STYLE INNOVATION SAFETY

Transcription

1 STYLE INNOVATION SAFETY SECOND QUARTERLY REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2014 DOREL INDUSTRIES INC.

2 Management s Discussion and Analysis of Financial Conditions and Results of Operations For the second quarter and six months ended 2014 All figures in US dollars This Interim Management s Discussion and Analysis of Financial Conditions and Results of Operations ( MD & A ) should be read in conjunction with the unaudited condensed consolidated interim financial statements as at and for the second quarter and six months ended 2014 and the audited consolidated financial statements and MD & A as at and for the year ended December 30, This MD & A is based on reported earnings prepared in accordance with International Financial Reporting Standards ( IFRS ), using the US dollar as the reporting currency. The Company s condensed consolidated interim financial statements have been prepared using the same accounting policies as described in Note 4 of the Company s audited consolidated financial statements for the year ended December 30, The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with IFRS were omitted or condensed where such information is not considered material to the understanding of the Company s condensed consolidated interim financial statements. Quarterly reports, the annual report and supplementary information filed with the Canadian securities regulatory authorities can be found on-line at as well as on the Company s corporate Web site at Note that there have been no significant changes with regards to the Corporate Overview, Operating Segments, Contractual Obligations, Off-Balance Sheet Arrangements, Derivative Financial Instruments, Critical Accounting Estimates or Market Risks and Uncertainties to those outlined in the Company s 2013 annual MD & A as filed with Canadian securities regulatory authorities on March 6, As such, they are not repeated herein. The information in this MD & A is current as of August 6, SIGNIFICANT EVENTS IN 2014 On January 16, 2014, the Company announced that it had purchased 100% of the shares of juvenile business Tiny Love, a global, baby products and developmental toy company headquartered in Tel Aviv, Israel, with offices located in the U.S. and China. Tiny Love is recognized as an innovator in the developmental toy category, which comprises products like activity gyms, mobiles, light gear and toys designed specifically for babies and toddlers. The purchase price was $55.8 million. The Company is presently in the process of finalizing the fair value of the assets acquired and the liabilities assumed. In addition, on January 16, 2014, in the Recreational/Leisure segment, the Company acquired certain assets of Sombrio Freewear Company Ltd., a designer and manufacturer of high performance apparel, outwear and streetwear, headquartered in Vancouver, Canada. The purchase price was $0.7 million. On April 3, 2014, Dorel Juvenile Brazil acquired the rights to sell Infanti branded product in the Brazilian market place for a purchase price of approximately $7.0 million. This acquisition expanded the Company s ownership of the Infanti brand, to which the Company already owns the rights in Chile, Bolivia, Peru, Argentina, Colombia, and most Central American and Caribbean countries. The Company is presently in the process of determining the fair value of the assets acquired. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

3 On April 22, 2014, Caloi issued approximately $45.4 million of non-convertible unsecured debentures in Brazil. The proceeds from the issuance of the debentures were used to replace current existing debts such as bank indebtedness and revolving bank loans. The terms and the principal repayments of these debentures are disclosed in Note 6 of the 2014 condensed consolidated interim financial statements. On May 12, 2014 the Company announced that it had decided to implement a normal course issuer bid ( 2014 NCIB ). Under the 2014 NCIB, the Company is entitled to repurchase for cancellation up to 500,000 Class B Subordinate Voting Shares over a twelve-month period commencing May 14, 2014 and ending May 13, 2015, representing approximately 1.8% of the Company s issued and outstanding Class B Subordinate Voting Shares. The purchases by the Company will be realized through the facilities of the Toronto Stock Exchange ( TSX ) and will be made at the market price of the Class B Subordinate Voting Shares at the time of the purchase. As at May 5, 2014, there were 28,095,947 Dorel Class B Subordinate Voting Shares issued and outstanding. The Board of Directors considers that the underlying value of the Company may not be reflected in the market price of its Class B Subordinate Voting Shares at certain times during the term of the normal course issuer bid. The Board has therefore concluded that the repurchase of shares at certain market prices may constitute an appropriate use of financial resources and be beneficial to the company and its shareholders. During the six month period prior to the implementation of the 2014 NCIB, the average daily trading volume for the Class B Subordinate Voting Shares of the Company on the TSX was 29,927 shares. Consequently, under the policies of the TSX, the Company has the right to repurchase during any one trading day a maximum of 7,481 Class B Subordinate Voting Shares, representing 25% of the average daily trading volume. In addition, the Company may make, once per calendar week, a block purchase (as such term is defined in the TSX Company Manual) of Class B Subordinate Voting Shares not directly or indirectly owned by insiders of the Company, in accordance with the policies of the TSX. Any purchases made pursuant to the 2014 NCIB will be made in accordance with the requirements of the TSX. The Company will make no purchases of Class B Subordinate Voting Shares other than open market purchases during the period of the 2014 NCIB. To the knowledge of the Company, no director or officer of the Company intends to sell shares of the Company while the 2014 NCIB is in effect. In addition, the Company has entered into an automatic share purchase agreement with CIBC World Markets Inc. in connection with the 2014 NCIB. Under the agreement, CIBC may acquire, at its discretion, Class B Subordinate Voting Shares on the Company s behalf during certain black-out periods, subject to certain parameters as to price and number of shares. The agreement with CIBC is cancellable at any time by the Company. On June 16, 2014, the Company announced that it had signed an agreement to acquire the juvenile business of Hong Kong based Lerado Group, a juvenile product manufacturer in China specializing in the design and manufacture of a wide range of infant and juvenile products. The Lerado Group is a subsidiary of Lerado Group (Holding) Company Limited, a publicly traded company listed on the Hong Kong Stock Exchange. The purchase price has been established at HK$930 million ($120 million), subject to adjustments, and will be due upon closing. The transaction is subject to regulatory review as well as approval by the shareholders of Lerado and it is anticipated to close before year-end. The acquisition is not expected to be accretive in the first year of operations as work will be required to integrate these new facilities into existing operations. During the second quarter ended 2014, the Company implemented a share appreciation rights plan and a performance share unit plan for senior executives and certain key employees that entitle them to a cash payment. Further information on these plans can be found in Note 9 of the 2014 condensed consolidated interim financial statements. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

