was tempered by the fact that supply is limited, meaning prices did not decline as significantly as other commodities.

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sDorel is among North America’s top 20 importers in terms of container volume from the Far East. Containerfreight costs were higher in 2008 relative to 2007 as significantly higher fuel surcharges impacted both oceanand inland transportation costs in both North America and Europe. Container freight rates started decreasing inthe fourth quarter of 2008 and rates should continue to decline during the first half of 2009 due to decreaseddemand and oversupply issues.

The Company’s suppliers of components and finished goods were also faced with significant price increaseson steel, resin, rubber, textiles, and foam, ranging anywhere from 20% to 40%during the first half of the yearbefore prices began to decline. Similar to past years, the Company’s suppliers based in China facedadditional costs over and above raw material price fluctuations. The Chinese currency (“RMB”) continued itslevel of appreciation versus the United States dollar, rising 6.5% year-over-year. Furthermore, labor costs inChina rose on average by 25% during 2008.

Dorel relies on its suppliers for both finished goods and raw materials and has always prided itself on establishingsuccessful long-term relationships both domestically and overseas. The recent economic downturn and relatedfall in demand has forced many manufacturers, particularly in China, to cease operations. As of now, Dorel hasnot been adversely affected by these events and is actively working with its supplier base to ensure that the flowof product is not interrupted. Should one or more of the Company’s major vendors be unable to supply Dorel,this could have an adverse affect on the Company going forward.

Foreign Currency FluctuationsAs a multinational company Dorel uses the United States dollar as its reporting currency. As such, Dorel issubject to risk due to variations in currency values against the United States dollar. Foreign currency risk occursat two levels; operational and translational. Operational currency risk occurs when a given division either incurscosts or generates revenues in a currency other than its own functional currency. The company’s operations thatare most affected by operational currency risk are those that operate are the Euro zone, the United Kingdom,Canada and Australia. Translational risk occurs upon conversion of non-US functional currency divisions’ resultsto the United States dollar for reporting purposes. As Dorel’s European and Australian operations are the onlysignificant subsidiaries that do not use the US dollar as their functional currency, translational risk is limited toonly those operations. The two major functional currencies in Europe are the Euro and Pound Sterling.

Dorel’s European and Australian operations are negatively effected by a stronger United States dollar asportions of its purchases are in United States dollars, while its revenues are not. Dorel’s Canadian operationsgenerally benefit from a stronger United States dollar as large portions of its revenues are generated in theUnited States and the majority of its costs are in Canadian dollars. This situation is mitigated somewhat by DorelCanada’s juvenile operations that import United States dollar denominated goods and sells to Canadiancustomers. As a result, over the past several years, the weakening of the United States dollar against the Euro,Pound Sterling and Canadian dollar has had an overall impact that was not material year-over-year as theimpacts offset. However, the offsetting impacts occur in different segments, meaning the negative impact of astronger United States dollar occurs in the Juvenile segment while the positive impact occurs mainly in theHome Furnishings segment. The Recreational / Leisure impact is generally neutral, with its European operationsoffsetting against its Canadian operations.

Where advantageous, the Company uses options, futures and forward contracts to hedge against these adversefluctuations in currency. However, the Company does not employ hedge accounting and is required under GAAPto re-value these hedging instruments to market value at the end of each period. As such, there is a timingdifference between the accounting impact and the cash flow impact. In 2008, the Company marked thesecontracts to market value and recorded significant unrealized accounting gains on these contracts for which thecash flow benefit will only occur in 2009. Further details on the Company’s hedging strategy and the impact inthe year can be found in note 14 to the Company’s year-end financial statements.

While the Canadian operations and European operations help offset the possible negative impact ofchanges in the United States dollar, a significant change in the value of the United States dollar would affectfuture earnings.

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Concentration of RevenuesFor the year ended December 30, 2008, one customer accounted for over 10% of the Company’s revenues, at30.4% of Dorel’s total. In 2007, this customer accounted for 33.9% of revenues. Dorel does not have long-termcontracts with its customers, and as such revenues are dependent upon Dorel’s continued ability to deliverattractive products at a reasonable price, combined with high levels of service. There can be no assurance thatDorel will be able to sell to such customers on an economically advantageous basis in the future or that suchcustomers will continue to buy from Dorel.

Customer and Credit RiskThe majority of the Company’s revenue is derived from sales to major retail chains in North America and Europe.The balance of Dorel’s sales are made mostly to specialty juvenile stores in Europe and independent bike dealersin both the United States and Europe. To minimize credit risk, the Company conducts ongoing credit reviewsand maintains credit insurance on selected accounts. Should certain of these major retailers cease operations,there could be a material short term adverse effect on the Company’s consolidated results of operations. In thelong term, the Company believes that should certain retailers cease to exist, consumers will shop at competitorsat which Dorel’s products will generally also be sold.

Product LiabilityAs with all manufacturers of products designed for use by consumers, Dorel is subject to numerous productliability claims, particularly in the United States. At Dorel, there is an ongoing effort to improve qualitycontrol and to ensure the safety of its products. The Company is insured for product liability by the use ofboth traditional insurance and self-funded insurance programs, which mitigate its product liability exposure.No assurance can be given that a judgment will not be rendered against it in an amount exceeding theamount of insurance coverage or in respect of a claim for which Dorel is not insured.

Income TaxesThe Company’s current organizational structure has resulted in a comparatively low effective income taxrate. This structure and the resulting tax rate are supported by current domestic tax laws in which theCompany operates and by the interpretation and application of these tax laws. The rate can also be affectedby the application of income tax treaties between these various jurisdictions. Unanticipated changes tothese interpretations and applications of current domestic tax laws, or to the tax rates and treaties, couldimpact the effective income tax rate of the Company going forward.

Product and Brand DevelopmentTo support continued revenue growth, the Company must continue to update existing products, designinnovative new items, develop strong brands and make significant capital investments. The Company hasinvested heavily in product development and plans to keep it at the centre of its focus. In addition, the Companymust continue to maintain, develop and strengthen its end-user brands. Should the Company invest in or designproducts that are not accepted in the marketplace, or if its products are not brought to market in a timelymanner, and in certain cases, fail to be approved by the appropriate regulatory authorities, this could negativelyimpact future growth.

Regulatory EnvironmentThe Company operates in certain industries which are highly regulated and as such is bound to operate withinconstraints imposed by various regulatory authorities. In recent years greater concern regarding product safetyhas resulted in more onerous regulations being placed on the Company as well as on all of the Company’scompetitors operating in these industries. Dorel has always operated within this environment and has alwaysplaced a great deal of resources on meeting these obligations, and is therefore well positioned to meet theseregulatory requirements. However, any future regulations that would require additional costs could have animpact on the Company going forward.

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sLiquidity and Access to Capital ResourcesDorel requires continued access to capital markets to support its activities. Part of the Company’s long-termstrategy is to grow through the acquisition of complementary businesses that it believes will enhance the valueof the Company for its shareholders. To satisfy its financing needs, the Company relies on long-term and short-termdebt and cash flow from operations. The recent severe tightening of global credit markets has made new loans,even for creditworthy businesses, extremely difficult or expensive to obtain. However, the Company’s bankingrelationships are strong and its credit facilities are secured into 2010. Any impediments to the Company’s abilityto access capital markets, including significant changes in market interest rates, general economic conditions orthe perception in the capital markets of the Company’s financial condition or prospects, could have a materialadverse effect on the Company’s financial condition and results of operation.

Valuation of Goodwill and other Intangible AssetsAs part of annual impairment tests, the value of goodwill and other indefinite life intangible assets are subject tosignificant assumptions, such as future expected cash flows, comparable market transaction multiples andassumed discount and weighted average cost of capital rates. In addition, the value of customer relationshipintangible assets recognized includes significant assumptions in reference to customer attrition rates and usefullives. Should current market conditions adversely effect the Company’s expectations of future results, this couldresult in a non-cash impairment being recognized at some point in the future. Additionally, in the current marketenvironment, some of the other assumptions could be impacted by factors beyond the Company’s control. Forexample, the absence of, or lower, comparable market transaction multiples or more conservative riskassumptions could materially affect these valuations and could require a downward adjustment in the value ofthese intangible assets in the future.

Other InformationThe designation, number and amount of each class and series of its shares outstanding as of February 28, 2009are as follows:

An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any timeat 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 TotalNumber $(‘000) Number $(‘000) $(‘000)

4,229,710 $1,793 29,172,482 $175,629 $177,422

Outstanding stock options and Deferred Share Unit items are disclosed in Note 17 to the Consolidated FinancialStatements. There were no significant changes to these values in the period between the year end and the dateof the preparation of this MD & A.

Disclosure Controls and Procedures and Internal Controls over Financial ReportingDisclosure controls and proceduresNational Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings”, issued by theCanadian Securities Administrators requires Chief Executive Officers (“CEOs”) and Chief Financial Officers(“CFOs”) to certify that they are responsible for establishing and maintaining disclosure controls and proceduresfor the Company, that disclosure controls and procedures have been designed and are effective in providingreasonable assurance that material information relating to the Company is made known to them, that they haveevaluated the effectiveness of the Company’s disclosure controls and procedures, and that their conclusionsabout the effectiveness of those disclosure controls and procedures at the end of the period covered by therelevant annual filings have been disclosed by the Company.

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Under the supervision of and with the participation of management, including the President and Chief ExecutiveOfficer and Executive Vice-president, Chief Financial Officer and Secretary, we have evaluated the design of theCompany’s disclosure controls and procedures as at December 30, 2008 and have concluded that thosedisclosure controls and procedures were effective in ensuring that information required to be disclosed by theCompany in its corporate filings is recorded, processed, summarized and reported within the required timeperiod for the year then ended.

Internal controls over financial reportingNational Instrument 52-109 also requires CEOs and CFOs to certify that they are responsible for establishing andmaintaining internal controls over financial reporting for the Company, that those internal controls have beendesigned and are effective in providing reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements in accordance with Canadian generally accepted accounting principles, and thatthe Company has disclosed any changes in its internal controls during its most recent interim period that hasmaterially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

During 2008, management evaluated the Company’s internal controls over financial reporting to ensure thatthey have been designed and are effective in providing reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements in accordance with Canadian generally acceptedaccounting principles. Management has used the Internal Control-Integrated Framework to evaluate the effectiveness of internal controls over reporting, which is recognized and suitable framework developed by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Under the supervision of and with the participation of management, including the President and Chief ExecutiveOfficer and Executive Vice-president, Chief Financial Officer and Secretary, we have evaluated the internalcontrols over financial reporting as at December 30, 2008 and have concluded that those internal controls wereeffective in providing reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements in accordance with Canadian generally accepted accounting principles.

The Company did acquire new businesses in the year which were privately owned prior to their acquisition.While the Company continues to assess these recent acquisitions, the design of its disclosure controls andprocedures and internal control over financial reporting are limited to exclude these businesses.

Caution Regarding Forward Looking InformationCertain statements included in this MD&A may constitute “forward looking statements” within the meaning ofthe US Private Securities Litigation Reform Act of 1995. Forward looking statements generally can be identifiedby 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 similarterminology. We refer you to the Company’s filings with the Canadian securities regulatory authorities for adiscussion 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 noassurance 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, bothgeneral and specific, that contribute to the possibility that the predictions, forecasts, projections and otherforward looking statements will not occur. This may cause the Company’s actual performance and financialresults in future periods to differ materially from any estimates or projections of future performance or resultsexpressed or implied by such forward looking statements.

We believe that the expectations represented by such forward looking statements are reasonable, yet there canbe no assurance that such expectations will prove to be correct. The forward looking statements contained inthis report reflect the Company’s expectations as at the date of this MD & A and are subject to change aftersuch date. Unless otherwise required by applicable securities laws, the Company expressly disclaims anyintention, and assumes no obligation to update publicly or to revise any of the included forward lookingstatements, whether as a result of new information, future events or otherwise. The forward looking statementscontained in this report are expressly qualified by this cautionary statement.

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MANAGEMENT’S REPORTDorel Industries Inc.’s Annual Report for the year ended December 30, 2008, and the financial statementsincluded herein, were prepared by the Corporation’s Management and approved by the Board of Directors. TheAudit Committee of the Board is responsible for reviewing the financial statements in detail and for ensuringthat 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 accountingpolicies which are enunciated in said report and which Management believes to be appropriate for the activitiesof the Corporation. The external auditors appointed by the Corporation’s shareholders, KPMG, LLP haveaudited these financial statements and their report appears below. All information given in this Annual Report isconsistent with the financial statements included herein.

Martin Schwartz Jeffrey SchwartzPresident and Chief Executive Officer Executive Vice-President, Chief

Financial Officer and Secretary

AUDITORS' REPORT TO THE SHAREHOLDERS OFDOREL INDUSTRIES INC.We have audited the consolidated balance sheets of Dorel Industries Inc. ("the Company") as at December 30, 2008and 2007 and the consolidated statements of income, comprehensive income, changes in shareholders’ equityand cash flows for each of the years in the two-year period ended December 30, 2008. These financialstatements are the responsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standardsrequire that we plan and perform an audit to obtain reasonable assurance whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant 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 financialposition of the Company as at December 30, 2008 and 2007 and the results of its operations and its cash flowsfor each of the years in the two-year period ended December 30, 2008 in accordance with Canadian generallyaccepted accounting principles.

Chartered AccountantsMontreal, CanadaMarch 6, 2009

* CA Auditor permit no 6496

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

KPMG Canada provides services to KPMG LLP.

