Leveraging Our Strengths · The principal changes in net income from 2015 to 2016 are summarized as...

Leveraging Our StrengthsFirst Quarterly Report for the Three Months

Ended March 31, 2016

Management’s Discussion and Analysis

of Financial Conditions and Results of Operations

For the three months ended March 31, 2016 All figures in US dollars

DOREL INDUSTRIES INC. – MANAGEMENT’S DISCUSSION AND ANALYSIS for the quarter ended March 31, 2016 1

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 three months ended March 31, 2016 and the audited consolidated financial statements and MD&A as at and for the year ended December 30, 2015. 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, 2015. 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 www.sedar.com, as well as on the Company’s corporate Web site at www.dorel.com.

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 2015 annual MD&A as filed with Canadian securities regulatory authorities on March 23, 2016. As such, they are not repeated herein. The information in this MD&A is current as of May 6, 2016.


1. OPERATING RESULTS

(All tabular figures are in thousands, except per share amounts) a) Non-GAAP financial measures As a result of restructuring and other costs and remeasurement of forward purchase agreement liabilities incurred in 2016 and 2015, the Company is including in this MD&A the following non-GAAP financial measures: “adjusted total revenue”, “adjusted operating profit”, “adjusted finance expenses”, “adjusted income before income taxes”, “adjusted income taxes expense”, “adjusted net income” and “adjusted earnings per basic and diluted share”. The Company believes that this results in a more meaningful comparison of its core business performance between the periods presented. These non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other issuers. Contained within this MD&A are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.


b) Restructuring and other costs and remeasurement of forward purchase agreement liabilities

Reconciliation of non-GAAP financial measures

Reported

% of

revenue

Restructuring

and other

costs Adjusted

% of

revenue Reported

% of

revenue

Restructuring

and other

costs Adjusted

% of

revenue

$ % $ $ % $ % $ $ %

TOTAL REVENUE 645,867 100.0 - 645,867 100.0 665,489 100.0 - 665,489 100.0

Cost of sales 495,814 76.8 - 495,814 76.8 519,914 78.1 - 519,914 78.1

GROSS PROFIT 150,053 23.2 - 150,053 23.2 145,575 21.9 - 145,575 21.9

Selling expenses 56,341 8.7 - 56,341 8.7 56,257 8.5 - 56,257 8.5

General and administrative expenses 51,620 8.0 - 51,620 8.0 56,156 8.4 - 56,156 8.4

Research and development expenses 8,269 1.3 - 8,269 1.3 8,512 1.3 - 8,512 1.3

Restructuring and other costs 2,937 0.4 (2,937) - - 917 0.1 (917) - -

OPERATING PROFIT 30,886 4.8 2,937 33,823 5.2 23,733 3.6 917 24,650 3.7

Finance expenses 10,678 1.7 (561) 10,117 1.5 8,375 1.3 401 8,776 1.3

INCOME BEFORE INCOME TAXES 20,208 3.1 3,498 23,706 3.7 15,358 2.3 516 15,874 2.4

Income taxes expense 3,474 0.5 561 4,035 0.7 3,726 0.6 349 4,075 0.6

Tax rate 17.2% - - 17.0% - 24.3% - - 25.7% -

NET INCOME 16,734 2.6 2,937 19,671 3.0 11,632 1.7 167 11,799 1.8

EARNINGS PER SHARE

Basic 0.52 0.09 0.61 0.36 0.01 0.37

Diluted 0.51 0.09 0.60 0.36 - 0.36

SHARES OUTSTANDING

Basic - weighted average 32,333,261 32,333,261 32,321,639 32,321,639

Diluted - weighted average 32,545,454 32,545,454 32,513,889 32,513,889

The principal changes in net income from 2015 to 2016 are summarized as follows:

Reported Adjusted

$ $ $

Dorel Juvenile increase 6,445 1,848 8,293

Dorel Sports decrease (6,308) 172 (6,136)

Dorel Home Furnishings increase 6,918 - 6,918

OPERATING PROFIT INCREASE 7,055 2,020 9,075

(1,341) - (1,341)

(Increase) in remeasurement of forward purchase agreement liabilities (962) 962 -

Decrease in corporate expenses 98 - 98

Decrease in income taxes expense 252 (212) 40

NET INCOME INCREASE 5,102 2,770 7,872

(Increase) in finance expenses other than the remeasurement of forward

purchase agreement liabilities

Change

2016

Restructuring

and other

costs

2015

Three months ended March 31


The causes of these variations are discussed in more detail as part of the consolidated operating overview.


The detail of the restructuring and other costs and remeasurement of forward purchase agreement liabilities recorded are presented below:

2016 2015

$ $

Employee severance and termination benefits 1,704 (200)

Write-down of assets 424 -

Other associated costs 80 -

Total restructuring costs 2,208 (200)

Acquisition-related costs 729 1,117

Total restructuring and other costs 2,937 917

Finance expenses

Loss (gain) on remeasurement of forward purchase agreement liabilities 561 (401)

Total restructuring and other costs and remeasurement

of forward purchase agreement liabilities before income taxes (1)3,498 516

Total restructuring and other costs and remeasurement

of forward purchase agreement liabilities after income taxes 2,937 167

Total impact on diluted earnings (loss) per share (0.09) -

(1) Includes non-cash amounts of: 985 (401)


The detail of restructuring and other costs recognized is presented in Note 4 of the condensed consolidated interim financial statements. Restructuring costs Dorel Juvenile

In 2016, Dorel Juvenile is carrying on with its restructuring activities as part of its on-going transformation into a more fully integrated operation in its various markets. In 2015, the segment had identified cost savings opportunities principally through the consolidation of certain facilities in China where two smaller facilities were closed in the fourth quarter of 2015. In addition, indirect labour levels have been reduced at the Company’s remaining main facilities in China. Further consolidation opportunities have been identified with major activities to be redeployed into one facility. As a result, during the fourth quarter of 2015, certain underutilized facilities were made available for sale. As part of the on-going restructuring program, additional properties will also be made available for sale further reducing the Company’s footprint and generating cash from the assets acquired as part of the 2014 Dorel Juvenile China acquisition. Starting in 2015, within North America, operations based in the United States (“U.S.”) have assumed the back office support for the Canadian operations and allow the Canadian business to focus on sales and marketing activities. In addition, a former U.S. based Dorel Juvenile China office was closed in 2015. In Europe, the way product was brought to market, the on-going process harmonization and the re-alignment of the sales organization are actions that were put in place to enhance efficiencies. Finally, the business based in Panama that services Central America and the Caribbean was downsized in 2015 with a greater focus on direct import model, realignment of management and a streamlined product offering. This restructuring plan is expected to be completed by the end of 2016. The Company recorded a restructuring expense of $2.2 million under the plan during the first quarter ended March 31, 2016, including $0.4 million of non-cash charges related to the write-down of long-lived assets, $1.7 million of employee severance and termination benefits and $0.1 million of other associated costs. The remaining charges related to this restructuring plan will be mostly non-cash write-downs of assets to fair value less costs to sell of underutilized land, buildings and land use rights in China that will be made available for sale in 2016 as well as severance costs and termination benefits.


Other costs

For the first quarter ended March 31, 2016, the Company incurred $0.7 million of acquisition-related costs compared to $1.1 million in 2015 related to the acquisition of Dorel Juvenile China.

