A WORLD CLASS JUVENILE PRODUCTS AND BICYCLE COMPANY 2007 ANNUAL REPORT

A WORLD CLASS JUVENILE PRODUCTS AND BICYCLE COMPANY 2007 ANNUAL REPORT

At a Glance Juvenile Our Premium Brands Recreational/Leisure Home Furnishings Table of Contents 3 Financial Highlights 4 Message to Shareholders 8 Message from Chief Operating Officer 10 Juvenile 12 Recreational/Leisure 14 Dorel Welcomes Cannondale and Sugoi 16 Home Furnishings 17 Asian Operations 20 Management s Discussion and Analysis 43 Consolidated Financial Statements 79 Board of Directors 80 Major Operations, Corporate Information TSX : DII.A; DII.B

Dorel s Value Drivers The growing contribution of Dorel s Juvenile and Recreational/Leisure segments hold much promise for long-term sustainable growth. We are proud to have become the world s premiere juvenile and bicycle products company. Upscale quality, constant innovation, eye-catching design these are the features that have made many of Dorel s brands household names. Retailers are attracted by Dorel s breadth of categories, consumers by Dorel s renowned safety and attractive pricing. We will continue to build upon these successes, led by strong management teams and supported by a solid financial base. We are committed to delivering enhanced shareholder value through these core strengths. 1

A New Highly Strategic Fit Subsequent to year-end, Dorel acquired the Cannondale Bicycle Corporation, a leading designer, developer and manufacturer of high-end bicycles. Headquartered in Bethel, Connecticut, Cannondale has facilities in Bedford, Pennsylvania as well as offices in Canada, Switzerland, Holland, Japan, and Australia. Cannondale bikes are sold in more than 70 countries. The purchase also included Sugoi Performance Apparel. Sugoi products are enjoyed worldwide by everyone from world champions to runners, cyclists, triathletes and fitness enthusiasts who demand the best apparel available. Cannondale and Sugoi are now part of the Cannondale Sports Group, a new division within the Recreational/Leisure segment, specifically created to focus exclusively on the Independent Bicycle Dealers (IBD) category with premium-oriented brands. The Cannondale/Sugoi acquisition is another example of how Dorel is unlocking value for its shareholders. Please see page 14 for additional information on this exciting development. 2

Financial Highlights (2003-2007) 2007 2006 2005 2004 2003 Revenues 1,813,672 1,771,168 1,760,865 1,709,074 1,180,777 Cost of sales 1,375,418 1,363,421 1,367,217 1,315,921 874,763 Gross profit 438,254 407,747 393,648 393,153 306,014 as percent of revenues 24.2% 23.0% 22.4% 23.0% 25.9% Operating expenses 317,117 303,802 279,753 286,180 206,663 Restructuring costs 14,509 3,671 6,982 Pretax earnings 106,628 100,274 106,913 106,973 99,351 as percent of revenues 5.9% 5.7% 6.1% 6.3% 8.4% Income taxes 19,136 11,409 15,591 6,897 25,151 Net earnings 87,492 88,865 91,322 100,076 74,200 as percent of revenues 4.8% 5.0% 5.2% 5.9% 6.3% Earnings per share Basic* 2.63 2.70 2.78 3.06 2.33 Fully diluted* 2.63 2.70 2.77 3.04 2.29 Book value per share at end of year** 28.08 24.33 20.46 19.15 15.14 * Adjusted to account for the weighted daily average number of shares outstanding. ** Based on the number of shares outstanding at year end. 2007 A record performance Adjusted net income of $100.1 million Adjusted pre-tax earnings top $125 million Juvenile segment revenue nears $1 billion, adjusted earnings from operations exceed $114 million Free cash flow exceeds $116 million Revenues (in thousands of U.S. dollars) Net Income (in thousands of U.S. dollars) Net Income Per Diluted Share (in U.S. dollars) 2,000,000 120,000 3.00 1,600,000 90,000 2.25 1,200,000 60,000 1.50 800,000 30,000 0.75 400,000 2003 2004 2005 2006 2007 0 2003 2004 2005 2006 2007 0.00 2003 2004 2005 2006 2007 3

Message to Shareholders Dear Fellow Shareholder: 2007 was a defining year in the corporate evolution of Dorel. An aggressive strategic direction was established to further unlock value within the Company; concentrating on the Juvenile and Recreational/Leisure segments which provide the greatest potential, while continuing to actively address issues in Home Furnishings. We are convinced this approach will result in a stronger company going forward. While organic growth has been an important and consistent component of our progress, key acquisitions have also been a significant catalyst to Dorel s development. The 2003 purchase of AmpaFrance spurred the expansion of Dorel s European juvenile operations which today are a highly profitable division of the Company. Since 2004, Juvenile segment revenues have grown annually at an average of almost 8%. Earnings from operations have a three year compound annual growth rate of 17%. In 2007, Juvenile accounted for 53% of all revenues and 68% of earnings from operations. In 2004 we acquired Pacific Cycle, at that time, a new area of business for Dorel, but one which was immediately accretive and has provided exciting opportunities. We have learned a great deal about the potential of the bicycle industry. To that end, subsequent to year-end, we completed the acquisition of Bethel, Connecticut-based Cannondale Bicycle Corporation, a leading manufacturer of high-end bicycles. Widely regarded as the bike industry's foremost innovator, Cannondale has an outstanding heritage in competitive cycling. Among the many noteworthy accomplishments, Cannondale bikes have been powered to eleven stages of the Tour de France as well as several other championships. The transaction also includes the popular Sugoi Performance Apparel company. Sugoi products are known and enjoyed worldwide by world champions, runners, cyclists, triathletes and fitness enthusiasts who demand the best apparel available. Sugoi has always been known for its combination of technical performance and fashion. They were among the very first companies to recognize that recreational athletes want and need high performance clothing, just as much as professionals. This gives us two more well-known, respected and highly marketable brands in the Independent Bicycle Dealer (IBD) channel. It also greatly expands our bicycle business as Cannondale is sold in more than 70 countries, with 40% of its sales in Europe, and provides huge potential in the bike industry overall. 4