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CONSOLIDATED BALANCE SHEETSAS AT DECEMBER 30, 2008 and 2007(All figures in thousands of U.S. dollars)

As at As atDecember 30, December 30,

2008 2007ASSETSCURRENT ASSETS

Cash and cash equivalents (Note 24) $ 16,966 $ 22,513Accounts receivable (Note 5) 316,267 286,924Income taxes receivable 19,798 6,519Inventories (Note 6) 509,467 322,332Prepaid expenses 16,236 10,538Future income taxes (Note 22) 37,342 35,228

916,076 684,054

PROPERTY, PLANT AND EQUIPMENT (Note 7) 158,895 140,362INTANGIBLE ASSETS (Note 8) 368,847 276,383GOODWILL (Note 25) 540,187 525,235OTHER ASSETS (Notes 2 and 9) 46,468 31,870

$ 2,030,473 $ 1,657,904

See accompanying notes.

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CONSOLIDATED BALANCE SHEETSAS AT DECEMBER 30, 2008 and 2007(All figures in thousands of U.S. dollars)

As at As atDecember 30, December 30,

2008 2007LIABILITIESCURRENT LIABILITIES

Bank indebtedness (Note 10) $ 4,398 $ 5,836Accounts payable and accrued liabilities (Note 11) 380,915 325,938Income taxes payable 30,164 25,532Future income taxes (Note 22) 2,713 136Current portion of long-term debt (Notes 2 and 12) 8,879 62,906

427,069 420,348

LONG-TERM DEBT (Notes 2 and 12) 450,704 192,385PENSION & POST-RETIREMENT BENEFIT OBLIGATIONS (Note 15) 20,072 20,942FUTURE INCOME TAXES (Note 22) 111,874 79,635OTHER LONG-TERM LIABILITIES (Note 13) 6,010 6,848

SHAREHOLDERS’ EQUITYCAPITAL STOCK (Note 16) 177,422 177,271CONTRIBUTED SURPLUS 16,070 11,623RETAINED EARNINGS 738,113 641,981ACCUMULATED OTHER COMPREHENSIVE INCOME 83,139 106,871

821,252 748,8521,014,744 937,746

$ 2,030,473 $ 1,657,904

COMMITMENTS AND GUARANTEES (Note 18)

CONTINGENCIES (Note 19)

ON BEHALF OF THE BOARD

_________________________________ DIRECTOR

___________________________________ DIRECTOR


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CONSOLIDATED STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 30, 2008 and 2007 (All figures in thousands of U.S. dollars, except per share amounts)

2008 2007Sales $ 2,164,767 $ 1,792,611Licensing and commission income 17,113 21,061TOTAL REVENUE 2,181,880 1,813,672

EXPENSESCost of sales (Note 3) 1,651,137 1,375,418Selling, general and administrative expenses 319,118 244,798Depreciation and amortization 45,854 39,844Research and development costs (Note 9) 10,909 9,009Restructuring costs (Note 3) 726 14,509Interest on long-term debt 21,162 23,782Other interest 961 (316)

2,049,867 1,707,044

Income before income taxes 132,013 106,628

Income taxes (Note 22)Current 17,002 26,418Future 2,156 (7,282)

19,158 19,136

NET INCOME $ 112,855 $ 87,492

EARNINGS PER SHARE (Note 23)Basic and diluted $ 3.38 $ 2.63


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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 30, 2008 and 2007(All figures in thousands of U.S. dollars)

2008 2007NET INCOME $ 112,855 $ 87,492OTHER COMPREHENSIVE INCOME:

Net change in unrealized foreign currency gains (losses) on translation of net investments in self-sustaining foreign operations, net of tax of nil (23,348) 42,985

Portion included in income as a result of reductions in net investmentsin self-sustaining foreign operations (384) –

(23,732) 42,985COMPREHENSIVE INCOME $ 89,123 $ 130,477

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 30, 2008 and 2007(All figures in thousands of U.S. dollars)

2008 2007CAPITAL STOCK (Note 16)

Balance, beginning of year $ 177,271 $ 162,555Issued under stock option plan 151 14,716Balance, end of year 177,422 177,271

CONTRIBUTED SURPLUSBalance, beginning of year 11,623 6,061Stock-based compensation (Note 17) 4,447 5,562Balance, end of year 16,070 11,623

RETAINED EARNINGSBalance, beginning of year 641,981 567,020Net income 112,855 87,492Dividends on common shares (16,707) (12,524)Dividends on deferred share units (16) (7)Balance, end of year 738,113 641,981

ACCUMULATED OTHER COMPREHENSIVE INCOMEBalance, beginning of year 106,871 63,886Other comprehensive income (23,732) 42,985Balance, end of year 83,139 106,871

TOTAL SHAREHOLDERS’ EQUITY $ 1,014,744 $ 937,746


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CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 30, 2008 and 2007 (All figures in thousands of U.S. dollars)

2008 2007CASH PROVIDED BY (USED IN):OPERATING ACTIVITIESNet income $ 112,855 $ 87,492Items not involving cash:

Depreciation and amortization 45,854 39,844Amortization of deferred financing costs 362 217Future income taxes 2,156 (7,282)Stock-based compensation (Note 17) 4,447 5,562Pension and post-retirement defined benefit plans (Note 15) (27) 1,346Restructuring activities (Note 3) (6,849) 15,436Exchange gain from reduction of net investments in foreign operations (384) –(Gain) loss on disposal of property, plant and equipment (24) 243

158,390 142,858Net changes in non-cash balances related to operations (Note 24) (78,507) 24,482CASH PROVIDED BY OPERATING ACTIVITIES 79,883 167,340

FINANCING ACTIVITIESBank indebtedness (1,055) 1,577Increase of long-term debt 266,297 –Repayments of long-term debt (62,400) (136,036)Dividends on common shares (16,707) (12,524)Issuance of capital stock (Note 16) 155 14,698

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 186,290 (132,285)

INVESTING ACTIVITIESAcquisition of subsidiary companies (Notes 4 and 24) (226,190) (2,786)Additions to property, plant and equipment – net (26,518) (22,269)Deferred development costs (19,069) (14,470)Intangible assets (1,860) (1,871)

CASH USED IN INVESTING ACTIVITIES (273,637) (41,396)

Effect of exchange rate changes on cash and cash equivalents 1,917 2,929NET DECREASE IN CASH AND CASH EQUIVALENTS (5,547) (3,412)Cash and cash equivalents, beginning of year 22,513 25,925CASH AND CASH EQUIVALENTS, END OF YEAR (Note 24) $ 16,966 $ 22,513


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 30, 2008 AND 2007(All figures in thousands of U.S. dollars, except per share amounts)

NOTE 1 – NATURE OF OPERATIONSDorel Industries Inc. (the “Company”) is a global consumer products company which designs, manufactures orsources, markets and distributes a diverse portfolio of powerful product brands, marketed through its juvenile,recreational/leisure and home furnishings segments. The principal markets for the Company’s products are theUnited States, Canada and Europe.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation

The financial statements have been prepared in accordance with Canadian Generally Accepted AccountingPrinciples (GAAP) using the U.S. dollar as the reporting currency. The U.S. dollar is the functional currency of theCanadian parent company.

Reclassifications

Effective January 2008, the company has re-classified certain figures to the Juvenile segment from the HomeFurnishings segment. This change, based principally on product type and customers served, was made toreflect the way in which this division’s results are reported internally. To allow for better year-over-year comparability, prior year comparatives segmented revenues of $53,073 for the year and elements ofearnings from operations of $7,114 for the year have been reclassified. Segmented figures are presented innote 25 to these financial statements. Certain comparative accounts have been reclassified to conform tothe 2008 financial statement presentation.

New Accounting Standards

Effective as of the beginning of our 2008 fiscal year, the Company adopted the Canadian Institute of CharteredAccountants (“CICA”) Handbook Section 1535, “Capital Disclosures”, CICA Handbook Section 3862, “FinancialInstruments – Disclosure”, and CICA Handbook Section 3863, “Financial Instruments – Presentation”. These newaccounting standards apply to fiscal years beginning on or after October 1, 2007.

Section 1535 establishes standards for disclosing information about an entity’s capital and how it is managed.It describes the disclosure requirements of the entity’s objectives, policies and processes for managingcapital, the quantitative data relating to what the entity regards as capital, whether the entity has compliedwith external capital requirements to which it is subject, and, if it has not complied, the consequences of suchnon-compliance.

Section 3862 modifies the disclosure requirements for financial instruments that were included in Section 3861“Financial Instruments – Disclosure and Presentation”. Section 3862 requires entities to provide disclosures thatenable users to evaluate: (1) the significance of financial instruments for the Company’s financial position andperformance and (2) the nature and extent of risk arising from financial instruments to which the Company isexposed and how it manages those risks. Section 3863 carries forward the presentation requirement of the oldSection 3861 which remains unchanged. Certain information related to the comparative years is not required bythese standards and accordingly has not been presented.

The adoption of these standards did not have any impact on the financial results of the Company. Theadditional disclosures related to these standards have been presented in Note 14 – Financial instruments ofthese financial statements.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significantinter-company balances and transactions have been eliminated.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reported amounts of assetsand liabilities, related amounts of revenues and expenses, and disclosure of contingent assets and liabilities.Significant estimates and assumptions are used to evaluate the carrying values of long-lived assets, assets heldfor sale and goodwill, valuation allowances for accounts receivable and inventories, restructuring reserves,liabilities for potential litigation claims and settlements including product liability, assets and obligations relatedto employee pension and post-retirement benefits, the recovery, establishment of worldwide provision forincome taxes including future income tax liabilities and the determination of the realizable value of futureincome tax assets, and the allocation of the purchase price of acquired assets and businesses. Estimates andassumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financialstatements in the period they are determined to be necessary. Actual results could differ from those estimates.

Revenue Recognition

Sales and licensing and commission income are recognized upon shipment of product and transfer of ownershipto the customer. The Company records estimated reductions to revenue for customer programs and incentiveofferings, including special pricing agreements, promotions, advertising allowances and other volume-basedincentives. Provisions for customer incentives and provisions for sales and return allowances are made at thetime of product shipment.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.The carrying amounts of cash and cash equivalents are stated at cost, which approximates their fair values.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-outbasis. Inventory costs include the purchase price and other costs directly related to the acquisition of materials.Inventory costs also include the costs directly related to the conversion of materials to finished goods, such asdirect labour, and an allocation of fixed and variable production overheads. The allocation of fixed productionoverheads to the cost of inventories is based on a normal range of capacity of the production facilities.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Capital leases where the risks and rewards of ownership aretransferred to the Company are included in property, plant and equipment.

Property, plant and equipment are depreciated as follows:

Method RateBuildings and improvements Straight-line 40 yearsMachinery and equipment Declining balance 15%Moulds Straight-line 3 to 5 yearsFurniture 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

The capitalized value of depreciable assets under capital leases is amortized over the period of expected use, on abasis that is consistent with the above depreciation method and rates, if the lease contains terms that allowownership to pass to the Company or contains a bargain purchase option. Otherwise, the asset is amortized over thelease term. Amortization of assets under construction begins when they are ready for their intended use.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Intangible Assets

Intangible assets are recorded at cost:

Trademarks

Trademarks acquired as part of business acquisitions and registered trademarks are considered to have anindefinite life and are therefore not subject to amortization. They are tested annually for impairment ormore 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 overa period of 15 to 25 years.

Supplier Relationship

Supplier relationship acquired as part of a business acquisition is amortized on a straight-line basis over aperiod of 10 years.

Patents

Patents are amortized on a straight-line basis over their expected useful lives ranging from 4 years to 18 years.

Software Licence

Software licence is amortized on a straight-line basis over its expected useful live of 10 years.

Goodwill

Goodwill represents the excess of the purchase price, including acquisition costs, over the fair values assigned toidentifiable net assets acquired. Goodwill, which is not amortized, is tested for impairment annually or morefrequently when an event or circumstance occurs that more likely than not reduces the fair value of a reportingunit below its carrying amount.

A two-step impairment test is used to identify potential goodwill impairment and measure the amount of agoodwill impairment loss to be recognized, if any. The fair value of a reporting unit is first compared with itscarrying amount, including goodwill, in order to identify a potential impairment. When the fair value of areporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired andthe second step of the impairment test is unnecessary. When the carrying amount of a reporting unit exceeds itsfair value, the implied fair value of the reporting unit's goodwill is then compared with its carrying amount tomeasure the amount of the impairment loss, if any. The implied fair value of goodwill is the excess of the fairvalue of the reporting unit over the fair value of the identifiable net assets of the reporting unit. The fair value ofa reporting unit is calculated based on discounted future net cash flows or valuations based on a marketapproach. When the carrying amount of a reporting unit goodwill exceeds the implied fair value of the goodwill,an impairment loss is recognized in an amount equal to the excess.

Impairment or Disposal of Long-Lived Assets

The Company reviews its long-lived assets and amortizable intangible assets for impairment whenever events orchanges in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.Determination of recoverability is based on an estimate of undiscounted future net cash flows resulting from theuse of the assets and its eventual disposition. An impairment loss is recognized when the carrying amount of theassets exceeds the fair value. Such evaluations for impairment are significantly affected by estimates of futureprices for the Company’s product, economic trends in the market and other factors. Quoted market values areused whenever available to estimate fair value. When quoted market values are unavailable, the fair value of thelong-lived asset is generally based on estimates of discounted expected net cash flows. Assets held for sale arereflected at the lower of their carrying amount or fair values less cost to sell and are not depreciated whileclassified as held for sale. Assets held for sale are included in other assets on the balance sheet.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Deferred Charges

Deferred charges are recorded at cost less accumulated amortization. They are included in other assets on thebalance sheet.