Remeasurement of forward purchase agreement liabilities The remeasurement to fair value of the financial liabilities related to written put option agreements is recorded within other equity. The financial liability related to Caloi being a forward purchase agreement liability, results in the remeasurement of the liability is accounted for as finance expenses.


c) Selected financial information The tables below show selected financial information for the eight most recently completed quarters ended:

Mar. 31, 2016 Dec. 30, 2015 Sep. 30, 2015 Jun. 30, 2015

$ $ $ $

Total revenue 645,867 668,938 679,287 669,643

Net income (loss) 16,734 6,614 (8,757) 16,215

Per share - Basic 0.52 0.20 (0.27) 0.50

Per share - Diluted 0.51 0.20 (0.27) 0.50

Adjusted net income 19,671 14,116 15,469 16,622

Per share - Basic 0.61 0.44 0.48 0.51

Per share - Diluted 0.60 0.43 0.48 0.51

After-tax impact of impairment losses,

restructuring and other costs and remeasurement

of forward purchase agreement liabilities

on the diluted earnings per share for the quarter (0.09) (0.23) (0.75) (0.01)

Mar. 31, 2015 Dec. 30, 2014 Sep. 30, 2014 Jun. 30, 2014

$ $ $ $

Total revenue 665,489 701,002 673,020 655,831

Adjusted total revenue 665,489 701,602 673,020 655,831

Net income (loss) 11,632 (80,749) 19,480 15,200

Per share - Basic 0.36 (2.50) 0.60 0.47

Per share - Diluted 0.36 (2.50) 0.60 0.47

Adjusted net income 11,799 10,993 23,771 19,769

Per share - Basic 0.37 0.34 0.74 0.61

Per share - Diluted 0.36 0.34 0.73 0.61

After-tax impact of impairment losses,

restructuring and other costs and remeasurement

of forward purchase agreement liabilities

on the diluted earnings per share for the quarter - (2.84) (0.13) (0.14)

In the fourth quarter of 2014, the Company reported a net loss of $80.7 million mainly explained by impairment losses, restructuring and other costs for net amounts of $91.7 million. Adjusted net income for the fourth quarter of 2014 was $11.0 million or $0.34 adjusted diluted earnings per share (“EPS”).

In the third quarter of 2015, the Company reported a net loss of $8.8 million due to the impairment losses, restructuring and other costs for net amounts of $24.2 million. Adjusted net income was $15.5 million for the third quarter or $0.48 adjusted diluted EPS.


d) Consolidated operating review For the first quarter of 2016, Dorel’s revenue decreased by $19.6 million, or 2.9% to $645.9 million compared to $665.5 million recorded a year ago. Organic revenue decreased by approximately 1% after removing the impact of foreign exchange rate variations mainly from lower sales in Dorel Juvenile’s U.S. market and reduced third party sales at Dorel Juvenile China as planned upon acquisition. Dorel Sports revenue also decreased due to timing of sales compared to the first quarter of 2015. Dorel Home Furnishings generated revenue growth by presenting another strong quarter of sales to on-line retailers partly offset by lower brick and mortar sales. Gross profit increased by 130 basis points to 23.2% compared to 21.9% recorded in the prior year due to Dorel Juvenile’s higher margins in almost all markets from price increases and production efficiencies and to Dorel Home Furnishings recording higher margins in all divisions through on-line sales. This was partly offset by lower margins in Dorel Sports due to discounting on U.S. IBD sales in order to maintain market share as key competitors decreased their prices to reduce their excess inventory. Operating profit rose by $7.2 million to $30.9 million from $23.7 million recorded a year ago. Excluding restructuring and other costs, adjusted operating profit increased by $9.2 million to $33.8 million from $24.6 million in the comparable quarter mainly driven by Dorel Juvenile’s improved margins and reduced operating expenses, Dorel Home Furnishings higher on-line sales at better margins partly offset by a decrease in Dorel Sports sales due to timing and higher discounting. Operating expenses, consisting of selling, general and administrative and research and development costs decreased by $4.7 million from $120.9 million to $116.2 million and by 0.2% as a percentage of revenue, mainly explained by Dorel Juvenile cost savings related to its restructuring plan partly offset by Dorel Home Furnishings higher commission expense linked with its sales growth and increased information technology and administrative costs to support e-commerce growth. Finance expenses increased by $2.3 million, to $10.7 million from $8.4 million in 2015. Both years’ expenses include the non-cash and non-taxable amounts related to the remeasurement of forward purchase agreement liabilities with respect to the past business acquisition of Caloi which represented for the quarter an expense of $0.6 million compared to an income of $0.4 million in 2015. Adjusted finance expenses which exclude the remeasurement of forward purchase agreement liabilities increased by $1.3 million to $10.1 million compared to $8.8 million for the first quarter of 2015. Details of finance expenses are summarized below:

2016 2015

$ $ $ %

Interest on long-term debt - including effect of cash flow hedge

related to the interest rate swaps and the accreted interest related to

long-term debt bearing interest at fixed rates 8,588 7,282 1,306 17.9

Remeasurement of forward purchase agreement liabilities 561 (401) 962 239.9

Amortization of deferred financing costs 484 127 357 281.1

Other interest 1,045 1,367 (322) (23.6) -

TOTAL REPORTED 10,678 8,375 2,303 27.5

Adjustment due to remeasurement of forward purchase agreement liabilities (561) 401 (962) (239.9)

TOTAL ADJUSTED 10,117 8,776 1,341 15.3


Change

For the first quarter of 2016, interest on long-term debt increased to $8.6 million from the prior year’s $7.3 million principally due to increased borrowing costs as the year-to-date average interest rate on the Company’s long-term borrowings was 5.7% compared to 4.4% last year. Income before income taxes increased by $4.9 million, or 31.6% to $20.2 million from $15.3 million in 2015. Excluding restructuring and other costs and the remeasurement of forward purchase agreement liabilities, adjusted income before income taxes increased by $7.8 million, or 49.3% to $23.7 million compared to $15.9 million a year ago.


As a multi-national company, Dorel is resident in numerous countries and therefore subject to different tax rates in those various tax jurisdictions and by the 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. During the first quarter of 2016, the Company’s effective tax rate was 17.2% versus 24.3% in the prior year. Excluding the income taxes on restructuring and other costs in both first quarters, the Company’s adjusted tax rate was 17.0% and 25.7% respectively. The main cause of the variation year-over-year is due to changes in the jurisdictions in which the Company generated its income. 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 between quarters. Net income increased by $5.1 million to $16.7 million during the first quarter of 2016 from $11.6 million in the comparative period. Adjusted net income for the quarter rose by $7.9 million, or 66.7% to $19.7 million from $11.8 million recorded last year. On an adjusted diluted EPS basis, this equates to $0.60 for the first quarter of 2016 compared to $0.36 in 2015.


e) Segmented operating review Segmented figures are presented in Note 12 of the Company’s condensed consolidated interim financial statements. Further industry segment detail is presented below:

Dorel Juvenile

Reconciliation of non-GAAP financial measures

Reported

% of

revenue

Restructuring

and other

costs Adjusted

% of

revenue Reported

% of

revenue Other costs Adjusted

% of

revenue

$ % $ $ % $ % $ $ %

TOTAL REVENUE 253,228 100.0 - 253,228 100.0 274,695 100.0 - 274,695 100.0

Cost of sales 180,195 71.2 - 180,195 71.2 203,254 74.0 - 203,254 74.0

GROSS PROFIT 73,033 28.8 - 73,033 28.8 71,441 26.0 - 71,441 26.0

Selling expenses 28,494 11.3 - 28,494 11.3 28,818 10.5 - 28,818 10.5

General and administrative expenses 20,283 8.0 - 20,283 8.0 26,161 9.6 - 26,161 9.6