We are extremely encouraged with the prospects of the Recreational/Leisure segment. It now has an enormous opportunity to capitalize on the changing mindsets and trends around the world. A revitalized Recreational/Leisure segment In light of the Cannondale acquisition, Dorel has reorganized its Recreational/Leisure segment to maximize the opportunities now before us, and has established two distinct operating divisions. A new Dorel IBD Division, the Cannondale Sports Group, has been created to focus exclusively on this category with premium-oriented brands. Pacific Cycle is now a stand-alone division with an exclusive focus on mass merchant customers. Each division has its own specialized management team to best serve our customers. The Cannondale purchase is consistent with Dorel s plan to concentrate on our core businesses and is the first step in our goal to become the world s number one IBD player. We are committed to pursuing the bicycle sector, and this important transaction positions us globally in a most material way. Backed by Dorel s extensive resources, the Cannondale Sports Group will build on Cannondale s strengths to grow significantly within the IBD channel. Our intention is to seek further acquisitions in similar high quality, performance bicycle companies and create new innovative products to build a world-class company that dealers will want to buy from. We are extremely encouraged with the prospects of the Recreational/Leisure segment. It now has an enormous opportunity to capitalize on the changing mindsets and trends around the world. People are actively engaged in seeking healthier lifestyles; are concerned about the environment, want to do something about it; and, desire sustainability at all levels. We sincerely believe our products can help meet these objectives. A world leader in Juvenile Likewise, the Juvenile segment, our most successful business, presents ample opportunities. Dorel is the world s largest juvenile products company in its categories and we intend to build on this strength. Our size and global marketing efforts allow us to leverage product development home runs by introducing successful brands such as the award-winning European-styled Quinny stroller line to the American market. In the US, the Quinny Buzz and Zapp quickly became highly popular and sought-after items. It is this competitive advantage which will propel Dorel s Juvenile growth in new markets. Consumers in many countries around the world have embraced our known brands for their quality, innovation, fashion and reliability. This is allowing us to steadily grow our business globally. With last year s purchase of a majority position in IGC, Australia, we have made meaningful inroads in that region as well. Strong juvenile brands from Europe and the US have also been launched in Australia, complementing IGC s solid portfolio. Dorel Europe did particularly well in 2007 due to advanced innovation and a range of desired products which meets all price points. As you will read in Cam Lisio s comments on page 8, we have taken additional steps to strengthen management abroad to create further opportunities there. Update on Home Furnishings While Home Furnishings and particularly ready-to-assemble furniture (RTA) remained somewhat of a struggle last year, to a large degree because of the slowdown in the US housing industry, the segment continues to contribute to the Company and was cash flow positive. 5

The acquisition of Cannondale and Sugoi fortifies our position and stature in the bicycle industry and underlines our commitment to further unlock shareholder value by concentrating on Dorel s core Recreational/Leisure and Juvenile segments. There have been on-going operational adjustments at Ameriwood, the most significant being the suspension of manufacturing operations at the Dowagiac, Michigan facility. While we remain convinced that there will be sustained demand for domestically manufactured RTA furniture, we have concluded that with the improvements made at Ameriwood, our manufacturing footprint exceeded anticipated market needs. We believe this will ensure the long-term viability of our domestic operations and speed Ameriwood s profitability growth. RTA furniture and in fact, home furnishings, is a business we know well and will maintain. We intend to improve our position, our share of the market, as well as profitability through further efficiencies and continued new product introductions. We are confident that, despite the challenging environment, there is potential and we will take the required action to ensure success in this area. To be clear, Home Furnishings is now a smaller part of Dorel and will grow at a rate slower than that of our other businesses. Staying abreast of the e-commerce trend Dorel has recognized the influence of the web in the every day buying patterns of the consumer. We have embraced its importance and are taking steps to ensure we stay ahead of the curve so that our brands are also recognized online. There is a talented group of in-house experts devoted exclusively to this task, maximizing the power of the Internet and of its potential for marketing our products. During 2007 we integrated shared web services across North America. Prior to this, our divisions were running multiple, independent environments. All web activity has now been centralized with the primary objectives to reduce costs and deliver best-in-class technology to all divisions. This centralized approach offers advanced platforms under a highly controlled environment which enables applications for brand awareness, product searches, search engine friendly web sites and much more. Centralized web development also allows for the systemic and shared delivery of custom software tools without repetitive costs. In this way, all Dorel divisions benefit from services they might not have otherwise received, and at a fraction of the price. This is yet another advantage of properly utilizing the resources of a large corporation such as Dorel. Tangible evidence is the completely revamped Safety 1 st (www.safety1st.com) and Mongoose (www.mongoose.com) websites, both highly interactive. We are building upon the web accomplishments of last year by further advancing our strategic initiatives with ebrand awareness and development. The goal is to both provide timely and valuable information to benefit the consumer, as well as participate in online retailing with our online retail partners. Building on a successful model There are two countries utilizing the Dorel Distribution (DD) concept, a sales and distribution organization which encompasses all three segments, established to service all accounts in smaller but emerging markets. Now in its fourth year, Dorel Distribution Canada, the base model, continues to grow its relationships with retailers with its much 6