4 RESULTS OF OPERATIONS (All tabular figures are in thousands except per share amounts) Overview For the second quarter of 2014, revenue increased by $55.4 million, or 9.2%, to $655.8 million. This compares to $600.4 million posted a year ago. The organic revenue increase, removing the impact of foreign exchange rate variations and new business acquisitions was approximately 4%. Pre-tax earnings increased by 13.5% to $19.0 million from $16.8 million in Net income for the quarter was $15.2 million, an increase of 14.9% from the $13.2 million recorded in On a diluted earnings-per-share ( EPS ) basis, this equates to $0.47 for the second quarter of 2014 compared to $0.41 in For the six months ended June , revenue increased by $108.9 million, or 9.1%, to $1,303.5 million. This compares to $1,194.6 million posted a year ago. The organic revenue increase, removing the impact of foreign exchange rate variations and new business acquisitions was approximately 8%. Pre-tax earnings increased by 17.8% to $48.9 million from $41.5 million in Net income for the six months was $40.0 million, an increase of 12.5% from the $35.5 million recorded in On a diluted EPS basis, this equates to $1.24 for the six months of 2014 compared to $1.11 in The impact of Caloi decreased Dorel s earnings by US$10.3 million net of tax for six months ended June 30, 2014 which is mainly comprised of the Caloi $0.8 million loss from operations at the segment level, cash interest costs and $6.0 million of non-cash charges such as accretion interests and unrealized foreign exchange losses on put option liabilities. In the second quarter, gross profit increased by 40 basis points to 23.8% from 23.4% in the prior year. The gross profit increase was in the Recreational / Leisure and Juvenile segments, partially offset by a decrease in the Home Furnishings segment. Year-to-date, gross profit increased by 10 basis points to 23.9% from 23.8% in the previous year. The gross profit increase was in the Recreational / Leisure segment, partially offset by a decrease in the Home Furnishing segment and remained stable in Juvenile. For the second quarter, the Company s selling expenses decreased by $0.4 million, or 0.7% compared to the prior year. Year-to-date, selling expenses have increased by $0.9 million, or 0.8%. General and administrative costs increased by $10.5 million or 22.8% in the second quarter versus the second quarter of Year-to-date general and administrative expenses have increased by $8.5 million or 8.7%. The increase was in all segments and was mainly due to the acquisition of Caloi and Tiny Love in both the quarter and year-to-date periods. Included in general and administrative costs is an amount of $1.0 million for the second quarter and $2.7 million for the year-to-date, related to unrealized foreign exchange losses on the put option liabilities. This compares to an unrealized foreign exchange gain in 2013 of $2.2 million for the second quarter and $2.0 million for the year-to-date. Excluding these unrealized foreign exchange amounts and the impact of the acquired companies, Caloi and Tiny Love, general and administrative expenses would have shown an increase of $2.9 million for the second quarter and a decrease of $4.6 million for the year-to-date when compared to the prior year, which would represent 8.2% of revenue compared with 8.0% in 2013 for the second quarters and 7.7% of revenue compared with 8.4% in 2013 for the year-to-date. Note that these unrealized foreign exchange gains and losses on put option liabilities are not allocated to the Company s segments and are included with the corporate expenses within the segmented figures presented in Note 13 to the Company s condensed consolidated interim financial statements. The Company s year-to-date finance expenses increased by $9.4 million to $19.5 million from $10.1 million in The increase is due to higher borrowings as a result of the acquisitions. The interest rate on the Company s long-term borrowings and revolving line of credit for the first six months of 2014 was 4.6% compared with 3.7% in Included in finance expenses was $3.8 million related to interest recorded on the Company s put option liabilities related to certain of its business acquisitions. This compares to $1.2 million for the same period of As a multi-national company, Dorel is resident in numerous countries and therefore subject to different tax rates in those various jurisdictions and by the interpretation and application of tax laws, as well as the application of income tax treaties between various countries. As such, significant tax rate variations can occur from year to year and between quarters within a given year. The 2014 second quarter tax rate was 20.2% and year-to-date was 18.1%. This compares to 21.1% for the quarter and 14.3% year-to-date in The main causes of the variations year-over-year are changes in the jurisdictions in which the Company generated its income year-over-year and the increase in the fair value DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