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 incurredunless they meet specific criteria related to technical, market and financial feasibility. Deferreddevelopment costs are amortized on a straight-line basis over a period of two years.

Costs relating to revolving credit facility:

The Company incurred certain costs related to the revolving credit facility. These amounts are amortizedas interest expense on a straight-line basis over the term or life of the related debt.

Foreign Currency

The assets and liabilities of self-sustaining foreign operations, whose functional currency is other than the U.S. dollar(located principally in Europe), are translated into U.S. dollars at the exchange rates in effect at the balancesheet date. Revenues and expenses are translated at average exchange rates for the period. Differences arisingfrom the exchange rate changes are included in the accumulated other comprehensive income (AOCI)component of shareholders’ equity. If there is a reduction in the Company’s permanent investment in a self-sustaining foreign operation, the relevant portion of AOCI is recognized in Selling, general and administrativeexpenses. All other operations, including the Canadian parent company, have the U.S. dollar as the functionalcurrency. For these operations, monetary items denominated in currencies other than the U.S. dollar aretranslated at the exchange rates prevailing at the balance sheet date and translation gains and losses areincluded in income. Non-monetary items are translated at historical rates. Income and expenses are translated atthe average exchange rates for the period. Foreign exchange gains and losses are reflected in net income.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability orequity instrument of another party. Financial assets of the Company mainly comprise cash and cash equivalents,foreign exchange contracts with a positive fair value, accounts receivable – trade, accounts receivable – other.Financial liabilities of the Company mainly comprises foreign exchange contracts with a negative fair value, bankindebtedness, accounts payable and accrued liabilities, long-term debt, other long-term liabilities and balance ofsale payable.

All financial instruments are classified into one of the following five categories: held for trading, held-to-maturityinvestments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financialinstruments, including derivatives, are included on the consolidated balance sheet when the Company becomesa party to the contractual obligations of the instrument. Except for those incurred on the revolving credit facility,transaction costs are deducted from the financial liability and are amortized using the effective interest methodover the expected life of the related liability. Financial instruments are initially and subsequently measured at fairvalue with the exception of loans and receivables, investments held-to-maturity and other financial liabilities,which are subsequently measured at amortized cost. Subsequent recognition of changes in fair value of financialinstruments remeasured each reporting date at fair value depend on their initial classification. Held for tradingfinancial investments are measured at fair value with all gains and losses included in net income in the period inwhich they arise. Available-for-sale financial instruments are measured at fair value with gains and losses includedin other comprehensive income until the asset is removed from the balance sheet or until impaired.

The Company has classified its cash and cash equivalents as held for trading. Accounts receivable are classifiedas loans and receivables. Bank indebtedness, accounts payable and accrued liabilities, long-term debt, otherlong-term liabilities and balance of sale payable are classified as other liabilities, all of which are measured atamortized cost.

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Derivative Financial Instruments

Derivative financial instruments are recorded as either assets or liabilities and are measured at their fair valueunless exempted from derivative treatment as a normal purchase or sale. Certain derivatives embedded in othercontracts must also be separated from the main contract and measured at fair value. All changes in the fair valueof derivatives are recognized in earnings unless specific hedge criteria are met, which requires that a companymust formally document, designate and assess the effectiveness of transactions that receive hedge accounting.Any derivative instrument that does not qualify for hedge accounting is marked-to-market at each reportingdate and the gains or losses are included in earnings.

Derivative financial instruments are utilized by the Company in the management of its foreign currencyexposures. These derivative financial instruments are used as a method for meeting the risk reduction objectivesof the Company by generating offsetting cash flows related to the underlying position in respect of amount andtiming of forecasted foreign currency cash flows. The Company's policy is not to utilize derivative financialinstruments for trading or speculative purposes. To meet its objective, the Company uses foreign exchangecontracts, including futures, forwards and options.

The Company does not apply hedge accounting to foreign exchange contracts. Foreign exchange contracts,classified as held for trading, are marked to market. Unrealized and realized gains and losses associated withderivative instruments are recorded in cost of sales.

Pension Plans and Post-Retirement Benefits

Pension Plans:

The Company maintains defined benefit plans and defined contribution plans for their employees. Pensionbenefit obligations under the defined benefit plans are determined annually by independent actuaries usingmanagement's assumptions and the accumulated benefit method for plans where future salary levels do notaffect the amount of employee future benefits and the projected benefit method for plans where future salariesor cost escalation affect the amount of employee future benefits. The plans provide benefits based on a definedbenefit amount and length of service. Management’s assumptions consist mainly of best estimate of future salarylevels, retirement age of employees, mortality and other actuarial factors.

Plan assets are measured using the fair value method. Actuarial gains or losses arise from the differencesbetween the actual and expected long-term rate of return on plan assets for a period or from changes inactuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulatedactuarial gain or loss over 10 percent of the greater of the benefit obligation and the fair value of plan assets isamortized over the expected average remaining service period. The average remaining service period of activeemployees covered by all pension plans is 11 years. Prior service costs arising from plan amendments aredeferred and amortized on a straight-line basis over the average remaining service period of employees active atthe date of amendment. When the restructuring of a benefit plan gives rise to both a curtailment and asettlement of obligations, the curtailment is accounted for prior to the settlement.

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 prior service costs and amendments, and subsequent gains or losses arisingfrom changes in actuarial assumptions, and experience gains or losses related to return on assets, amortized ona straight-line basis over the expected average remaining service life of the employee group;

• Gains or losses on settlements or curtailments.

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 pensioncosts. Actuarial gains or losses are treated in a similar manner to those relating to pension plans. The averageremaining service period of employees covered by the post-retirement benefit plan is 5 years.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Pension Plans and Post-Retirement Benefits (Cont’d)

Significant elements in determining the assets or liabilities and related income or expense for these plans are theexpected return on plan assets, the discount rate used to value future payment streams, expected trends inhealth care costs, and other actuarial assumptions. Annually, the Company evaluates the significant assumptionsto be used to value its pension and post-retirement plan assets and liabilities based on current market conditionsand expectations of future costs.

Future Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method,future income taxes relate to the expected future tax consequences of differences between the carryingamount of balance sheet items and their corresponding tax values using the substantively enacted incometax rate, which will be in effect for the year in which the differences are expected to reverse. A valuationallowance is recorded to reduce the carrying amount of future income tax assets to the extent that, in theopinion of management, it is more likely than not that the future income tax assets will not be realized. Theultimate realization of future tax assets is dependent upon the generation of future taxable income and taxplanning strategies. Future income tax assets and liabilities are adjusted for the effects of changes in taxlaws and rates on the date of substantive enactment.

Stock-Based Compensation

The Company recognizes as an expense, all stock options granted, modified or settled to its employees anddeferred shares units (DSU’s) granted to its directors using the fair value based method.

Stock options awards to employees are measured based on the fair value of the options at the grant date and acompensation expense is recognized over the vesting period of the options, with a corresponding increase tocontributed surplus. The fair value of these options is measured using a Black-Scholes option pricing model.When the stock options are exercised, capital stock is credited by the sum of the consideration paid, togetherwith the related portion previously recorded to contributed surplus. DSU’s are accounted for in compensationexpense at the grant date.

Guarantees

In the normal course of business, the Company enters into various agreements that may contain features thatmeet the definition of a guarantee. A guarantee is defined to be a contract that contingently requires theCompany to make payments to a third party based on (i) changes in an underlying interest rate, foreign currencyexchange rate, index of prices or rates, or other variable, including the occurrence or non-occurrence of aspecified event (such as a scheduled payment under a contract), that is related to an asset, a liability or an equitysecurity of the guaranteed party, (ii) failure of another party to perform under an obligating agreement, or(iii) failure of another party to pay its indebtedness when due. With the implementation of Section 3855 onfinancial instruments, the stand-by portion of the guarantees are initially measured at fair value. The contingentportion of the guarantee is recorded when the Company considers it probable that a payment relating to theguarantee has to be made to the other party of the contract or agreement

Future Accounting Changes

InventoriesIn June 2007, the CICA issued Section 3031 “Inventories” which replaces Section 3030 “Inventories” and harmonizesthe Canadian standards related to inventories with International Financial Reporting Standards (“IFRS”). This Sectionprovides changes to the measurement and more extensive guidance on the determination of the cost, includingallocation of overheads and other costs to inventories; prohibits the use of the last-in, first-out (LIFO) method;requires the reversal of previous write-downs when there is a subsequent increase in the value of inventories; andexpands the disclosure requirements regarding inventories and cost of sales to increase transparency. This Sectionapplies to interim and annual financial statements beginning on or after January 1, 2008. The Company will applythese new standards in the first quarter of 2009.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Future Accounting Changes (Cont’d)

Inventories (Cont’d)As a result of the more restrictive guidance on the determination of costs, the Company changed some of itsoverhead allocation policy, whereby some overheads costs will be expensed. In accordance with Section 3031,the Company will apply these changes in accounting policies by adjusting the opening retained earnings asat December 31, 2008 (prior fiscal year periods were not restated). Accordingly, effective as of the beginningof our 2009 fiscal year, the impact of measuring the inventories under the new standard is a decrease of thecarrying amount of inventories of $3,511. Opening retained earnings at the beginning of the fiscal year 2009were decreased by $2,096, equal to the change in opening inventories net of tax of $1,415. Section 3031requires depreciation expense related to manufacturing activities to be included in Cost of sales. The newdisclosure requirements will be reflected in the Company’s interim consolidated financial statements for thefirst quarter of 2009.

Goodwill and Intangible AssetsThe CICA issued Section 3064, “Goodwill and Intangible Assets”, which will replace Section 3062, “Goodwilland Other Intangible Assets” and Section 3450 “Research and development costs”. The standard providesguidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria forasset recognition as well as clarifying the concept of matching revenues and expenses, whether these assets areseparately acquired or internally developed. This standard applies to interim and annual financial statementsrelating to fiscal years beginning on or after October 1, 2008. For the Company, this Section is effective in thefirst quarter of 2009. The Company has evaluated the new section and determined that there is no impact of itsadoption on its financial statements except the deferred development costs will be presented with theintangible assets as opposed to with the other assets. The reclassification will be reflected in the Company’sinterim consolidated financial statements for the first quarter of 2009.

International Financial Reporting Standards The Accounting Standards Board of Canada (“AcSB”) announced that accounting standards in Canada are to converge with IFRS. The changeover date from current Canadian GAAP to IFRS has been established asJanuary 1, 2011. While IFRS uses a conceptual framework similar to Canadian GAAP, there are significantdifferences on recognition, measurement and disclosures which must be addressed. As a result, the Company iscurrently developing its detailed IFRS conversion plan and evaluating the effect of these new standards on itsconsolidated financial statements. Determination of the key differences between IFRS and the Company’saccounting policies is in progress with an evaluation of the main potential impact on its business practices,systems, disclosure controls and procedures, and internal controls over financial reporting.

The Company has a dedicated project manager to lead the conversion to IFRS. Members of the finance team areworking closely with senior management in a number of different business areas to ensure that the impact of theconversion throughout the business is managed in a timely and efficient manner. Training and additionalresources will be engaged as required to ensure the timely conversion to IFRS.

General Standards of Financial Statement PresentationIn June 2007, the CICA amended Section 1400 “General Standards of Financial Statement Presentation”,which is effective for interim and annual financial statements relating to fiscal years beginning on or afterJanuary 1, 2008, and which includes requirements to assess and disclose the Company’s ability to continueas a going concern. The adoption of the amended Section will have no impact on the consolidated financialstatements of the Company.

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NOTE 3 – RESTRUCTURING ACTIVITIESIn 2008, the Company recorded total expenses of $943 (2007 – $19,184) with respect to restructuring activities,of which $217 (2007 – $4,675) were recorded as cost of sales and $726 (2007 – $14,509) were recorded asrestructuring costs.

Juvenile SegmentIn the fourth quarter of 2006, Dorel Europe initiated restructuring activities affecting the Juvenile Segment.Significant operational changes related to the production facilities in Telgate, Italy and Cholet, France are beingimplemented. The plan’s objective is to reduce operational costs through strategic sourcing and manufacturing.These restructuring initiatives are expected to be completed by the end of the second quarter of 2009 and resultin cumulative restructuring charges of $13,671. To date, the Company has recorded a cumulative charge of$13,103 under the plan, including $3,411 of non-cash charges related to the write-down of long-lived assets andinventory markdowns, $10,793 of employee severance and termination benefits and $204 of other associatedcosts, net of curtailment gains on defined benefit pension plans of $222, curtailment gains on compensationliabilities of $318 and gains on sale of machinery and equipment of $765. Of this $13,103 cumulative charge,$860 was recorded in the current fiscal year, $8,243 in 2007 and $4,000 in 2006.

The costs recognized for these restructuring activities consist of the following:

2008 2007Employee severance and termination benefits $ 1,035 $ 6,887Buildings, machinery and equipment write-downs – 1,052Net curtailment losses (gains) on defined benefit pension plans (Note 15) – 264Curtailment gain on compensation liabilities – (318)Gains on sale of machinery & equipment (333) (432)Other associated costs 8 122Recorded as Restructuring costs $ 710 $ 7,575Move of inventory, equipment and other expenses (in Cost of sales) 74 –Inventory markdowns (in Cost of sales) 76 668Total $ 860 $ 8,243

As at December 30, 2008, the related restructuring plan provision totaling $894 consists of employeetermination benefits and is included in accrued liabilities. In 2007, this provision amounted to $7,574 of which$7,427 was included in accrued liabilities and $147 was included in other long-term liabilities. A summary of theCompany’s restructuring plan provision is as follows:

Balance Cash Effect of BalanceDecember 30, 2008 received foreign December 30,

2007 Provision (paid) exchange 2008Employee severance and termination benefits $ 7,574 $ 1,035 $ (7,474) $ (241) $ 894

Other associated costs – 8 (8) – –Total $ 7,574 $ 1,043 $ (7,482) $ (241) $ 894

Home Furnishings SegmentDowagiac, Michigan

On May 17, 2007, the Company announced a plan for restructuring at Ameriwood Industries. The Companydetermined that its current ready-to-assemble (RTA) furniture manufacturing footprint exceeds anticipatedmarket needs. As such, the majority of manufacturing operations at the Dowagiac, Michigan RTA facility weresuspended in July of 2007. The restructuring is part of an overall plan to improve the earnings of the HomeFurnishings Segment.