wider assortment of product categories. IGC in Australia is utilizing the same strategy and a third unit, Dorel UK, is being remodeled into a DD platform. To date, it has been a winning formula and one which will be utilized increasingly as marketing conditions warrant. Outlook Dorel has evolved over the past several years, as evidenced by the proportion that each of our segments contributes to revenues and earnings. Recent successes stem from the combined strength of our Juvenile and Recreational/Leisure businesses. The acquisition of Cannondale and Sugoi fortifies our position and stature in the bicycle industry and underlines our commitment to further unlock shareholder value by concentrating on Dorel s core Recreational/Leisure and Juvenile segments, which provide the greatest potential. This lays the groundwork for an eventful year. We will continue to strive to optimize the results of each of our segments. Home Furnishings remains a core asset of Dorel and resources will be devoted to ensuring its development. Any assessment of Dorel s value, however, must be focused on the growing role of Juvenile and Recreational/Leisure. We re excited about the prospects for the future and look forward to sharing this success with you, our shareholders. I thank all Dorel employees for the important contributions that have been made during the past year. I am also grateful for the strong relationships we have with our customers and suppliers, all of whom we sincerely consider as our partners. My gratitude as well for the on-going guidance from our Board of Directors. Dorel will continue to take a growing position in the markets we serve and accordingly be able to reward our shareholders. Martin Schwartz President & Chief Executive Officer March 11, 2008 7

Message from the Chief Operating Officer Dorel s various business units acted on several fronts to address issues created by the economic climate of 2007. Significant progress was made in a number of divisions, while others have set in motion plans to deliver needed improvement in 2008. Overall, it was a satisfying year, both in terms of performance and in the commitment of our management teams to further enhance operations. Dorel Europe turned in a stellar performance in the face of an important restructuring program and challenges in certain European markets. The manufacturing changes in France and Italy, necessary to ensure adaptation to an increasingly competitive situation, were successfully implemented this past year and will result in enhanced profitability. Progress was achieved in traditional markets with the launch of an assortment of highly innovative, quality juvenile products. Chief among them was the introduction in Europe of the revolutionary Axiss car seat and the Maxi-Cosi Mura stroller. Both were officially recognized by consumer organizations and professional bodies throughout Europe with several design awards. These successes also show promise for the current year as the division continues to demonstrate it is a dominant player the mid-to-high price point categories. Intensified focus on the Juvenile segment Management has been strengthened at all levels and will continue to be throughout 2008. A new position of Managing Director of Dorel France has been named and this individual will also sit as a member of the European Board of Directors. This will allow our President of Dorel Europe to concentrate on the development of synergies across Europe. Among the assignments for 2008 are plans to build on the assets of our strong brands and drive business in both specialty stores and at the mass merchant level. Dorel continued to make investments in its Juvenile segment in 2007, ensuring that it continues to provide value to shareholders going forward. The Dorel Juvenile Group USA (DJG USA) Design and Development Centre was relocated to new offices in Foxboro, Massachusetts, where an environment more conducive to creative thinking will foster a more powerful product development process. The new facility has a larger, state-of-the-art showroom which will allow retailers to efficiently view the full expanse of product lines. 8 Notable new US Juvenile launches included the European-styled Quinny and Maxi-Cosi high margin car seats and strollers. To promote the arrival of the Quinny Buzz, DJG USA collaborated with renowned fashion designer Lela Rose, in creating a limited collection fabric which was unveiled at a media event in New York City. The Scenera car seat with its reusable and transportation efficient plastic bag packaging is a further example of avant-garde product development and underlines Dorel s commitment to the environment.