5 adjustments related to the put option liabilities which are non-deductible for tax purposes. The Company has stated that for the full year it expects its annual tax rate to be between 15% and 20%. However, variations in earnings across quarters mean that this rate may vary significantly from quarter to quarter. The principal changes in net income from 2013 to 2014 are summarized as follows: Second Year- Quarter to-date Juvenile increase $ 352 $ 2,000 Recreational/Leisure (excluding restructuring costs) increase 11,284 18,505 Home Furnishings decrease (1,947) (1,825) Restructuring costs (Increase) decrease 247 (204) Total increase in operating profit 9,936 18,476 Increase in finance expenses (4,646) (9,443) Increase in income tax expense (296) (2,934) Increase in corporate expenses (3,018) (1,639) Total increase in net income $ 1,976 $ 4,460 The causes of these variations versus last year are discussed in more detail below. Selected Financial Information The tables below show selected financial information for the eight most recently completed quarters. Operating Results for the Quarters Ended $ $ $ $ Jun. 30, 2014 Mar. 31, 2014 Dec. 30, 2013 Sep. 30, 2013 Total revenue $655,831 $647,701 $633,534 $607,298 Net income $15,200 $24,800 $11,024 $11,105 Earnings per share: Basic $0.47 $0.78 $0.35 $0.35 Diluted $0.47 $0.77 $0.34 $0.34 Amount of restructuring costs after tax included in the quarter based on diluted earnings per share $ 0.03 $ 0.01 $ 0.25 $ - Operating Results for the Quarters Ended $ $ $ $ Jun. 30, 2013 Mar. 31, 2013 Dec. 30, 2012 Sep. 30, 2012 Total revenue $600,449 $594,168 $622,604 $613,295 Net income $13,224 $22,316 $29,119 $19,986 Earnings per share: Basic $0.41 $0.70 $0.92 $0.64 Diluted $0.41 $0.70 $0.91 $0.63 Amount of restructuring costs after tax included in the quarter based on diluted earnings per share $ 0.04 $ - $ - $ - Segmented Results Segmented figures are presented in Note 13 to the Company s condensed consolidated interim financial statements. Further industry segment detail is presented below: DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

6 Juvenile Results as a percentage of total revenue Second Quarters ended June 30 Six months ended June Total revenue 100.0% 100.0% 100.0% 100.0% Cost of sales 71.0% 71.8% 71.3% 71.3% Gross profit 29.0% 28.2% 28.7% 28.7% Selling expenses 11.5% 11.2% 11.1% 10.9% General and administrative expenses 9.4% 8.4% 8.7% 9.0% Research and development expenses 1.7% 2.1% 2.0% 2.0% Operating profit 6.4% 6.5% 6.9% 6.8% Juvenile segment revenue in the second quarter of 2014 was $251.3 million, compared to $243.4 million in 2013, an increase of $7.9 million or 3.2%. On a year-to-date basis, Juvenile segment revenue was $520.6 million versus $498.6 million a year ago, an increase of 4.4%. Organic revenue, after removing the effect of acquisitions and the impact of varying exchange rates year-over-year, was flat in the quarter and increased by approximately 1% year-to-date. While the organic revenue growth for the segment overall is negligible, Latin American organic growth was the exception, with an increase of approximately 10% for the quarter and 16% year-to-date. However, upon conversion to US dollar, this growth was mostly offset by a less favorable rate of exchange. Gross profit increased by 80 basis points to 29.0% in the second quarter of 2014 compared to 28.2% in Year-todate gross profit was stable at 28.7% in both 2014 and Operating profit for the quarter was $16.2 million, an increase of 2.2% from $15.8 million in The main driver of the improvement in operating profit was Dorel Juvenile Europe due to improved gross margins and operating costs that were well contained. Furthermore, the conversion of European operating profit was aided by a stronger rate of conversion to US dollar. Conversely, operating profits in Latin America, Canada and Australia were impacted negatively due to a weakness in foreign exchange rates versus the US dollar. Operating profit for the first six months of 2014 was $35.7 million, compared with $33.7 million in 2013, a growth of 5.9% with Dorel Juvenile USA and Dorel Juvenile Europe being substantial contributors to the improvement. These increases were partially offset by the challenge in the other markets as described above. For the segment as a whole, selling expenses increased by $1.4 million in the quarter, and have increased $2.9 million year-to-date. The majority of the increases in selling expenses can be attributed to the acquisition in the first quarter of Tiny Love. The conversion of selling expenses in Europe at a higher rate of exchange also contributed to the increase. General and administrative expenses increased by $3.2 million in the quarter and were stable on a year-to-date basis compared to the prior year. Significant variations for both the quarter and year-to-date are mainly attributed to the addition of Tiny Love, timing and conversion to US dollar of costs in Europe and professional fees related to acquisition activity, partly offset by lower product liability costs. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