Research and development expenses 5,671 2.2 - 5,671 2.2 6,170 2.2 - 6,170 2.2

Restructuring and other costs 2,965 1.1 (2,965) - - 1,117 0.4 (1,117) - - - - - -

OPERATING PROFIT 15,620 6.2 2,965 18,585 7.3 9,175 3.3 1,117 10,292 3.7

The principal changes in operating profit from 2015 to 2016 are summarized as follows:

$ % $ % $ %

TOTAL REVENUE (decrease) (21,467) (7.8) - - (21,467) (7.8)

Cost of sales (decrease) (23,059) (11.3) - - (23,059) (11.3)

GROSS PROFIT 1,592 2.2 - - 1,592 2.2

- -

Selling expenses (324) (1.1) - - (324) (1.1)

General and administrative expenses (5,878) (22.5) - - (5,878) (22.5)

Research and development expenses (499) (8.1) - - (499) (8.1)

Restructuring and other costs 1,848 165.4 (1,848) (165.4) - -

OPERATING PROFIT 6,445 70.2 1,848 165.4 8,293 80.6

AdjustedReported

Restructuring

and other costs


Change


2016 2015

Dorel Juvenile’s first quarter revenue decreased by $21.5 million or 7.8% to $253.2 million compared with $274.7 million in 2015. Organic revenue decreased by approximately 4% after removing the impact of varying exchange rates year-over-year. The decline in organic sales was mainly attributable to lower sales in the U.S. market and reduced third party sales at Dorel Juvenile China as planned upon acquisition. The manufacturing transition of certain products of Dorel Juvenile entities from third party suppliers to Dorel Juvenile China is on-going as the change in sourcing strategy and the transformation of the segment into a more fully integrated operation in its various markets is being pursued. Gross profit increased by 280 basis points to 28.8% from 26.0% in 2015 which is largely explained by higher margins in almost all regions due to increased pricing in response to the foreign exchange pressures. The segment also benefitted from an improved factory performance which offset the unfavorable volume impact on margins.


Operating profit increased by $6.4 million, or 70.2% during the first quarter compared to 2015. Adjusted operating profit, excluding restructuring and other costs, rose by $8.3 million or 80.6% to $18.6 million from $10.3 million during last year’s first quarter. This was due to both improved margins and lower operating expenses. Relative to the prior year’s first quarter, all foreign exchange rates within the segment were weaker against the US dollar with the exception of the Chinese Yuan. However, increased pricing to the market place and improved production efficiencies more than offset this unfavourable foreign exchange impact, as reflected in improved gross margins. Despite the reduced third party sales, the Dorel Juvenile China operation was also a contributor to the segment’s increased earnings. Operating expenses decreased by $6.7 million or 11.0% from $61.1 million to $54.4 million driven by cost savings from the segment’s restructuring activities in China, Europe and North America. At Dorel Juvenile China, the consolidation of certain facilities and the reduction of headcount in 2015 accounted for the savings. Within North America, benefits were also generated as the U.S. operations have assumed back office support for the Canadian division which remains focused on sales and marketing activities. In Europe, enhanced efficiencies from process harmonization and the re-alignment of the sales organization has also led to cost savings in the first quarter of 2016. Dorel Sports

$

% of

revenue $

% of

revenue $ %

% of

revenue

TOTAL REVENUE 216,497 100.0 228,929 100.0 (12,432) (5.4) -

Cost of sales 168,999 78.1 175,469 76.6 (6,470) (3.7) 1.5

GROSS PROFIT 47,498 21.9 53,460 23.4 (5,962) (11.2) (1.5)

Selling expenses 22,401 10.3 22,587 9.9 (186) (0.8) 0.4

General and administrative expenses 18,299 8.5 18,048 7.9 251 1.4 0.6

Research and development expenses 1,572 0.7 1,463 0.6 109 7.5 0.1

Restructuring and other costs (28) - (200) (0.1) 172 86.0 0.1

OPERATING PROFIT 5,254 2.4 11,562 5.1 (6,308) (54.6) (2.7)

Change2016 2015


For the first quarter of 2016, Dorel Sports revenue decreased by $12.4 million or 5.4% to $216.5 million compared to $228.9 million last year. After removing the impact of varying foreign exchange rates year-over-year, organic revenue declined by approximately 3%, due primarily to a shift in the timing of IBD shipments versus the prior year. IBD shipment timing was impacted negatively in the quarter as European dealers decided to buy earlier in March 2015 prior to an April 2015 price increase triggered by currency pressures which was not repeated this quarter. Part of the shortfall was also due to shipments of the 2016 IBD model year bicycles occurring in December 2015 as opposed to in the first quarter of 2016. This was made possible by improvements in on-time delivery. Both of these events were partly offset by strong bike sales in the U.S. mass channel, mainly for the Schwinn and Mongoose brands as the favourable weather and earlier Easter Holiday uplifted sales during the month of March 2016. Gross profit declined by 150 basis points to 21.9% from 23.4% last year mainly due to higher discounting on IBD sales in the U.S. in order to maintain market share as key competitors executed price decreases to reduce their excess inventory positions. Operating profit declined by $6.3 million or 54.6% from $11.6 million in 2015 to $5.3 million in the current quarter mainly explained by decreased sales due to timing and lower margins from discounting. Total operating expenses for the quarter increased by $0.2 million, or 0.4% to $42.3 million compared to $42.1 million in 2015 mainly explained by higher legal expenses due to timing, a modest increase in research and development costs towards product innovation to drive future revenue partly offset by lower selling expenses as an outcome of the segment’s North American Go-to-Market restructuring plan executed in 2015.


Dorel Home Furnishings

$

% of

revenue $

% of

revenue $ %

% of

revenue

TOTAL REVENUE 176,142 100.0 161,865 100.0 14,277 8.8 -

Cost of sales 146,620 83.2 141,191 87.2 5,429 3.8 (4.0)

GROSS PROFIT 29,522 16.8 20,674 12.8 8,848 42.8 4.0

Selling expenses 4,983 2.8 4,142 2.6 841 20.3 0.2

General and administrative expenses 7,045 4.1 6,103 3.8 942 15.4 0.3

Research and development expenses 1,026 0.6 879 0.5 147 16.7 0.1

OPERATING PROFIT 16,468 9.3 9,550 5.9 6,918 72.4 3.4


2016 2015 Change

During the first quarter, Dorel Home Furnishings revenue increased by $14.3 million, or 8.8% to $176.1 million compared with $161.8 million in 2015. The segment presented another record quarter of sales to on-line retailers which continue to drive revenue, representing 42% of total segment sales compared to 30% in the first quarter of 2015 which offset reductions in sales to brick and mortar stores. Gross profit increased by $8.8 million, or 400 basis points to 16.8% compared with 12.8% in the first quarter last year mainly explained by higher margins in all divisions through on-line sales. Operating profit increased by $6.9 million or 72.4% from $9.6 million during the first quarter of 2015 to $16.5 million in 2016 mainly explained by higher margins partly offset by higher selling and general and administrative expenses. Operating expenses rose by $1.9 million or 17.3% compared with the previous year’s levels due to higher commission expenses in line with the sales growth. As a percentage of revenue, these expenses increased by 0.6% mainly due to increased information technology and administrative expenses to support e-commerce growth and a slightly higher product liability costs.