The Scenera car seat with its reusable and transportation efficient plastic bag packaging is a further example of avant-garde product development and underlines Dorel s commitment to the environment. Recreational/Leisure The Recreational/Leisure segment has established definite momentum. As Martin explains in his message, the Cannondale and Sugoi purchases underline our plan to further unlock shareholder value by concentrating on Dorel s core Recreational/Leisure and Juvenile segments, which provide the greatest potential. These important additions will further underpin recent successes in its core bicycle business. There is also a need to focus on non-bicycle products to further build this business. Home Furnishings Efforts are continuing to beef up the Home Furnishings segment. This is clearly a work-in-progress and additional initiatives are and will be undertaken to consolidate operations at all levels within this segment and to provide the needed synergies. All opportunities are being evaluated and will be maximized to drive down costs and further enhance profitability. Additional progress was made in 2007 within the ready-to-assemble (RTA) furniture division although the weakened US economy had an impact on home-related purchases. Ameriwood is benefiting from the positive effects of operating two domestic plants instead of three. The facilities in Tiffin, Ohio and Cornwall, Ontario are running quite efficiently and the adjustments should continue to benefit Ameriwood throughout 2008. Ameriwood has also realigned its sales strategy with a return to basics, offering more of the value proposition consumers seek from RTA furniture and reinforcing relationships with retailers to once again, become involved in the decision process. Global Sourcing operations saw solid growth in 2007 as this continues to expand import product into the Electronic Superstore and Home Office retail platforms. Global Sourcing also creates opportunities in product designs not domestically manufactured. Our other Home Furnishings divisions, Cosco Home & Office, Dorel Asia and Dorel Home Products are all cash flow positive and remain an important part of the segment. Each offers an array of quality product lines that have gained acceptance with retailers. Dorel Industries is a vibrant organization, made so by the talented and dedicated people who work throughout the company. Despite our global scope and vast operations, there is a close working relationship among the management teams of all divisions which ensures continuity and cross pollination of ideas. This positive environment runs throughout the corporation and it is my privilege to be a part of it. We look forward to an exciting year of successes and further growth. Camillo Lisio Chief Operating Officer March 11, 2008 9

Juvenile Manufactured at Dorel s car seat facility in Columbus, Indiana, the Pronto! is another reason why Dorel is the world s leading car seat manufacturer. Bébé Confort's latest innovation, Axiss a convenient and rotating car seat has won numerous awards and is setting sales records at Dorel Europe. This PlaySafe high chair features Safety 1 st s very own proprietary technologies including SlideGuard which helps prevent baby from sliding out. 10 The SecureTech cabinet lock features an indicator that lets you know when it's locked. The US debut of the highly popular Dorel European-designed Quinny stroller and Maxi Cosi car seat lines took consumers by storm in 2007. With rave reviews, sales expectations were exceeded for both product lines.

2007 was the best year ever for Dorel s Juvenile segment. Revenue approached $1 billion and earnings from operations topped $100 million. A solid product development pipeline and strong brands helped fuel growth. Wide and comfy bouncer with adjustable headrest easily folds flat for transporting or storing. The Safety 1 st High-Def Digital Monitor s state-of-the art technology ensures audio clarity and guaranteed privacy while monitoring. Ease of use and extreme maneuverability another example of Dorel s product innovation. The Safety 1 st Forehead Thermometer is a favorite with caregivers and can even be used while the child is sleeping! The Quinny Zapp is the world s smallest fold-up travel stroller and comes with Maxi-Cosi Mico car seat adapters. A pick in 2007. 11

Recreational/Leisure Mongoose Black Diamond Double Named one of the Best of 2007 by Mountain Bike Magazine. Road racing starts here. Cannondale Advanced Aluminum Design. Purists know that this is the foundation of performance. New for 2008, the GT Marathon Team is GT's top offering in the full suspension XC segment. The InStep swivel wheel jogger stroller provides another method of exercise for Pacific Cycle s consumers. With the continuing rise in gas prices, more people are gravitating to Schwinn's World line of commuter bikes. 12 Pacific Cycle continues to build its non-bike products platform with products such as this reinforced steel swing set.

Dorel s strategic approach to the bicycle industry ensures a clear focus on the two distinct distribution channels the Independent Bicycle Dealers (IBD) and mass merchant categories. Both the newly-created Cannondale Sports Group and Pacific Cycle have positioned Dorel to capture an increasing share of the bicycle market. The successful Hope 50cc model that has raised over $100,000 for breast cancer awareness and research. One of a number of popular ride-on toys. Sales of this category continue to increase. Mongoose Fraction BMX Plus Magazine Mongoose is back on top of the game in a big way. Schwinn s Super Sport Ultra 2 is a highly popular road bike providing an efficient and confortable ride. The Scalpel, the lightest full suspension bike on the planet is the most sought-after bike in X-C racing with numerous World Cup wins to its credit. Sugoi is all about quality and performance. Their products have wide and growing appeal among fitness enthusiasts and professionals. The GTR Team is GT s best road racebike. 13

Dorel Welcomes Cannondale and SUGOi Cannondale and Sugoi, acquired in early 2008, are part of the Cannondale Sports Group, a new Dorel division within the Recreational/Leisure segment, created to devote all of its resources exclusively to the Independent Bicycle Dealer (IBD) channel. A second separate division encompasses Pacific Cycle, whose mandate is to deal specifically with mass merchant and sporting goods customers. Dorel recognizes that doing business with these two categories requires distinct strategies and specialized people selling the best products for those channels. Established in 1971, Cannondale is widely regarded as the bike industry's leading innovator. Its handcrafted bicycles have won numerous design awards and are sold in more than 70 countries. 40% of sales are in Europe. Cannondale has a strong heritage in competitive cycling and has consistently been on the leading edge of sports marketing. Through its sponsorship of a number of teams, Cannondale road bikes have won numerous stages of the Tour De France and the Giro d Italia, as well as multiple U.S. National 14