7 Recreational / Leisure Results as a percentage of total revenue Second Quarters ended June 30 Six months ended June Total revenue 100.0% 100.0% 100.0% 100.0% Cost of sales 76.5% 77.1% 75.7% 76.0% Gross profit 23.5% 22.9% 24.3% 24.0% Selling expenses 9.9% 12.7% 9.8% 12.2% General and administrative expenses 7.3% 7.2% 7.6% 7.6% Research and development expenses 0.6% 0.7% 0.6% 0.7% Restructuring costs 0.4% 0.8% 0.3% 0.5% Operating profit 5.3% 1.5% 6.0% 3.0% Second quarter 2014 Recreational / Leisure revenue increased by $48.0 million, or 20.2% to $286.2 million compared to last year s $238.2 million. Revenue for the first six months of 2014 increased by $84.9 million, or 19.2% to $526.6 million compared to $441.7 million in the previous year. Organic revenue which excludes the impact of varying foreign exchange rates and acquisitions, increased by approximately 11% in the quarter and 15% year-to-date. Overseas markets in the independent bike dealer (IBD) channels, particularly Europe and Japan, as well as the sales to the North American mass merchant distribution channels contributed to the quarter and year-to-date organic growth. The increases in both the IBD and the mass merchant distribution channels were driven partly by improved weather conditions when compared to prior year. Recreational / Leisure adjusted operating profit, excluding restructuring costs, for the second quarter, increased by $11.3 million or 200.4% to $16.9 million, compared with $5.6 million in Year-to-date adjusted operating profit, excluding restructuring costs, increased by $18.5 million or 122.0% to $33.7 million versus the $15.2 million posted in the first half of For the quarter, excluding restructuring costs included in cost of goods, adjusted gross margin increased by 80 basis points to 23.7% from 22.9% recorded in the second quarter of Year-to-date, the increase in adjusted gross margin was 40 basis points to 24.4% from 24.0% in the same period of Less discounting of inventory, and the weakening of the US dollar against its Euro counterpart helped boost the gross margins in the IBD channel in both the quarter and year-to-date periods in Gross profit in the mass market channel was tempered by lower gross profit marginally below the prior year s level in both the quarter and year-to-date due mainly to sales mix. For the quarter and year-to-date periods, selling expenses declined 6.7% and 4.6% respectively. Excluding the impact of the Caloi acquisition, selling expenses declined by 15.3% in the quarter and 13.7% year-to-date. The decline in selling expenses is due to significant cost cutting initiatives as part of the restructuring plan put in place in January General and administrative expenses increased 23.3% and 19.6% for the quarter and year-to-date respectively. Excluding the general and administrative expenses of Caloi, the increase for the quarter and year-to-date periods were 3.4% and 0.3% respectively. Restructuring costs of approximately $1.7 million for the quarter and $2.2 million year-todate were recorded in 2014, compared with $2.0 million recorded for both the quarter and year-to-date periods of DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

8 Home Furnishings Results as a percentage of total revenue Second Quarters ended June 30 Six months ended June Total revenue 100.0% 100.0% 100.0% 100.0% Cost of sales 86.6% 85.6% 86.8% 86.1% Gross profit 13.4% 14.4% 13.2% 13.9% Selling expenses 3.5% 3.4% 3.2% 3.1% General and administrative expenses 4.7% 4.1% 4.1% 4.1% Research and development expenses 0.8% 0.8% 0.7% 0.7% Operating profit 4.4% 6.1% 5.2% 6.0% Second quarter Home Furnishings revenue were flat compared with the previous year while the year-to-date revenue increased by $2.1 million or 0.8% from $254.3 million in 2013 to $256.4 million in Sales to the segment s drop ship vendor program and on-line sales increased both for the quarter and the year-to-date when compared to the previous year. These increases were offset for the quarter and partly offset for the year-to-date by declines in sales to brick-and-mortar stores. Operating profit in the quarter was $5.3 million compared to $7.2 million in the prior year, a decrease of $1.9 million or 27.0%. On a year-to-date basis operating profit decreased to $13.3 million from $15.1 million in 2013, a decline of $1.8 million or 12.0%. For the second quarter of 2014 gross profit was 13.4%, a decrease of 100 basis points from the 14.4% recorded in the comparable period of the prior year. Year-to-date gross profit has declined by 70 basis points to 13.2% in 2014 from 13.9% in While input costs rose slightly versus last year, particularly in particle board, gross profit deteriorated due to the impact of the higher proportion of sales of lower margin items. Though operating expenses, consisting of selling, general and administrative, and research and development costs, increased slightly, they remain wellcontained at 9% and 8% of revenue for the quarter and year-to-date respectively. LIQUIDITY AND CAPITAL RESOURCES Statement of Financial Position Certain of the Company s working capital ratios are as follows: As at: Jun. 30, 2014 Jun. 30, 2013 Dec. 30, 2013 Debt* to equity # of days in receivables # of days in inventory # of days in payables *Debt is defined as bank indebtedness plus long-term debt There were no significant changes in the Company s Statement of Financial Position in the quarter except as discussed below. The increase in the debt to equity ratio compared to year-end is a function of higher borrowing as at the end of the second quarter to finance acquisitions. Inventory as at 2014 was $593.1 million, an increase of $37.5 million or 6.7% from $555.6 million as at December 30, The increase is mainly in the Recreational / Leisure segment due in part to the acquisition of Caloi which represented 35% of the total increase. The increase in inventory value also explains the increase in the number of days in inventory compared with the same quarter in 2013 and is consistent compared to the year-end. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