2. LIQUIDITY AND CAPITAL RESOURCES

a) Statement of Financial Position

Certain of the Company’s ratios are as follows:

Mar. 31, 2016 Dec. 30, 2015 Mar. 31, 2015

Debt* to equity 0.52 0.50 0.59

# of days in receivables 66 61 68

# of days in inventory 99 102 112

# of days in payables 60 63 65

*Debt is defined as bank indebtedness plus long-term debt

As at:

The increase in the debt to equity ratio compared to year-end is a function of higher borrowings as traditionally, the first quarter requires increased borrowings as the Company’s cash flow generated from operating activities is weighted towards the second half of the year. Inventories as at March 31, 2016 were $562.2 million, a decrease of $22.8 million from $585.0 million as of December 30, 2015 mainly attributable to Dorel Home Furnishings significant increase in on-line sales during the first quarter of 2016. Effective March 31, 2016, the Company amended the terms of its $422.0 million revolving bank loans in order to extend the maturity from July 1, 2017 to July 1, 2018.


As of March 31, 2016, certain of the Company’s bank lines of credit amounting to $24.6 million are secured by trade receivables representing a carrying value of $10.0 million. As of March 31, 2016, the revolving bank loans and the Series “B” and “C” Senior Guaranteed Notes are secured by certain of the Company’s trade receivables, inventories, property, plant and equipment and intangible assets, with a carrying value of $309.8 million, $396.6 million, $90.2 million and $110.0 million, respectively. The non-convertible debentures are secured by certain inventories in the minimum amount of $14.1 million (50 million BRL) and maximum of $28.2 million (100 million BRL) and with first-ranking over certain property, plant and equipment, with a carrying value of $19.5 million and $8.2 million, respectively. Dorel was compliant with all of its borrowing covenant requirements as of March 31, 2016 and expects to be so going forward. The Company continuously reviews its cash management and financing strategy to optimize the use of funds and minimize its cost of borrowing. b) Statement of Cash Flows

During the first three months of 2016, cash flow used by operating activities was $5.9 million, less than $86.5 million used in 2015. The main reasons for the improvement were higher net income and decreased inventory levels compared with an increase during the first quarter of 2015. Bank indebtedness plus long-term debt less cash and cash equivalents included a combined net increase of $31.6 million for the three months ended March 31, 2016 which was mainly a result of the net changes in working capital balances. Net additions to property, plant and equipment and intangible assets were $9.6 million in 2016 compared to $11.1 million in 2015. The Company received $5.5 million in the first quarter of 2016 related to the purchase price reduction of the Dorel Juvenile China acquisition. This compares to a disbursement of $1.7 million in 2015 corresponding to the balance of sale paid in connection with the acquisition of Intercycle in Chile.

3. CHANGES IN ACCOUNTING POLICIES

The following are amendments to standards applied by the Company in the preparation of the condensed consolidated interim financial statements for the three months ended March 31, 2016.

Annual Improvements to IFRSs 2012–2014 Cycle. Amendments were made to clarify the following in the standard:

- Changes in method for disposal under IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

Disclosure Initiative (Amendments to IAS 1, Presentation of Financial Statements). Further information on these modifications can be found in Note 2 of the March 31, 2016 condensed consolidated interim financial statements.

4. FUTURE ACCOUNTING CHANGES

A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standards Board (“IASB”) or the IFRS Interpretations Committee (“IFRIC”) that are mandatory but not yet effective for the three months ended March 31, 2016 and have not been applied in preparing the condensed consolidated interim financial statements. The following standards have been issued by the IASB with effective dates in the future that have been determined by management to impact the consolidated financial statements: IFRS 15 – Revenue from Contracts with Customers IFRS 9 – Financial Instruments IFRS 16 – Leases Further information on these modifications can be found in Note 3 of the March 31, 2016 condensed consolidated interim financial statements.


5. OTHER INFORMATION

The designation, number and amount of each class and series of the Company’s shares outstanding as of April 30, 2016 are as follows:

An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any time at the option of the holder into Class "B" Subordinate Voting Shares on a one-for-one basis, and;

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

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

Details of the issued and outstanding shares are as follows:

Total

Number $(‘000) Number $(‘000) $(‘000)

4,195,035 1,771 28,141,526 198,567 220,338

Class A Class B

Outstanding stock options, Deferred Share Units, cash-settled Share Appreciation Rights and cash-settled Performance Share Units are disclosed in Note 8 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.

6. 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, or if any of them do, what benefits the Company will derive from them. 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. 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 channels; foreign currency fluctuations; customer and credit risk including the concentration of revenues with a small number of 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 there being no certainty that the Company’s dividend current 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 Company’s 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.

DOREL INDUSTRIES INC. – CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS for the quarter ended March 31, 2016 14

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

ALL FIGURES IN THOUSANDS OF US $ (UNAUDITED)

As at

March 31, 2016 As at

December 30, 2015

ASSETS

CURRENT ASSETS

Cash and cash equivalents (Note 11) $ 38,540 $ 33,182

Trade and other receivables 479,873 447,345

Inventories 562,241 584,986

Other financial assets 2,670 4,467

Income taxes receivable 8,956 12,985

Prepaid expenses 32,798 20,234

1,125,078 1,103,199

Assets held for sale 11,309 11,265

1,136,387 1,114,464

NON-CURRENT ASSETS

Property, plant and equipment 207,133 206,542

Intangible assets 474,089 465,447

Goodwill (Note 12) 485,307 476,330

Deferred tax assets 39,569 37,258

Other assets 6,451 4,904

1,212,549 1,190,481

$ 2,348,936 $ 2,304,945

LIABILITIES

CURRENT LIABILITIES

Bank indebtedness (Note 5) $ 45,804 $ 54,471

Trade and other payables 408,193 434,178

Written put option and forward purchase agreement liabilities (Note 6)

– 4,104

Other financial liabilities 2,922 895

Income taxes payable 18,029 15,590

Long-term debt (Note 5) 33,861 32,857

Provisions 34,809 34,267

543,618 576,362

NON-CURRENT LIABILITIES

Long-term debt (Note 5) 510,349 465,732

Net pension and post-retirement defined benefit liabilities

43,006 43,058

Deferred tax liabilities 70,792 72,447

Provisions 1,833 1,702

Written put option and forward purchase agreement liabilities (Note 6)

33,201 30,788

Other financial liabilities 2,483 1,890

Other long-term liabilities 9,795 10,569

671,459 626,186

EQUITY

Share capital (Note 7)

200,338 200,277

Contributed surplus 26,552 26,480

Accumulated other comprehensive loss (87,707) (113,956)

Other equity (363) 1,527

Retained earnings 995,039 988,069

1,133,859 1,102,397

$ 2,348,936 $ 2,304,945

(See accompanying notes)


CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS (UNAUDITED)

Three Months Ended

March 31, 2016 March 31, 2015

Sales $ 642,572 $ 661,394

Licensing and commission income 3,295 4,095

TOTAL REVENUE 645,867 665,489

Cost of sales (Note 10) 495,814 519,914

GROSS PROFIT 150,053 145,575

Selling expenses 56,341 56,257

General and administrative expenses 51,620 56,156

Research and development expenses 8,269 8,512

Restructuring and other costs (Note 4) 2,937 917

OPERATING PROFIT 30,886 23,733

Finance expenses (Note 10) 10,678 8,375

INCOME BEFORE INCOME TAXES 20,208 15,358

Income taxes expense (Note 10) 3,474 3,726

NET INCOME $ 16,734 $ 11,632

EARNINGS PER SHARE

Basic $ 0.52 $ 0.36

Diluted $ 0.51 $ 0.36

SHARES OUTSTANDING (Note 9)