Championships. Cannondale sponsored triathletes have also won various World Championships. Off-road, Cannondale has dominated mountain biking through a variety of team sponsorships, and their riders have enjoyed countless World Cup victories. Sugoi was founded in 1987 and is based in Vancouver, where they also have a manufacturing facility. Sugoi has consistently been known for its combination of technical performance and fashion. They were among the first companies to recognize that recreational athletes want and need high performance clothing, just as much as professionals. Sugoi has won numerous awards for its products and has outfitted world class athletes. Products are distributed primarily through specialty independent running and bicycle dealers. Sales are conducted in 24 countries. The Cannondale Sports Group will develop innovative products and seek acquisitions in high quality, premium-branded, performance bicycle companies. The transaction immediately gives Dorel a global presence in the highly strategic IBD category, one of tremendous potential. The Cannondale/Sugoi purchase is the first step in Dorel s goal to become the world s number one IBD player. 15

Home Furnishings Dorel is devoting the required attention to unlocking value and building its Home Furnishings segment. A wide variety of products addresses several product categories, a number of which enjoy significant market share. The Altra video base is the perfect foundation for the highly popular home theater systems. Home office is increasingly being accepted as an alternative to the official office. Ameriwood has an extensive selection to respond to this growing trend. This quality crafted leather recliner illustrates the value-add that retailers have come to rely on from Dorel Asia. Dorel futons have a significant share of the mass market. Futon mattresses are made with environmentally friendly fibers to maximize sustainability. From step stools to the World s Greatest ladders, Cosco Home & Office offers products consumers have counted on for years. 16

Asian Operations With more than a quarter century of experience in the Far East, Dorel has established an extensive operation based in China to ensure both continuity with all Company divisions and best-in-class service for its customers. Special attention has been paid to nurturing strong relationships with suppliers and Dorel is generally the largest customer of its main suppliers. Dorel s presence in Asia continues to grow, with now over 160 full-time Dorel employees located in eight offices throughout China. The Company also closely following trends and developing resources in developing countries such as Vietnam, Indonesia, Thailand and Malaysia. The focus is consistently on four key areas: quality control; 100% on-time delivery management; cost containment and reductions and product development. The latter is increasingly of major importance as Dorel seeks to not only have its suppliers produce, but become involved in the design of products as well. This will help increase the speed-to-market of new products, a key competitive advantage. Dorel devotes a great deal of effort to ensuring strong supplier relationships. Each year a Far East Suppliers Conference is held in Shenzhen, bringing together well over 120 suppliers. The event has proven to be a major success in building and maintaining solid bonds. As the influence of Asia grows, Dorel knows it can count on its partners abroad. 17

Brands You Know Juvenile Recreational/Leisure Home Furnishings 18

Annual Results (1997-2007) 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Revenues 1,813,672 1,771,168 1,760,865 1,709,074 1,180,777 992,073 916,769 757,540 596,702 492,554 351,989 Cost of sales 1,375,418 1,363,421 1,367,217 1,315,921 874,763 760,423 718,123 582,741 452,974 381,826 264,789 Gross profit 438,254 407,747 393,648 393,153 306,014 231,650 198,646 174,799 143,728 110,729 87,200 as percent of revenues 24.2% 23.0% 22.4% 23.0% 25.9% 23.4% 21.7% 23.1% 24.1% 22.5% 24.8% Operating expenses 317,117 303,802 279,753 286,180 206,663 145,956 147,353 127,356 85,996 74,635 61,024 Restructuring costs and other one-time charges 14,509 3,671 6,982 20,000 12,037 10,066 Pretax earnings 106,628 100,274 106,913 106,973 99,351 85,694 31,293 35,406 57,732 26,027 26,176 as percent of revenues 5.9% 5.7% 6.1% 6.3% 8.4% 8.6% 3.4% 4.7% 9.7% 5.3% 7.4% Income taxes 19,136 11,409 15,591 6,897 25,151 24,099 4,731 5,432 17,756 8,330 8,862 Net earnings from continuing operations 87,492 88,865 91,322 100,076 74,200 61,595 26,562 29,974 39,977 17,697 17,314 as percent of revenues 4.8% 5.0% 5.2% 5.9% 6.3% 6.2% 2.9% 4.0% 6.7% 3.6% 4.9% Income (loss) from discontinued operations (1,058) (12,668) (1,401) 1,000 225 Net earnings 87,492 88,865 91,322 100,076 74,200 61,595 25,504 17,306 38,576 18,697 17,539 as percent of revenues 4.8% 5.0% 5.2% 5.9% 6.3% 6.2% 2.8% 2.3% 6.5% 3.8% 5.0% Earnings per share Basic* 2.63 2.70 2.78 3.06 2.33 2.05 0.91 0.62 1.38 0.69 0.71 Fully diluted* 2.63 2.70 2.77 3.04 2.29 2.00 0.89 0.61 1.36 0.69 0.70 Book value per share at end of year** 28.08 24.33 20.46 19.15 15.14 11.31 7.52 6.75 6.55 5.63 4.26 * 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. 2007 ANNUAL REPORT 19