During the third quarter, it was announced that the Company would be increasing its RTA furniture production inthe United States, necessitating the need for additional capacity at Dowagiac. Consequently, the Companydoes not anticipate any additional costs to be incurred with this restructuring plan.

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NOTE 3 – RESTRUCTURING ACTIVITIES (Cont’d)Home Furnishings Segment (Cont’d)Dowagiac, Michigan (Cont’d)

The total pre-tax cost of the restructuring plan is $11,024 including $9,604 non-cash charges related to the write-downof long-lived assets and inventory markdowns, $616 of employee severance and termination benefits, $547 ofcontract termination costs and $257 of other associated costs. Of this $11,024 cumulative charge, $83 wasrecorded in the current fiscal year and $10,941 was recorded in 2007.

The costs recognized for these restructuring activities consist of the following:2008 2007

Building and equipment write-downs $ – $ 5,727Employee severance and termination benefits 3 613Contract termination costs 13 534Other associated costs – 60Recorded as Restructuring costs $ 16 $ 6,934Move of inventory, equipment and other expenses (in Cost of sales) 67 130Inventory markdowns (in Cost of sales) – 3,877Total $ 83 $ 10,941

A summary of the Company’s restructuring plan provision included in accrued liabilities is as follows:

Balance BalanceDecember 30, 2008 Cash December 30,

2007 Provision paid 2008Employee severance and

termination benefits $ 250 $ 3 $ (253) $ –Contract termination costs 394 13 (40) 367Other associated costs 15 – (15) –Total $ 659 $ 16 $ (308) $ 367

NOTE 4 – BUSINESS ACQUISITION Cannondale Bicycle Corporation

On February 4, 2008, the Company acquired all the outstanding shares of Cannondale Bicycle Corporation(“Cannondale”), a leading designer, developer and manufacturer of high-end bicycles for a total consideration of$202,220. With significant operations in the United States and Holland, as well as locations in Switzerland, Japanand Australia, Cannondale is widely regarded as the bike industry’s leading innovator. The purchase alsoincludes SUGOI Performance Apparel, located in Canada.

The acquisition has been recorded under the purchase method of accounting with the results of operations ofthe acquired business being included in the accompanying consolidated financial statements since the date ofacquisition. The goodwill is not deductible for tax purposes. The total goodwill amount is included in theCompany’s Recreational/Leisure segment as reported in Note 25.

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NOTE 4 – BUSINESS ACQUISITION (Cont’d)The allocation of the purchase price of the assets acquired and the liabilities assumed is as follows:

AssetsCash and cash equivalents $ 4,493Accounts receivable 52,452Inventories 67,940Prepaid expenses 4,858Short-term future income taxes 1,910Property, plant and equipment 20,991Trademarks 59,600Customer relationships 27,100Goodwill 21,343Long-term future income taxes 8,515

269,202

LiabilitiesAccounts payable and accrued liabilities 27,997Income taxes payable 640Short-term future income taxes 110Other long-term liabilities 3,582Long-term future income taxes 34,653

66,982Net assets acquired $ 202,220

Consideration:Cash $ 198,375Transaction costs 3,845

$ 202,220

PTI SportsOn June 26, 2008 the Company acquired the assets of PTI Sports, a leading U.S. designer, manufacturer anddistributor of bicycle parts, helmets and other accessories for a consideration of $ 29,371 including relatedacquisition costs and a balance of sale amounting to $ 1,100 based on final working capital amounts. Thebalance of sale is included in the accounts payable and accrued liabilities on the consolidated balance sheet.

The acquisition has been recorded under the purchase method of accounting with the results of operations ofthe acquired business being included in the accompanying consolidated financial statements since the date ofacquisition. The goodwill is deductible for tax purposes. The total goodwill amount is included in theCompany’s Recreational/Leisure segment as reported in Note 25.

The allocation of the purchase price of the assets acquired and the liabilities assumed is as follows:

AssetsAccounts receivable $ 14,455Inventories 9,630Prepaid expenses 634Property, plant and equipment 600Customer relationships 14,600Supplier relationship 1,500Goodwill 1,302Other long term assets 83

42,804

LiabilitiesAccounts payable and accrued liabilities 13,433Net assets acquired $ 29,371

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NOTE 4 – BUSINESS ACQUISITION (Cont’d)

Consideration:Cash $ 27,608Balance of sale payable 1,100

28,708Transaction costs 663

$ 29,371

IGC (Australia) Pty LtdOn February 28, 2007, the Company acquired a 55% interest in an Australian company IGC (Australia) Pty Ltd(“IGC”). Operating as In Good Care, IGC is a manufacturer and distributor of juvenile products in Australia andNew Zealand.

As part of the acquisition, the Company entered into a put and call agreement with the minority interest holderfor the purchase of its 45% stake in IGC. Under the terms of this agreement, if specified earnings objectives arenot met at the end of 2008 and at the end of each subsequent year until the option is exercised, Dorel has anoption to buy this 45% minority interest (the call option) at a formulaic variable price based mainly on earningslevels in future periods (the “exit price”). Similarly, the holder of the minority interest has an option to sell his45% stake in IGC to Dorel (the put option) for the same variable exit price if a certain earnings target is reachedin 2008 or at the end of any subsequent year until the option is exercised. In addition, following December 31, 2012,the minority interest holder has the right to sell its 45% stake in IGC to Dorel at any time for the same terms. Theagreement does not include a specified minimum amount of contingent consideration. Under the liabilitymethod of accounting, the put and call agreement is reflected in the financial statements as follows:

(i) The put and call agreement is considered to have been fully executed at the time of acquisition, resultingin the purchase by Dorel of a further 45% interest in IGC. As a result, Dorel has consolidated 100% of IGCat the inception of this agreement.

(ii) When the contingency is resolved in 2008 and in each subsequent year until the put or call option isexercised, the value of the exit price will be determined and recorded as a financial liability and as anadditional element of the purchase price and will increase goodwill. The financial liability amounts to$966 as at December 30, 2008 and is presented in other long-term liabilities.

The total goodwill amount is included in the Company’s Juvenile segment as reported in Note 25.

NOTE 5 – ACCOUNTS RECEIVABLEAccounts receivable consist of the following:

December 30, December 30,2008 2007

Trade accounts receivable $ 357,608 $ 320,174Allowance for anticipated credits (56,479) (43,203)Allowance for doubtful accounts (11,305) (6,914)

289,824 270,057Foreign exchange contracts 11,548 734Other receivables 14,895 16,133

$ 316,267 $ 286,924

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NOTE 6 – INVENTORIESInventories consist of the following:


Raw materials $ 97,155 $ 62,459Work in process 6,906 6,427Finished goods 405,406 253,446

$ 509,467 $ 322,332

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

December 30, 2008

AccumulatedCost Depreciation Net

Land $ 14,387 $ – $ 14,387Buildings and improvements 72,575 16,148 56,427Machinery and equipment 75,975 48,807 27,168Moulds 118,301 93,918 24,383Furniture and fixtures 7,499 5,229 2,270Computer equipment 30,210 20,319 9,891Leasehold improvements 9,464 5,499 3,965Assets under construction 18,902 – 18,902Assets under capital leases 2,829 2,014 815Vehicles 1,838 1,151 687

$ 351,980 $ 193,085 $ 158,895

December 30, 2007

AccumulatedCost Depreciation Net

Land $ 11,561 $ – $ 11,561Buildings and improvements 60,551 14,549 46,002Machinery and equipment 73,837 49,896 23,941Moulds 122,125 97,793 24,332Furniture and fixtures 5,895 4,512 1,383Computer equipment 29,284 19,395 9,889Leasehold improvements 7,828 4,545 3,283Assets under construction 18,228 – 18,228Assets under capital leases 2,779 1,685 1,094Vehicles 1,684 1,035 649

$ 333,772 $ 193,410 $ 140,362

Assets under construction consists of the following major categories:


Buildings and improvements $ 8,576 $ 2,520Machinery and equipment 1,122 1,560Moulds 8,332 12,612Computer equipment 872 1,536

$ 18,902 $ 18,228

Depreciation of property, plant and equipment amounted to $26,200 (2007 – $25,062).

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NOTE 8 – INTANGIBLE ASSETSDecember 30, 2008

AccumulatedCost Amortization Net

Trademarks $ 275,085 $ – $ 275,085Customer relationships 97,401 14,783 82,618Supplier relationship 1,500 75 1,425Patents 22,576 13,525 9,051Software licence 668 – 668

$ 397,230 $ 28,383 $ 368,847

December 30, 2007

AccumulatedCost Amortization Net

Trademarks $ 219,700 $ – $ 219,700Customer relationships 57,310 10,968 46,342Patents 21,184 11,345 9,839Software licence 502 – 502

$ 298,696 $ 22,313 $ 276,383

In 2008, the aggregate amount of amortizable intangible assets acquired amounted to $1,992 (2007 – $1,830) ofwhich $140 (2007 – $8) is unpaid at year-end. The aggregate amortization expense of intangible assetsamounted to $6,738 (2007 – $4,632).

NOTE 9 – OTHER ASSETSOther assets consist of the following:


Deferred development costs (1) $ 26,895 $ 21,375Accrued benefit asset (Note 15) 8,354 8,970Long-term future income tax assets (Note 22) 10,420 892Costs relating to revolving credit facility (2) 354 188Assets held for sale 129 129Other 316 316

$ 46,468 $ 31,870

(1) The Company incurred $29,978 (2007 – $23,479) of research and development costs of which $10,909 (2007 – $9,009) were expensedand $19,069 (2007 – $14,470) were deferred. Amortization of deferred development costs amounted to $12,916 (2007 – $10,150).

(2) As a result of the application of Section 3855 (Note 2), unamortized financing costs of $96 as at December 30, 2008 (2007 – $179),previously recorded in other assets, have been reclassified in 2007 against long-term debt. The amortization of financing costsrelated to the revolving credit facility and to the long-term debt included in interest on long-term debt is $309 and $143 respectively(2007 – $65 and $152).

NOTE 10 – BANK INDEBTEDNESS

The average interest rates on the outstanding borrowings as at December 30, 2008 and 2007 were 4.5% and6.08% respectively. As at December 30, 2008, the Company had available bank lines of credit amounting toapproximately $56,935 (2007 – $61,460) which are renegotiated annually.

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NOTE 11 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIESDecember 30, December 30,

2008 2007Trade creditors and accruals $ 303,556 $ 231,853Salaries payable 27,804 27,505Product liability (Note 20) 23,087 30,571Foreign exchange contracts 1,093 3,021Other accrued liabilities 25,375 32,988

$ 380,915 $ 325,938

NOTE 12 – LONG-TERM DEBT December 30, December 30,

2008 2007Series “A” Senior Guaranteed Notes

Bearing interest at 6.80 % per annum with principal repayments as follows $ 45,000 $ 46,0001 instalment of $8,500 in July 20092 annual instalments of $10,000 ending in July 20111 final instalment of $16,500 in July 2012

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

Series “B” Senior Guaranteed NotesBearing interest at 5.63% per annum repayable in February 2010 55,000 55,000

Term NotesBearing interest at 7.00% per annum repaid in April 2008 – 4,800Bearing interest at 7.13% per annum repaid in June 2008 – 1,600

Revolving Bank LoansBearing interest at various rates per annum, averaging 4.0% based on LIBOR

or U.S. bank rates, total availability of $475,000, (2007 – $325,000) due tomature in July 2010. This agreement also includes an accordion feature allowing the company to have access to an additional amount of $50,000 on a revolving basis. 359,024 92,000

Obligations under capital leases 655 1,045Other – 25Less unamortized financing costs (Note 2) (96) (179)

459,583 255,291Current Portion (8,879) (62,906)

$ 450,704 $ 192,385

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

Fiscal Year Ending Amount

2009 $ 8,8792010 424,1692011 10,0482012 16,487

$ 459,583

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NOTE 13 – OTHER LONG-TERM LIABILITIESDecember 30, December 30,

2008 2007Employee compensation $ 4,121 $ 5,420Restructuring provision (Note 3) – 147Balance of sale payable – 192Other 1,889 1,089

$ 6,010 $ 6,848

Employee compensation consists of bonuses based on length of service and profit sharing offered by one of theCompany’s subsidiaries.