Basic – weighted average 32,333,261 32,321,639

Diluted – weighted average 32,545,454 32,513,889



CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)


Three Months Ended

March 31, 2016 March 31, 2015

NET INCOME $ 16,734 $ 11,632

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

21,996 (44,459)

Net gains (losses) on hedge of net investments in foreign operations, net of tax of nil

6,576 (16,951)

28,572 (61,410)

Net changes in cash flow hedges:

Net change in unrealized gains (losses) on derivatives designated as cash flow hedges

(3,614) 3,884

Reclassification to income

183 311

Reclassification to the related non-financial asset

(238) (3,596)

Deferred income taxes 1,352 (98)

(2,317) 501

Items that will not be reclassified to net income:

Defined benefit plans:

Remeasurements of the net pension and post-retirement defined benefit liabilities

(13) 133

Deferred income taxes 7 (44)

(6) 89

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

26,249 (60,820)

TOTAL COMPREHENSIVE INCOME (LOSS) $ 42,983 $ (49,188)



CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY


Attributable to equity holders of the Company

Accumulated other comprehensive income (loss)

Share

Capital Contributed

Surplus

Cumulative Translation

Account Cash Flow

Hedges

Defined Benefit

Plans

Other

Equity Retained Earnings

Total Equity

Balance as at December 30, 2014 $ 199,927 $ 25,691 $ (8,842 ) $ 2,180 $ (13,917 ) $ 579 $ 1,001,366 $ 1,206,984

Total comprehensive loss:

Net income – – – – – – 11,632 11,632

Other comprehensive income (loss) – – (61,410 ) 501 89 – – (60,820)

– – (61,410 ) 501 89 – 11,632 (49,188)

Reclassification from contributed surplus due to settlement of deferred share units 61 (101 ) – – – – – (40)

Share-based payments – 71 – – – – – 71

Remeasurement of written put option liabilities – – – – – (402) – (402)

Dividends on common shares – – – – – – (9,697 ) (9,697)

Dividends on deferred share units – 54 – – – – (54 ) –

Balance as at March 31, 2015 $ 199,988 $ 25,715 $ (70,252 ) $ 2,681 $ (13,828 ) $ 177 $ 1,003,247 $ 1,147,728

Balance as at December 30, 2015 $ 200,277 $ 26,480 $ (104,521 ) $ 2,680 $ (12,115 ) $ 1,527 $ 988,069 $ 1,102,397

Total comprehensive income:

Net income – – – – – – 16,734 16,734

Other comprehensive income (loss) – – 28,572 (2,317 ) (6 ) – – 26,249

– – 28,572 (2,317 ) (6 ) – 16,734 42,983

Reclassification from contributed surplus due to settlement of deferred share units (Notes 7 and 8) 61 (103 ) – – – – – (42)

Share-based payments (Note 8) – 113 – – – – – 113

Remeasurement of written put option liabilities (Note 6) – – – – – (1,890 ) – (1,890)

Dividends on common shares – – – – – – (9,702 ) (9,702)

Dividends on deferred share units (Note 8) – 62 – – –

– (62 ) –

Balance as at March 31, 2016 $ 200,338 $ 26,552 $ (75,949 ) $ 363 $ (12,121 ) $ (363 ) 995,039 $ 1,133,859



CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS


Three Months Ended

March 31, 2016 March 31, 2015

CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES

Net income $ 16,734 $ 11,632

Items not involving cash:

Depreciation and amortization 13,045 14,290

Unrealized losses (gains) arising on financial assets and financial liabilities classified as held for trading 746 (353)

Share-based payments (Note 8) 113 71

Defined benefit pension and post-retirement costs 961 825

Loss (gain) on disposal of property, plant and equipment 16 (86)

Restructuring and other costs (Note 4) 424 –

Finance expenses (Note 10) 10,678 8,375

Income taxes expense 3,474 3,726

Net change in balances related to operations (Note 11) (48,864) (117,406)

Income taxes paid (3,440) (6,593)

Income taxes received 4,790 2,725

Interest paid (4,679) (3,842)

Interest received 86 140

CASH USED IN OPERATING ACTIVITIES (5,916) (86,496)

FINANCING ACTIVITIES

Bank indebtedness (11,632) 49,631

Increase of long-term debt 43,412 67,059

Repayments of long-term debt (4,309) (3,806)

Repayments of written put option and forward purchase agreement liabilities (Note 6)

(4,414)

–

Increase of written put option and forward purchase agreement liabilities (Note 6)

–

525

Financing costs (1,740) (34)

Dividends on common shares (9,702) (9,697)

CASH PROVIDED BY FINANCING ACTIVITIES 11,615 103,678

INVESTING ACTIVITIES

Acquisition of businesses (Note 11) 5,475 (1,736)

Additions to property, plant and equipment (5,242) (7,079)

Disposals of property, plant and equipment 113 456

Additions to intangible assets (4,482) (4,489)

CASH USED IN INVESTING ACTIVITIES (4,136) (12,848)

Effect of foreign currency exchange rate changes on cash and cash equivalents 3,795 (4,124)

NET INCREASE IN CASH AND CASH EQUIVALENTS 5,358 210

Cash and cash equivalents, beginning of period 33,182 47,101

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,540 $ 47,311



Notes to the Condensed Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2016 and 2015 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 Dorel Juvenile, Dorel Sports and Dorel Home Furnishings segments. The principal markets for the Company’s products are the United States, Europe, Latin America, Canada and Asia.

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 US dollar as the reporting currency. The US dollar is the functional currency of the Canadian parent company. All financial information is presented in US dollars and 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, 2015, except as disclosed below. 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 2015 audited consolidated annual financial statements. Certain comparative amounts in the condensed consolidated interim financial statements have been reclassified in order to conform to the 2016 financial statements presentation. The condensed consolidated interim financial statements have been prepared on a historical basis except for:

derivative financial instruments which are measured at fair value;

written put option and forward purchase agreement 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 May 6, 2016. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year.


2. Statement of compliance and basis of preparation and measurement (continued)

Changes in accounting policies The following are amendments to standards applied by the Company in the preparation of these condensed consolidated interim financial statements.

Annual Improvements to IFRSs 2012–2014 Cycle. Amendments were made to clarify the following in the standard:

- Changes in method for disposal under IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

Disclosure Initiative (Amendments to IAS 1, Presentation of Financial Statements). The Company adopted these amendments for the annual period beginning on December 31, 2015. The adoption of these amendments did not have a material impact on the Company’s consolidated financial statements.

3. Future Accounting Changes

A number of new standards, interpretations and amendments to existing standards were issued by the IASB or the IFRS Interpretations Committee (“IFRIC”) that are mandatory but not yet effective for the three months ended March 31, 2016 and have not been applied in preparing these condensed consolidated interim financial statements. The following standards have been issued by the IASB with effective dates in the future that have been determined by management to impact the consolidated financial statements: IFRS 15 – Revenue 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.

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 two other 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.


3. Future Accounting Changes (continued)

IFRS 9 – Financial Instruments (continued) 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. In July 2014, the IASB also introduced a new impairment model for financial assets based on expected credit losses. 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 16 – Leases In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases standard, IAS 17, Leases,

and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. IFRS 16 will be effective for annual periods beginning on or after January 1, 2019, with earlier application permitted only if the Company applies IFRS 15, Revenue from Contracts with Customers. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.