Management s Discussion and Analysis This Management s Discussion and Analysis of financial conditions and results of operations ( MD&A ) should be read in conjunction with the consolidated financial statements for Dorel Industries Inc. ( Dorel or the Company ) for fiscal years ended December 30, 2007 and 2006 ( the Consolidated Financial Statements ), as well as with the notes to the Consolidated Financial Statements. All financial information contained in this MD&A and in the Company s Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ) using the U.S. dollar as the reporting currency. Any non-gaap financial measures referred to in this MD&A are clearly identified and reconciled to GAAP as necessary. Unless otherwise indicated, all figures are in U.S. dollars. This MD&A is current as of March 10, 2008. Additional information relating to the Company filed with the Canadian securities regulatory authorities, including the Company s Annual Information Form ( AIF ), and with the U.S. Securities and Exchange Commission are to be available within the prescribed filing deadlines, on-line at www.sedar.com and www.sec.gov respectively. Corporate Overview The Company s head office is based in Montreal, Quebec, Canada. In addition to the facilities described below, the Company s subsidiaries have North American showrooms in Toronto, Ontario and High Point, North Carolina. In total, the Company operates in seventeen countries with sales made throughout the world and employs approximately 4,600 people. Dorel s ultimate goal is to satisfy consumer needs while achieving maximum financial results for its shareholders. The Company s growth has resulted from both increasing sales of existing businesses and by acquiring businesses that management believes add value to the Company. Strategy Dorel is a world class juvenile products and bicycle company. Established in 1962, 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 products. In the Juvenile segment, Dorel s powerfully branded products such as Quinny, Maxi-Cosi, Safety 1 st and Bébé Confort have shown the way to safety, originality and fashion. Similarly, its highly popular brands such as Schwinn, GT and Mongoose have made Dorel a principal player in the bicycle marketplace. Dorel s Home Furnishings segment markets a wide assortment of furniture products, both domestically produced and imported. The Company exerts relentless innovation and marketing flair across all of its divisions. As part of that strategy, subsequent to year-end, on February 4, 2008, the Company acquired all the outstanding shares of Cannondale Bicycle Corporation, a leading designer, developer and manufacturer of high-end bicycles. With significant operations in the United States and Holland, as well as locations in Switzerland, Japan and Australia, Cannondale is widely regarded as the bike industry s leading innovator. Cannondale s handcrafted bicycles have won numerous design awards and are sold in over 70 countries. This acquisition expands Dorel s Recreational / Leisure segment to include a significant presence in the Independent Bike Dealer (IBD) network. Additionally, forming part of Cannondale is the Sugoi Performance Apparel division located in Canada. Sugoi products are used worldwide by runners, cyclists, triathletes and fitness enthusiasts. Cannondale sales in 2007 were approximately $200 million. Within each of the three segments, there are several operating divisions or subsidiaries. Each is operated independently by a separate group of managers. Senior management of the Company coordinates the businesses of all segments and maximizes cross-selling, cross-marketing, procurement and other complementary business opportunities. Dorel conducts its business through a variety of sales and distribution arrangements. These consist of salaried employees; individual agents who carry the Company s products on either an exclusive or non-exclusive basis; individual specialized agents who sell products, including Dorel s, exclusively to one customer such as a major discount chain; and sales agencies which themselves employ their own sales force. While retailers carry out the bulk of the advertising of Dorel s products, all of the segments advertise and promote their products through the use of advertisements in specific magazines, multi-product brochures and other media outlets. 20 DOREL INDUSTRIES INC.

Dorel believes that its commitment to providing a high quality, industry-leading level of service has allowed it to develop successful and mutually beneficial relationships with major retailers. A high level of customer satisfaction has been achieved by fostering particularly close contacts between Dorel s sales representatives and clients. Permanent, full-service agency account teams dedicated exclusively to certain major accounts have been established. These dedicated account teams provide these customers with the assurance that inventory and supply requirements will be met and that any problems will be immediately addressed. In addition to quality products and dedicated customer service, strong consumer brands are an important element of Dorel s strategy. As examples, in North America, Dorel s Schwinn product line carries one of the most recognized brand names in the sporting goods industry. Safety 1 st is a highly regarded Dorel brand in the North American juvenile products market. In Europe, Bébé Confort is universally recognized and has superior brand awareness in France. Throughout Europe, the Maxi-Cosi brand has become synonymous with quality car seats. These brands, and the fact that Dorel has a wide range of other brand names, allows for product and price differentiation within the same product categories. Product development is the final element of Dorel s past and future growth. Dorel has invested heavily in this area, focusing on innovation, quality, safety and speed to market with several design and product development centres. Over the past two years, Dorel has spent over $42 million on new product development. Operating Segments Juvenile Products The Juvenile Products ( Juvenile ) segment operates in North America, Europe and Australia. Dorel Juvenile Group ( DJG ) USA s operations in the United 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 based in Columbus. Products are conceived, designed and developed at the Foxboro location. Dorel Distribution Canada is located in Montreal, Quebec and sells to customers throughout Canada. The principal brand names in North America are Cosco and Safety 1 st. In addition, items in North America are sold under a licensing agreement with the well-recognized Eddie Bauer brand name. Dorel Europe is headquartered in Cholet, France and major product design facilities are located both in Cholet and 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 United Kingdom, Germany, Belgium and Switzerland. In Europe, products are marketed under the brand names Bébé Confort, Maxi-Cosi, Quinny, Monbébé, Babidéal, Baby Relax and Safety 1 st. In Australia, Dorel is the majority shareholder in IGC Dorel ( IGC ) which manufactures and distributes its products under several local brands, the most prominent of which are Bertini and Mother s Choice. Going forward IGC is expected to carry many of the brands that are popular in North America and Europe, broadening their sales range. In addition, many of Dorel s divisions sell products to customers which are marketed under various house brand names. The Juvenile segment manufactures and imports products such as infant car seats, strollers, high chairs, toddler beds, playpens, swings and infant health and safety aids. Dorel is among the three largest juvenile products companies in North America along with Graco (a part of the Newell Group of companies) and Evenflo Company Inc. In Europe, Dorel is also one of the largest juvenile products companies, competing with companies such as Britax, Peg Perego, Chicco, Bugaboo, Jane and Graco, as well as several smaller companies. Within its principal categories, Dorel s combined juvenile operations make it the largest juvenile products company in the world. In North America, the majority of juvenile sales are made to mass merchants, department stores and hardware/home centres, where consumers priorities are safety and quality at reasonable prices. Therefore sales to this channel are focused on entry level to mid-price point products. Using innovative product designs, higher-end price points are also being serviced by these customers, representing additional sales opportunities for the segment. 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 product quality, the majority of European sales are made to major European juvenile product chains along with boutiques and smaller stores. In Australia, sales are made to both large retailers and specialist stores. In 2007, this segment accounted for 53 % of Dorel s revenues. 2007 ANNUAL REPORT 21