NOTE 14 – FINANCIAL INSTRUMENTSFinancial instruments – carrying values and fair values

The fair value of financial assets and liabilities, together with the carrying amounts included in the consolidatedbalance sheet, are as follows:

December 30, 2008 December 30, 2007

Carrying Carryingamount Fair value amount Fair value

Financial assetsHeld for trading financial assets:

Cash and cash equivalents $ 16,966 $ 16,966 $ 22,513 $ 22,513Foreign exchange contracts $ 11,548 $ 11,548 $ 734 $ 734

Loans and receivables:Accounts receivable – trade $ 289,824 $ 288,824 $ 270,057 $ 270,057Accounts receivable - other $ 14,895 $ 15,895 $ 16,133 $ 16,133

Financial liabilitiesHeld for trading financial liabilities:

Foreign exchange contracts $ 1,093 $ 1,093 $ 3,021 $ 3,021Other liabilities:

Bank indebtedness $ 4,398 $ 4,398 $ 5,836 $ 5,836Accounts payable and accrued liabilities $ 378,722 $ 378,722 $ 322,917 $ 322,917Long-term debt – bearing interest

at variable rates:Revolving Bank Loans $ 359,024 $ 359,024 $ 92,000 $ 92,000

Long-term debt – bearing interest at fixed rates $ 100,559 $ 98,827 $ 163,291 $ 162,054

Other long-term liabilities $ 6,010 $ 6,010 $ 6,656 $ 6,656Balance of sale payable $ 1,100 $ 1,100 $ 192 $ 192

The Company has determined that the fair value of its short-term financial assets and liabilities approximatestheir respective carrying amounts as at the balance sheet dates because of the short-term nature of thosefinancial instruments. For long-term debt bearing interest at variable rates, the fair value is considered toapproximate the carrying amount. For long-term debt bearing interest at fixed rates, the fair value is estimatedbased on discounting expected future cash flows at the discount rates which represent borrowing rates presentlyavailable to the Company for loans with similar terms and maturity. As at December 30, 2008 and 2007, the fairvalue of the other long-term liabilities are comparable to their carrying value since the majority of the amount isrecorded based on discounted future cash outflows. The fair value of the foreign exchange contracts wasdetermined using quoted market values.

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)Foreign exchange gains (losses)


Gains (losses) relating to financial assets and liabilities, excluding foreign exchange contracts $ 7,489 $ 5,657

Gains (losses) relating to foreign exchange contracts, including amounts realized on contract maturity and changes in fair value of open positions 18,340 (3,519)

Foreign exchange gains (losses) relating to financial instruments 25,829 2,138Other foreign exchange gains (losses) 138 (268)Foreign exchange gains (losses) $ 25,967 $ 1,870

Management of risks arising from financial instruments

In the normal course of business, the Company is subject to various risks relating to foreign currency exchange,interest rate, credit and liquidity risks . The Company manages these risk exposures on an ongoing basis. Inorder to limit the effects of changes in foreign exchange rates on its revenues, expenses and its cash flows, theCompany can avail itself of various derivative financial instruments. The Company’s management is responsiblefor determining the acceptable level of risk and only uses derivative financial instruments to manage existing oranticipated risks, commitments or obligations based on its past experience. The following analysis provides ameasurement of risks as at December 30, 2008.

Foreign Currency Exchange RiskIn order to mitigate the foreign currency exchange risks, the Company uses from time to time variousderivative 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 salesand purchases of goods denominated in currencies other than the functional currency of each of Dorel’sentities. For the Company’s transactions denominated in currencies other than the functional currency ofeach of Dorel’s entities, fluctuations in the respective exchange rates relative to the functional currency ofeach of Dorel’s entities will create volatility in the Company’s cash flows and in the reported amounts in its consolidated statement of income. The Company’s financial debt mainly consists of notes issued exclusivelyin U.S. dollars, for which no foreign currency hedging is required. Short-term lines of credit and overdraftscommonly used by Dorel’s entities are in the currency of the borrowing entity and therefore carry noexchange-rate risk. Inter-company loans/borrowings are economically hedged as appropriate, whenever theypresent a net exposure to exchange-rate risk. Additional earnings variability arises from the translation ofmonetary assets and liabilities denominated in currencies other than the functional currency of each ofDorel’s entities at the rates of exchange at each balance sheet date, the impact of which is reported as aforeign exchange gain and loss in the statement of income.

Derivative financial instruments are used as a method for meeting the risk reduction objectives of the Companyby generating offsetting cash flows related to the underlying position with respect to the amount and timing offorecasted transactions. The terms of the currency derivatives ranges from one to twelve months. Dorel does nothold or use derivative financial instruments for trading or speculative purposes.

The following tables provide an indication of the Company’s significant foreign currency exposures during theyear ended December 30, 2008, including the period end balances of financial and monetary assets andliabilities denominated in currencies other than the functional currency of each of Dorel’s entities, as well as theamount of revenue and operating expenses during the interim period that were denominated in foreigncurrencies other than the functional currency of each of Dorel’s entities. The tables below do not consider theeffect of foreign exchange contracts.

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)

December 30, 2008

US CAD Euro GBPCash and cash equivalents $ 1,403 $ (25) $ 299 $ 517Accounts receivable 1,160 16,927 1,195 1,665Accounts payable and accrued liabilities (22,511) (11,758) (12,127) (81)Future income taxes and

income taxes payable, net – (2,371) – –Inter-company loans (1,500) – – –Balance sheet exposure excluding

financial derivatives $ (21,448) $ 2,773 $ (10,633) $ 2,101

December 30, 2008

US CAD Euro GBPRevenue $ 7,644 $ 104,911 $ 12,232 $ 13,370Expenses 181,353 128,708 22,907 209Net exposure $ (173,709) $ (23,797) $ (10,675) $ 13,161

The following table summarizes the Company’s derivative financial instruments relating to commitments to buyand sell foreign currencies through options and forward foreign exchange contracts as at December 30, 2008and, 2007:

December 30, 2008 December 30, 2007

Foreign exchange contracts Average Notional Fair Average Notional FairCurrencies (sold/bought) rate (1) amount (2) value rate (1) amount (2) valueForwards

EUR/$ 0.6855 $ 105,700 $ 3,487 0.7074 $ 32,450 $ (1,337)GBP/$ 0.5995 $ 18,800 $ 2,493 0.4937 $ 2,900 $ 34AUD/$ 1.2155 $ 1,142 $ 180 – – –NZD/$ 0.7418 $ 137 $ 31 – – –GBP/EUR 0.8777 $ 13,450 $ 1,344 0.6942 $ 7,146 $ 392NZD/AUD 0.8420 $ 337 $ 3 0.8423 $ 148 $ (7)

OptionsEUR/$ 0.6613 $ 61,150 $ 1,782 0.7077 $ 41,400 $ (1,672)GBP/$ 0.5066 $ 3,350 $ 469 0.4893 $ 4,750 $ 31GBP/EUR 0.7738 $ 6,371 $ 666 0.6896 $ 9,283 $ 272

Total $ 10,455 $ (2,287)

(1) Rates are expressed as the number of units of the currency sold for one unit of currency bought.(2) Exchange rates as at December 30, 2008 and 2007 were used to translate amounts in foreign currencies.

The following outlines the main exchange rates applied in 2008:

Reportingdate rate

Year-to-date December 30, average rate 2008

CAD TO USD 0.9386 0.8190EURO TO USD 1.4694 1.4158GBP TO USD 1.8545 1.4476

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)Based on the Company’s foreign currency exposures noted above and the foreign exchange contracts in effectin 2008, varying the above foreign exchange rates to reflect a 5 percent weakening of the currencies, other thanthe functional currency of each of Dorel’s entities, would have increased (decreased) pre-tax income during theyear ended December 30, 2008, as follows, assuming that all other variables remained constant:

Source of pre-tax income variability from changes in foreign exchange rates US CAD Euro GBPFinancial instruments, including

foreign exchange contracts $ (6,688) $ (139) $ (311) $ (105)Revenues and expenses $ 8,059 $ 1,190 $ 233 $ (634)Increase (decrease) in pre-tax income $ 1,371 $ 1,051 $ (78) $ (739)

An assumed 5 percent strengthening of the currencies, other than the functional currency of each of Dorel’sentities, during the year ended December 30, 2008, would have increased (decreased) pre-tax income duringthe year as follows, assuming that all other variables remained constant:

Source of pre-tax income variability from changes in foreign exchange rates US CAD Euro GBPFinancial instruments, including

foreign exchange contracts $ 6,721 $ 139 $ 310 $ 105Revenues and expenses $ (8,059) $ (1,190) $ (233) $ 634(Decrease) increase in pre-tax income $ (1,338) $ (1,051) $ 77 $ 739

Interest Rate RiskThe Company is exposed to interest rate fluctuations, related primarily to its revolving long-term bank loans, forwhich amounts drawn are subject to LIBOR or U.S. bank rates in effect at the time of borrowing, plus a margin.The Company manages its interest rate exposure and could potentially enter into swap agreements consisting inexchanging variable rates for fixed rates for an extended period of time, but it has not done so. All other long-termdebts have fixed interest rates and are therefore not exposed to cash flow interest rate risk.

Based on the value of interest-bearing revolving long-term bank loans as at December 30, 2008, if interest ratesrelated to the revolving long-term bank loans had been 50 basis points higher, assuming that all other variableshad remained the same, pre-tax income for the year ended December 30, 2008 would have decreased by$1,795. If interest rates had been 50 basis points lower, pre-tax income would have increased by $1,795.

Credit RiskCredit risk stems primarily from the potential inability of clients or counterparties to discharge theirobligations and arises primarily from the Company’s trade accounts receivable. The Company may also havecredit risk relating to cash and cash equivalents and foreign exchange contracts resulting from defaults bycounterparties. The Company enters into financial instruments with a diversity of creditworthy parties. Whenentering into foreign exchange contracts, the counterparties are large Canadian and International banks.Therefore, the Company does not expect to incur material credit losses due to its risk management on otherfinancial instruments.

The maximum credit risk to which the Company is exposed as at December 30, 2008, represents the fair value ofcash equivalents, accounts receivable and foreign exchange contracts with positive fair value. The risk to whichthe company is exposed with respect to foreign exchange contracts is limited to the replacement cost ofcontracts at market prices in the event of a counterparty default.

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)Substantially all trade accounts receivable arise from the sale to the retail industry. The Company performsongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended whendeemed necessary. In addition, a portion of the total accounts receivable is insured against possible losses.In 2008, sales to a major customer represented 30.4% of total revenue (2007 – 33.9%) As at December 30, 2008,two customers accounted for respectively 20.6% and 10.2% for an aggregate of 30.8% of the Company’s totaltrade accounts receivable balance. As at December 30, 2007, there was one customer that accounted for 27.7%of the Company’s total trade accounts receivable balance.

The Company establishes an allowance for doubtful accounts on a customer-by-customer basis. It is based onthe evaluation of the collectability of accounts receivable at each balance sheet reporting date, taking intoaccount amounts which are past due, specific credit risk, historical trends and any available informationindicating that a customer could be experiencing liquidity or going concern problems. Bad debt expense isincluded within the selling, general and administrative expenses.

The Company’s exposure to credit risk for trade accounts receivable by geographic area and type of customer asat December 30, 2008 was as follows:

December 30, 2008

Canada $ 19,749United States 141,330Europe 105,926Other foreign countries 22,819

$ 289,824

The allocation of accounts receivable to each geographic area is based on the location of selling entity.

December 30, 2008

Mass-market retailers $ 151,074Specialty/independent stores 138,750

$ 289,824

Pursuant to their respective terms, trade accounts receivable are aged as follows as at December 30, 2008:

December 30, 2008

Not past due $ 222,490Past due 0-30 days 49,202Past due 31-60 days 8,641Past due 61-90 days 5,319Past due over 90 days 15,477Trade accounts receivable 301,129Less allowance for doubtful accounts (11,305)

$ 289,824

Based on past experience, the Company believes that no allowance is necessary in respect of trade receivablesnot past due and past due 0-30 days; 90% of these balances, which includes the amounts owed by theCompany’s most significant customers, relates to customers that have a good track record with the Company.

The movement in the allowance for doubtful accounts with respect to trade accounts receivable was as follows:

December 30, 2008

Balance at beginning of year $ 6,914Bad debt expense 2,410Uncollectible accounts written-off, net of recovery (1,668)Increase due to acquisitions (Note 4) 3,985Effect of foreign currency exchange rate changes (336)Balance at end of year $ 11,305

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)Liquidity RiskLiquidity risk is the risk of being unable to honor financial commitments by the deadlines set out under theterms of such commitments. The Company manages liquidity risk through the management of its capitalstructure and financial leverage, as outlined in “Capital Risk Management”. It also manages liquidity risk bycontinuously monitoring actual and projected cash flows matching the maturity profile of financial assets andliabilities. The Board of Directors reviews and approves the Company’s operating and capital budgets, aswell as any material transactions out of the ordinary course of business, including acquisitions or other majorinvestments or divestitures.

The Company has committed revolving bank loans for a maximum of $ 475,000 due to mature in July 2010which provide for an annual one-year extension. This agreement also includes an accordion feature allowing theCompany to have access to an additional amount of $ 50,000 on a revolving basis. The revolving bank loansbear interest at LIBOR or U.S. bank rates plus a margin and the effective interest rate for the year endedDecember 30, 2008, was 4.0% Management believes that future cash flows from operations and availabilityunder existing banking arrangements will be adequate to support the Company’s financial liabilities.

The following table summarizes the contractual maturities of financial liabilities of the Company as ofDecember 30, 2008, excluding future interest payments but including accrued interest:

Less than AfterTotal 1 year 1-3 years 4-5 years 5 years

Bank indebtedness $ 4,398 $ 4,398 $ – $ – $ –Long-term debt – revolving bank loans 359,024 – 359,024 – –Other long-term debt 100,559 8,879 75,193 16,487 –Accounts payable and accrued liabilities 378,722 378,722 – – –Foreign exchange contracts 1,093 1,093 – – –Balance of sales payable 1,100 1,100 – – –Other long term liabilities 6,010 – – 6,010 –Total $ 850,906 $ 394,192 $ 434,217 $ 22,497 $ –

The Company’s only derivative financial liabilities as at December 30, 2008 were foreign exchange contracts, forwhich notional amounts, maturities, average exchange rates and the carrying and fair values are disclosed under“Foreign Exchange Risk”.