9 As at December 30, 2013, the Company was in breach with one of its covenants. As a result of this breach, the Company reclassified the long-term portion of the related debts to the current portion of long-term debt since as at December 30, 2013, the Company had not obtained from the associated lenders the amendment to its debt agreements for this covenant. During the three months ended March 31, 2014, the Company amended certain financial covenants related to its debt agreements. As of 2014, Dorel was compliant with all of its borrowing covenant requirements and as a result the related debts are classified as long-term. The Company continuously reviews its cash management and financing strategy to optimize the use of funds and minimize its cost of borrowing. Statement of Cash Flows During the first six months of 2014, cash flow provided by operating activities was $16.6 million compared to $44.4 million in The main reasons for the year-over-year decrease of $27.8 million was due principally to the increase in accounts receivable and inventory, partially offset by the increase in accounts payable compared with the December 30, 2013 statement of financial position. The net change in balances related to non-cash working capital negatively impacted the cash flow provided by operating activities reducing the positive impact of the higher net income. Year-todate net additions to property, plant and equipment and intangible assets were $27.6 million in This compares to $28.1 million in The Company disbursed $9.7 million in the quarter and $19.3 million year-to-date for dividends in 2014 compared with $9.6 million and $19.1 million in the second quarter and year-to-date respectively of In the first six months of 2014 the Company disbursed 54.6 million related to business acquisitions. Included in year-to-date financing activities is a positive cash flow amount of $6.9 million related to certain stock options being exercised under the Company s employee stock option plan. Principally as a result of the above, bank indebtedness plus long-term debt less cash and cash equivalents include a combined net increase of $87.3 million for the first half of Future Accounting Changes A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standards Board or the International Financial Reporting Interpretations Committee ( IFRIC ) that are mandatory but not yet effective for the three and six months ended 2014 and have not been applied in preparing these condensed consolidated interim financial statements. The following standards and interpretations have been issued by the IASB and the IFRIC with effective dates in the future that have been determined by management to impact the consolidated financial statements: IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRIC Interpretation 21 Levies (IFRIC 21) Further information on these modifications can be found in Note 3 of the 2014 condensed consolidated interim financial statements. OTHER INFORMATION The designation, number and amount of each class and series of its shares outstanding as of July 31, 2014 are as follows: An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any time at the option of the holder into Class "B" Subordinate Voting Shares on a one-for-one basis, and; An unlimited number of Class "B" Subordinate Voting Shares without nominal or par value, convertible into Class "A" Multiple Voting Shares, under certain circumstances, if an offer is made to purchase the Class "A" shares. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

10 Details of the issued and outstanding shares are as follows: Class A Class B Total Number $( 000) Number $( 000) $( 000) 4,195,135 $1,771 28,107,805 $197,587 $199,358 Outstanding stock options, Deferred Share Units, Share Appreciation Rights and Performance Share Units are disclosed in Note 9 to the Company s condensed consolidated interim financial statements. There were no significant changes to these values in the period between the quarter-end and the date of the preparation of this MD & A. Disclosure Controls and Procedures and Internal Controls over Financial Reporting During the quarter ended 2014 the Company has made no change that has materially affected or is likely to materially affect the Company s internal control over financial reporting. In accordance with National Instrument and with practices accepted by the Autorités des Marchés Financiers, the Company excluded Caloi from its assessment of internal control over financial reporting. Supplemental information about this acquisition is provided in the table below: Six months ended 2014 $ Total Revenue 43,035 Operating Profit (1) (4,257) As at 2014 $ Total current assets 72,459 Total non-current assets 138,077 Total current liabilities 38,508 Total non-current liabilities 101,769 (1) Includes all fair value adjustments related to the put option liabilities but excludes the accretion expense on those put option liabilities which are not presented in the recreational/leisure segment. These costs are included in the corporate expenses within the segmented income statement in Note 13 to the condensed consolidated interim financial statements. Caution Regarding Forward Looking Information Certain statements included in this MD&A may constitute forward-looking statements within the meaning of applicable Canadian securities legislation. Except as may be required by Canadian securities laws, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from the Company s expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, the Company cannot guarantee that any forward-looking statement will materialize. Forward-looking statements are provided in this MD&A for the purpose of giving information about Management s current expectations and plans and allowing investors and others to get a better understanding of the Company s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