Recreational/Leisure This segment is the Pacific Cycle division and is based in Madison, Wisconsin with U.S. distribution centers in California and Illinois, and global distribution partners in several markets around the world. Pacific Cycle is the leading supplier of bicycles in North America and an expert in the design, marketing and distribution of high quality, branded bicycles. Pacific has extended this expertise to other recreational products such as swing sets, motor scooters, jogging strollers, ride-on toys and other products within the outdoor recreation category. Best known for its Schwinn, Mongoose and GT bicycle brands, the Company also markets products under the Roadmaster, InStep, Pacific, Schwinn Motor Scooters, PlaySafe, Powerlite and Murray labels. Pacific Cycle combines these well-known brands with long-established, efficient Asian sourcing. Pacific was one of the first to source such product from Asia and today industry production of this range of products has shifted almost entirely overseas. Pacific Cycle in the U.S. participates in the $75 billion recreational products industry comprised of sports and fitness equipment, footwear, apparel, and recreational transport items including bicycles, pleasure boats and RVs. Within the recreational products market, the U.S. bicycle industry accounts for an estimated $5.5 billion in retail sales annually, of which approximately $2.3 billion represents bicycles while the remainder represents parts and accessories. Over the past several years, the overall U.S. bicycle market has been stable despite variations such as the rise in popularity of mountain bikes in the late 1990s and the spike in road bikes sales in the early 2000s. During this period the mass merchant channel has captured a greater share of the market. Purchasing patterns are generally influenced by economic conditions, weather and seasonality. Principal competitors include Huffy, Dynacraft, Trek, Giant, Specialized and Raleigh. Distribution of its brands in the U.S. is enabled through its strong relationships with high volume retailers, particularly in the mass merchant channel. Pacific Cycle has garnered an industry-leading share of total U.S. bicycle sales by capitalizing on the continued growth of this sales channel. Pacific s brand portfolio enables it to serve virtually all consumer demographics, price categories and bicycling styles. Additionally, Pacific licenses its brand names on bicycles internationally, which is an important revenue stream for the Company. In the United States, Pacific s brands are licensed for use on other products such as clothing and bike accessories. In 2007, the Recreational/Leisure segment accounted for 21% of Dorel s revenues. As discussed, subsequent to year-end the Cannondale Bicycle Corporation ( Cannondale ) was acquired. Headquartered in Bethel, Connecticut and with facilities in five other countries, the total value of the all-cash transaction will be $190 to $200 million, subject to Cannondale s earnings results for the year ending June 30, 2008. In order to clearly delineate the business between mass merchant customers and the Independent Bike Dealer ( IBD ) network of smaller bicycle stores, the Company s Recreational/Leisure segment is being split into two distinct operating divisions. The IBD retail channel will be serviced by the newly created Cannondale Sports Group, which will focus exclusively on this category with the premium-oriented brands Cannondale, Sugoi, GT and others. Pacific Cycle will remain a stand-alone division with an exclusive focus on mass merchant customers. Home Furnishings The Home Furnishings segment consists of Ameriwood Industries ( Ameriwood ), as well as Cosco Home & Office ( Cosco ), Dorel Home Products ( DHP ) and Dorel Asia. Ameriwood specializes in ready-to-assemble (RTA) furniture, both manufactured and imported, and is headquartered in Wright City, Missouri. Significant manufacturing and distribution facilities are located in Tiffin, Ohio and Cornwall, Ontario. Brand names used by Ameriwood are Ameriwood, Ridgewood, Charleswood, Altra, Carina and SystemBuild. Cosco is located in Columbus, Indiana and the majority of its sales are of metal folding furniture, step stools and ladders. In addition to selling under its own brand, Cosco has a licensing agreement with Samsonite to sell to distributors within the commercial office equipment market. Cosco also has a small home healthcare business, selling products under the Cosco Ability Care Essentials and Adepta brand names. DHP sells both manufactured and imported futons and Dorel Asia specializes in sourcing finished goods from the Orient for sale in North America. 22 DOREL INDUSTRIES INC.