Capital Risk ManagementThe Company’s objectives in managing capital is to provide sufficient liquidity to support its operationswhile generating a reasonable return to shareholders, give the flexibility to take advantage of growth anddevelopment opportunities of the business and undertake selective acquisitions, while at the same timetaking a conservative approach towards financial leverage and management of financial risk. The Company’scapital is composed of net debt and shareholders’ equity. Net debt consists of interest-bearing debt lesscash and cash equivalents.

The Company manages its capital structure in light of changes in economic conditions. In order to maintain oradjust the capital structure, the Company may elect to adjust the amount of dividends paid to shareholders,return capital to its shareholders, issue new shares or increase/decrease net debt.

The Company monitors its capital structure using the ratio of indebtedness to adjusted earnings beforeinterest, taxes, depreciation and amortization, restructuring costs and extraordinary or unusual items(“adjusted EBITDA”), which it aims to maintain at less than 3.0:1. The terms of the unsecured notes and therevolving credit facility permit the Company to exceed this limit under certain circumstances. This ratio iscalculated as follows: indebtedness/ adjusted EBITDA. Indebtedness is equal to the aggregate of bankindebtedness, long-term debt (including obligations under capital leases) and guarantees (including all lettersof credit and standby letters of credit). Adjusted EBITDA is based on the last four quarters ending on thesame date as the balance sheet date used to compute the indebtedness. The indebtedness to adjustedEBITDA as at December 30, 2008 and 2007 was as follows:

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NOTE 14 – FINANCIAL INSTRUMENTS (Cont’d)December 30, December 30,

2008 2007Bank indebtedness $ 4,398 $ 5,836Current portion of long-term debt 8,879 62,906Long-term debt 450,704 192,385Guarantees 16,505 16,950Balance of sale payable 1,100 192Indebtedness $ 481,586 $ 278,269

For the trailing four quartersended December 30, (1)

2008 2007Net income $ 112,948 $ 87,492Interest, net 24,860 23,466Income taxes expense 19,160 19,136Depreciation and amortization 46,511 39,844Restructuring costs 943 19,184Adjusted EBITDA $ 204,422 $ 189,122

Indebtedness to adjusted EBITDA ratio 2.36:1 1.47:1

(1) Includes the results of the operations of the acquired businesses.

The Company used its revolving bank loans to finance the acquisitions of Cannondale on February 4, 2008 andof PTI on June 26, 2008. The financing of the acquisitions resulted in debt leverage which was still below theCompany’s objective of a maximum indebtedness to adjusted EBITDA ratio of 3.0:1.

There were no changes in the Company’s approach to capital management during the period. Under the unsecurednotes and revolving credit facility, the Company is subject to certain covenants, including maintaining certain financialratios. During the year ended December 30, 2008, the Company is in compliance with these covenants.

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 actuariesusing management's assumptions and the accumulated benefit method for the plan where future salary levelsdo not affect the amount of employee future benefits and the projected benefit method for plans where futuresalaries or cost escalation affect the amount of employee future benefits.

Information regarding the Company’s defined benefit pension plans is as follows:December 30, December 30,

2008 2007Accrued benefit obligations:

Balance, beginning of year $ 37,466 $ 36,128Current service cost 1,314 1,573Interest cost 2,230 2,049Disposals – (276)Amendments 1,005 –Participant contributions 315 246Benefits paid (2,637) (2,332)Effect of exchange rates (489) 1,345Actuarial (gain) / loss (22) (1,172)Restructuring giving rise to curtailments – (95)Balance, end of year 39,182 37,466

(fowards)

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NOTE 15 – PENSION & POST RETIREMENT BENEFIT PLANS (Cont’d)Pension Benefits (Cont’d)


(brought foward)Plan assets

Fair value, beginning of year 29,984 28,653Actual return on plan assets (5,607) 1,589Employer contributions 2,036 1,579Participant contributions 315 246Benefits paid (2,637) (2,332)Effect of exchange rates (215) 471Additional charges (228) (222)Fair value, end of year 23,648 29,984

Funded status - plan deficit (15,534) (7,482)Unamortized actuarial loss 16,384 8,853Unamortized transitional obligation 102 116Unamortized past service costs 2,072 1,291Net amount recognized $ 3,024 $ 2,778

The net amount recognized consists of the following:Accrued benefit asset: $ 8,354 $ 8,970Accrued benefit liability (5,330) (6,192)Net amount recognized $ 3,024 $ 2,778

The accrued benefit asset relating to pension benefits is included in other assets and the accrued benefit liabilityis included in pension & post-retirement benefit obligations on the Company’s Consolidated Balance Sheet.

The accrued benefit obligation at the end of the period and the fair value of plan assets at the end of the periodfor the aggregate of plans with accrued benefit obligations in excess of plan assets are the following:


Accrued benefit obligation, end of year $ 39,182 $ 12,595Fair value of plan assets, end of year $ 23,648 $ 4,470

Net pension costs for the defined benefit plans comprise the following:December 30, December 30,

2008 2007Current service cost $ 1,314 $ 1,573Interest cost 2,230 2,049Actual return on plan assets 5,607 (1,589)Actuarial (gain) / loss (22) (1,172)Disposals – (276)Amendments 1,005 –Effect of curtailments (Note 3) – 264Cost before adjustments to recognize the long-term nature of the plans 10,134 849Difference between actual and expected return on plan assets (7,796) (486)Difference between actuarial loss on accrued benefit obligation and the amount recognized 436 2,003Difference between amortization of past service costs and actual amendments for the year (775) 230Amortization of transition obligation 10 9Pension expense $ 2,009 $ 2,605

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NOTE 15 – PENSION & POST RETIREMENT BENEFIT PLANS (Cont’d)Under the Company’s defined contribution plans, total expense was $1,576 (2007 – $1,623). Total cash paymentsfor employee future benefits for 2008, consisting of cash contributed by the Company to its funded plans, cashcontributed to its defined contribution plans and benefits paid directly to beneficiaries for unfunded plans, was$4,310 (2007 – $3,946).

Post-Retirement Benefits

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

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


Accrued benefit obligations:Balance, beginning of year $ 13,113 $ 13,839Current service cost 239 204Interest cost 726 737Benefits paid (698) (743)Actuarial (gain) / loss 113 (924)Balance, end of year $ 13,493 $ 13,113

Plan assets:Employer contributions 698 743Benefits paid (698) (743)Fair value, end of year $ – $ –

Funded status-plan deficit $ (13,493) $ (13,113)Unamortized actuarial (gain)/loss (1,649) (2,063)Unamortized past service costs 400 426

Accrued benefit liability $ (14,742) $ (14,750)

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


Current service cost $ 239 $ 204Interest cost 726 737Actuarial (gain)/loss 113 (924)Cost (benefit) before adjustments to recognize the long-term nature of the plans 1,078 17Difference between actuarial (gain)/loss on accrued benefit obligation

and the amount recognized (414) 775Difference between amortization of past service costs and actual amendments for the year 26 26Net benefit plan expense $ 690 $ 818

Assumptions

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

Pension Post RetirementBenefits Benefits

2008 2007 2008 2007Discount rate 5.98% 6.03% 6.25% 6.50%Rate of compensation increase 2.22% 2.30% n/a n/a

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NOTE 15 – PENSION & POST RETIREMENT BENEFIT PLANS (Cont’d)Weighted-average assumptions used to determine net periodic cost for the years ended December 30:

Pension Post RetirementBenefits Benefits

2008 2007 2008 2007Discount rate 6.03% 5.40% 6.50% 5.55%Expected long-term return on plan assets 7.86% 7.81% n/a n/aRate of compensation increase 2.30% 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 2008 and 2007. The most recent actuarial valuations for thepension plans and post-retirement benefit plans are dated January 1, 2008. The most recent actuarial valuationof the pension plans for funding purposes was as of January 1, 2008, and the next required valuation will be asof January 1, 2009.

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

2008 2007Equity securities 42% 51%Debt securities 36% 34%Other 22% 15%

100% 100%

The assumed health care cost trend used for measurement of the accumulated postretirement benefit obligationis 10% in 2008, decreasing gradually to 5% in 2014 and remaining at that level thereafter. Assumed health carecost trends have a significant effect on the amounts reported for health care plans. A one percentage pointchange in assumed health care cost trend rates would have the following effects:

1 Percentage 1 PercentagePoint Increase Point Decrease

Effect on total of service and interest cost $ 201 $ (152)Effect on post-retirement benefit obligation $ 2,127 $ (1,643)

Other

Certain of the Company’s subsidiaries have elected to act as self-insurer for certain costs related to all activeemployee health and accident programs. The expense for the year ended December 30, 2008 was $7,473(2007 – $10,995) under this self-insured benefit program.

NOTE 16 – CAPITAL STOCKThe 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 theClass "A" shares.

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NOTE 16 – CAPITAL STOCK (Cont’d)Details of the issued and outstanding shares are as follows:

December 30,

2008 2007Number Amount Number Amount

Class “A” Multiple Voting SharesBalance, beginning of year 4,427,744 $ 1,913 4,440,544 $ 1,921Converted from Class “A” to Class “B” (1) (198,034) (120) (12,800) (8)Balance, end of year 4,229,710 $ 1,793 4,427,744 $ 1,913

Class “B” Subordinate Voting SharesBalance, beginning of year 28,969,448 $ 175,358 28,420,898 $ 160,634Converted from Class “A” to Class “B” (1) 198,034 120 12,800 8Issued under stock option plan (2) 5,000 151 535,750 14,716Balance, end of year 29,172,482 $ 175,629 28,969,448 $ 175,358

TOTAL CAPITAL STOCK $ 177,422 $ 177,271

(1) During the year, the Company converted 198,034 (2007 –12,800) Class “A” Multiple Voting Shares into Class “B” Subordinate VotingShares at an average rate of $0.61 per share (2007 – $0.61 per share).

(2) In 2008, the Company realized tax costs amounting to $4 as a result of stock option transactions. The cost has been debited to capitalstock and is not reflected in the current income tax provision. In 2007, the Company realized tax benefits amounting to $18 as a result ofstock option transactions. The benefit has been credited to capital stock and is not reflected in the current income tax provision.

NOTE 17 – STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTSStock option plans

Under various plans, the Company may grant stock options on the Class "B" Subordinate Voting Shares at thediscretion of the Board of Directors, to senior executives and certain key employees. The exercise price is themarket price of the securities at the date the options are granted. Of the 6,000,000 Class “B” SubordinateVoting Shares initially reserved for issuance, 1,171,000 were available for issuance under the share option plansas at December 30, 2008. Options granted vest according to a graded schedule of 25% per year commencing aday after the end of the first year, and expire no later than the year 2013.

The Company’s stock option plan is as follows:

December 30,

2008 2007Weighted Weighted

Average AverageOptions Exercise Price Options Exercise Price

Options outstanding, beginning of period 2,308,750 $ 31.92 1,364,000 $ 30.73Granted 160,000 30.83 1,517,000 31.12Exercised (5,000) 30.96 (535,750) 27.43Expired (51,000) 36.89 – –Cancelled (159,000) 32.39 (36,500) 30.27Options outstanding, end of period 2,253,750 $ 31.67 2,308,750 $ 31.92Total exercisable, end of period 1,048,500 $ 32.35 619,625 $ 33.50

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NOTE 17 – STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS – (Cont’d)Stock option plans (Cont’d)

A summary of options outstanding at December 30, 2008 is as follows:

Total Outstanding Total Exercisable

Weighted Weighted WeightedAverage Average Average

Range of Exercise Exercise Remaining ExercisePrices Options Price Contractual Life Options Price

$29.27 - $32.62 1,678,500 $ 30.91 3.24 528,875 $ 30.85$33.45 - $34.49 575,250 33,89 0.53 519,625 33,87

2,253,750 $ 31.67 2.55 1,048,500 $ 32,35

Total compensation cost recognized in income for employee stock options for the year amounts to $4,125 (2007 – $5,163), and was credited to contributed surplus.

The compensation cost recognized in income were computed using the fair value of granted options as at thedate of grant as calculated by the Black-Scholes option pricing model. The following weighted averageassumptions were used to estimate the fair values of options granted during the year:

2008 2007Risk-free interest rate 3.21% 4.00%Dividend yield 1.62% 1.71%Expected volatility 27.05% 25.63%Expected life 4.50 4.49

Deferred Share Unit Plan

The Company has a Deferred Share Unit Plan (the “DSU Plan”) under which an external director of the Companymay elect annually to have his or her director’s fees and fees for attending meetings of the Board of Directors orcommittees thereof paid in the form of deferred share units (“DSU’s”). A plan participant may also receivedividend equivalents paid in the form of DSU’s. The number of DSU’s received by a director is determined bydividing the amount of the remuneration to be paid in the form of DSU’s on that date or dividends to be paid onpayment date (the “Award Dates”) by the fair market value of the Company’s Class “B” Subordinate VotingShares on the Award Date. Upon termination of a director’s service, a director may receive, at the discretion ofBoard of Directors, either:

(a) cash equal to the number of DSU’s credited to the director’s account multiplied by the fair market value ofthe 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, 34,780 were available for issuance under the DSUplan as at December 30, 2008. During the year, 11,120 additional DSU’s were issued (2007 – 12,553) and $306(2007 – $392) was expensed and credited to contributed surplus. An additional 585 DSU’s were issued(2007 – 240) for dividend equivalents and $16 (2007 – $7) was charged to retained earnings and credited tocontributed surplus. At December 30, 2008, 40,220 (2007 – 28,515) DSU’s are outstanding with relatedcontributed surplus amounting to $1,150 (2007 – $828).