4. Restructuring and other costs

Dorel Juvenile segment

In the third quarter of 2015, Dorel Juvenile segment initiated restructuring activities as part of its on-going transformation into a more fully integrated operation in its various markets. These initiatives are continuing in 2016 as the strategic direction identified is put into action and mainly consist of the following:

- The segment has identified cost savings opportunities principally through the consolidation of manufacturing and warehousing facilities in China.

- Starting in 2015, within North America, the operations based in the United States has assumed back office support for the Canadian operations, including supporting newly located Canadian based warehousing allowing the Canadian business to focus on sales and marketing activities.

- In Europe, the way product was brought to market, the on-going process harmonization and the re-alignment of the sales organization are actions that were put in place to enhance efficiencies.

These restructuring initiatives are expected to be completed by the end of 2016. The remaining costs associated with these restructuring initiatives will be mostly non-cash write-downs of assets to fair value less costs to sell of underutilized land, buildings and land use rights that will be made available for sale in the next quarters of 2016. Another component of the remaining expected costs relates to employee severance and termination benefits.


4. Restructuring and other costs (continued)

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

Three Months Ended March 31,

TOTAL Dorel Juvenile Dorel Sports (2015 Plan) Dorel Sports (2013 Plan)

2016 2015 2016 2015 2016 2015 2016 2015

Employee severance and termination benefits $ 1,704 $ (200) $ 1,712 $ – $ (8) $ – $ – $ (200)

Write-down of assets* 424 – 424 – – – – –

Other associated costs 80 – 100 – (20) – – –

Total restructuring costs $ 2,208 $ (200) $ 2,236 $ – $ (28) $ – $ – $ (200)

Acquisition-related costs $ 729 $ 1,117 $ 729 $ 1,117 $ – $ – $ – $ –

Total restructuring and other costs $ 2,937 $ 917 $ 2,965 $ 1,117 $ (28) $ – $ – $ (200)

*non-cash charges Restructuring provision As at March 31, 2016, the related restructuring plans provision totaling $2,540 consists of employee severance and termination benefits and other associated costs. A summary of the Company’s restructuring plans provision is as follows:

Balance December 30, 2015

2016 provision

Cash paid

Effect of foreign exchange

Balance March 31, 2016

Dorel Juvenile segment:

Employee severance and termination benefits $ 737 $ 1,712 $ (1,420) $ 30 $ 1,059

Other associated costs 903 100 (315) – 688

$ 1,640 $ 1,812 $ (1,735) $ 30 $ 1,747

Dorel Sports segment

(2015 Plan):

Employee severance and termination benefits $ 1,009 $ (8) $ (288) $ – $ 713

Other associated costs 100 (20) – – 80

$ 1,109 $ (28) $ (288) $ – $ 793

Total $ 2,749 $ 1,784 $ (2,023) $ 30 $ 2,540


5. Bank indebtedness and long-term debt

Effective March 31, 2016, the Company amended the terms of its $422,000 revolving bank loans in order to extend the maturity from July 1, 2017 to July 1, 2018. For the three months ended March 31, 2016, the average interest rate on the Company’s long-term debt was 5.7% (2015 - 4.4%).

As of March 31, 2016, certain of the Company’s bank lines of credit amounting to $24,560 are secured by trade receivables representing a carrying value of $10,017.

As of March 31, 2016, the revolving bank loans and the Series “B” and “C” Senior Guaranteed Notes are secured by certain of the Company’s trade receivables, inventories, property, plant and equipment and intangibles assets, with a carrying value of $309,782, $396,608, $90,223 and $109,995, respectively. In addition, the non-convertible debentures are secured by certain inventories in the minimum amount of $14,085 (50,000 BRL) and maximum of $28,171 (100,000 BRL) and with first-ranking over certain property, plant and equipment, with a carrying value of $19,501 and $8,156, respectively.

6. Fair value of financial instruments

Fair value disclosure

The Company has determined that the fair value of its current financial assets and liabilities approximates their respective carrying amounts as at the statement of financial position dates because of the short-term nature of those financial instruments. For long-term debt bearing interest at variable rates, the fair value is considered to approximate the carrying amount. For long-term debt bearing interest at fixed rates, the fair value is estimated using Level 2 inputs in the fair value hierarchy based on discounting expected future cash flows at the discount rates which represent borrowing rates presently available to the Company for loans with similar terms and maturity.

The fair value of the long-term debt bearing interest at fixed rates is as follows:

March 31,

2016 December 30,

2015

Carrying amount

Fair value

Carrying amount

Fair value

Financial liabilities

Other financial liabilities:

Long-term debt – bearing interest at fixed rates $ 279,688 $ 280,437 $ 279,371 $ 277,018

Fair value measurement

The following table provides information about financial assets and liabilities measured at fair value in the statement of financial position and categorized by level of the fair value hierarchy as at March 31, 2016:

March 31, 2016

Total Level 1 Level 2 Level 3

Financial assets

Derivatives designated as cash flow hedges:

Foreign exchange contracts $ 2,670 $ – $ 2,670 $ –

Financial liabilities

Held for trading financial liabilities:

Foreign exchange contracts $ 569 $ – $ 569 $ –

Financial liabilities measured at fair value:

Written put option and forward purchase agreement liabilities $ 33,201 $ – $ – $ 33,201

Derivatives designated as cash flow hedges:

Foreign exchange contracts $ 1,775 $ – $ 1,775 $ –

Interest rate swaps $ 1,378 $ – $ 1,378 $ –


6. Fair value of financial instruments (continued) Fair value measurement (continued) Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing the fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Should any of the inputs to these models or changes in assumptions about these factors occur, this could affect the reported fair value of financial instruments.

The fair value of the foreign exchange contracts is measured using a generally accepted valuation technique which is the discounted value of the difference between the contract’s value at maturity based on the foreign exchange rate set out in the contract and the contract’s value at maturity based on the foreign exchange rate that the counterparty would use if it were to renegotiate the same contract at today’s date under the same conditions. The Company’s or the counterparty’s credit risk is also taken into consideration in determining fair value.

The fair value of the interest rate swaps is measured using a generally accepted valuation technique which is the discounted value of the difference between the value of the swap based on variable interest rates (estimated using the yield curve for anticipated interest rates) and the value of the swap based on the swap’s fixed interest rate. The counterparty’s credit risk is also taken into consideration in determining fair value.

Written put option and forward purchase agreement liabilities are valued at fair value using Level 3 inputs in the fair value hierarchy. The fair value represents the present value of the exercise price of the put option or the forward and is measured by applying the income approach using the probability-weighted expected payment of the exit price and is based on discounted cash flows. Unobservable inputs within the fair value measurement include the exit price and the expected payment date for the written put options. The exit price is based on a formulaic variable price which is mainly a function of the earnings levels in future periods and requires assumptions about revenue growth rates, operating margins and the expected payment date of the exit price for the written put options. The Company assumes a discount rate in order to calculate the present value of the expected payment of the exit price which represents the cost of borrowing of the specific period for the cash flows. If the future earnings levels in future periods would increase (decrease), the estimated fair value of the written put option and forward purchase agreement liabilities would increase (decrease).