Over the past several years, in many of the product categories within the Home Furnishings and furniture industries, there has been a shift from domestic production to imported product. Dorel has also followed this trend and today the Company s home furnishings offerings are often sourced from overseas. RTA furniture is manufactured and packaged as component parts and is assembled by the consumer and by its nature, is a reasonably priced alternative to traditional wooden furniture. Many RTA wood furniture items are still manufactured in North America as the manufacturing process is machine intensive and avoids the cost of container freight. Home furnishings are sold mainly to mass merchants, office superstores and hardware/home centres. Dorel believes it is now the second largest producer of RTA furniture in North America. The Company s principal RTA competitor is Sauder Woodworking, as during the year two traditional competitors, Bush and O Sullivan either ceased sales of RTA furniture or closed entirely. Besides Sauder, the Home Furnishings industry segment in which Dorel competes is characterized by a large number of smaller competitors. As such, there is little market share information available that would help determine the Company s size or performance in relation to these competitors. In 2007, this segment accounted for 26% of Dorel s revenues. Significant Events in 2007 On February 28, 2007, the Company acquired a 55% interest in Australian company IGC (Australia) Pty Ltd ( IGC ). Operating as In Good Care, IGC is a manufacturer and distributor of juvenile products in Australia and New Zealand. The Company paid cash consideration of $2.7 (AUD $3.4) million in return for the 55% controlling interest and refinanced IGC s debt in the amount of $7.4 (AUD$9.4) million through its existing credit facilities. The acquisition was recorded under the purchase method of accounting with the results of operations of the acquired business being included in the accompanying consolidated financial statements since the date of acquisition. It now operates as IGC Dorel Pty Ltd. On March 7, 2007 the Company announced its intention to voluntarily delist its Class B Subordinate Voting Shares (the Class B Shares ) from the NASDAQ Global Market. The Company filed a notification of removal from listing on the NASDAQ Global Market on Form 25 with the U.S. Securities and Exchange Commission (the SEC ) on March 19, 2007. The withdrawal of the Class B Shares from listing was effective 10 days after the filing of this notice. Accordingly, the Class B Shares were suspended from trading on the NASDAQ Global Market as of market open on March 19, 2007 and the Class B Shares were delisted from the NASDAQ Global Market on March 29, 2007. With the delisting of the Class B Shares from the NASDAQ Global Market, the Company continues to file or furnish reports with the SEC. However, the Company intends, if permitted under the rules of the SEC, to terminate the registration of the Shares with the SEC. The delisting of the Shares from the NASDAQ Global Market has not affected the listing of the Class B Shares on the Toronto Stock Exchange and the Class B Shares have continued to trade on the Toronto Stock Exchange after the NASDAQ Global Market delisting became effective. This de-registration is expected to occur on March 31, 2008. For the first time in its history, on March 12, 2007, the Board of Directors declared a quarterly dividend of twelve and one half cents (US$0.125) per share on the Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units of the company. This dividend was the first of an ongoing quarterly dividend policy paying US$0.50 per share per annum. As this policy began during the year, a total of three dividends were paid in 2007, totaling $12.5 million. 2007 ANNUAL REPORT 23

In May of 2007 it was announced that the majority of manufacturing operations at the Company s Dowagiac, Michigan RTA furniture manufacturing facility would be suspended. As sourcing from overseas continues to grow in importance, the production capacity required to support the market place necessitated the suspension of operations there. Therefore as of July 31, 2007 approximately 170 of the 215 member workforce located there were affected. As a result of the closure, the Company now produces domestic RTA product at its Tiffin, Ohio and Cornwall, Ontario plants. Operating Results Operating results in both 2007 and 2006 include costs related to the closure of production facilities necessitated by a shift of domestic production to overseas suppliers. Details of these closures are as follows: The closure of the Company s Dowagiac, Michigan RTA furniture manufacturing facility in 2007 followed a similar closure in 2005 of the Company s Wright City, Missouri facilities. Both closures were necessitated by excess capacity caused by a strategic shift away from exclusive domestic production to a combination of North American production and imported items. As such, results for 2007 and 2006 include the following amounts pertaining to these closures: 2007 2006 ( 000) ( 000) Building and equipment write-downs $ 5,727 $ Employee severance and termination benefits 613 Contract termination costs 534 Other associated costs 60 Recorded as Restructuring costs 6,934 Move of inventory, equipment and other expenses (in Cost of sales) 130 831 Inventory markdowns (in Cost of sales) 3,877 (91) Total $ 10,941 $ 740 In 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 being implemented. These restructuring initiatives are expected to be completed by 2008 and result in cumulative restructuring charges now expected to total approximately $14.7 million. The Company recorded $8.2 million in charges for 2007 and $4.0 million in charges for 2006, consisting of the following: 2007 2006 ( 000) ( 000) Employee severance and termination benefits $ 6,887 $ 2,871 Building, machinery and equipment write-downs 1,052 1,286 Net curtailment losses (gains) on defined benefit pension plans 264 (486) Curtailment gain on compensation liabilities (318) Gains on sale of machinery & equipment (432) Other associated costs 122 Recorded as restructuring costs 7,575 3,671 Inventory markdowns (in Cost of sales) 668 329 Total $ 8,243 $ 4,000 24 DOREL INDUSTRIES INC.