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NOTE 18 – COMMITMENTS AND GUARANTEESa) The Company has entered into long-term operating lease agreements for buildings and equipment that

expire at various dates through the year 2028. Rent expense was $27,554 and $26,579 in 2008 and 2007,respectively. Future minimum lease payments exclusive of additional charges, are as follows:

Fiscal Year Ending Amount2009 $ 25,3122010 19,6612011 15,9712012 12,7052013 7,043Thereafter 9,370

$ 90,062

b) The Company has entered into various licensing agreements for the use of certain brand names on itsproducts. Under these agreements, the Company is required to pay royalties as a percentage of sales withminimum royalties of $2,031 due in fiscal 2009 and $2,178 due in fiscal 2010 and 2011 combined.

c) As at December 30, 2008, the Company has capital expenditure commitments of approximately $13,776 andcommercial letters of credit outstanding totalling $71.

d) In the normal course of business, the Company enters into agreements that may contain features whichmeet the definition of a guarantee:

• The Company granted irrevocable standby letters of credit issued by highly rated financial institutionsto various third parties to indemnify them in the event the Company does not perform its contractualobligations, such as payment of product liability claims, lease and licensing agreements, duties andworkers compensation claims. As at December 30, 2008, standby letters of credit outstandingtotalled $15,045. As many of these guarantees will not be drawn upon, these amounts are notindicative of future cash requirements. No material loss is anticipated by reason of such agreementsand guarantees and no amounts have been accrued in the Company’s consolidated financialstatements with respect to these guarantees. The Company has determined that the fair value of thenon-contingent obligations requiring performance under the guarantees in the event that specifiedevents or conditions occur approximate the cost of obtaining the letters of credit.

• The Company has provided a financing provider the right, upon customer default on payment to thisfinancing provider, to sell back certain new products to the Company at predetermined prices. Themaximum exposure with respect to this guarantee as at December 30, 2008 is $1,389. Should theCompany be required to act under such agreement, it is expected that no material loss would resultafter consideration of possible resell recoveries. Historically, the Company has not made anypayments under such vendor financing agreement and the estimated exposure have been accrued inthe Company’s consolidated financial statements with respect to this guarantee.

NOTE 19 – CONTINGENCIESThe breadth of the Company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the ultimate taxes the Company will pay. The final taxes paid aredependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of taxlitigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of theseuncertainties and the associated final taxes may result in adjustments to the Company’s tax assets and tax liabilities.

The Company is currently a party to various claims and legal proceedings. If management believes that a lossarising from these matters is probable and can reasonably be estimated, that amount of the loss is recorded, orthe minimum estimated liability when the loss is estimated using a range and no point within the range is moreprobable than another. When a loss arising from such matters is probable, legal proceedings against third partiesor counterclaims are recorded only if management, after consultation with outside legal counsels, believes suchrecoveries are likely to be realized. As additional information becomes available, any potential liability related tothese matters is assessed and the estimates are revised, if necessary. Based on currently available information,management believes that the ultimate outcome of these matters, individually and in aggregate, will not have amaterial adverse effect on the Company’s financial position or overall trends in results of operations.

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NOTE 19 – CONTINGENCIES (Cont’d)In 2006, anti-dumping duties in the amount of $4,472 were imposed upon the Company by the United StatesDepartment of Commerce (“DOC”). These duties pertain to certain metal furniture imported from China into theUnited States that was subject to anti-dumping duties during the period between December 3, 2001 throughMay 31, 2003. In relation to this charge the Company has a pending claim against a major international law firm.That claim relates to a breach of professional duty by the law firm for its failure to timely file a request for anadministrative review by the DOC of the duties imposed.

NOTE 20 – PRODUCT LIABILITYThe Company is insured for product liability by the use of both traditional insurance and self-funded insuranceprograms, which mitigate its product liability exposure.

The estimated product liability exposure was calculated by an independent actuary based on historical salesvolumes, past claims history and management and actuarial assumptions. The estimated exposure includesincidents that have occurred, as well as incidents anticipated to occur on units sold prior to December 30, 2008.Significant assumptions used in the actuarial model include management’s estimates for pending claims, productlife cycle, discount rates, and the frequency and severity of product incidents.

As at December 30, 2008, the Company’s recorded liability amounts to $23,087 (2007 – $30,571), whichrepresents the Company’s total estimated exposure related to current and future product liability incidents.

NOTE 21 – INSURANCE RECOVERYIn the second quarter of 2007, the Company has recorded a recovery of $2,200 in connection with the finalsettlement of a business interruption insurance claim made following a major fire at one of the Company’sprimary suppliers of particle board in April 2006. The claim was made as a result of incurring increased costs ofproduction, principally paying higher board prices. This insurance recovery was recorded as a reduction of theseadditional costs, in cost of sales.

NOTE 22 – INCOME TAXESVariations of income tax expense from the basic Canadian federal and provincial combined tax rates applicableto income from operations before income taxes are as follows:

December 30,

2008 2007PROVISION FOR INCOME TAXES $ 41,188 31.2% $ 35,187 33.0%ADD (DEDUCT) EFFECT OF: Difference in effective tax

rates of foreign subsidiaries (20,666) (15.7) (20,247) (19.0)Recovery of income taxes arising from

the use of unrecorded tax benefits (5,498) (4.1) (3,362) (3.2)Change in valuation allowance 1,100 0.8 3,806 3.6Non-deductible stock options 1,440 1.1 1,160 1.1Other non-deductible items 1,893 1.4 1,067 1.0Change in future income taxes

resulting from changes in tax rates 179 0.1 (580) (0.5)Effect of foreign exchange (1,221) (0.9) 518 0.5Other - Net 743 0.6 1,587 1.4

$ 19,158 14.5% $ 19,136 17.9%

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NOTE 22 – INCOME TAXES – (Cont’d)The tax effects of significant items comprising the Company’s net future income tax liabilities are as follows:


Capital and operating loss carryforwards $ 22,645 $ 13,299Employee pensions and post-retirement 3,631 3,473Other long-term liabilities 308 2,614Accounts receivable 7,928 3,969Inventories 11,671 9,698Accrued expenses 18,463 17,799Stock options 725 943Derivatives (3,110) 454Property, plant and equipment (22,509) (19,110)Intangible assets (66,405) (47,213)Goodwill (18,388) (13,578)Deferred development costs (16,364) (6,496)Prepaid expenses (88) (63)Valuation allowance (4,900) (7,325)Foreign exchange and other (432) (2,115)

$ (66,825) $ (43,651)

The short-term and long-term future income tax assets and liabilities are as follows:


Short-term future income tax assets $ 37,342 $ 35,228Long-term future income tax assets (Note 9) 10,420 892Short-term future income tax liabilities (2,713) (136)Long-term future income tax liabilities (111,874) (79,635)

$ (66,825) $ (43,651)

As at December 30, 2008, the Company has $254 of capital losses with no expiry and $70,649 of operating losscarryforwards, of which $10,278 will expire between 2011 and 2018 and $29,978 will expire between 2025and 2028. The remaining $30,393 has no expiration date. The Company also has unclaimed expenses availableto reduce federal income tax amounting to $2,129 and expiring between 2009 and 2013. The Companyrecognized a future income tax asset for all of these unused tax losses and other available income tax reductionsbut used a valuation allowance to reduce the related future income tax asset to the amount that is more likelythan not to be realized. As limitations on the utilization of these tax assets may apply, the Company hasprovided a valuation allowance in the amount of $4,900 as at December 30, 2008 for the full value of the capitallosses and unclaimed expenses and for a portion of the operating loss carryforwards.

The Company has not recognized a future income tax liability for the undistributed earnings of its subsidiaries inthe 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 bedetermined at the present time.

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NOTE 23 – EARNINGS PER SHAREThe following table provides a reconciliation between the number of basic and fully diluted shares outstanding:


Weighted daily average number of Class “A” Multiple and Class “B” Subordinate Voting Shares 33,398,544 33,285,990

Dilutive effect of stock options and deferred share units 348 7,258Weighted average number of diluted shares 33,398,892 33,293,248Number of anti-dilutive stock options and deferred share units excluded

from fully diluted earnings per share calculation 2,278,710 2,317,718

NOTE 24 – STATEMENT OF CASH FLOWSNet changes in non-cash balances related to operations are as follows:


Accounts receivable $ 28,223 $ 19,811Inventories (121,027) 13,137Prepaid expenses 677 (126)Accounts payable, accruals and other liabilities 22,105 (23,707)Income taxes (8,485) 15,367Total $ (78,507) $ 24,482

Details of acquisition of subsidiary companies:


Acquisition of subsidiary companies (Note 4) $ (231,591) $ (2,733)Cash acquired (Note 4) 4,493 541

(227,098) (2,192)Balance of sale (paid) 908 (594)

$ (226,190) $ (2,786)

The components of cash and cash equivalents are:


Cash $ 15,408 $ 18,449Short-term investments 1,558 4,064Cash and cash equivalents $ 16,966 $ 22,513

Supplementary disclosure:


Interest paid $ (19,542) $ (22,989)Income taxes paid $ (27,221) $ (19,430)Income taxes received $ 1,660 $ 8,455

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NOTE 24 – STATEMENT OF CASH FLOWS– (Cont’d)Acquiring a long-lived asset by incurring a liability does not result in a cash outflow for the Company until theliability is paid. As such, the consolidated statement of cash flows excludes the following non-cash transactions:


Acquisition of property, plant and equipment financed by accounts payableand accrued liabilities $ 763 $ 1,903

Acquisition of intangible assets financed by accounts payable and accrued liabilities $ 140 $ 8

NOTE 25 – SEGMENTED INFORMATIONThe Company’s significant business segments include:

• Juvenile Products Segment: Engaged in the design, sourcing, manufacturing and distribution of children’sfurniture and accessories which include infant car seats, strollers, high chairs, toddler beds, cribs and infanthealth and safety aids.

• Recreational / Leisure Segment: Engaged in the design, sourcing and distribution of recreational and leisureproducts and accessories which include bicycles, jogging strollers, scooters and other recreational products.

• Home Furnishings Segment: Engaged in the design, sourcing, manufacturing and distribution ofready-to-assemble furniture and home furnishings which include metal folding furniture, futons, stepstools, ladders and other imported furniture items.

The accounting policies used to prepare the information by business segment are the same as those used toprepare 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 beforeinterest and income taxes. The allocation of revenues to each geographic areas are based on where the sellingcompany is located. Inter-segment sales were immaterial for the years ended December 30, 2008 and 2007.

Geographic Segments – Origin

December 30,

Property, plant and Total Revenue equipment and Goodwill

2008 2007 2008 2007Canada $ 248,107 $ 203,546 $ 42,413 $ 41,452United States 1,195,382 1,025,958 378,604 349,038Europe 593,309 462,846 273,396 270,960Other foreign countries 145,082 121,322 4,669 4,147Total $ 2,181,880 $ 1,813,672 $ 699,082 $ 665,597

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NOTE 25 – SEGMENTED INFORMATION (Cont’d) Industry Segments

December 30,

Recreational / Home Total Juvenile Leisure Furnishings Eliminations

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

Sales to

customers $2,181,880 $1,813,672 $1,109,174 $1,016,645 $ 643,985 $ 374,783 $ 428,721 $ 422,244 $ – $ –

Inter-segment

sales – – – – 6,670 – 10,150 7,649 (16,820) (7,649)

Total Revenue 2,181,880 1,813,672 1,109,174 1,016,645 650,655 374,783 438,871 429,893 (16,820) (7,649)

Cost of sales 1,651,137 1,375,418 785,273 707,409 498,153 301,835 384,531 373,823 (16,820) (7,649)

Selling,

general and

administrative

expenses 292,227 218,661 154,140 149,838 102,226 38,260 35,861 30,563

Depreciation &

amortization 45,759 39,755 32,900 32,174 6,964 1,736 5,895 5,845

Research and

development

costs 10,909 9,009 7,928 6,364 – – 2,981 2,645

Restructuring

costs (Note 3) 726 14,509 710 7,575 – – 16 6,934

Earnings from

Operations 181,122 156,320 $ 128,223 $ 113,285 $ 43,312 $ 32,952 $ 9,587 $ 10,083 $ – $ –

Interest 22,123 23,466

Corporate

expenses 26,986 26,226

Income taxes 19,158 19,136

Net income $ 112,855 $ 87,492

Total Assets $2,003,459 $1,628,346 $1,060,800 $1,005,663 $ 767,444 $ 392,833 $ 175,215 $ 229,850 $ – $ –

Additions to

property,

plant and

equipment

– net $ 26,423 $ 22,184 $ 18,504 $ 16,680 $ 3,997 $ 3,476 $ 3,922 $ 2,028

Total Assets


Total assets for reportable segments $ 2,003,459 $ 1,628,346Corporate assets 27,014 29,558Total Assets $ 2,030,473 $ 1,657,904

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NOTE 25 – SEGMENTED INFORMATION (Cont’d) Goodwill

The continuity of goodwill by industry segment is as follows:

December 30,

Total Juvenile Recreational / Leisure Home Furnishings

2008 2007 2008 2007 2008 2007 2008 2007Balance,

beginning of year $ 525,235 $ 501,356 $ 350,848 $ 326,969 $ 143,215 $ 143,215 $ 31,172 $ 31,172

Additions (Note 4) 23,611 945 966 945 22,645 – – –Additional

consideration – – – – – – – –Foreign exchange (8,659) 22,934 (8,659) 22,934 – – – –Balance,

end of year $ 540,187 $ 525,235 $ 343,155 $ 350,848 $ 165,860 $ 143,215 $ 31,172 $ 31,172

Concentration of Credit Risk

Sales to the Company’s major customer as described in Note 14 were concentrated as follows:

Canada United States Foreign

2008 2007 2008 2007 2008 2007Juvenile 1.5% 1.9% 7.5% 8.5% 1.3% –%Recreational/Leisure –% – % 8.1% 8.1% –% –%Home furnishings 2.3% 1.8% 7.4% 9.5% 2.3% 4.1%

NOTE 26 – SUBSEQUENT EVENTOn January 29, 2009 the Company announced the purchase of all of the outstanding shares of Belgium-basedBABY ART bvba. Created in 2006, BABY ART bvba markets its products under the BABY ART and HOPPOP brands.The innovative baby products and accessories, feature outstanding modern designs, are highly popular withconsumers and received rave reviews at Europe’s prestigious 2008 Cologne, Germany juvenile trade fair.