11 Forward-looking statements made in this MD&A are based on a number of assumptions that the Company believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from the Company s expectations expressed in or implied by the forward-looking statements include: general economic conditions; changes in product costs and supply channel; foreign currency fluctuations; customer and credit risk including the concentration of revenues with few customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; continued access to capital resources and the related costs of borrowing; changes in assumptions in the valuation of goodwill and other intangible assets and subject to dividends being declared by the Board of Directors, there can be no certainty that Dorel Industries Inc. s Dividend Policy will be maintained. These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in the Company s annual MD&A and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. The Company cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may also have a material adverse effect on the business, financial condition or results of operations. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and nonrecurring and other unusual items can be complex and depends on the facts particular to each of them. The Company therefore cannot describe the expected impact in a meaningful way or in the same way the Company presents known risks affecting the business. DOREL INDUSTRIES INC. MANAGEMENT S DISCUSSION AND ANALYSIS for the second quarter and six months ended

12 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION ALL FIGURES IN THOUSANDS OF US $ ASSETS CURRENT ASSETS As at 2014 (unaudited) As at December 30, 2013 (unaudited) Cash and cash equivalents (Note 12) $ 40,858 $ 40,074 Trade and other receivables 474, ,465 Inventories 593, ,567 Other financial assets Income taxes receivable 14,296 11,626 Prepaid expenses 32,694 26,200 1,156,498 1,090,163 Assets held for sale (Note 4) 1,308 1,157,806 1,090,163 NON-CURRENT ASSETS Property, plant and equipment 179, ,299 Intangible assets 557, ,381 Goodwill (Note 13) 632, ,084 Other financial assets 1, Deferred tax assets 20,150 24,356 Other assets 5,562 6,060 LIABILITIES CURRENT LIABILITIES 1,396,329 1,349,800 $ 2,554,135 $ 2,439,963 Bank indebtedness $ 38,740 $ 72,546 Trade and other payables 389, ,311 Other financial liabilities 3,540 3,231 Income taxes payable 4,147 7,075 Long-term debt (Note 6) 61, ,374 Provisions 37,318 44,570 NON-CURRENT LIABILITIES 534, ,107 Long-term debt (Note 6) 417,753 13,183 Net pension and post-retirement defined benefit liabilities 31,172 31,701 Deferred tax liabilities 94,723 87,171 Provisions 2,000 1,993 Put option liabilities (Note 7) 81,646 92,570 Other financial liabilities 2,203 2,727 Other long-term liabilities 14,162 12,751 EQUITY 643, ,096 Share capital (Note 8) 199, ,458 Contributed surplus 25,679 26,994 Accumulated other comprehensive income 68,730 67,824 Retained earnings 1,082,121 1,061,484 1,375,888 1,346,760 $ 2,554,135 $ 2,439,963 (See accompanying notes) DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

13 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS Second Quarters Ended Six Months Ended (unaudited) (unaudited) (unaudited) (unaudited) Sales $ 653,415 $ 598,046 $ 1,296,573 $ 1,187,112 Licensing and commission income 2,416 2,403 6,959 7,505 TOTAL REVENUE 655, ,449 1,303,532 1,194,617 Cost of sales (Note 4) 499, , , ,286 GROSS PROFIT 155, , , ,331 Selling expenses 61,964 62, , ,772 General and administrative expenses 56,544 46, ,675 98,178 Research and development expenses 6,945 7,696 15,696 14,899 Restructuring costs (Note 4) 1,212 1,950 1,483 1,950 OPERATING PROFIT 29,272 22,354 68,369 51,532 Finance expenses (Note 11) 10,231 5,585 19,510 10,067 INCOME BEFORE INCOME TAXES 19,041 16,769 48,859 41,465 Income taxes expense (Note 11) 3,841 3,545 8,859 5,925 NET INCOME $ 15,200 $ 13,224 $ 40,000 $ 35,540 EARNINGS PER SHARE Basic $ 0.47 $ 0.41 $ 1.25 $ 1.12 Diluted $ 0.47 $ 0.41 $ 1.24 $ 1.11 SHARES OUTSTANDING (Note 10) Basic weighted average 32,297,064 31,865,525 32,117,648 31,765,123 Diluted weighted average 32,488,794 32,223,810 32,384,207 32,152,285 (See accompanying notes) DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