Changes in fair value of Level 3 financial instruments were as follows, for the quarter ended March 31, 2016 and the fiscal year ended December 30, 2015:

Written Put Option Liabilities

Forward Purchase Agreement Liabilities

Total

2016 2015 2016 2015 2016 2015

Balance, beginning of the period $ 27,152 $ 2,904 $ 7,740 $ 41,736 $ 34,892 $ 44,640

Transfer from forward purchase agreement liabilities to written put option liabilities (1) – 24,671 – (24,671 ) – –

Remeasurement of the fair value [unrealized] (2) 1,890 (948) 561 (7,810 ) 2,451 (8,758 )

Increase due to capital injection done by the non-controlling interest – 525 – – – 525

Repayments – – (4,414) – (4,414) –

Effect of foreign currency exchange rate changes recognized in other comprehensive income – – 272 (1,515 ) 272 (1,515 )

Balance, end of period $ 29,042 $ 27,152 $ 4,159 $ 7,740 $ 33,201 $ 34,892

(1) Effective December 31, 2014, the terms of certain shareholders agreements were amended changing the mechanism creating the financial liabilities

from forward purchase agreements to written put option agreements. Therefore, from the beginning of the year 2015, the remeasurement of the fair value of the financial liabilities were recorded within other equity.

(2) The assumptions used to fair value the written put option and forward purchase agreement liabilities for the three months ended March 31, 2016 remained the same as the ones used for the fiscal year ended December 30, 2015.


7. Share capital

Details of the issued and outstanding shares are as follows:

Three Months Ended

March 31, 2016 Year Ended

December 30, 2015

Number Amount Number Amount

Class “A” Multiple Voting Shares

Balance, beginning of period 4,195,135 $ 1,771 4,195,135 $ 1,771

Converted from Class “A” to Class “B” (1) (100) – – –

Balance, end of period 4,195,035 $ 1,771 4,195,135 $ 1,771

Class “B” Subordinate Voting Shares

Balance, beginning of period 28,138,126 $ 198,506 28,124,269 $ 198,156

Issued under stock option plan – – 11,250 219

Converted from Class “A” to Class “B” (1) 100 – – –

Reclassification from contributed surplus due to exercise of stock options – – – 70

Reclassification from contributed surplus due to settlement of deferred share units (Note 8) 3,300 61 2,607 61

Balance, end of period 28,141,526 $ 198,567 28,138,126 $ 198,506

TOTAL SHARE CAPITAL $ 200,338 $ 200,277

(1) During the three months ended March 31, 2016, the Company converted 100 Class “A” Multiple Voting Shares into

Class “B” Subordinate Voting Shares at an average rate of $0.63 per share.

8. Share-based payments

Stock options plan

The Company may grant stock options on the Class "B" Subordinate Voting Shares at the discretion of the Board of Directors, to senior executives and certain key employees. The exercise price is the market price of the securities at the date the options were granted. Options granted vest according to a graded schedule of 25% per year commencing a day after the end of the first year, and options outstanding expire no later than the year 2018. All options are to be settled by physical delivery of shares.

The changes in outstanding stock options are as follows:

Three Months Ended


December 30, 2015

Options Weighted Average

Exercise Price Options Weighted Average

Exercise Price

Options outstanding, beginning of period 122,000 $ 24.79 142,000 $ 28.60

Exercised (1) – – (11,250) 19.36

Forfeited – – (8,750) 20.96

Options outstanding, end of period 122,000 $ 26.46 122,000 $ 24.79

Total exercisable, end of period 83,500 $ 25.72 71,000 $ 24.60

(1) The weighted average share price at the date of exercise for the stock options exercised during the year ended December 30, 2015 was $23.20.


8. Share-based payments (continued)

Stock options plan (continued) A summary of options outstanding as of March 31, 2016 is as follows:

Total Outstanding Total Exercisable

Range of Exercise Prices

Options Weighted Average

Exercise Price

Weighted Average

Remaining Contractual

Life

(in years)

Options Weighted Average Exercise Price

$20.56-$27.29 80,000 $ 24.77 1.83 55,000 $ 23.62

$28.58-$31.57 42,000 29.67 1.99 28,500 29.78

122,000 $ 26.46 1.89 83,500 $ 25.72

Total compensation cost recognized in income for employee stock options for the three months ended March 31,

2016 amounts to $19 (2015 $19), and was credited to contributed surplus.

Directors’ Deferred Share Unit Plan The Company has a Directors’ Deferred Share Unit Plan under which an external director of the Company may elect annually to have their director’s fees and fees for attending meetings of the Board of Directors or committees thereof paid in the form of deferred share units (“DSUs”). A plan participant may also receive dividend equivalents paid in the form of DSUs. The changes in outstanding DSUs are as follows:

Three Months Ended


December 30, 2015

Number

of DSUs

Contributed Surplus Amount

Number

of DSUs


Balance, beginning of period 145,733 $ 4,342 129,905 $ 3,930

Issued for fees forfeited 4,617 94 9,756 250

Issued for dividend equivalents 1,994 44 6,072 162

Balance, end of period 152,344 $ 4,480 145,733 $ 4,342

Executive Deferred Share Unit Plan The Company has an Executive Deferred Share Unit Plan under which executive officers of the Company may elect annually to have a portion of their annual salary and bonus paid in the form of deferred share units (“DSUs”). A plan participant may also receive dividend equivalents paid in the form of DSUs.



Executive Deferred Share Unit Plan (continued)

The changes in outstanding DSUs are as follows:

Three Months Ended


December 30, 2015

Number

of DSUs


Number

of DSUs


Balance, beginning of period 63,357 $ 1,710 52,129 $ 1,402

Issued for salary and bonus paid – – 12,428 341

Issued for dividend equivalents 803 18 2,535 68

Settlement of deferred share units (1) (4,268) (103) (3,735) (101)

Balance, end of period 59,892 $ 1,625 63,357 $ 1,710

(1) During the three months ended March 31, 2016, 4,268 DSUs (2015 – 3,735) were settled for which $103

(2015 – $101) was debited to contributed surplus and $61 (2015 – $61) credited to share capital; the difference representing the withholding taxes the Company was required by law to withhold upon settlement.

Share Appreciation Rights (cash-settled) The Company has a share appreciation rights (SARs) plan for senior executives and certain key employees that entitle them to a cash payment based on the increase in the share price of the Company’s Class “B” Subordinate Voting Shares from the grant date to the vesting date. The SARs vest based on service conditions and are not subject to performance conditions. On June 25, 2014, the Company granted 359,516 SARs. The SARs granted on June 25, 2014, vest according to a grading schedule of 10% the first year, 20% the second year, 30% the third year and 40% the fourth year. The weighted average share price at the date the SARs were granted on June 25, 2014 was $36.35. On June 29, 2015, the Company granted 532,073 SARs. The SARs granted on June 29, 2015, vest in whole after four years. The weighted average share price at the date the SARs were granted on June 29, 2015 was $27.21. The changes in outstanding SARs are as follows:

Three Months Ended

March 31, 2016

Year Ended December 30,

2015

SARs outstanding, beginning of period 826,570 349,024

Granted – 532,073

Settled – (34,529 )

Forfeited (6,734) (19,998 )

SARs outstanding, end of period 819,836 826,570



Share Appreciation Rights (cash-settled) (continued) As at March 31, 2016, 66,350 SARs of the outstanding SARs were vested. The employee benefits expense included in general and administrative expenses for SARs for the three months ended March 31, 2016 amounts to $18 (2015 – recovery of $277). As at March 31, 2016, $32 are included in trade and other payables and $258 in other long-term liabilities. The employee benefits expense is computed using the fair value of the SARs as at the reporting date as calculated using the Black-Scholes pricing model. The following weighted average assumptions were used to estimate the fair values of the SARs on March 31, 2016: Share price $21.75

Risk-free interest rate 0.49%

Dividend yield 5.52%

Expected volatility 26.43%

Expected life 2.35 years The weighted average fair value of the SARs outstanding on March 31, 2016 was $1.12 (December 30, 2015 – $1.35). The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the SARs is indicative of future trends, which may not necessarily be the actual outcome. Performance Share Units (cash-settled)

The Company has a performance share unit (PSUs) plan for senior executives and certain key employees that entitle them to a cash payment. The PSUs vest based on non-market performance conditions. The number of PSUs that can vest can be up to 1.5 times the actual number of PSUs awarded if exceptional financial performance is achieved. A plan participant may also receive dividend equivalents paid in the form of PSUs.