The purchase price was 4.1 million Euros or US$ 5.3 million. The transaction was financed through debt. TheCompany is presently in the process of allocating the cost of this purchase to the net assets acquired.

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Board of DirectorsMartin SchwartzPresident and Chief Executive OfficerMartin Schwartz is a co-founder of Ridgewood Industries Ltd.,which was merged with Dorel Industries Inc. and several otherassociated companies to create the Company. Martin has beenPresident and CEO of Dorel since 1992.

Jeffrey SchwartzExecutive Vice-President, Chief Financial Officer and SecretaryJeffrey Schwartz, previously Vice President of the JuvenileDivision of the Company, has been the Company’s Vice-President, Finance since 1989. In 2003, Jeffrey’s title waschanged to Executive Vice President, CFO and Secretary.

Jeff SegelExecutive Vice-President, Sales & MarketingJeff Segel is a co-founder of Ridgewood Industries Ltd. Jeff hasheld the position of Vice-President, Sales & Marketing since1987. In 2003, Jeff’s title changed to Executive Vice-President,Sales & Marketing.

Alan SchwartzExecutive Vice-President, OperationsAlan Schwartz is a co-founder of Ridgewood Industries Ltd.Alan has held the position of Vice-President, Operationssince 1989. In 2003, Alan’s title was changed to ExecutiveVice-President, Operations.

Maurice Tousson* is the President and Chief ExecutiveOfficer of CDREM Group Inc., a chain of retail stores knownas Centre du Rasoir or Personal Edge, a position he has heldsince January 2000. Mr. Tousson has held executivepositions at well-known Canadian specialty stores, includingChateau Stores of Canada, Consumers’ Distributing andSports Experts, with responsibilities for operations, finance,marketing and corporate development. Mr. Tousson currentlysits on the Board of Directors of Le Château and severalprivately held companies. Mr. Tousson holds an MBA degreefrom Long Island University in New York.

Harold “Sonny” Gordon, Q.C.* has been Chairman of theBoard of Directors of Dundee Corporation (formerly DundeeBancorp Inc.) since November 2001, prior to which he wasVice-Chairman of Hasbro Inc., a position he held until May 2002. Mr. Gordon has previously worked as a specialassistant to a Minister of the Government of Canada, andwas a managing partner of Stikeman Elliott LLP during his28-year career as a practicing lawyer. Mr. Gordon serves as adirector of Dundee Corporation, Pethealth Inc., SFK Pulp Inc.and Transcontinental Inc.

Dian Cohen** is a well-known broadcaster and author,recipient of the Order of Canada and other awards foreconomic communications excellence. Ms. Cohen serves asa director of Norbord Inc. and as a trustee of Great LakesHydro Income Fund.

Alain Benedetti, FCA***, is the retired Vice-Chairman ofErnst & Young LLP, where he worked for 34 years, mostrecently as the Canadian area managing partner, overseeingall Canadian operations. Prior thereto, he was the managingpartner for eastern Canada and the Montreal office. Mr. Benedetti has extensive experience with both public andprivate companies and currently serves on the Board ofDirectors of Russel Metals Inc and Birks & Mayors Inc. and asa Governor of Dynamic Mutual Funds. A former Chair of theCanadian Institute of Chartered Accountants, Mr. Benedettihas served on the Audit Committee of the Company since 2004and has been its chairperson since early 2005.

Richard L. Markee, is currently Retail Operating Partner atIrving Place Capital, a position he has held sinceNovember 2006. During the same period he has alsoserved on the Board of Directors of The Vitamin Shoppe, aprivately-held retail chain. From 1990 until 2006, Mr.Markee held various executive positions at Toys “R” Us,Inc, including Vice Chairman of Toys "R" Us, where he wasresponsible for the growth and expansion of Babies "R" Us.He was also Chairman of Toys "R" Us, Japan. Prior tojoining the Toys "R" Us organization, Mr. Markee was aVice President of Target Stores. Mr. Markee is a graduateof the University of Wisconsin.

* Members of the Audit Committee and the Human Resources andCorporate Governance Committee

** Member of the Human Resources and Corporate GovernanceCommittee

*** Member of the Audit Committee

OfficersMartin SchwartzPresident and Chief Executive Officer

Alan SchwartzExecutive Vice-President, Operations

Jeff SegelExecutive Vice-President, Sales and Marketing

Jeffrey SchwartzExecutive Vice-President, Chief Financial Officer and Secretary

Frank RanaVice-President, Finance and Assistant-Secretary

Ed WyseVice-President, Global Procurement

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Major OperationsJuvenileHani BasileInterim President Dorel Juvenile Group

Dorel Juvenile Group, Inc.Dave Taylor, President & CEO

(Head Office)2525 State StreetColumbus, Indiana, USA 47201Tel: (812) 372-0141

(Design and Development Centre) 25 Forbes Blvd, Suite 4Foxboro, MA 02035Tel: 508-216-1923

Dorel Distribution CanadaMark Robbins, President873 Hodge StreetMontreal, Quebec, Canada H4N 2B1Tel: (514) 332-3737

Dorel EuropeJean-Claude Jacomin, President & CEO

(Head Office)9, Boulevard Gamabetta (2nd floor)92130 Issy Les MoulineauxParis, FRANCETel: 00 33 1 47 65 93 41

Dorel France SAZ.I. - 9, Bd du Poitou - BP 90549309 Cholet CedexFRANCETel: 00 33 (0)2 41 49 23 23

Dorel Italia SpAVia Verdi, 1424060 Telgate (BERGAMO)ITALYTel: 0039 035 4421035

Dorel Portugal S.A.Parque Industrial Da VarzielaRua nº 1 - Arvore4480 - 109 Vila do CondePORTUGAL Tel: 252 248 530

Dorel Hispania S.A.C/Pare Rodès n°26 Torre A 4°Edificio Del Llac Center08208 Sabadell (BARCELONA)SPAINTel: 902 11 92 58

Dorel Juvenile Switzerland S.A.Chemin de la Colice 4 (Niveau 2)1023 CrissierSWITZERLANDTel: 021 661 28 40

Dorel BelgiumBudasteenweg 7 1830 MachelenBELGIUMTel: 02 257 44 70

Maxi Miliaan BVKorendjik 55704 RD HelmondNETHERLANDSTel: 0492 57 81 12

Dorel Germany GMBHAugustinusstrasse 11 bD-50226 Frechen – KönigsdorfGERMANYTel: 02234 96 430

Dorel (U.K.) LimitedHertsmere House, Shenley RoadBorehamwood, Hertfordshire WD6 1TE UNITED KINGDOMTel: 020 8236 0707

Dorel BrazilRafael Camarano, PresidentAv. Francisco Gomes de Freitas, 1573Mineiros, Campos dos Goytacases, RJBRAZIL 28145-000Tel: + 55 21 3563 3602

Dorel AustraliaRobert Berchick, President & CEO

IGC Dorel Pty655-685 Somerville RoadSunshine WestMelbourneVICTORIA, 3020AUSTRALIATel: 61-3-8311-5300

IGC Dorel (New Zealand)P.O Box 82377 Highland ParkMt Wellington New ZealandTel : 0800 62 8000

Recreational/LeisureRobert P. Baird Jr.President Recreational/Leisure

Cycling Sports GroupJeff McGuane, President, CSG North America

(Head Office)16 Trowbridge DriveBethel, Connecticut, USA 06801Tel: (203) 749-7093

Cannondale USACannondale Bicycle Corporation172 Friendship Road, Bedford,Pennsylvania, 15522-6600, USATel: (814) 623-9073

Cannondale EuropeHanzepoort 277570 GC, Oldenzaal, NetherlandsTel: + 41 61.4879380

Cannondale AustraliaUnit 6, 4 Prosperity Parade,Warriewood N.S.W., 2102, AustraliaTel: (02) 9979 5851

Cannondale JapanNamba Sumiso Building 9F,4-19, Minami Horie 1-chome,Nishi-ku, Osaka 550-0015, JapanTel: 06-6110-9390

SUGOIStan Mavis, President144 East 7th AvenueVancouver, British ColumbiaCanada V5T 1M6Tel: (604) 875-0887

Pacific CycleAlice Tillett, President

(Head Office)4902 Hammersley RoadMadison, Wisconsin, USA 53711Tel: (608) 268-2468

4730 E. Radio Tower LaneP.O. Box 344Olney, Illinois, USA 62450-0344Tel: (618) 393-2991

2041 Cessna DriveVacaville, California, USA 95688-8712Tel: (707) 452-1500

Home FurnishingsNorman BraunsteinPresident Home Furnishings

Ameriwood IndustriesRick Jackson, President & CEO

(Head Office)410 East First Street SouthWright City, Missouri, USA 63390Tel: (636) 745-3351

458 Second AvenueTiffin, Ohio, USA 44883Tel: (419) 447-7448

3305 Loyalist StreetCornwall, Ontario, Canada K6H 6W6Tel: (613) 937-0711

Altra FurnitureSteve Warhaftig, Vice-Presidentand General Manager410 East First Street SouthWright City, Missouri, USA 63390Tel: (636) 745-3351

Dorel Home ProductsIra Goldstein, Vice-President and General Manager12345 Albert-Hudon Blvd., Suite 100Montreal, Quebec, Canada H1G 3K9Tel: (514) 323-1247

Cosco Home & OfficeTroy Franks, Vice-President, Sales and Marketing2525 State StreetColumbus, Indiana, USA 47201Tel: (812) 372-0141

Dorel Asia SRL Bruce Kaufman, Managing DirectorSt. Lawrence Main RoadChrist Church, BarbadosTel: (246) 418-1650

Dorel – Consulting (Shanghai) Company Ltd.Jenny Chang, Vice-President of Far Eastern OperationsRoom 205, No. 3203, Hong Mei RoadMinghang District, Shanghai 201103P.R. ChinaTel: 011-86-21-644-68999

Showrooms 2855 Argentia Road, Unit 4Mississauga, Ontario, Canada L5N 8G6Tel: (905) 814-0854

Commerce and Design Building201 West Commerce Street, 9th FloorHighpoint, North Carolina, USA 27260Tel: (336) 889-9130

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Corporate InformationHead OfficeDorel Industries Inc.1255 Greene Avenue, Suite 300Westmount, Quebec, Canada H3Z 2A4

LawyersHeenan Blaikie LLP1250 René-Lévesque Blvd. WestSuite 2500Montreal, Quebec, Canada H3B 4Y1

Schiff Hardin & Waite233 South Wacker Drive6600 Sears TowerChicago, IL, U.S.A. 60606

AuditorsKPMG LLP600 de Maisonneuve Blvd. WestSuite 1500Montreal, Quebec, Canada H3A 0A3

Transfer Agent & RegistrarComputershare Investor Services Inc.100 University Avenue, 9th FloorToronto, Ontario, Canada M5J [email protected]

Investor RelationsMaisonBrisonRick Leckner1320 Graham Blvd., Suite 132T.M.R., Quebec, Canada H3P 3C8Tel.: (514) 731-0000Fax: (514) 731-4525email: [email protected]

Stock Exchange ListingShare SymbolsTSX – DII.B; DII.A

Annual Meeting of ShareholdersWednesday, May 27, 2009, at 10 amOmni HotelSalon Pierre de Coubertin1050 Sherbrooke Street WestMontreal, Quebec H3A 2R6

Written and Produced by

MaisonBrison

ProfileDorel Industries Inc. (TSX: DII.B, DII.A) is a world class juvenile products and bicycle company. Establishedin 1962, Dorel creates style and excitement in equal measure to safety, quality and value. The Company’slifestyle leadership position is pronounced in both its Juvenile and Bicycle categories with an array of trend-setting products. Dorel’s powerfully branded products include Safety 1st, Quinny, Cosco, Maxi-Cosi andBébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose and SUGOI in Recreational/Leisure.Dorel’s Home Furnishings segment markets a wide assortment of furniture products, both domesticallyproduced and imported. Dorel is a US$2 billion company with 4700 employees, facilities in eighteen countries,and sales worldwide.

1255 Greene Avenue, Suite 300Westmount, Quebec, Canada H3Z 2A4

T: (514) 934-3034 F: (514) 934-9932

www.djgusa.com

www.safety1st.com

www.maxi-cosi.com

www.quinny.com

www.bebeconfort.com

www.ingoodcare.com

www.pacific-cycle.com

www.cannondale.com/bikes

www.sugoi.ca

www.schwinn.com

www.gtbicycles.com

www.mongoose.com

www.instep.net

www.coscoproducts.com

www.ameriwood.com

www.altrafurniture.com

www.coscojuvenile.com

www.ebbaby.com

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