14 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME ALL FIGURES IN THOUSANDS OF US $ Second Quarters Ended Six Months Ended (unaudited) (unaudited) (unaudited) (unaudited) NET INCOME $ 15,200 $ 13,224 $ 40,000 $ 35,540 OTHER COMPREHENSIVE INCOME (LOSS): Items that are or may be reclassified subsequently to net income: Cumulative translation account: Net change in unrealized foreign currency gains (losses) on translation of net investments in foreign operations, net of tax of nil 441 (3,711) 109 (19,349) Net changes in cash flow hedges: Net change in unrealized gains (losses) on derivatives designated as cash flow hedges (1,070) (294) (939) 3,824 Reclassification to income Reclassification to the related non-financial asset 993 (628) 1,477 (758) Deferred income taxes (227) (1,211) 184 (630) 791 2,358 Items that will not be reclassified to net income: Defined benefit plans: Remeasurements of the net pension and post-retirement defined benefit liabilities 9 (4) 9 4 Deferred income taxes (3) 1 (3) (1) 6 (3) 6 3 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 631 (4,344) 906 (16,988) TOTAL COMPREHENSIVE INCOME $ 15,831 $ 8,880 $ 40,906 $ 18,552 (See accompanying notes) DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

15 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY ALL FIGURES IN THOUSANDS OF US $ Attributable to equity holders of the Company Accumulated other comprehensive income Share Capital Contributed Surplus Cumulative Translation Account Cash Flow Hedges Defined Benefit Plans Retained Earnings Total Equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Balance as at December 30, 2012 $ 180,856 $ 27,192 $ 66,391 $ (1,036 ) $ (7,736 ) $ 1,042,446 $ 1,308,113 Total comprehensive income: Net income 35,540 35,540 Other comprehensive income (loss) (19,349 ) 2,358 3 (16,988 ) $ $ $ (19,349 ) $ 2,358 $ 3 $ 35,540 $ 18,552 Issued under stock option plan 6,464 6,464 Reclassification from contributed surplus due to exercise of stock options 1,377 (1,377 ) Reclassification from contributed surplus due to settlement of deferred share units (Note 9) 227 (347 ) (120 ) Share-based payments (Note 9) 1,381 1,381 Dividends on common shares (19,052 ) (19,052 ) Dividends on deferred share units (Note 9) 93 (93 ) Balance as at 2013 $ 188,924 $ 26,942 $ 47,042 $ 1,322 $ (7,733 ) $ 1,058,841 $ 1,315,338 Balance as at December 30, 2013 $ 190,458 $ 26,994 $ 75,378 $ (2,154 ) $ (5,400 ) $ 1,061,484 $ 1,346,760 Total comprehensive income: Net income 40,000 40,000 Other comprehensive income $ $ $ 109 $ 791 $ 6 $ 40,000 $ 40,906 Issued under stock option plan (Note 8) 6,916 6,916 Reclassification from contributed surplus due to exercise of stock options (Note 8) 1,829 (1,829 ) Reclassification from contributed surplus due to settlement of deferred share units (Notes 8 and 9) 155 (233 ) (78 ) Share-based payments (Note 9) Dividends on common shares (19,266 ) (19,266 ) Dividends on deferred share units (Note 9) 97 (97 ) Balance as at 2014 $ 199,358 $ 25,679 $ 75,487 $ (1,363 ) $ (5,394 ) $ 1,082,121 $ 1,375,888 (See accompanying notes) DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

16 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS ALL FIGURES IN THOUSANDS OF US $ CASH PROVIDED BY (USED IN): Second Quarters Ended Six Months Ended (unaudited) (unaudited) (unaudited) (unaudited) OPERATING ACTIVITIES Net income $ 15,200 $ 13,224 $ 40,000 $ 35,540 Items not involving cash: Depreciation and amortization 14,692 13,957 29,712 27,080 Amortization of deferred financing costs (Note 11) Accretion expense on put option liabilities (Notes 7 and 11) 1, ,797 1,172 Unrealized losses (gains) due to foreign exchange exposure on put option liabilities (Note 7) 969 (2,169 ) 2,654 (1,975 ) Unrealized losses (gains) arising on financial assets and financial liabilities classified as held for trading Other finance expenses (Note 11) 8,573 4,909 15,330 8,705 Restructuring costs (Note 4) 1,703 1,950 2,154 1,950 Income taxes expense 3,841 3,545 8,859 5,925 Share-based payments (Note 9) ,076 Defined benefit pension and post-retirement costs ,704 1,492 Loss (gain) on disposal of property, plant and equipment 43 (197 ) 20 (218 ) 48,242 37, ,657 80,937 Net changes in balances related to operations (Note 12) (21,510 ) 35,784 (63,850 ) (29,096 ) Income taxes paid (5,935 ) (4,247 ) (18,544 ) (9,609 ) Income taxes received 1,226 1,663 6,445 9,891 Interest paid (9,700 ) (6,695 ) (13,390 ) (8,213 ) Interest received CASH PROVIDED BY OPERATING ACTIVITIES 12,408 63,660 16,592 44,406 FINANCING ACTIVITIES Bank indebtedness (28,937 ) (9,726 ) (37,194) 5,605 Increase of long-term debt 73, ,173 19,957 Repayments of long-term debt (24,968 ) (15,424 ) (26,395 ) (13,084 ) Repayments of contingent consideration (Note 7) (1,995 ) Financing costs (900 ) (213 ) (1,291 ) (218 ) Issuance of share capital (Note 8) ,901 5,620 Dividends on common shares (9,691 ) (9,562 ) (19,266 ) (19,052 ) CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,101 (34,354 ) 69,928 (3,167 ) INVESTING ACTIVITIES Acquisition of businesses (Notes 5 and 12) (6,432 ) (54,593 ) Additions to property, plant and equipment (8,054 ) (10,885 ) (18,084 ) (17,530 ) Disposals of property, plant and equipment Additions to intangible assets (5,370 ) (5,535 ) (10,076 ) (10,877 ) CASH USED IN INVESTING ACTIVITIES (19,321 ) (16,191 ) (82,185 ) (28,119 ) Effect of foreign currency exchange rate changes on cash and cash equivalents (2,996 ) 1,781 (3,551 ) 986 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (808 ) 14, ,106 Cash and cash equivalents, beginning of period 41,666 37,521 40,074 38,311 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,858 $ 52,417 $ 40,858 $ 52,417 (See accompanying notes) DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