On June 25, 2014, the Company granted 105,056 PSUs. The PSUs granted on June 25, 2014, vest according to a grading schedule of 20% at the end of the first year, 30% at the end of the second year and 50% at the end of the third year and have performance vesting conditions.

On June 29, 2015, the Company granted 146,486 PSUs. The PSUs granted on June 29, 2015, vest in whole after a 3-year performance cycle and have performance vesting conditions.

The changes in outstanding PSUs are as follows:

Three Months Ended

March 31, 2016

Year Ended December 30,

2015

PSUs outstanding, beginning of period 228,434 102,270

Granted – 146,486

Granted for dividend equivalents 3,207 7,351

Settled – (20,658 )

Forfeited (2,660) (7,015 )

PSUs outstanding, end of period 228,981 228,434

As at March 31, 2016, 30,404 PSUs of the outstanding PSUs were vested, the weighted average remaining contractual life of all PSUs outstanding was 1.51 years and the weighted average share price of the unvested PSUs was $21.78.



Performance Share Units (cash-settled) (continued)

The employee benefits expense included in general and administrative expenses for PSUs for the three months ended March 31, 2016 amounts to $248 (2015 – $312). As at March 31, 2016, $264 are included in trade and other payables and $1,342 in other long-term liabilities.

9. Earnings per share

The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:


2016 2015

Weighted daily average number of Class “A” Multiple and Class “B” Subordinate Voting Shares 32,333,261 32,321,639

Dilutive effect of stock options 1,529 10,280

Dilutive effect of deferred share units 210,664 181,970

Weighted average number of diluted shares 32,545,454 32,513,889

Number of anti-dilutive stock options and deferred share units excluded from fully diluted earnings per share calculation 92,000 92,000

As at March 31, 2016 and 2015, convertible debentures were excluded from the calculation of diluted earnings per share as these debentures were deemed to be anti-dilutive.

10. Finance expenses and other information

a) Finance expenses

Finance expenses consist of the following:


2016 2015

Interest on long-term debt – including effect of cash flow hedge related to the interest rate swaps and the accreted interest related to long-term debt bearing interest at fixed rates $ 8,588 $ 7,282

Remeasurement of forward purchase agreement liabilities (Note 6) 561 (401)

Amortization of deferred financing costs 484 127

Other interest 1,045 1,367

$ 10,678 $ 8,375

b) Cost of inventories and write-down of inventories included in the condensed consolidated interim income statements:


2016 2015

Included in cost of sales:

Cost of inventories recognized as an expense $ 481,143 $ 501,396

Write-down of inventories as a result of net realizable value being lower than cost $ 2,606 $ 2,302


10. Finance expenses and other information (continued)

c) Income taxes:

The 2016 first quarter tax rate was 17.2% versus 24.3% in the prior year. The main cause of the variation year-over-year is due to changes in the jurisdictions in which the Company generated its income.

11. Statements of cash flows

The condensed consolidated interim statements of cash flows exclude the following non-cash transactions:

March 31,

2016 2015

Acquisition of property, plant and equipment financed by trade and other payables $ 2,316 $ 1,230

Acquisition of intangible assets financed by trade and other payables $ 255 $ 192

Net changes in balances related to operations are as follows:

Three Months Ended

March 31,

2016 2015

Trade and other receivables $ (29,981) $ (48,461)

Inventories 33,018 (34,122)

Other financial assets (1,128) 183

Prepaid expenses (11,967) (9,027)

Other assets (317) (31)

Trade and other payables (37,202) (20,758)

Net pension and post-retirement defined benefit liabilities (1,411) (1,401)

Provisions, other financial liabilities and other long-term liabilities 124 (3,789)

$ (48,864) $ (117,406)

Details of business acquisitions:

Three Months Ended

March 31,

2016 2015

Balance of sale received $ 5,475 $ –

Balance of sale paid – (1,736)

$ 5,475 $ (1,736)


11. Statements of cash flows (continued)

The components of cash and cash equivalents are:

March 31,

2016 December 30,

2015

Cash $ 34,953 $ 29,647

Short-term investments 3,587 3,535

Cash and cash equivalents $ 38,540 $ 33,182

12. Segmented information

Industry Segments


Total Dorel Juvenile Dorel Sports Dorel Home Furnishings

2016 2015 2016 2015 2016 2015 2016 2015

Total Revenue $ 645,867 $ 665,489 $ 253,228 $ 274,695 $ 216,497 $ 228,929 $ 176,142 $ 161,865

Cost of sales 495,814 519,914 180,195 203,254 168,999 175,469 146,620 141,191

Gross profit 150,053 145,575 73,033 71,441 47,498 53,460 29,522 20,674

Selling expenses 55,878 55,547 28,494 28,818 22,401 22,587 4,983 4,142

General and administrative expenses 45,627 50,312 20,283 26,161 18,299 18,048 7,045 6,103

Research and development expenses 8,269 8,512 5,671 6,170 1,572 1,463 1,026 879

Restructuring and other costs (Note 4) 2,937 917 2,965 1,117 (28) (200) – –

Operating profit 37,342 30,287 $ 15,620 $ 9,175 $ 5,254 $ 11,562 $ 16,468 $ 9,550

Finance expenses 10,678 8,375

Corporate expenses 6,456 6,554

Income taxes expense 3,474 3,726

Net income $ 16,734 $ 11,632

Depreciation and amortization included in operating profit $ 12,844 $ 14,246 $ 8,890 $ 9,686 $ 2,838 $ 3,381 $ 1,116 $ 1,179

Geographic Segments – Origin of Revenue


2016 2015

Canada $ 61,060 $ 61,548

United States 355,630 343,843

Europe 140,447 152,456

Latin America 47,082 54,844

Asia 24,426 36,005

Other countries 17,222 16,793

$ 645,867 $ 665,489


12. Segmented information (continued)

The continuity of goodwill by industry segment is as follows:

Total Dorel Juvenile Dorel Sports Dorel Home Furnishings

March 31,

2016 Dec. 30,

2015 March 31,

2016 Dec. 30,

2015 March 31,

2016 Dec. 30,

2015 March 31,

2016 Dec. 30,

2015

Balance, beginning of period

$ 476,330

$544,782

$ 273,283

$311,303

$171,875

$202,307

$ 31,172

$ 31,172

Additions (1) – (14,129) – (14,129) – – – –

Impairment losses of goodwill – (19,902) – – – (19,902) – –

Effect of foreign currency exchange rate changes

8,977

(34,421)

8,990

(23,891)

(13)

(10,530)

–

–

Balance, end of period

$ 485,307

$476,330

$ 282,273

$273,283

$ 171,862

$171,875

$ 31,172

$ 31,172

(1) The 2015 additions relate to the finalization of the fair value of the assets acquired, the liabilities assumed

and the consideration transferred of the juvenile business of the Lerado Group.

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