17 Notes to the Condensed Consolidated Interim Financial Statements For the periods ended 2014 and 2013 All figures in thousands of US$, except per share amounts (unaudited) 1. Nature of operations Dorel Industries Inc. (the Company ) is a global consumer products company which designs, manufactures or sources, markets and distributes a diverse portfolio of powerful product brands, marketed through its Juvenile, Recreational/Leisure and Home Furnishings segments. The principal markets for the Company s products are the United States, Canada, Europe and Latin America. 2. Statement of compliance and basis of preparation and measurement The condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting as adopted by the International Accounting Standards Board ( IASB ), using the U.S. dollar as the reporting currency. The U.S. dollar is the functional currency of the Canadian parent company. All financial information presented in U.S. dollars has been rounded to the nearest thousand, unless otherwise indicated. These condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) and with the same accounting policies and methods of computation followed in the most recent audited consolidated annual financial statements as at and for the year ended December 30, The condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements. Certain information and footnote disclosures normally included in consolidated annual financial statements prepared in accordance with IFRS were omitted or condensed where such information is not considered material to the understanding of the Company s condensed consolidated interim financial information. These condensed consolidated interim financial statements should be read in conjunction with the Company s 2013 audited consolidated annual financial statements. The condensed consolidated interim financial statements have been prepared on a historical basis except for: derivative financial instruments which are measured at fair value; put option liabilities which are measured at fair value; share-based compensation arrangements which are measured in accordance with IFRS 2 Share-based payments; identifiable assets acquired and liabilities assumed in connection with a business combination which are measured at fair value at acquisition date; the net pension and post-retirement defined benefit liabilities which are measured as the net total of plan assets measured at fair value less the discounted present value of the defined benefit obligations; and product liability which is measured at its discounted present value. These condensed consolidated interim financial statements were authorized by the Company s Board of Directors for issue on August 6 th, The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. 3. Future accounting changes A number of new standards, interpretations and amendments to existing standards were issued by the IASB or the International Financial Reporting Interpretations Committee ( IFRIC ) that are mandatory but not yet effective for the six months ended 2014 and have not been applied in preparing these condensed consolidated interim financial statements. The following standards and interpretations have been issued by the IASB and the IFRIC with effective dates in the future that have been determined by management to impact the consolidated financial statements: DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended

18 3. Future accounting changes (continued) IFRS 9 Financial Instruments As part of the initial phase to replace IAS 39, Financial Instruments: Recognition and Measurement, this standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets. This first phase only covers classification and measurement of financial assets and financial liabilities, with impairment of financial assets and hedge accounting being addressed in the other two phases. More specifically, the standard: - Deals with classification and measurement of financial assets; - Establishes two primary measurement categories for financial assets: amortized cost and fair value; - Prescribes that classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset; and - Eliminates the following existing categories of financial assets: held to maturity, available for sale, and loans and receivables. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9. However, certain changes were also made regarding the fair value option for financial liabilities and accounting for certain derivatives linked to unquoted equity instruments. In November 2013, the IASB released IFRS 9, Financial Instruments (2013), which introduces a new hedge accounting model, together with corresponding disclosures about risk management activities. The new hedge accounting model represents a significant change in hedge accounting requirements. It increases the scope of hedged items eligible for hedge accounting and it enables entities to better reflect their risk management activities in their financial statements. On July 24, 2014, the IASB issued the final version of IFRS 9, bringing together the classification and measurement, impairment and hedge accounting phases of the IASB s project to replace IAS 39. The final version of IFRS 9 supersedes all previous versions of IFRS 9 and is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements. IFRS 15 Revenues from contracts with customers In May 2014, the IASB released IFRS 15, Revenue from Contracts with Customers, which establishes principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. It provides a single model in order to depict the transfer of promised goods or services to customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services. IFRS 15 also requires more comprehensive disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. IFRS 15 supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and a number of revenue-related interpretations (IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers, and SIC-31, Revenue - Barter Transactions Involving Advertising Service). IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements. DOREL INDUSTRIES INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the second quarter and six months ended